The Need for Balance Intellectual Property and Innovation

1. The Need for BalanceIntellectual Property and Innovation Manny Schecter Associate General Counsel, IBM schecter@us.ibm.com

2. IP in the Limelight Balanced Innovation Balanced IP Intersection

3. IP in the Limelight Balanced Innovation Balanced IP Intersection

4. 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

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

6. 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

7. 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

9. Evolving IP Strategies Growth Leveraging for Business Growth Income Enforcement for Income Influence Cross Licensing for Freedom of Action Proprietary Product Exclusivity 1960 1990 Industrial Age focused on proprietary innovation 2008 Knowledge Economy based on collaborative innovation

10. IP in the Limelight Balanced Innovation Balanced IP Intersection

11. More/Stronger Patents = More Innovation?

14. 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

15. Top Defendants in US Patent Litigation# Suits, 2006-2007 • 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

16. Plaintiffs in US Patent LitigationNon-Practicing Entities 2006-2007 • 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

19. 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

20. Patent ReformMore 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

21. IP in the Limelight Balanced Innovation Balanced IP Intersection

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

23. The Changing Nature of Innovation • Open • Collaborative • Multi-disciplinary • Global

24. The Changing IP LandscapeBalanced Innovation • Proprietary Innovation • Income and Royalties • Collaborative Innovation • Interoperability Open Proprietary A Spectrum of Collaboration and Competition • Open Source • Software & Open Stds IP-only Companies Patent Assignments Patent Pledges and Commons

26. Standardization Cycles Promote Innovation Proprietary, Differentiated Solutions Open, Standardized Proprietary Innovation

27. Striking the Balance Needed for Collaborative Innovation • Balance between proprietary and non-proprietary • Today’s law should be neutral & support each

28. 21st 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

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

30. IP in the Limelight Balanced Innovation Balanced IP Intersection

31. 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 21st century

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

33. 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

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

35. Thank You. Questions??