[wos] WEF Annual Meeting 2003_Intellectual Property: A Major Company Asset - and Cost

[Tom Sperlich]

WEF Annual Meeting 2003

Intellectual Property: A Major Company Asset - and Cost
25.01.2003

"Five years ago," noted moderator Georg von Krogh, Director, Institute of 
Management, University of St Gallen, Switzerland, "one could hardly have 
interested CEOs in intellectual property." Today executives realize that 
intellectual property is a major company asset. "It’s a sign that we are 
living in a knowledge economy," he added.

This is not an easy transition. Nobuyuki Idei, Chairman and Chief 
Executive Officer, Sony Corporation, Japan, pointed out that his company 
met resistance from the content controllers in the entertainment industry 
fearing the end of music sales and cinema tickets when Sony introduced 
the compact disc and the Betamax video cassette system. These issues have 
been resolved. But today copying of music is so prevalent via the 
Internet that "if we continue like this for ten years, then I think the 
music industry will die."

"The CD is not very profitable for the music industry," he told 
participants. "We don’t care very much [today] about CD sales." But Sony 
does not know what to do to gain revenue for artists from their music.

One participant in the session on exploring new business models with 
regard to intellectual property rights suggested putting more effort into 
getting revenue from concert sales, but a record company executive said 
these are not very profitable.

Gerard J. Kleisterlee, President and Chief Executive Officer, Royal 
Philips Electronics, Netherlands, noted that conventionally the best way 
to make money from a product is to be the only one to sell it. However, 
this does not always hold true. "Some markets don’t expand if only one 
company is growing it," and it is better to license the technology rather 
than hoard it. As a result, DVDs are produced by 11 companies. And the 
new technologies do not necessarily drive out the old: "Hollywood makes 
more money from DVD than from box office receipts."

Bradford L. Smith, Senior Vice-President, Law and Corporate Affairs, 
Microsoft Corporation, USA, suggested that when technology changes the 
law ultimately changes. Until then, companies need to make them hard to 
copy but easy to distribute. Microsoft found that businesses were copying 
its products because executives had to send employees to a computer shop 
to buy a box when they wanted an additional programme of software. So it 
brought in a licensing system that is estimated to have halved the 
incidence of pirating software.

Richard Levin, President, Yale University, USA, said all universities 
face problems with students downloading copyrighted music from free 
exchange servers and his university sends around warnings regularly "by e-
mail - they don’t read printed warnings". However, half the university’s 
computer resources are still tied up by downloads. Asked why he did not 
take tougher measures, he asked: "Do you have any children who are 
teenagers?" Von Krogh commented that he had the same problem, however, 
with his 70-year-old father. Levin suggested the music industry should 
set up a site with the complete music catalogue online and a system of 
micro-charges - "perhaps a cent per song" - for people to download their 
choices.

Idei mused: "Water is free of charge. Why then do people drink Evian?" 
Smith pointed out that Evian is not competing against free Evian. One 
participant pointed to the Open Source software movement as a model. Idei 
countered that one could hardly treat Mozart as an Open Source piece of 
music that could be collectively improved.

Kleisterlee noted that China had recently started clamping down on music 
pirates. There is even a store in Shanghai that sells non-pirated 
products. The Chinese had discovered that in a regime without copy 
protection they could not build studios or their own record industry. He 
also pointed to a major expense - even for a large company - of patenting 
its products, even if these are not pirated. Philips protected 3,000 
inventions a year, costing 50,000 euros each for full patenting.


Tom Sperlich

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