HP seeks profit from its patents
The company sees licensing more of its intellectual property as a way to get a greater return on its substantial R&D budget, according to a source familiar with the company's plans.
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"(HP) is looking at licensing technology as a business," the source said. "Currently, it has over $4 billion invested in research and development annually," the source said.
In a statement, an HP executive said the company has consolidated the company's intellectual property, but did not offer details on the size of the effort or its financial goals.
"Within HP's Office of Strategy and Technology, we have an IP licensing team," said John Brennan, a vice president of strategy and corporate development for HP. "The group is focused on managing our companywide intellectual property portfolio. The small team develops recommendations to foster a healthy overall balance between IP protection, additional revenue generation and longer-term IP portfolio development."While other companies have looked to their patent holdings as a potential legal weapon with which to attack competitors and others, HP has seemed to be headed more in the direction of licensing technology that it doesn't plan to use commercially.
In nanotechnology, for example, HP is one of the more active companies in developing molecular circuits for chips. The company, though, is currently phasing out substantial portions of its chipmaking business. Researchers have indicated that the company may prefer to license, rather than build chips based on this technology.
"If there is any 'HP Way' left, they are probably just trying to license technology they are not going to capitalize on themselves," said patent expert Rich Belgard. "I think that's pretty forward-looking on their part."
Licensing of technology contributes less than 1 percent of HP's revenue today, but the company is hoping new efforts will eventually contribute hundreds of millions of dollars to its bottom line, the source said. HP already licenses some technology to other companies, including its spin-off, Agilent Technologies.
IBM, which is increasingly the company against which HP likes to position itself, generates roughly $1 billion a year, though it generates far more patents than HP.
"IBM has technology all over the map," said Belgard. "I don't think HP has the breadth IBM has."
A boost from Compaq
HP has received an increasing number of patents in recent years, a trend accelerated by the company's acquisition of Compaq Computer last year.
"HP used to be a lot of disparate businesses, like the printer business, enterprise business and others loosely combined at the top...but over the past couple of years, (HP CEO) Carly (Fiorina) has made it more centralized. And now there is a better grip on the patent assets as a whole," said the source. "Also, our growing portfolio of patents has been increased with the Compaq merger, which also includes technology from Compaq's DEC and Tandem mergers."
Last year, HP ranked ninth among companies receiving patents from the U.S. Patent and Trademark Office, the first time it has ranked in the top 10. It was issued 1,385 U.S. patents--a 40 percent increase from the previous year--and Compaq contributed roughly 25 percent of those patents. HP, which has about 17,000 patents globally, filed more than 7,000 patent applications worldwide last year. That's about a 50 percent increase in applications filed over the previous year.
Although the company ranked ninth last year, some within the company think it can achieve the No. 2 spot in the next few years. The source added: "This has been a big area for (Fiorina). She has been working with the labs and increasing the number of patent applications."
While HP appears to be looking at intellectual property as an asset for itself and the industry, other companies are seeing it as a cash cow to be milked during lean economic times.
SCO Group (formerly Caldera International) last month hired high-profile attorney David Boies to evaluate whether Windows, Mac OS X, Linux and versions of BSD infringe on Unix intellectual property the company owns.
And fresh off a legal victory over Intel in a patent spat, chipmaker Intergraph last year said it would restart efforts to license its technology. The company has now sued Dell Computer, HP and Gateway.
In HP's case, the economic environment has also played a role.
"There was a time in the economy where growth was valued over profit. But with the current market environment, profit is now valued over growth. And the licensing (revenue) will fall right to the bottom line since it all stems from the investments already made in R&D," the source noted.