Mosaic ImmunoEngineering Inc (CPMV)

[IAMSAM]

Jim Turley -- What's all this intellectual property (IP) stuff, anyway?

For the last decade or so, we've heard about IP creation, IP protection, IP licensing, and IP companies. Is this really a new type of business or a familiar business wrapped up in new jargon?

By Jim Turley, Patriot Scientific -- Electronic Business, 9/19/2007

We're totally buzzword-enabled. Nobody sells products anymore. We "enable seamless methodology solutions targeted at attractive price points."

Who writes this stuff, and when did we decide that talking like lawyers or politicians was a good thing?

A case in point is "intellectual property," or IP. For the last decade or so, we've heard about IP creation, IP protection, IP licensing, and IP companies. Is this really a new type of business (oops, a "paradigm shift"), or is it a more familiar business wrapped up in new jargon?

The good news is, it's the latter, and the concept is easy to understand. Intellectual property has been around for a long time, and we're all familiar with it, even if we don't always call it by its currently fashionable moniker. In short, intellectual property is knowledge, and IP licensing just means sharing what you know. Books, music, teaching, art—they're all examples of IP. And the world would be much poorer without them.

For a somewhat seamier example, IP licensing is a lot like the world's oldest profession: You get to sell it and then turn around and sell it again to someone else. There's no inventory, no cost of goods, and no manufacturing. Unfortunately, the "product" depreciates rapidly and many of your customers prefer that you don't mention their names. Yes, indeed, it's a tried-and-true business model.

This same business model also works for software, music downloads, movies, and most professional services. In all cases, you're selling a valuable—but intangible—product. Plumbers and dentists certainly provide useful services, but they don't generally leave behind a material product, do they? You're paying for their time and expertise, not the PVC pipe or the little roll of dental floss. Movies don't leave a "residue," apart from good or bad memories. Same goes for music, especially now that we download tunes and no longer get the album covers or liner notes that once displayed our musical tastes to friends and visitors.

In the electronics world, IP encompasses both software and hardware. Software IP is easy to grok. We know we're paying for the bits on the CD-ROM, not the plastic CD itself. The same software is equally valuable, whether it comes on a CD, DVD, or floppy disk or as a download (the ultimate intangible IP).

Hardware IP is a bit trickier. After all, hardware is, by definition, a tangible product. But hardware schematics, Verilog, VHDL, test vectors, and other bits of engineering effort all fall under the rubric of intellectual property. You exert effort to create those things, and you can share them with other engineers. Whether or not you charge money for your schematics is another matter; you've created something valuable either way.

Hardware engineers are like a team of architects. Architectural firms create detailed blueprints for a building, but they don't actually swing the hammers. Instead, the architects sell their plans to construction firms that do the physical construction. The architects get paid for their plans, and the builders get paid for their labors. Everybody's happy.

Likewise, computer engineering firms can design chips (or boards, or systems, or networks, and so on) and then sell those designs to the folks who actually solder the devices together. This division of labor allows everyone to specialize. The designers design, and the builders build. The end customers don't know or care who, or how many people, took part in developing their shiny new iPhone. All they know is that they really like it.

The same goes for every other electronics product today. Cell phones, antilock brakes, satellite-TV receivers, or TiVo boxes weren't all developed by a single brilliant engineer. (And even if they were, that person didn't actually solder together each TiVo that has gone out the door.) We all build on the efforts of others; our "value add" is the expertise we bring and not in reinventing the proverbial wheel.

The value of your efforts—your intellectual property—depends on a lot of things, including the vagaries of market demand. Skill in designing RS-232 interfaces might be valuable for a while but worthless later on. If you've added a particularly brilliant bit of software to generic hardware, you'll find a ready and willing market. Competition and complexity are also factors.

Determining what your IP is worth is a tricky and inexact science—and the topic of next month's article.

Jim Turley is president and CEO of Patriot Scientific Corporation, an IP licensing company.

http://www.edn.com/index.asp?layout=article&articleid=CA6479080