IBM Gives Away Patents

Intellectual property rights get a lot of people hot and bothered. The recording industry is suing teenagers to protect them. US-Chinese relations are a bit less friendly because of the large-scale piracy that the Chinese economy fosters. India’s drug industry has just been set on its ear by a law that brings the subcontinent into line with the rest of the world, while Brazil has announced it will break patents on anti-AIDS drugs because patients can’t afford them. And then, there is IBM, which announced last week that it would be giving away 500 patents for anyone to use. It’s a short-term loss for a long-term gain.

Big Blue is an innovator, with 3,248 patents last year, the most by any company. It has been the biggest winner of patents in the US in the last 12 years, with 25,772 awarded in that period. It has another 40,000 pending. So, as some critics have noted, the 500 that others can use royalty-free are a drop in the bucket. Yet, business people don’t do things unless, no matter how twisted the logic, they think they can make money from it. Often, they fail, but that is their motive.

Free samples, of course, are easily understood by anyone who has visited an ice cream parlor or delicatessen. By eliminating the cost of trying a product, the producer gets a fair hearing in the marketplace. Test driving a car makes people more comfortable about buying it. But giving up the rents on this property permanently is something different.

In the past, IBM has supported open source programming in an attempt, most believe, to undermine Microsoft, a company that rode IBM’s coattails until its software got to be bigger than IBM’s hardware. And some see this patent move to be more of the same. In a sense, it is because Microsoft’s business plan relies completely on charging rents for intellectual property. By creating software that is free, rivals hope to make Microsoft’s model unworkable. So far, their success has been theoretical only.

However, there is another interpretation of IBM’s decision to forego royalties on these 500 patents. IBM’s services departments accounted for $11.4 billion in the third quarter, while total revenues were $23.4 billion. Software was a mere $3.6 billion by comparison. IBM appears to be shifting its model away from products and toward services. If the software is free, more people will adopt it, but support is always needed in the installation and configuration of a system. Whether IBM’s model will ultimately undo Microsoft is a matter of debate, but what is clear is that the shift to services makes IBM’s future more secure. Giving up a little to get a lot is good business.

© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.

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