BT opens can of worms for Net patents

By Debra Logan, Gartner analyst

COMMENTARY--Imagine if you had to pay royalties for using hyperlinks. That's the prospect raised by BT Group's lawsuit. Startling as it sounds, it does illustrate what's at stake as big IT and telecom firms try to make more money from their patents. The lawsuit forms part of a larger BT strategy to get the most out of its intellectual property (IP).

Companies have a growing commitment to realize the greatest possible economic benefit from their IP. Enterprises fund considerable research that is not patented--or have patents that aren't fully exploited. Corporate legal departments often pursue a strategy of defensive patenting. Now, IT companies that have seen profits squeezed by the economic slowdown need to explore every possible way to make money, and seeking a better return on IP offers a pain-free way to do so.

IBM, which wins more patents than any other firm, started this trend in the late 1980s and has since focused steadily on exploiting its patent portfolio. IBM sells or relicenses the IP itself, and many companies have followed IBM's lead.

In IBM's case, this approach led it eventually to spin off the unit that handled its patents into an IP asset management company, Delphion. Delphion has developed into a firm that offers a full range of products and services for managing patents, intellectual capital and innovations.

BT has made moves of its own. Most recently, in January 2002, BTexact Technologies, BT's research unit, announced an agreement with ipValue, a company that helps enterprises profit from their IP. Taking a different approach from IBM/Delphion, ipValue forms joint ventures or partnerships with enterprises such as BT that need to unlock the value of patents via relicensing, sales and other methods of extracting value from IP.

Like IBM, BT has won a large number of important patents. In 2001, BT asked U.S. Internet service providers to pay royalties for their use of hyperlinks, based on a patent owned by BT. Regardless of the merits of the case, the mere prospect of this occurring indicates how more-aggressive enforcement of patents by large IT and telecommunications companies could disrupt business for companies that use their technology. BT claim of linking patent heads to court

Gartner recommends that enterprises survey the technologies they use to perform critical business processes and determine whether they risk legal battles or paying higher royalties if companies enforce their IP rights more aggressively. At the same time, enterprises should aggressively explore ways to boost the return on their own IP. IP asset management systems and firms that specialize in the exploitation of an enterprise's intellectual capital can help coordinate both the offensive and defensive efforts.

(For a related commentary, on patent legislation, see gartner.com.)

Entire contents, Copyright © 2002 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.