Intellectual Property Law May, 2008 The Need for Balance Intellectual Property and Innovation Manny Schecter Associate General Counsel, IBM

Intellectual Property Law Almaden Institute, Intersection IP in the Limelight Balanced IP Balanced Innovation

Intellectual Property Law Almaden Institute, Intersection IP in the Limelight Balanced IP Balanced Innovation

Intellectual Property Law Almaden Institute, To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries Purpose  Innovation incentive  Dissemination of information, including gateway to additional publications Use  Traditional (exclusivity, defensive, offensive)  Influence development of common platforms  Mechanism for technology transfer and collaboration  Gloss and credibility  Marker for technical information

Intellectual Property Law Almaden Institute, IP is Central to Economic Growth & Competition % of GDP US investment in intangible assets (>$1T/year) equivalent to investment in tangibles ~80% of the value of modern companies comes from intangible assets ~80% of the value of modern companies comes from intangible assets Tangibles Intangibles Sources: US Federal Reserve – Nakamura, Ned Davis Research “The competition of the future world is a competition for Intellectual Property Rights” Chinese Premier Wen Jiabao Japan intends to “bring about a nation founded on intellectual property” Japanese Prime Minister Junichiro Koizumi “Intellectual property is the backbone of America's economy” U.S. Commerce Secretary Carlos Gutierrez

Intellectual Property Law Almaden Institute, Patently Political “So I call on the Congress to pass legislation that bans unethical practices such as the buying, selling, patenting, or cloning of human life.” President Bush, state of the union address, January, 2008 “A system that produces timely, high-quality patents is essential for global competitiveness in the 21st century. By improving predictability and clarity in our patent system, we will help foster an environment that encourages innovation.... As president, Barack Obama will ensure that our patent laws protect legitimate rights while not stifling innovation and collaboration.” Senator Obama campaign statement, November, 2007 “I firmly believe that part of the underpinnings of our strong economy is the protection offered by a strong U.S. patent system.” Governor Romney campaign statetment, November, 2007

Intellectual Property Law Almaden Institute, The Importance of Intellectual Property  Top CEO business priority: “Growth driven by innovation”  A new IP marketplace and economy is emerging  The idea has become the product  Increased competition for ideas  Strong, global intellectual property systems encourage innovation Source: IBM Institute for Business Value, CEO Study 2006

Intellectual Property Law Almaden Institute,

Intellectual Property Law Almaden Institute, Evolving IP Strategies Proprietary Product Exclusivity Influence Cross Licensing for Freedom of Action Income Enforcement for Income Growth Leveraging for Business Growth Knowledge Economy based on collaborative innovation Industrial Age focused on proprietary innovation

Intellectual Property Law Almaden Institute, Intersection IP in the Limelight Balanced IP Balanced Innovation

Intellectual Property Law Almaden Institute, More/Stronger Patents = More Innovation?

Intellectual Property Law Almaden Institute,

Intellectual Property Law Almaden Institute,

Intellectual Property Law Almaden Institute, The Impact of Patent System Imbalance “We estimate that the deadweight loss of a “loose” patent system from lost innovation is approximately $21 billion each year in private costs alone, or nearly $200 per household per year. This sizeable deadweight loss constitutes approximately 7% of annual R&D spending in the United States.” Ford, Koutsky, and Spivak, Quantifying the Costs of Substandard Patents: Some Preliminary Evidence, Phoenix Center Policy Paper Series, September, 2007

Intellectual Property Law Almaden Institute, Top Defendants in US Patent Litigation # Suits,  Microsoft (43)  Verizon (29)  Target (28)  Dell (28)  Wal-Mart (24)  HP (24)  Apple (23)  Motorola (20)  Sprint Nextel (20)  AT&T (19) Source: Troll Tracker, December, 2007

Intellectual Property Law Almaden Institute, Plaintiffs in US Patent Litigation Non-Practicing Entities  26% of overall infringement suits  50% of infringement suits against large companies 3 months in late 2007  80% of infringement suits against large technology and financial companies Source: Troll Tracker, December, 2007

Intellectual Property Law Almaden Institute,

Intellectual Property Law Almaden Institute,

Intellectual Property Law Almaden Institute, US Patent Reform Legislation Harmonization  Alignment with foreign patent laws  First-inventor- to-file v. first-to-invent Patent application examination  Improvement of patent quality  Post grant review without resort to litigation Patent infringement litigation  Discouragement of inappropriate litigation tactics  Damages assessment

Intellectual Property Law Almaden Institute, Patent Reform More Than Just US Legislation  Reports from FTC/DOJ and National Academies  Patent quality initiatives  USPTO Strategic Plan  IP association activities  Trends in judicial decisions  Worldwide interest Net: easily the most significant reforms to the patent system in decades

Intellectual Property Law Almaden Institute, Intersection IP in the Limelight Balanced IP Balanced Innovation

Intellectual Property Law Almaden Institute, innovation: how? New Forms of Collaboration Source: IBM Institute for Business Value, CEO Study 2006 Business partners Customers Consultants Competitors Associations, trade groups, conference boards AcademiaInternet, blogs, bulletin boards Think tanks Other R&D (internal) Sales or service units Employees (general population) 5%15%25%35%45% 35%25%15%5% CEOs: Sources of new ideas and innovation “We have...today a lot more capability and innovation in the [competitive] marketplace...than we [could] try to create on our own.”

Intellectual Property Law Almaden Institute, The Changing Nature of Innovation  Open  Collaborative  Multi-disciplinary  Global

Intellectual Property Law Almaden Institute,  Proprietary Innovation  Income and Royalties  Collaborative Innovation  Interoperability Patent Pledges and Commons Patent Assignments Open Source Software & Open Stds IP-only Companies A Spectrum of Collaboration and Competition The Changing IP Landscape Balanced Innovation Proprietary Open

Intellectual Property Law Almaden Institute,

Intellectual Property Law Almaden Institute, Proprietary Innovation Open, Standardized Proprietary, Differentiated Solutions Standardization Cycles Promote Innovation

Intellectual Property Law Almaden Institute, Striking the Balance Needed for Collaborative Innovation  Balance between proprietary and non-proprietary  Today’s law should be neutral & support each

Intellectual Property Law Almaden Institute, st Century Demands Uniquely-Skilled People  Cross-disciplinary programs and degrees  Fusing technical competency with industry- specific knowledge and business-process expertise  Success requires open collaboration among academia, government and industry

Intellectual Property Law Almaden Institute, Clinical Decision Support Software Quality Research Privacy & Security Policy Management Mathematical Optimization University-Industry Collaboration August & December ‘05 Bill Bonvillian, Legislative Director & Chief Counsel to December ‘06 Announced in over 35 media outlets IBM’s Open Collaborative Research Program Announced in over 60 media outlets June ‘07 University & Industry Innovation Summit, Washington D.C. & Summit Team’s Open Collaboration Principles Summit Team’s Free Participant Use Principles 2008 Priorities:  More pervasive acceptance of both collaborative research principles  Continued progress and summit team expansion  Continued internal & external education Principles based on:  Free participant use  Fee free or reasonable & non-discriminatory fee based for non-participants  Informed participant disclosure  Publicly shared

Intellectual Property Law Almaden Institute, Intersection IP in the Limelight Balanced IP Balanced Innovation

Intellectual Property Law Almaden Institute, The Interdependence of Patents and Innovation  The patent system fuels innovation  The patent system has not kept up with the shift to a knowledge based economy  Innovations to the patent system itself are needed to bring the patent system into the 21 st century

Intellectual Property Law Almaden Institute, The Intersection of IP and Collaborative Innovation  Open Invention Network  Patent pledges  University collaboration principles  Marketplace Wiki  IBM Patent Policy  Inventors Forum  Open standards  Standards for Standards (S4S)  Open Document Format  Peer to Patent: Community Patent Review  Open Source as Prior Art  Patent Quality Index Patent Policy Patent Quality Standards Collaboration

Intellectual Property Law Almaden Institute, How the Scientists Can Help  Automated prior art search techniques  Common software taxonomy and/or automated search of source code and/or flow charts  Automated extraction of level of ordinary skill  Analysis for Patent Quality Index  Central repository for patent commitments to standards organizations

Intellectual Property Law Almaden Institute, Intellectual property will become one of the key geopolitical issues of the 21 st century. Already, focus has begun to shift from protecting IP to maximizing intellectual capital, which is based on shared ownership, investment, and capitalization.

Intellectual Property Law Almaden Institute, Thank You. Questions??