property has been a cornerstone of virtually every industry and business.
But only over the past two or three decades has the value and wealth
generated by the various forms of this intangible asset risen to the
same levels as those gained from tangible assets, such as land or
natural resources. Generally, IP refers to the collection of patents,
copyrights, trademarks, and trade secrets that a company owns. However,
this definition has been broadened to encompass all types of intellectual
property, such as business models, methods, strategies, customer and
market information, reports and documents, drawings, general know-how,
e-mails, software, algorithms, and recorded media. The IP portfolios
of many businesses constitute their most valuable assets.
can also act as a critical differentiator and a great source of revenue.
Even a cursory review of the relevant headlines over the past few
years covering VC investment in start-ups, economics of licensing/royalty
agreements, or litigations clearly indicates intellectual property's
huge value and the need for effective management strategies. Such
strategies should protect intellectual assets in a practical as well
as a cost-effective
manner and garner the maximum possible value from them. Because of
the heightened importance of these valuable assets, IP's role in the
semiconductor industry must be continually examined.
rise of IP-providing companies, many examples of licensing/royalty
payments of up to hundreds of millions of dollars, and the growing
need for more innovation to overcome CMOS scaling barriers all point
to the ever-more- prominent role that intellectual property plays.
Consequently, there has been an increasing focus on creation and generation
of IP among semiconductor companies, which consider it a major competitive
metric often cited as a measure of success is the number of issued
patents. Although this gauge is quite relevant and important, it is
ultimately the quality, not the sheer quantity, of the IP and its
potential commercial value for revenue and licensing/royalty income
generation that ultimately matter the most. One key core patent, or
a collection of a few fundamental core patents with a high level of
technical merit and multiple broad claims that effectively and fully
cover the relevant IP, technology, and application landscape, is much
more valuable than a long list of patents on incremental improvements
to existing technologies. This value can be greatly enhanced if these
key core patents also offer novel practical solutions to current problems
or roadblocks, are sought by others, are easily detectable, and allow
no economically viable work-arounds. However, many of the "lower-value"
patents are still needed for defensive strategies, cross-licensing,
and competitive reasons.
there are two categories of intellectual property. The first is proprietary
IP, which, depending on its breadth, provides some degree of differentiation.
Examples are patents in emerging and enabling technologies, such as
techniques and innovations developed to enhance transistor performance
or to overcome issues with device scaling. Proprietary holdings also
include methods to extend subwavelength lithography using immersion
techniques or tools, processes, and materials developed for high-k
gate dielectrics and metal-gate stacks.
second category is commodotized IP, which can be used free of charge
by anyone. An effective strategy may include defensive publications
designed to put select intellectual holdings in the public domain
with the aim of preventing others from obtaining patents by establishing
prior art. Here, because there is no major technical differentiation,
a significant portion of the leverage and advantage is lost, which
often translates into a lower profit margin. One segment of the semiconductor
equipment industry in particular has suffered the consequences of
this weakened IP position: The lack of any appreciable technical differentiation
in automated batch-immersion wet stations has contributed significantly
to price sensitivity, low margins, and relatively poor financial performance,
which has made running a profitable auto-wet tool business quite difficult.
important category is the ownership of IP generated or used during
the development of industry standards (such as 300-mm intellectual
assets) by SEMI, IEEE, or other industry groups. In many cases, member
companies provide all or portions of the IP, and it is supposed to
be open to access. However, at times this area has been quite challenging
and must be addressed early in the process by clear and solid procedures
as well as proper legal and licensing measures. Standards with IP
strings attached create an unfair business environment. Recent court
battles and lawsuits highlight the need for more transparency on the
part of standards member companies.
are also some gray areas of intellectual property. For instance, equipment
companies work with many customers and learn a great deal from these
interactions. Naturally, they will leverage this know-how in their
own tool and process development, which they later transfer to their
customers without indemnification.
with the potentially great rewards of the intellectual property business
come risks and challenges that must be managed as part of a comprehensive
strategy. The most troublesome aspect is the expensive and at times
endless litigation for potential infringement or improper use. An
ongoing in-house IP audit, careful examination of its ownership, and
review of the need for outside or third-party IP, followed by a well-planned
and financially sound cross-licensing and licensing strategy, significantly
minimize the risk of ending up on the wrong side of a litigation.
the case of low-margin commodity products, royalty stacking can be
a potential challenge. Multiple patents may need to be licensed from
different parties for development and sale of a product with several
royalty payments. Cross-licensing can potentially help to minimize
the financial effect of this problem. Other challenges include identifying
and capturing the developed internal IP and the relatively high costs
of obtaining patents and maintaining and enhancing the intellectual
property position of the company. Ideally, this should be financed
by the value extracted from the existing assets.
the globalization of the business and the industry has accelerated
and the outsourcing of chip manufacturing has burgeoned, there are
many concerns about IP rights and protection, counterfeiting, protectionism,
and bureaucracy in countries such as China with weak regulations or
ineffective enforcement of their existing intellectual property laws.
The Chinese central government has shown that it is aware of the importance
of providing a level playing field for foreign companies. Major changes
are under way to establish internationally recognized IP rights, courts,
these efforts, many uncertainties about the effectiveness, speed,
and success of these initiatives and the potentially negative role
of local governments remain. A prudent long-term strategy still calls
for establishing IP rights and filing for patents in China now, in
the hopes of leveraging them in the future in a more equitable environment
for the effective assertion of intellectual rights.
valuation of IP, which should examine various possibilities and options
for maximizing commercial gains, remains a challenging and critical
component of a sound strategy. The potential market value is generally
estimated as the present value of the net projected future revenues
and profits that can be attributed to the intellectual property and
anticipated to be earned over its useful market or economic lifetime.
It is critical to specify scenarios; target markets; market size;
projected market shares; portions of the market values of products,
services, and applications that use the IP; and the potential risks
of achieving these estimated benefits. The ability to translate IP
into profits can increase the market value of the company well beyond
its book value. In addition to the traditional approach of using tangible
assets, intellectual assets can also be employed as collateral for
securing loans and financing transactions.
need to manage their IP assets through a set of comprehensive and
well-documented strategies. These strategies should be designed to
help businesses recognize the importance of their intellectual portfolio,
audit and identify their existing holdings, assess their value, leverage
the competitive advantage they might provide, and fully extract their
maximum commercial value. They should also develop mechanisms to identify,
capture, establish, promote, and reward creation of new IP; establish
rules for primary and secondary (international) filings; and protect
and enforce the intellectual rights.
addition, companies should perform competitive analysis of owned IP
versus assets owned by others, verify ownership, identify important
third-party holdings, establish processes for inclusion of IP issues
in business decisions, educate the workforce on the value of IP, and
develop metrics to measure the effectiveness of the intellectual portfolio
strategy and monitor its performance. Market valuations of IP and
its net contributions to revenue ultimately measure the success of
a company's intellectual property strategy.