Inter-company technology transfer
In 2001, the EU chemicals industry spent 4.9 percent of sales on research
and technical development, the US sector 6.9 percent and the Japanese 5.8
percent . A significant proportion of this expenditure went into developing
intellectual property, typically protected by filing patents.
Yet recent estimates suggest most companies in the chemicals sector
actively use less than one third of their intellectual property in their product
portfolio.
Maintaining those assets isn’t cheap - fees for a typical global patent cost
approximately $10,000 per year i.e. holding on to that unprofitable
intellectual asset could cost a company $250,000 over the life of a typical
patent.
That soon adds up: for companies like P&G, which spends $1.7 billion in
annual research and development to add about 3,000 patents annually and
currently owns over 27,000 active patents, only about 7% of which have
commercial applications in its more than 300 brands worldwide.
So why spend all that money on creating and then maintaining assets which
aren’t used?
There are two things companies can do about this.
One is to weed out under-performing IP and let it die to save costs, e.g. in
1997 Dow announced it was aiming to save $40m in IP maintenance costs
by controlled expiry of unused patents; it reportedly saved $50m within one
year.
The other, and typically much more financially attractive option, is to license
this IP. The global technology licensing market is estimated at $105 billion
and growing rapidly. Companies with a substantial R&D investment can see
a 5- 10% increase in annual earnings just from licensing a small percentage of
their available technologies. Because R&D investment expenses are booked
when incurred by a company, successful IP value extraction will almost
always yield a high profit margin.
To illustrate the point, albeit in a company outside of the chemicals sector,
Rivette and Kline, report: "IBM currently makes $1 billion in net annual
recurring revenues from its once-unused patent portfolio." To put that in
perspective – that represents approximately 10% of the company’s pre-tax
annual profit. Ten years ago, that figure was only $30m. (Rembrandts in the
Attic: Unlocking the Hidden Value of Patents)
Not surprisingly, a number of chemical companies, e.g. Dow, Du Pont and
P&G, have been gearing up to license or sell their under-utilised technologies
since the mid 1990s. Dow made active management of intellectual property a
major component of its strategic decisions in 1997; as a result patent
licensing revenues went from $25 million to more than $125 million within
about a year.
So, if the financial argument is so powerful, why are most companies still
only extracting value from less than a third of their intellectual assets?
