CIOs may be sitting on a goldmine. If getting up to speed with intellectual property rights (IPR) is somewhere at the bottom of the to-do list, it may be time to reprioritise and get a valuation of the value of your IPR.

Andrew Watson, CEO at intellectual property strategy consultant ipVA, says that many firms simply aren’t aware of the value in their own estates. “On one of our projects we helped identify 266 unrecognised inventions created by a client company simply by educating its management and development teams about the importance of IP and putting a framework around its capturing and recognising of these,” he says. “Of these innovations, 20 per cent were patentable and 20 per cent were trade secrets. We typically identify 60 to 70 such inventions in all our sessions.”

Watson has seen businesses graduate from seeing IP protection as being all about seeking patent protection for products and product features, to a more holistic view, recognising the value of brand, reputation and copyrights in databases and data.

“We are also finding that the most sophisticated businesses are also moving their protections for technical inventions away from the mechanical nuts and bolts of an invention and into the user or consumer experience,” he says.

Amazon.com was awarded a patent for creating an incentive for customers to write useful item reviews by having a method of ranking author reviews. Another patent protects the idea of an online aggregated shopping cart, allowing the user to buy from several sites and pay just once.

Software has not historically been patentable in the UK but in a landmark case last October, smartphone software company Symbian won the right to file for a patent relating to the way computers use libraries of functions.

Kim Walker, head of intellectual property at law firm Pinsent Masons, says the case has important ramifications.
“Until relatively recently the only business method patents were in the US, where there were rather too many of them. Since the Symbian case, if software creates a technical contribution enabling something to be done more efficiently, then that efficiency can be patented. There are avenues in all kinds of unexpected ways and CIOs in the current climate should be looking hard to add value,” she says.

Another case, which came to court in February of this year, should cause CIOs to look again their employee contracts. Two researchers were awarded £1.5m under a little-used section of patent law, which allows employees extra compensation for inventions which are of ‘outstanding benefit’ to employers.

“Since 1977, the law in the UK has been that if an employee comes up with a special contribution to something that creates value for the company then they are entitled to compensation,” Walker explains. “For years and years that has never meant any money for anybody but suddenly this case has come up and employees have been awarded £1.5m because their invention had proved to be massively lucrative for business. Everyone should be looking very carefully at employment contracts.”

Employee contracts are perhaps the least of the problem. Kiran Sandford, head of IT law at Mishcon de Reya, Solicitors, says a key issue is ensuring that IP rights in software that the company outsources belong to the company. “Many companies assume that they own the IP in what they have paid for, but in fact a legal written assignment is needed,” she says.

Robert Bond, head of the IP, technology and commercial group at law firm Speechly Bircham, says that developments in how information is shared are changing the IPR landscape. “Shared resources, cloud computing and outsourcing are all challenging IPR ownership,” he says. “Businesses leave the legal issues until too late and hardly ever consider planning ownership control for the end of a relationship. It’s like a marriage without a pre-nuptial agreement.

“CIOs need to think about the best ways of protecting their IP. There may be new ways of protecting their ideas as they cross over from paper to the online world.” His advice? “At the least, take five minutes to think ‘is there something here in the technology that’s worth protecting?’

“This process has not typically been within the remit of CIOs, although it should be. It is something that should go through the whole organisation like environmental issues or CSR. Now is a good time to do an audit to see what value you can squeeze out as relates to what IP you own.”

Increasingly, product and service development is happening as a result of user input, and users may have IPRs too, for example where a user suggests a technical solution in a user forum. Sandford points out that it is necessary to protect the company’s rights in this situation.

“The forum operator can provide for the owner of the forum to have the IP rights to the solution, or the rights in the solution can be shared through a structure such as Creative Commons, which allows for common IP ownership,” he adds.

But these routes have problems. Users may not understand the rules and assign IP to more than one forum owner. Users may have copied IP rights from somewhere else and the forum owner may have no way of knowing. The forum rules may be challenged and may not suit all companies.

The rising popularity of open-source software brings particular IPR challenges. Walker believes that open source licences are, by and large, poorly drafted and give rise to ambiguity. “This, combined with poor internal procedures relating to the use of open-source software, increases the risk of reciprocal rights being enforced in the proprietary code,” he says.

“If CIOs allow the proprietary code in their software to be infected, then they may be forced to make the IP in their own code available to the open-source community, including competitors.

“That is why anti-plagiarism services are becoming quite valuable. If you are thinking of buying a software business you don’t just need to check out all the software licences but you can also now employ people like Black Duck. They will scan code and pick up open-source code that shouldn’t be there.”

Paul Gershlick, associate at Matthew Arnold & Baldwin, describes tools to detect plagiarism as “pretty blunt instruments”, but adds, “They can work and there are some free tools out there that are worth looking at. If a freelancer working for you has taken their ideas somewhere else and reused the code it can be quite hard to find out if that has happened.”

American IP

In the US there is a more established culture of protecting every aspect of the business’s IP. The IFI Patent Intelligence Analysis of 2008’s top US patents found that IBM broke the 4000-patent barrier with an all-time record of 4186 patents registered, up 33 per cent on the previous year. For UK CIOs though, perhaps the most interesting statistic in the report was the fact that 51 per cent of US patents were registered by non-US companies last year.

“If you are planning on expanding into the US you should try and get a business process patent there, but to do that you have to get through whatever hoops there are in the US system including [the fact that] it can’t already be in the public domain. It’s really when you are bringing something new to the market that you should be putting in a patent application in the US,” says Gershlick.

Back in the UK, research commissioned by the Intellectual Property Office’s IP Crime Group shows that many businesses are not doing anything to ensure they protect their intellectual property. The research showed that 40 per cent of businesses surveyed took no practical action such as trademark registration or employee training to ensure their IP and others’ IP is protected.

This may be because some CIOs are still struggling with the basics of software asset management, continuing to roll out unlicensed software let alone valuing their own IP. John Lovelock, CEO of the Federation Against Software Theft (FAST), points out that IP infringement happens in all sizes and types of organisation and that directors breaching others’ IP can face unlimited fines and up to 10 years in prison.

They are most often shopped by their own IT staff. “We get a lot of our information from whistleblowers,” says Lovelock.

“A whistleblowers’ profile generally is IT people in the business misusing software because IT people generally understand about copyright and the right thing to do. But very often the business has said to them ‘just roll out that desktop software to the telesales department because we have 20 more people in there, and don’t worry about the licences’. IT people don’t like to be told to break the law.”

He adds, “We find that when a company is underlicensed in one area they are invariably overlicensed in other areas because of poor licence management. If you manage it effectively, according to Gartner figures you can save between five and 30 per cent of your IT budget, so it would seem to be the right time to introduce software asset management.
Now is also the time to apply intellect to IPR, according to ipVA’s Watson.

“The importance of intellectual property protection has been bubbling under the surface for a long time with commentators talking about its increasing relevance but this is not showing through at the level of key decision makers,” he argues.

“However, the onset of the economic crisis has removed any scope for companies to make mistakes in any area without risking the business future and its valuation.”

If anyone is left in any doubt about the very concrete value of IPR, Watson points out: “Looking at merger-and-acquisition activity, we place a lot of credibility in a recent 2008 US study by CRA International that concluded that 85 per cent of corporate respondents and 72 per cent of private-equity respondents believed that intellectual property will be equally, if not more, important than other assets in M&A activity over the next five years.”