The emerging threat of intellectual property indemnification

A new study by IDC highlights the impacts of an intellectual property indemnification legal battle on companies.

According to a newly released IDC survey of 200 United States-based IT professionals, IT executives are reacting with more seriousness than cynicism to the evolving intellectual property indemnification threat, which they view as an IT management issue rather than an open source issue. Effective intellectual property management will become an increasingly important and differentiating issue for software vendors over the next five years, and end users will continue to push for standardisation, education, clarity, and consistency around vendor intellectual property indemnification policies.

"End user organisations should be concerned about such things as the potential cost and disruption to their businesses if they need to replace a technology, the potential distraction of management attention and energy consumed in defending the company itself against an intellectual property infringement claim, and the potential effects on suppliers entangled in intellectual property litigation," said Stephen Graham, group vice president for IDC's Global Software Business Strategies.

Faced with the prospect of an intellectual property legal battle, IT executives are most concerned with the negative impact on software innovation and the financial impact of replacing existing software. Once a company is threatened with intellectual property infringement litigation, costs are typically incurred to secure legal counsel, and the company must then weigh the potential risk to its IT investment and take appropriate action. Over 30 percent of respondents participating in IDC's survey currently have or are developing an indemnification policy.

IDC finds that the number and proportion of software patents is rising dramatically as companies are motivated to acquire patents, and in some cases, use them to take the offensive as a competitive instrument as part of the impact of intellectual property indemnification. Due to their greater resources, larger companies will likely be the primary targets for intellectual property indemnification lawsuits, and, therefore, will be the group to watch in regards to developing intellectual property indemnification and management approaches.

"IDC believes that addressing customer or partner solution development issues is the most significant area for vendors to develop competitive advantage in intellectual property indemnification," Graham added. "Our research shows that this issue is not just hype from media coverage about recent intellectual property indemnification litigation, but also a concern deeply rooted in industry issues that will continue to develop in the near future."

The newly released IDC study, ‘The Impact of Indemnification: Linking Vendor Strategies and the Needs of IT Professionals’ (IDC #33487), provides an analysis of the intellectual property indemnification issue in perspective of current and future IT industry impact. To purchase this document, call IDC's Sales hotline at 508-988-7988 or email sales@idc.com

•Date: 28th June 2005 • Region: US/World• Type: Article •Topic: BC general
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