NEW YORK, June 18, 2007 (PRIME NEWSWIRE) -- PricewaterhouseCoopers LLP (PwC) today released the third annual survey of its kind focusing on technology licensing trends. The 2007 Technology Licensing Marketplace Study found that as technology has moved to the heart of most business processes, an increasing number of industries are suffering the effects of licensing non-compliance. This growth puts even more companies at risk of losing millions in earnings and potentially billions in market capitalization to unlicensed technology.
Meanwhile, in the last year, more than three quarters of all technology licensors suffered revenue leakage due to licensing non-compliance, and this leakage was most serious in lucrative, high-growth economies such as the United States and China. In the software industry alone, the global loss to underreporting, overdeployment and piracy was estimated at nearly $40 billion.
"Companies must recognize the seriousness of this situation," says David Marston, partner and U.S. leader for Licensing Management, PricewaterhouseCoopers. "The impact to earnings and market valuation suffered by companies that do not pursue revenue leakage from unlicensed technology is both significant and quantifiable."
Seventy-eight percent of technology licensors report revenue leakage from licensing agreements, however, companies appear to be relatively unconcerned about its effects. Seventy-two percent of software companies and 71 percent of all technology licensors respondents do not consider piracy or the black market an important issue. Almost half (48 percent) also do not have a plan for recovering lost licensing revenue.
Without accurate information on which to base their assessments, technology licensors tend to view leakage as a minor financial issue that does not constitute a material loss. Sixty percent of technology licensors believe leakage accounts for 5 percent or less of total licensing revenue, and only 6 percent report leakage that exceeds 20 percent of revenue.
Despite that view, the study found that revenue leakage caused from $25 million to more than $125 million in losses for at least 31 percent of technology licensors in 2006.
"The current state of the technology licensing market magnifies the importance of earnings performance," adds Marston. "As assets of large, generally public companies, large licensing portfolios are under constant pressure to maintain growth and boost corporate earnings."
Other noteworthy trends include:
-- Technology licensors are most concerned about licensing revenue
leakage in China and the United States
- China is the world's fastest growing licensing market. The
highest proportion of companies (40 percent) rate China as a
top region for leakage, and 33 percent consider the U.S. a
primary concern.
- The U.S. licensing market also has the highest average number
of agreements per company. In 2005 and 2006, more than half of
companies reported more than 250 licensing agreements in North
America and about one-quarter reported 2,500 or more.
-- Changing attitudes, and new compliance tools are driving increased
scrutiny of licensing compliance
- In 2006, 54 percent of all technology licensors employed
compliance audits, a number that increased to 61 percent among
companies with more than $1 billion in total revenue.
- Eighty-nine percent of respondents believed their customer
relationships remained the same (75 percent) or grew stronger
(14 percent) after compliance audits.
-- Best practices could significantly improve the effectiveness of
many licensing compliance programs in recovering lost revenue and
strengthening customer relationships
- Revenue-recovery programs are very likely to pay for
themselves and, in many cases, also add to the bottom line.
- Thirty-eight percent of technology licensors believe that a
lack of internal controls among licensees is the main cause of
non-compliance.
"Attitudes are changing," comments Marston. "Guided by the precedents in Sarbanes-Oxley, aided by new tools, and driven by increasing revenues, the licensing marketplace is becoming more transparent and mature. As best practices for revenue tracking and compliance become standard practice, so will appropriate economic compensation for intellectual property."
Methodology
The PricewaterhouseCoopers 2007 Technology Licensing Marketplace Study is based on interviews with CFOs and CIOs at companies in the United States and Canada with annual revenue of $250 million or more and operations involving licensing agreements. These companies were identified by SIC codes that traditionally fall within the technology sector, but 29 percent of respondents classified their companies in industries outside the technology sector, including professional services, financial services, distribution and logistics, publishing, automotive, consumables, and research.
Please visit www.pwc.com/us/licensing for more information.
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