Established in 1911 in the U.S., International Business Machines (IBM), nicknamed "Big Blue" is the world's largest corporation of information technology and business solutions. "Big Blue" has been extremely successful in implementing IP planning. The company has become tاe US patent leader since 1993 and has kept its position among other patent leaders.
Intellectual Property (IP) as an essential factor of the modern economy, plays a decisive role in the success of a company. Beginning in the 1990s, income gained from the intellectual property at IBM has increased from the US $30 million to more than US $1 billion.
Figure1: Patent number of IBM (1995-2019); the company keeps its leadership during these years
In this article, we pay attention to find the answer to the following questions: What is IBM's global IP strategy? How does IBM use IP so powerfully? How has IBM become a patent leader?
The history of IBM
IBM originated from the bringing together of several companies that worked to automate routine business transactions, including the first companies to build punched card-based data tabulating machines and to build time clocks. In 1911, these companies were merged into the Computing-Tabulating-Recording Company (CTR).
The evolution in the company happened after joining Thomas J Watson in 1914. In 1924, the company changed its name to "International Business Machines and expanded its work into typewriters and other office machines. Since Watson was the salesman, concentrated on building a highly motivated, very well paid sales force that could make solutions for clients unfamiliar with the latest technology.
IBM's first experiments with computers happened in the 1940s and 1950s within modest advances on the card-based system. The first completely electronic computing machine the Vacuum Tube Multiplier was developed in 1943 and in 1944, the company along with Harvard developed its automatic sequence controlled calculator (mark I), the first device that we would recognize as a modern computer!
Figure 2: The IBM Automatic Sequence Controlled Calculator (ASCC) was presented to Harvard. 50 feet long and eight feet tall, and performed electromechanical calculations automatically. The U.S. Navy used the Mark I to calculate gun trajectories on its ships.
When Thomas Watson’s son, Thomas Watson Jr., took over, the company started pushing this business (the 1950s). In this era, IBM’s computer business moved away from the mechanical switches of the Mark I and back to the vacuum tubes of the Vacuum Tube Multiplier, as these were easier to maintain and replace.
Its great breakthrough came in the 1960s with its System/360 family of mainframe computers. Over the course of the 1950s and 1960s, IBM invented many of the core technologies that allowed computers to become fasteners of the business world. IBM offered a full range of hardware, software, and service agreements, so that users, as their needs grew, would stay with "Big Blue."
In this era, IBM’s dominance of the computer market was almost complete, with the company making 60% to 70% of all business computers worldwide. However, The company modern era began in 1981 when the personal computer, for individual consumer called 5150 OR the “PC” developed.
IBM partnered with Microsoft (MSFT) a relatively new company, to run MS-DOS as the operating system on these machines. Meanwhile, IBM invented the architecture for “local area networks, as first the office networks that users came to rely on, then the basis for the global networks that connect users on the internet, and finally the home networks. It also created one of the modern benchmarks for artificial intelligence with its Deep Blue thinking system.
Figure 3: Garry Kasparov and Deep Blue, Garry Kasparov playing against Deep Blue, the chess-playing computer built by IBM. This AI became most famous for its series of chess games against world champion Garry Kasparov in the 1990s, culminating with Kasparov’s defeat in 1997. Adam Nadel/AP Images.
After hiring Louis V. Gerstner, Jr. as its new CEO (the first IBM leader outside its rank since 1914) IBM focused on high margin opportunities. Therefore, the company keeps its position as a leader in computer-related technology. IBM dissociate itself from low margin industries (DRAM, IBM Network, personal printers, and hard drives) and invested in high margin opportunity such as software.
The company regained the business inventiveness by building upon the decision to keep the company whole. It allows running free a global services business that rapidly rose to become a leading technology integrator. Crucial to this success was the decision to become brand agnostic – IBM integrated whatever technologies the client required, even if they were from an IBM competitor.
IBM and Its Research and Development Activities
IBM's Research division is a huge organization, spanning 12 labs and 3,000 researchers over 6 continents, and has earned more Nobel prizes than most countries IBM employs some of the most innovative people in the world. The company annually invests $6bn in research and development.
Since 1993, the number of patents the company has received each year has increased at a compound annual rate of more than 9 percent. IBM is the leader in U.S. patents for the 28th year running, but what does it really mean?
Patents and patent applications play obvious roles in the development of successful products and services. How so? Because original or unique intellectual properties (IP) are among the most powerful tools companies have for differentiating their solutions in markets that are often crowded with similar offerings.
IBM has many patents in computer science and has the number one position in many emerging computer-related technologies such as cloud systems, the Internet of things (IoT), and blockchain. IBM granted most blockchain patents in the USPTO and many of them are related to blockchain network security.
Figure 4: IBM has the first position in filing patent applications in blockchain technologies (reference)
Although IBM is known as a well-known company in the computer field, the company’s activities are not limited to only computer science, but also it covers areas like energy, genomics, and materials science. Its inventions range from laser eye surgery and the UPC code to high-temperature superconductors and the scanning electron microscope.
Investing in future technologies
IBM invests in future business opportunities, such as quantum computing and neuromorphic chips. The interesting fact is much of the researches done at IBM will not compensate for years or even decades! IBM chooses not to follow specific opportunities and will either partner, license, or donate technology it creates.
According to Bernie Meyerson, the Chief Innovation Officer of the company in an interview with INC,"You're never certain as to what's going to be commercially fantastic, that is why we take an unconstrained approach to research and innovation. IBM wants to investigate everything that can help them solve the problem."
Why filing so many patents
A more conventional role of patents is to protect the investment in innovation and a major reason why IBM pursues patents so insistently.
The company’s chief innovation officer believes that in the absence of conventional business metrics, patents can help play that role since it is a visible performance metric that creates a high public house for researchers, as it requires them to come up with something truly new and foundational. The patent also could be a motivator, because the people who did the work get recognized on the patent and for its subsequent business impact.
Moreover, what makes IBM is very different from other technology companies is that much of its business comes from designing solutions for corporate partners. Unlike Apple or Google, which sell products and services directly to customers and are sometimes reluctant to patent trade secrets, IBM regularly works with partners to create an end product.
Does the company compensate its investment in patenting by licensing?
According to its annual report, in 2015 the company invested $5.2 billion in research and development, and clearly, it wants to protect its right to monetize that investment. According to company policy, the company practices "reasonable and fair licensing" practices and doesn't try to harm other firms that want to make use of its technology. The company earned $682 million in 2015 as licensing revenues that are almost non-material given the size of its research budget and in comparison to the revenue, company earned that year ($81.7 billion) the licensing revenue is not significant.
IBM Legal department and its functions
IBM has a legal department that includes an Intellectual Property department. This group ensures that IP activities for example align with corporate strategies such as IBM's strategy for open collaboration and coordinates, supports, and leads these activities across the company.
IBM also has one of the largest patent portfolios in the world, which needs significant global efforts, coordination, and management by the IP department. The IP Law department has a number of departments including a patent portfolio department. Members of this department have the responsibility of managing the size and content of IBM's worldwide patent portfolio. They are very familiar with the technology fields in which IBM holds patents and files patent applications, including those for semiconductors, servers, storage, and software.
IBM strategy to ve the Patent leadership and the company's global strategy
1) Building a high-quality patent portfolio
Employing world-class scientists (170,000 technical professionals) and spending US$6 billion each year in R&D activities (close to 6% of its total revenue), has helped IBM to build a high-quality patent portfolio. Such a portfolio not only helps IBM generate significant IP income but also, more importantly, helps the company to grow its business;
The company has a diverse strategy in earning shares from its patent portfolio: fees from licensing and custom-developing intellectual property for other companies as well as patent sales and product innovation.
Moreover, according to IBM's chief patent counsel, Manny Schecter, The portfolio also protects others who might aggressively bring their patents directed at IBM. The company could benefit also the business by protecting all those innovations with patents because it's not uncommon for customers to be interested in working with IBM or buying from IBM because they know IBM has a large portfolio of licenses with others that may enable the company to market products and services that they can't obtain elsewhere at the same price or without threats from a patent holder against another supplier who doesn't have a license.
However, the question raised here regarding the actual value of this IBM's furious patent filing activity IBM. A study conducted by Ocean Tomo, a Chicago-based intellectual property consulting firm in 2010 found that IBM's collection of US patents over the previous five years (2005-2010) ranked only eighth in value. According to that report, Microsoft had the most valuable collection despite filing only 2,311 compared to IBM's 6,180 in 2012.
2- IBM patent portfolio and its credibility in policy matter
In fact, IBM's patent leadership position gives it credibility not only in licensing negotiations but also in policy matters. For instance, in January of 2005, after IBM pledged 500 patents to the open-source community, other companies such as Nokia, Computer Associates, Novell, Sun, and others did likewise. Furthermore, the company’s policy to pledge royalty-free access to its patent was followed by other companies. For instance, in 2005 October, IBM undertook royalty-free access to its entire patent portfolio for open healthcare and education software standards. In July of 2007, IBM also announced granting access to its entire patent portfolio of 40,000 patents in support of more than 150 standards designed to make software interoperable under certain condition
3) IBM's global IP strategy
IBM uses its leadership position to help improve the quality of the IP system worldwide; For example, with regard to patent systems, there are many differences among them, but issues such as those affecting patent quality or pertaining to the backlog of patent examinations, tend to be common among a number of them. With this regard, IBM in cooperation with the USPTO, academia, and a number of other companies, launch a pilot program, known as the ‘Peer-to-Patent' to open the U.S. patent examination process to public participation for the first time which is managed by Beth Novak of New York Law School.
The project for the first time opens up the examination process by allowing the public to comment on the patentability of claims in certain types of patent applications by forwarding relevant information to USPTO thus improving the quality and scope of issued patents. IBM has introduced the concept of Peer-to-Patent in a number of countries including China, Japan, Korea, Taiwan, and the UK."
IBM is a patent leader in the US for almost 27 years. The company spending US$6 billion each year in R&D activities (close to 6% of its total revenue) and since 1990, its income gained from the intellectual property has increased from US $30 million to more than tUS $1 billion.
The policy behind being the leader in the patent world can be summarized as;
· Creating incentives for innovator incentive
· Providing high-quality patent portfolio to protecting technologies the company provides
· Compensating part of its invent in R&D by IP earned revenue
· Leadership in the worldwide policy matters