Monday, April 11, 2005

Steve Lohr on IBM patent shift

reproduced in the International Herald-Tribune, from Steve Lohr of the New York Times:

So why has IBM shifted course recently, giving away some of the fruits of its research instead of charging others to use it? The answer is self-interest.

Diverging from conventional wisdom, the company has calculated that sharing technology can sometimes be more profitable than jealously guarding its rights on patents, copyrights and trade secrets. The moves by IBM, the largest supplier of information technology services and computers in the world, are being closely watched throughout the business world.

IBM made a broad gesture this year toward what it called a new era in how it controls intellectual property. It announced in January that it would make 500 patents - mainly for software code that manages electronic commerce, storage, image processing, data handling and Internet communications - freely available to others. And it pledged that more such moves would follow.

This month, the company said all of its future patent contributions to the largest standards group for electronic commerce on the Web, the Organization for the Advancement of Structured Information Standards, would be free.

IBM is at the forefront, but companies in industry after industry are also reconsidering their strategies on intellectual property: What do you share? What do you keep proprietary?

[LBE note, the answer, my friend, might be found in Henry Chesbrough, Open Innovation: The New Imperative for Creating and Profiting from Technology, Boston: Harvard University Press, 2003.]

The Internet, globalization and cost pressures are driving businesses to collaborate in the pursuit of higher productivity and profit, and to accelerate the pace of product development. That collaboration requires companies to share more technical information with corporate customers, suppliers and industry partners. As a result, specialists say, the terms of trade in intellectual property, and the boundary lines, are shifting.

"The business world today is engaged in a huge experiment in figuring out what different parts of intellectual property should be open and closed," said Steven Weber, director of the Institute of International Studies at the University of California at Berkeley. "The fate of many companies, and the strength of national economies, will depend on how the experiment turns out."

There is a sense of urgency to the intellectual property issue, IBM executives say, because government officials in the United States, Europe, China and elsewhere are expected to make crucial policy decisions in the next year or two.

IBM, not surprisingly, wants a "balanced" intellectual property policy intended to maintain incentives for inventors and to foster open technical standards so collaboration can flourish. It supports proposals in the United States to make software patents more difficult to obtain, hoping to help curb the patent-and-litigate frenzy.

The change at IBM began in May when its chief executive, Samuel Palmisano, told John Kelly, a senior vice president, to lead a team to reconsider how the company handles its intellectual property.

Kelly recalled his boss telling him, "This is a hugely important area, and I think we need to redirect our strategy and policy and practices." Palmisano, according to Kelly, added, "If any company can take the lead on this, it's us."

Kelly, leading a 12-person group, traveled, studied, brought in outside specialists, and by September concluded that more of IBM's homegrown ideas should be shared instead of being tightly held.

The shift, admittedly, is carefully calibrated. IBM is not forsaking its lucrative technology licensing business or pulling back on new patent filings. And the company is not giving away the technology for its mainframe computers, its proprietary database software and other complete products. Instead, it is freely contributing the technology building blocks that allow broader communication across industry networks.

Such moves do carry risk for IBM.
"When you open some of your technology, it forces you to run higher up that economic food chain in your business," said Jim Stallings, an IBM vice president for intellectual property and standards.

Another consideration is the need to keep intellectual property as both an offensive and a defensive weapon. The best shield against a patent infringement suit is often the threat that the target company may file a countersuit based on its own patent arsenal.

"The layer of technology that is open is going to steadily increase, but in going through this transition we're not going to be crazy," Kelly said. "This is like disarmament. You're not going to give away all your missiles as a first step."

Still, IBM's new strategy represents a response to a number of changes in the marketplace for ideas.

More and more innovation in business, company executives say, is occurring across cooperative information networks, which require open technical standards. The Internet and the Web stand as proof of the success of that model; their public standards make low-cost, global communications possible.

Companies in fields like health care, chemicals and car manufacturing are already working on standards for sharing more information. To create robust and widely used standards, companies have to make their own intellectual property - usually specialized software for handling information - available either for small licensing fees or free, as IBM pledged to do for the Internet e-commerce group. The potential payoff is that open standards will help the entire industry grow faster, and may even work to the advantage of the company making the contributions.

"If you open up your technology and reveal quickly, people will build on your stuff," said Eric von Hippel, a professor at the MIT Sloan School of Management and author of a new book, "Democratizing Innovation."

"It becomes more economically efficient to be open."



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