Cisco's Patent Strategy: It's More Than Numbers

Posted by: Michael Arndt on December 21, 2009

So innovation—at least as measured by patents—seems to fading in the U.S. As I wrote here in the current issue of Bloomberg BusinessWeek, patent applications fell in the year ended Sept. 30, for only the second time in the last 25 years. For the first time, moreover, foreigners obtained more patents than U.S. residents.

There’s plenty of reason for Americans to fret, as Mark Chandler, general counsel for Cisco Systems, tells me. The U.S. is turning out way to few scientists and engineers, he says. And it forces foreign students to go back home once they graduate, denying the U.S. their productivity years. “Unless we invest in training science and engineering graduates and encouraging people around the world to stay, we will continue to lose ground innovation competitiveness,” he warns.

But the drop in patent activity may also signal that companies are getting smarter about what they do with their intellectual property.

Cisco changed its patent strategy three years ago, Chandler says. Cisco never filed patent applications willy-nilly, he stresses. But like most high-tech companies, Cisco used to pursue quantity, in what he says was an patent arms race. Everyone wanted as many patents as possible to stake claims and defend their IP. The thinking was that the patents might hinder competitors or at least require them to pay royalties to license patented tech. Cisco has more than 5,000 patents and another 10,000-plus pending.

“The arms race approach doesn’t pay off,” he says. “It doesn’t do you a lot of good to have a lot of patents.”

Why? The patent landscape has changed dramatically. Patents often land companies in court as they fight over who invented the idea first. Lawsuits still might involve competitors, but increasingly Cisco finds it is battling what Chandler calls “non-practicing entities.” These are companies that exist only to acquire patents and then seek to extract money from big companies for infringing on them. The more patents you hold, the more likely one of these companies will sue you.

A few years ago, Cisco regularly applied for 1,000 patents a year. Now it files for no more than 700, choosing only breakthroughs in market adjacencies or the most critical inventions. To help him choose, Chandler now employs a half-dozen highly skilled, highly trained “innovation managers” who work directly with engineering teams. These managers, btw, are also all lawyers.

Yes, that means fewer patents—Cisco ranked 24th in 2008 with 704 vs. 4,186 for first-place IBM—but it doesn’t necessarily mean that it has stopped innovating.

Reader Comments

Ronald J Riley

December 21, 2009 10:07 AM

Cisco and other members of the Coalition for Patent Fairness (better known as the Piracy Coalition) are much better at producing creative and misleading public relations (propaganda) than they are are producing the inventions they need to compete in their markets.

They like to paint a picture of mythical Patent Trolls and Non Practicing Entities waylaying them but the reality is quite different.

What they call Non Practicing Entities practice inventing and do this much better than Piracy Coalition members. In exchange of inventing and teaching their invention via a patent they are granted a property right for the invention.

Piracy Coalition members routinely misappropriate inventor's property rights. They have an entitlement mentality coupled with an incredible arrogance and routinely are stealing billions of dollars of others' patent properties.

They are in the process killing new job creation because it is not large transnational companies which create jobs, it is small business which creates the bulk of the jobs.

Returning to the issue of Cisco and their 700 or 1000 patents, these are generally really narrow incremental low value inventions and just one important independent inventor patent could be worth more that several years of the crappy patents filed by any of the Piracy Coalition members.

Ronald J. Riley,

I am speaking only on my own behalf.
Affiliations:
President - www.PIAUSA.org - RJR at PIAUSA.org
Executive Director - www.InventorEd.org - RJR at InvEd.org
Senior Fellow - www.PatentPolicy.org
President - Alliance for American Innovation
Caretaker of Intellectual Property Creators on behalf of deceased founder Paul Heckel
Washington, DC
Direct (810) 597-0194 / (202) 318-1595 - 9 am to 8 pm EST.

Vic kley

December 21, 2009 10:08 AM

Once again we hear a unflattering reference by a big company Lawyer to "non-practicing entities" and no one certainly not the author of this piece holds their feet to fire on this vague reference- but let's just take Mark Chandler's word for it and make the term more precise since he says these are companies solely established to acquire patents and then enforce these patents. How many such non-practicing companies have sued CISCO? How much has CISCO paid out? How often in patent suits has CISCO been the plaintiff?

CISCO has benefited along with SUN and HP from the enormous work done by many non-companies on such things as UNIX the operating system that pervades most of today's common systems like Linux, Windows 7, Leopard and many others. Of course CISCO and Mark Candler have given back to the American people (remember all patents come in a very few years to be public and free) such great and basic concepts as uh, uh - gosh Mark help me out here buddy I can't recall a single basic idea now in the public domain from CISCO.

staff

December 21, 2009 1:50 PM

"Cisco finds it is battling what Chandler calls “non-practicing entities.” These are companies that exist only to acquire patents and then seek to extract money from big companies for infringing on them. The more patents you hold, the more likely one of these companies will sue you."

Not true. Call it what you will...patent hoarder, patent troll, non-practicing entity, etc. It all means one thing: “we’re using your invention and we’re not going to pay”.

For the truth about trolls, please see http://truereform.piausa.org.

X Cisco

December 21, 2009 10:17 PM

I worked at Cisco and I can tell you that some campuses around the world lack the innovative culture. I struggled constantly in my attempts to convince managers to look at my ideas. They were always brushed aside and I was told to just focus on my assignments. It was discouraging, especially when a couple years later those very same ideas were highlighted else where. I eventually left because I was young and full of energy. Cisco sucked it right out. Great executive team but middle managers are very weak.

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