Will our partner steal our IP? Response
Experts give their insights into this problem
Mats H Olsson, a senior vice president of Ericsson Group and the president of Ericsson North East Asia, offers a solution to the fictional case study published in the previous edition of Finweek (28 February).
It might be in Prime’s interest to guarantee Blue Sky some form of access to its source code. If that seems counterintuitive, let me back up a bit. I believe strongly that a company must secure its intellectual property (IP) assets. Prime has spent years investing in research and development, and its proprietary technologies represent its future revenue stream.
The mobile communications industry, in which Ericsson is active, differs from the automotive sector because of the need for interoperability (you can use your smartphone in China as easily as in the US). Some of Ericsson’s patents are essential for the development of industry standards; t herefore, t hrough an extensive licensing programme based on “fair, reasonable and nondiscriminatory” terms, we make those patents widely available. This gives us a solid return on our R& D investment, benefits established companies and enables new companies to enter the market.
At the same time, we invest in proprietary solutions – our equivalent of Prime’s source code – to differentiate ourselves. We don’t provide our competitors with those solutions, and we protect them with every tool available to us.
We pursue legal action both when a standard adopter unreasonably rejects our licensing programme and when we see unauthorised use of our proprietary solutions.
Given the threat to its IP, Prime is prudent to embed tacit knowledge in its software. That can provide some protection. But the embedded-knowledge approach is beside the point i f a partner simply demands a technology’s underlying IP, as Blue Sky has done. That’s a threat Prime apparently didn’t expect.
Prime’s reaction was to perceive two equally unappealing options – give in to the partner, or give up on the venture. But there could be legitimate strategic concerns behind Blue Sky’s demand, and if Prime can understand them, it might be able to craft a solution that benefits both sides.
Blue Sky might have doubts about Prime’s prospects in the hybrid-car industry. It is cause for concern that Prime has struggled to win big customers. If Blue Sky makes a sizeable investment in Prime and Prime’s auto unit gets into trouble or goes belly up, the Chinese company’s business could be in jeopardy. In that case, access to the source code would be a lifeline.
If that is the worry, Prime could pursue an escrow option, in terms of which the source code would be unavailable to Blue Sky as long as Prime’s auto unit is in business. If anything happened to that unit, though, the Chinese company would be granted access. That’s a fair arrangement and one Blue Sky would undoubtedly accept, assuming its intentions are good.
Prime’s dilemma points to a larger issue: The firm needs to become expert at IP and licensing.
All major technology companies engage in extensive cross-licensing. Ericsson has more than 90 agreements in place, including several with Chinese firms that are our competitors. Our agreements are global, and if they are breached, we can take legal action wherever the infringement occurs.
Similarly, if Blue Sky were to copy Prime’s technology and sell the resulting components outside of China, Prime could pursue lawsuits in those markets. Recourse would be more difficult within China, because despite obvious improvements in the past few years, legislation is not always enforced in a predictable way, and the courts are not yet fully transparent.
If Prime wants a place among the innovative suppliers to the high-tech auto industry, it needs to treat IP rights as a core competency.