Weathering the Economic Storm in Telecom with Strategic Management of Intellectual Property  


POSTED BY Chris Rose AND Jed Cahill AT 4:00 P.M. SEPTEMBER 4, 2009

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The current economic downturn is forcing Telecom companies to tighten their belts by pursuing cost savings in a variety of ways. Mobile phone group Vodafone has recently announced it will focus on cost control on the heels of a reduced revenue outlook for 2008. The equipment manufacturer Nortel reported a huge loss of $3.4 billion in the third-quarter of 2008 and has revealed plans to reduce headcount by 5 percent. Many other leaders like Nokia have also revised their economic outlooks.

Telecom companies large and small will reduce costs by out-sourcing more processes, reducing headcount, and generally reaffirming focus on core markets and technologies. The cost-cutting conversation for many will eventually turn to intellectual property (IP), and rightly so. There is opportunity for many thousands or millions of dollars in value creation by reducing costs and increasing revenue through strategic management of IP.

Non-strategic IP decisions create significant cost burdens and missed business opportunities.

Legal fees and filing fees can easily surpass $20,000 for a single U.S. utility patent application, and maintenance fees for an issued patent can total $6,000. When that same patent is filed globally, the costs further multiply. A patent issued by the European Patent Office can rack up more than $20,000 in maintenance fees over its lifespan, not including filing fees. In Japan, expect more than $8,000.

Even still, the vast majority of companies consider only a few criteria, such as an invention's potential patentability and overall product importance, when making costly patent decisions. This non-strategic approach can lead to out-of-control costs and too often, a low return on IP investment. To make matters worse, many companies owning more than a few issued patents are unknowingly carrying significant cost burdens by paying maintenance fees for patents that are not supportive of current or future business strategies, markets, and technologies.

Telecom companies can strategically manage their patent costs and grow their return on investment before, during, and after the patent application process.

Link patenting decisions to business strategy

It is not enough to simply ask if an invention is patentable or whether it supports a key product or technology. In order to generate patents that are truly valuable to the business, companies should adopt a systematic patent review process that considers many other strategic factors.

First, it is critical to identify the intended strategic uses of the potential patent. Will the primary use of the patent be to create freedom to practice, or to block others? Will we use it in cross-licensing relationships to gain access to others' IP, or to drive telecom industry standards?

Companies should also analyze the useful lifecycle of the invention before filing a patent. For example, if the invention relates to a mobile phone component, will the market be on to something else, or will the technology become obsolete before the patent issues in three or more years?

It is also very important to consider trends in the competitive IP landscape. Is the relevant IP landscape overly crowded? Would the patent help us grow transaction leverage with a key service provider or equipment provider? Do we have the reverse-engineering capability needed to detect third-party violation, and would we have the resources to assert the potential patent?

Broaden the IP mix beyond patents

Inventions that do not meet important strategic criteria for a patent application may be protected with other IP vehicles.

Enabled technical publications are a very low-cost alternative to patents that can be used as prior art to discourage competitors from pursuing related patents. This is particularly useful as a way to safeguard against others creating a "patent picket fence" around a core invention by obtaining their own patents on incremental improvements. IBM, Motorola, Sony, Siemens, and many others in telecom use defensive publishing as a critical IP tactic.

Trade secrets represent an appropriate IP vehicle for inventions that are not detectable or broadly known. The incremental costs of protecting a trade secret are negligible, assuming effective processes are already in place for managing confidential information among employees and in supply chain relationships.

Reassess patents and in-process applications systematically

Patents and applications that no longer support the business can be sold or licensed to capture incremental revenue, or abandoned to cease legal fees and maintenance fees. Companies with any portfolio size should periodically map their patents to strategies, products, and technologies to understand business alignment and opportunities for portfolio pruning. Companies with larger portfolios (>100 patent families) can further use custom or commercial software tools to quickly analyze the sale or licensing potential of unused or non-strategic patents.

Wireless Telecom Patents

The chart shows example output of a software tool used to determine "potential marketability scores" for a set of patents. The score computation is a weighted-average of several patent metrics that can indicate potential market interest. Key metrics often included in such a computation include patent age, number of patent citations, age of citations, and number of countries covered. Other possible metrics include relevant market size, growth, and other business factors. In this illustrative case example, a portion of Samsung's patent portfolio is scored against a benchmark dataset that includes the patents of Motorola, Nokia, LG, and Sony Ericsson in the general area of wireless telecom.

Strategic business decisions can be informed when a marketability assessment is combined with an internal assessment of the patents' business alignment. Unused or non-strategic patents with higher potential marketability can be evaluated for sale or licensing opportunities to capture incremental revenue. Patents with lower potential marketability may be combined with other sale and licensing groups, or abandoned to cut maintenance costs. The cost savings opportunity can reach as much as tens of millions of dollars for a company with a large patent portfolio.

These IP strategies and tactics make solid business sense for an innovative telecom company of any size and in any economy. The current economic downturn presents an opportunity for companies to integrate and strengthen strategic IP management practices to reduce costs and maximize short and long-term returns.

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TAGS: IAM | Jed Cahill | Strategy | Telecom
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