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Licensing is too important to be left to lawyers. Or so goes the current thinking at Hewlett-Packard Development L.P., where the only thing less popular than a long-lasting inkjet cartridge is an attorney brainstorming royalty deals. For years, Stephen Fox, the company’s chief intellectual property lawyer, had been the champion of a ramped-up licensing strategy: taking what he often called a “more entrepreneurial view” of the company’s IP portfolio. But entrepreneurship, Hewlett-Packard ultimately decided, was best left to entrepreneurs. In January, when the company announced a new licensing group designed to increase royalty revenue, it gave the green light to Fox’s ideas — and put the brakes on Fox himself. The new group would be run by a veteran Hewlett-Packard manager. Some lawyers might call that a raw deal. Fox, who has spent 36 years at Hewlett-Packard (18 as its chief IP lawyer), calls it “optimum effectiveness.” Licensing, Fox says, “works well when placed in a business activity that is accountable for profit and loss, rather than in the legal department, which is an expense center.” The new regime is still a drastic change for Hewlett-Packard. Even companies that have aggressively licensed their IP have not cut the attorneys out of the loop so dramatically. Gerald Rosenthal, who heads the IBM Corp.’s billion-dollar-a-year licensing program, may be an engineer-turned-manager, but he has a J.D., too. That’s pretty much the only thing that Joe Beyers, Hewlett-Packard’s vice president of intellectual property licensing, doesn’t have. Beyers is a 29-year company veteran who has done everything from designing chips to managing the company’s Internet business to spearheading the planning and development of its computer systems business. In his new role, he will be approving, if not creating, every licensing deal. Drastic change or not, Hewlett-Packard’s approach to licensing isn’t entirely surprising. “Once you begin to look at IP as an asset, it’s usually a businessperson who is going to be responsible for it,” says David Klein, head of the technology transactions practice at New York’s Shearman & Sterling. “Maximize profit from an IP portfolio? That’s not really a lawyer’s expertise,” he says. MANY GOOD IDEAS In the past, when Fox tried putting on his business hat, his pleas for a separate, centralized licensing unit fell on deaf ears. It wasn’t until board members from Compaq broached the same idea after Compaq’s 2002 merger with Hewlett-Packard that the idea gained currency. Once the board members spoke, however, the wheels turned quickly. “Compaq had already moved some of its IP into a separate licensing entity before the merger,” Beyers says. “The concept wasn’t new for them, and we expanded on that. We looked at the IBM model and saw that we were leaving a lot on the table.” The 50-person team that Beyers now leads comprises full-time staff, outside consultants who help analyze the company’s patent portfolio, and members of various Hewlett-Packard business units who work with the group. For legal help, Beyers draws on attorneys in Fox’s IP department. Beyers’ mandate includes Fox’s old responsibility to mine Hewlett-Packard’s IP for technologies ripe for licensing. So far, however, there’s been little need for any elaborate digging. Hewlett-Packard product groups are actively encouraged to bring patent ideas to Beyers — cash awards are given to inventors who disclose their inventions and more money is awarded if the invention is patented. Inventors can earn about $2,000 per invention. Beyers’ team vetted some 1,000 deals last year. (While the licensing group was officially announced this January, it was quietly operating in 2003.) “Some of these are on technology no longer being pursued [at the company],” says Beyers, and “some go to a technology that we want to make broadly available, so we can create a standard.” Licenses for the latter are particularly crucial, as they get an emerging technology out to a greater market, increasing its chances for success. Beyers’ group has set up a program to license DVD+RW, a format for writeable DVDs. It is licensing LightScribe, which lets users burn labels onto CDs or DVDs directly from an enabled disc drive. Another licensing program involves Ultrium, a format for next-generation linear data storage tapes. Still other licensing ideas have involved uses beyond Hewlett-Packard’s own product lines. For instance, “the same patents that enable us to mix fluids to create microdrops in inkjet printers can be used to mix fluids in adhesives,” says Beyers. He says the new licensing program has been a success. He claims that licensing revenue was up 50 percent in 2003, but declines to give a precise number. THE SUIT OPTION Of course, licensing is about more than finding new users for a technology. It’s also about finding current users and getting them to cough up the cash. To that end, the new group has started what Beyers calls a proactive scanning process, identifying companies that may be using Hewlett-Packard’s IP — and getting them to take a license. Hunting down potential infringers sounds like a litigation strategy. But Beyers downplays that angle. “We’re not interested in litigation,” he says. “The goal is licensing.” Licensing was Fox’s goal, too, back when he and his lawyers mined patents to generate new revenue. But the ad hoc system they used meant that lawyers saw deals on an occasional basis. By vetting every deal, Beyers says, he gets an unprecedented view of company technology in use. Ultimately, this will enable his team to create more deals than the lawyers could. “You don’t get expertise doing one-off deals here and there,” Beyers says. The centralized approach also helps Hewlett-Packard leverage a patent portfolio that has bulked up fast. In 2003 alone, the company added 1,759 U.S. patents, placing it fifth on the annual ranking (IBM was first, with 3,415) and marking a 27 percent increase from 2002. Worldwide, Hewlett-Packard’s patents jumped by 4,000 last year, to 21,000. Licensing isn’t the only work leaving the legal department. Fox has spearheaded a marked increase in outsourced patent prosecutions. So even as Hewlett-Packard’s patent portfolio has expanded over the past three years, the legal department’s IP section has held at about 100 attorneys and patent agents. “Part of that is because of the economy, but part of it is because it’s more cost-effective,” says Fox. Similarly, Fox says the new licensing unit is a more cost-effective way to leverage Hewlett-Packard’s patent portfolio. “We’re producing the patents, and the new group is finding ways to turn them into dollars,” says Fox. “It takes a coordinated effort.” THE BOTTOM LINE Some experts warn that a centralized, aggressive stance on licensing might actually hinder patent applications, meaning, in the long run, fewer patents and dollars. “If you’ve got someone on the business end watching closely, they may ask people on the R&D side to make a better business case before deciding to file,” says Shearman & Sterling’s Klein. But Fox says that’s not going to be a worry, that while Beyers’ group takes charge of licensing, “patent procurement will remain the work of the IP section of the law department.” Or maybe not. While Beyers plans to leave the nitty-gritty of patent filings to Fox, that doesn’t mean he won’t have a say in what gets patented — and when. “We do give input on prosecution priorities based upon what we are seeing in our licensing activities,” says Beyers. In the end then, the business people may be calling the shots, leaving the lawyers to fill in the blanks. Alan Cohen is a free-lance writer in New York City.

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