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When the Baby Bells were born in 1984, they came into the world without much intellectual property. The seven regional phone companies, products of the breakup of AT&T, held the rights to their names and little else. AT&T retained control of its IP (until much later when some of it was spun off into Lucent Technologies Inc.). At the time, IP was not a top priority for the companies. Each Baby Bell had a monopoly within its region — the cash flowed, with or without IP protection. The shock of adolescence hit the Bells when Congress passed the Telecommunications Act of 1996. This legislative leviathan was intended, in part, to open up the local phone business to competition. As a reward for allowing competitors into their market, the law ended restrictions that prevented the Bells from entering new businesses. The race to diversify began. A few Bells, including Southwest Bell, Bell Atlantic and Nynex tried their hand at digital TV with limited success. Many others launched Internet services. All the Bells ultimately looked into exploiting the value of their intellectual assets, but because of one determined employee, BellSouth Corp. was the first to seriously mine its IP. Aggressive intellectual asset management sets BellSouth apart from the other Baby Bells, says Suzanne Harrison, senior vice president of ICM Group in Palo Alto, Calif., an IP consulting company, and co-author of “Edison in the Boardroom: How Leading Companies Realize Value From Their Intellectual Assets.” “The Baby Bells shared information, shared knowledge, but were not IP-savvy at all because they never had any IP,” she says. “[BellSouth] started from scratch and has had the best results of anyone in the telco industry, certainly of the Baby Bells.” In the early 1990s Carol Beckham was managing BellSouth’s software acquisition group, overseeing the company’s purchase of software licenses. Beckham, who has been with the company for more than 30 years, says she would get calls from people who wanted to buy BellSouth’s technology. “It was obvious it could be a moneymaker,” she says. At the time, Beckham and Sandy Evans, an IP lawyer who is now retired, began pushing for an IP program. No one in the company paid them much attention until Duane Ackerman became BellSouth CEO in 1997 and started looking for new ways to generate revenue in response to increased competition. Beckham and Evans ideas reached Ackerman’s ears. The rest, as they say, is history. In 1998 Beckham was made vice president of BellSouth Intellectual Property, a 33-employee division consisting of three wholly owned BellSouth subsidiaries. One group handles licensing. A management arm mines BellSouth’s business units for inventions, files patent and trademark applications, and handles litigation. A third owns all of the company’s trademarks and patents. In their first year, BellSouth’s IP subsidiaries turned a profit, primarily by licensing its software, says Scott Frank, president of the licensing and management subsidiaries. “We generated tens of millions [of dollars],” says Frank, a former IP associate at Atlanta’s Troutman Sanders. The big moneymaking programs back then included ones the company was using internally, like its customer billing system. Because the company developed these technologies for its own use, the licensing revenue moved straight to the bottom line, Beckham says. There was a 97 percent profit margin from licensing, she says. Frank and Beckham are tight-lipped about most of the company’s licensing activities, and won’t say how much licensing revenue the company generates. A few transactions are public, like the 2000 deal with Alltel Corp. for customer service software, which allows company representatives to establish service and initiate billing for new customers. Frank says that the company has licensed other technologies to ” Fortune500 telecoms.” Trademark licensing is also a revenue source. In 2001 BellSouth struck a deal with Protection One Inc., a publicly traded security firm. Under the name “BellSouth Security Systems from Protection One,” BellSouth promotes high-tech home security systems and services throughout its nine-state region. The company also licenses its mark to New York-based U.S. Electronics Inc. for use on the company’s phones and walkie-talkies. MasterCard even offers a BellSouth-branded credit card. Patents round out BellSouth’s IP strategy. Before the subsidiaries were created, the company owned fewer than 50 patents. Today that number has risen to more than 200, spanning the categories of wireless, Internet, billing, and entertainment technologies. In 2002 alone the company added 34 patents to its portfolio, and Frank says that’s “just the tip of the iceberg.” To make sure that employees are thinking about IP, Beckham and BellSouth’s training department have developed a program for all new employees that helps staff recognize and respond to potential patent ideas. The company solicits ideas through its intranet. When inventors submit an idea they receive a small gift, like a company T-shirt or umbrella. Inventors receive cash bonuses if their idea is patented. Other companies have asked to license the training program, but have so far been turned down. These days, Frank is focused on generating profits from BellSouth’s work on digital subscriber line technology, or DSL, which provides customers with high-speed Internet access. “We meet with the people who develop those things on a regular basis, and make sure we capture those ideas, get them to the patent office, and give them priority,” Frank says. With patents comes litigation. In January, BellSouth sued Glenayre Technologies Inc., of Duluth, Ga., and Call Sciences Inc. of Edison, N.J., in Atlanta federal court. BellSouth claims the defendants sold technology covered by BellSouth’s patent for One Number service, a call-forwarding system used to track customers by ringing them consecutively on their home, office or cell phones. In a press statement Glenayre labeled the allegations as “without merit” and termed the patent itself “of questionable validity and value.” Call Sciences did not return repeated phone calls. The Atlanta office of Jones Day is handling the case for BellSouth. Troutman Sanders is outside counsel to Glenayre. The One Number litigation comes on the heels of BellSouth’s trademark infringement victory against Supra Telecommunications Inc. of Miami. In 2002 a federal district court in that city ordered Supra to stop telling its customers it was using the “same BellSouth network” simply because it happened to be relying on its switching system. With an IP strategy as aggressive as BellSouth’s, more lawsuits are sure to follow. Says Stephen Schaetzel, a Kilpatrick Stockton partner who worked on the Supra case: “When they were a monopoly, they were always worried about the defense; they didn’t want someone to use their technology without paying for it. Now what you’re seeing is a real effort to look at the marketplace for opportunities to make money, using the technology more offensively.” The baby is all grown up. Joan Oleck is a free-lance writer based in Brooklyn, N.Y. E-mail: [email protected].

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