1.  INTRODUCTION

  1.1  Technology and product innovation are essential to business growth and performance in the highly competitive IT and IT services industries worldwide. In support of this, IBM invests about $5 billion in research and development relating to products and services each year. It is essential that this effort is productively focused and that the business earns an appropriate return. IBM has therefore developed an approach which relies heavily on intellectual property management to ensure that the company extracts appropriate benefits from its research and development activities.

  1.2  For interest, IBM's main research development activities in the UK are at Hursley near Winchester, where hundreds of software experts push forward the development of JAVA and related software issues relevant to the Internet and electronic business.

2.  SUMMARY

  2.1  IBM's evidence focuses on two of the points raised by the Committee:

—  intellectual property rights and patenting

—  the role of the Foresight Programme in fostering networks and identifying priorities.

  2.2  IBM believes that protection of intellectual property is essential to private sector innovation. From its extensive use of patenting to protect intellectual assets, IBM has concluded that the key elements of a company's successful patent management regime are:

—  open patent licensing

—  making well-informed decisions about where to seek patent protection and for how long to maintain it

—  identifying areas of technology-based opportunity and threat from monitoring the patent portfolios of competitors, and seeking to take appropriate action in those areas.

  2.3  Although IBM has not been closely involved in the Foresight Programme, we believe that there is value from its activities in developing University/Industry relationships, particularly for smaller firms. We believe that there are two areas where it could make a further significant contribution:

—  enabling cost-neutral secondment of academic researchers into companies such as IBM, that would be of great value to both parties

—  identifying regulatory or social inhibitors to the commercial exploitation of inventions.

3.  IBM'S INTELLECTUAL PROPERTY ASSETS AND PATENT LEADERSHIP

  3.1  Companies need to see a commercial reward from their investment in innovation, and intellectual property rights form the backbone of the process that ensures appropriate commercial returns. By way of example, IBM's intellectual property assets include:

—  about 30,000 patents worldwide, with a significant number of pending applications

—  over 8,500 trademarks worldwide

—  a vast portfolio of copy-righted software, manuals and other product-oriented materials and business tools.

  3.2  IBM has set itself the goal of patent leadership as an element within our programme for technology leadership. For five years continuously since 1993, IBM has acquired more US patents than any other company, and more in Japan than any other non-Japanese company. It has a significant number of patents in Europe.

  3.3  The company has an aggressive patent strategy in Israel, India and countries in South East Asia where IT development and manufacturing is growing.

  3.4  IBM's patents are licensed to about 1,500 companies worldwide, earning a substantial revenue stream.

4.  THE BENEFITS OF OPEN PATENT LICENSING

  4.1  IBM is committed to open patenting and the use of licensing as the best method of ensuring that innovation finds its way as fast as possible into commercial products. The company has found many benefits from open patenting, including:

—  economical alternative litigation—IBM can develop products without an inordinate concern that an announced product will face an infringement challenge that could delay or otherwise harm the product's success

—  serves to level the playing field between competitors who do invest in R&D and those who do not

—  can deliver a return on R&D investment of around 20 per cent

—  delivers new products to market faster

—  facilitates the development of open systems capable of interoperability, a key customer requirement

—  encourages the faster evolution of new markets

—  accelerates the creation of intellectual property

—  encourages the development of important business relationships

  4.2  In the IT industry, there is an increasing trend towards licensing patents.

5.  FOCUSING PATENT ACTIVITY ON TECHNOLOGY-BASED OPPORTUNITIES AND THREATS

  5.1  In a competitive environment, of course, excellent patent and intellectual property management addresses only part of the problem. There also remains a strong need for a company to direct R&D and patenting activity to increase competitive advantage. IBM has introduced a business process to identify the most significant technology-based opportunities and threats, which involves tracking competitor patent portfolios.

  5.2  Once a particular area of opportunity or threat is identified, IBM focuses activity on that area. Indeed sometimes incentives are offered to R&D staff for inventions in the target areas. These are in addition to the awards that IBM inventors normally receive for the patent assets that they help to create. One recent incentive programme attracted 400 inventions relating to the Internet and network computing.

6.  SEEKING PROTECTION IN THE RIGHT GEOGRAPHICAL AREAS

  6.1  As important as having the "right" inventions to patent, is the business of deciding where it will be cost effective to seek protection. IBM has developed analytical models and tools which assess which countries would be the optimal places to make patent applications. The models are sensitive to variables which can change quite rapidly over time and so the process is highly adaptable. Similar considerations apply to the decision whether to maintain each patent. Because fees are high in some countries, there is a careful trade-off to be made between the value of the patent and the cost of extending its life.

  6.2  Patent costs are high in Europe relative to the US given the need for multiple national patents and translations. This clearly presents a disincentive to the owners of intellectual property considering where best to seek protection.

7.  FUTURE DEVELOPMENTS IN PATENT MANAGEMENT

  7.1  Future developments that IBM expects in the area of intellectual property include:

—  licensing other intellectual property eg trade marks, and technology

—  hybrid licensing—licences that provide a bundle of intellectual property rights

—  assigning patents to others where the technology is not core to IBM's business.

  7.2  IBM supports the discussions taking place through the Transatlantic Business Dialogue on the harmonisation across countries of patent formalities, practice and legal requirements. Particular areas of interest are the cost of patent protection, clarity over the date of first filing and the protection available for software-related inventions.

8.  THE ROLE OF THE FORESIGHT PROGRAMME IN FOSTERING NETWORKS AND IDENTIFYING PRIORITIES

  8.1  IBM has had little involvement with the Foresight Programme, for two main reasons:

—  its UK orientation sits uncomfortably with the company's own global R&D strategy

—  small firms are better placed to take advantage of the partial government funding than large companies and this is entirely appropriate.

  8.2  We have, however, had indirect involvement through other projects, such as the charitable Tomorrow Project and other organisations, such as CEST (Centre for the Exploitation of Science and Technology). One area of work that we believe the Foresight Programme could most helpfully explore is in developing an understanding of how to encourage commercial exploitation of inventions that have already been made.

  8.3  As an example from our own industry, we believe that high telecommunications costs in the UK are holding back the growth of electronic business and the commercial exploitation of relevant inventions.

  8.4  We do believe that bringing together adademia and industry is a valuable activity and the Foresight Programme has developed those networks of contacts well. If it were able to push the process further and to provide cost-neutral secondment of academic researchers into companies such as IBM, that would be of great value to both sectors.

9 March 1998