Annual Survey of the Licensing Industry Finds:
Patents remain top pick for creating competitive advantage
Time spent on litigation is limited
Respondents weigh in on deal making best and worst practices

Washington, December 2007 - In a era filled with headlines about patent reform and vigorous public debate about intellectual property (IP) issues, licensing professionals report spending very little time on litigation issues and are increasingly looking towards patents for creating competitive advantage, according to the 4th Annual Survey of the Licensing "Industry" conducted by the Licensing Executives Society Foundation.

The Foundation's annual survey uniquely gathers data from across industry sectors through an online questionnaire of Licensing Executives Society, USA & Canada, Inc., (LES) members. The data is broken down and analyzed by industry (Health, Industrial, University/Government, and Digital Information, Communications and Electronics (DICE)) and by company size.

"The goal of our survey is to provide an annual synoptic perspective on key statistics, events, and trends in the business of licensing that can assist licensing professionals in understanding and advancing the business environment in which they operate and to which they contribute," said former LES Foundation President Dr. Richard Razgaitis. "It can also be used by the public, academic researchers, and government policy analysts to grasp the issues and impacts of licensing business practices."

Perceptions of an anti-IP environment:
Public debate over a myriad of IP issues ranging from ‘open source' to the price of pharmaceuticals, as well as high profile IP court decisions have made patent reform front-page news over the past year or two.

"Those in LES have a deep appreciation for the importance of IP and the ability to license rights to IP in fair and creative ways -- and the importance of such outcomes in fostering, and rewarding innovation," said Dr. Razgaitis. "The cultural environment in which this takes place, however, is not entirely sympathetic to such perspective."   

In an effort to identify trends in this area, this year's survey repeated a series of questions relating to licensing professionals' perceptions of an anti-IP environment today versus three years ago. Sixty-one percent of responses indicated "strong" or "moderate" cause for concern today. Sixty-one percent also reported that they would have said there was "no" or "slight" cause for concern just three years ago

While the Health sector exhibited a higher level of concern, every sector showed 50% or greater response for "moderate" to "strong" concern in the present environment. These data are similar to results reported in the 2005 survey.

Time spent in litigation:
In contrast to popular belief, most respondents (who are licensing professionals of IP-owning companies or organizations) reported spending very little time over the previous year on licensing activities aimed at settling or avoiding litigation. In fact, thirty-seven percent reported 0% of their time spent, 29% responded 1-5 percent of their time spent, and 18% reported 5-25 percent of their time. Only 3% reported in any category over 50%. These 2006 findings reflect a decrease from 2005 in time spent on litigation.

Firms created solely to acquire and enforce patents against numerous alleged
infringers (sometimes referred to as "trolls") appear to have had only a limited impact on most respondents' businesses, with a mere 6.4% reporting having spent "significant" time and resources dealing with these threats.

Relative importance of various types of IP:
Patents continue to be the most popular form of IP among professionals for creating competitive advantage, with 83% of respondents rating them as "extremely" important. This is up from 80% in 2005. In second place again this year is "know-how" with 46% of respondents rating it as "extremely important" down from 50% in 2005. Trade secrets also dropped marginally from 34% in 2005 to 32% in 2006. "It will be interesting to see what effect recent court decisions on patent matters have on this trend in the coming year," said Dr. Razgaitis.  

Motivations for creating IP:
So what motivates companies to acquire or generate IP assets? Forty-three percent of respondents said that IP is extremely important for increasing licensing revenue and realizing higher returns on proprietary products. The next most frequently cited reasons were for use as a basis for strategic partnerships or joint ventures (39%), managing litigation risk (38%), preventing or slowing down imitation of technology or products (34%), and improving bargaining strength in negotiations or disputes (32%).

These results mirror the 2005 results almost exactly. In addition, as in 2005, the 2006 distribution of answers were similar across categories from "extremely important" to "not important" indicating that there are many motivations for creating IP.

Dealmaking:
In 2005 the LES Survey looked at, among other things, the effect of various uncertainties in preparation for dealmaking, deal breakdowns and deal remorse. Deals that "go bad" are reported to be frequent. Respondents reported that 20% to 30% of all deals done require substantial renegotiation or end up in arbitration/litigation. The most common reason given for such breakdowns related to technical and business milestones (cited by more than 50% of the respondents as an important cause), followed by field of use and exclusivity restrictions (41% and 35%), followed by money issues (payment structures, 34%, and payment amounts, 31%).

Past LES Foundation surveys have shown that it can be difficult to bring licensing negotiations to closure. This year respondents were asked about "deals gone bad," meaning licensing agreements that have become the subject of a serious dispute between parties. Fully 62.5% of respondents reported that at least one of their deals had "gone bad" in the previous year, which reflects the high degree of uncertainty involved in structuring licensing agreements. The majority of these disputes (53%) were resolved through renegotiation, but 25% were simply terminated.

With the benefit of hindsight, respondents identified various aspects of agreements that could have been better specified. At the top of the list were technical and business milestones (identified in more than 50% of case), followed by restrictions on exclusivity and field of use (41% and 35% respectively). Money issues such as payment structures and royalty rates were cited by one-third or less.

Dealmaking best and worst practices:
New to the survey this year was a series of fill-in-the-blank questions looking at best and worst practices -- before, during and after deals are struck.

Respondents overwhelmingly reported that "doing your homework" was paramount in the pre-deal stage. Also of notable importance were building a project (deal) team and "people issues" such as being courteous and flexible.

While at the table, respondents said best practices focused on active listening (being wholly sentient). Also listed as critical was, again, "people issues" including being courteous, ethical, flexible, polite, respectful, patient and honest. Worst practices in this phase included lack of listening, "dirty little tricks," "bait and switch," arguing, bullying, changing negotiating team members or terms, delaying, ego and getting insulted.

According to respondents, key to post-dealmaking success is effective communications. On the flip side, worst practices were said to be complacency and failure to follow up. 
 
A comprehensive look at the 2006 Annual Survey of Licensing appears in the December issue of Les Nouvelles, the Journal of the Licensing Executives Society, USA & Canada, Inc., and the Licensing Executives Society International (LESI). The information will also be posted at www.lesfoundation.org in January 2008. Past years' surveys are also posted on the LES Foundation site.  The 5th Annual Survey is planned for early 2008

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The non-profit LES Foundation was established by the Licensing Executives Society (U.S.A & Canada), Inc., in 2000 to increase public awareness and understanding of licensing of intellectual property rights and to communicate the critical role licensing plays in bringing creativity and innovation to commercial realization.
Media Contact: Lydia Steck, (847) 323-3893, TheCommunicator@comcast.net

Graphs to accompany the text

Perceptions of an anti-IP environment

Time spent in litigation

Relative importance of various types of IP

Motivations for creating IP