6 A survey of patents and technology …

6 A survey of patents and technology                                                                       The Economist October 22nd 2005




2 more than a patent licence, explains Steve       August, Qualcomm paid $600m for Fla-            usually works only alongside a basket of
  Altman, Qualcomm's president. If we              rion, a rm with little revenue but around       products or services. For IBM, for example,
  were just an IP shop, we would not have          100 patents either issued or pending on a       the majority of its intellectual-property
  been successful. What caused us to be a          new generation of wireless technology. If       revenue comes from the sale of know-
  success was that very early on we didn't         all goes as planned, this will allow Qual-      how, not patent licences alone. In essence,
  just license patents, we enabled the manu-       comm to dominate the next phase of high-        the di erence is that between the recipe for
  facturers to get to market quickly.              speed mobile communications too.                a dish and a list of ingredients.
      The licensing practice began when                 IP companies can be very pro table.           ARM was fortunate to be in the right
  Qualcomm was young and struggling in             That doesn't mean we are extortionists by       place at the right time, when numerous
  the early 1990s, helping its cash ow. At         any means. If you get the technology right,     chip-design rms all wanted to outsource
    rst, the company made the mobile               you get to license it many times, explains      the basic technology for wireless chips so
  phones as well as developing the underly-        Tudor Brown of ARM, a British rm that           they could innovate on top of it. Also, ARM
  ing technology, but in 1999 it sold its hand-    creates the intellectual property behind        understood that it needed to o er a lot
  set division in order to focus on the less       microchips used in nearly all mobile            more than just patent licences, such as doc-
  tangible and more lucrative part of the          phones and other wireless devices. ARM is       umentation and support for its licensees.
  business. Today, it spends almost $1 billion     the most ubiquitous company no one has           They are successful only if they get it right,
  a year, or 19% of revenue, on R&D. It has        ever heard of, with its technology in use in    and we are here to help them get it right,
  amassed 1,800 patents, and 2,200 applica-        over 70% of all mobile phones. Whereas          Mr Tudor says.
  tions pending.                                   Qualcomm still keeps a foothold in the             Yet it is easy to get it wrong. Take BT,
        We could have very easily said, `Let's     physical world by supplying chips, ARM          Britain's telecoms incumbent, which in
  close up shop, sit back and wait for royal-      does nothing but R&D and licensing.             2000 announced that it had a patent on
  ties to come'. But that would have been a            But Mr Tudor has a warning for rms          hyperlinks, a technology that allows peo-
  short-lived business: the technology             that want to concentrate exclusively on the     ple to click on a web-page link to go to an-
  evolves very quickly, says Mr Altman. In         intellectual-property business: licensing       other web address. BT claimed it had de- 1




                                                                                                   A new intellectual-property
  Voracious venture                                                                                business model

  W       HEN visitors walk into the head-
          quarters of Intellectual Ventures,
   they come face to face with the full-size
                                                   bridge. He left Microsoft worth hundreds
                                                   of millions of dollars, and turned his tal-
                                                   ents to promoting innovation (as well as
                                                                                                   $300m, from backers that include Micro-
                                                                                                   soft, Nokia and Sony to purchase heaps
                                                                                                   of patents up for sale. It has not asserted
   head of a Tyrannosaurus rex the special-        funding dinosaur excavations).                  any patents yet, but many think it is just
   e ects model used in the lm Jurassic                In his view, the world has an archaic       circling before devouring its prey.
   Park II . Is that a hint that the company       idea of patents: that they are worth some-
   wants to eat IT companies alive?                thing only when they come with a pro-           Trolling for business
       Nathan Myhrvold, its founder, thinks        duct. It reminds him of the businessmen         There have recently been complaints in
   not. He is excited about the company's          in the 1980s who insisted there was no          the industry about patent trolls patent
   strategy, which he describes as an ex-          money in software because people                holders that send letters asking IT compa-
   periment . Intellectual Ventures repre-         would buy only something they could             nies either to pay royalties or face a long,
   sents a radically new business model for        see, ie, the computer itself.                   costly lawsuit. Is Mr Myhrvold not the
   technology a cross between a venture-               His business model for his new ven-         biggest troll of all? He smiles at the ques-
   capital fund, a law rm and an R&D lab. It       ture is precisely the same as the one he got    tion. By funding invention only, he says,
   wants to nance inventors to do what             to know at Microsoft: come up with a            even with the cost of licensing it, his rm
   they do best invent and obtain patents          technology so pervasive that no one can         will provide society with more innova-
   on those technologies. Then it wants to li-     avoid paying for it. The di erence is that      tions than it would otherwise have had.
   cense those innovations to the world (and       Microsoft tried to operate a monopoly the       In that sense, Intellectual Ventures may
   pursue infringers with razor-fanged deter-      government sought to make illegal; Intel-       be creating a market for inventions that
   mination). The IT industry is terri ed of it.   lectual Ventures proposes to make use of        marks a new phase of capitalism. Already
       The main reason to take Intellectual        the government-granted legal monopoly           a gaggle of rms with fancy names such
   Ventures seriously is Mr Myhrvold him-          conferred by a patent.                          as iPotential, ipValue, Yet2.com and
   self. After selling his software company to         Intellectual Ventures expects shortly       ThinkFire are making a business of patent
   Microsoft in 1986, he spent the next 14         to be granted its rst patent, related to dig-   transactions, and hedge funds are acquir-
   years as the company's top techie. He is        ital imaging, and has hundreds of appli-        ing patent portfolios.One day, Mr Myhr-
   naturally brainy, entering university at 14     cations pending. But in the meantime the        vold says, the dichotomy between
   and getting a doctorate at 23, then doing       company has been delving into its huge          physical products and intellectual prop-
   physics with Stephen Hawking at Cam-            bank account rumoured to exceed                 erty will become extinct.