Technology Strategy for Managers and Entrepreneurs

Chapter 8 Patents

8-1
2009 Prentice Hall

Learning Objectives
1. Explain why firms can easily and quickly imitate most of their competitors products and services 2. Define a patent 3. Identify the different types of patents 4. Identify the key parts of a patent 5. Outline the trends over time in the expansion of what is patentable 6. Define patent infringement 7. Discuss the benefits and limitations of patenting
8-2
2009 Prentice Hall

Why You Need Intellectual Property Protection

Helps to deter imitation by competitors which will undermine your profits from innovation Competitors can imitate ones products by:
Reverse engineering them Hiring ones employees Working on similar projects Reading ones publications and patent disclosures
8-3
2009 Prentice Hall

The Amount of Time It Takes to Imitate New Products

8-4
2009 Prentice Hall

What Is Patentable?
A patent is a government-granted monopoly that prevents others from using an invention for a specified period of time in return for the inventors disclosure about how the invention works

8-5
2009 Prentice Hall

What Can Be Patented?

Patents cannot be obtained on natural substances or ideas Patents can be obtained only on:
A working process Machine Manufacture Composition of matter

8-6
2009 Prentice Hall

Novel, Non-Obvious and Useful

Patents are only granted for inventions that the patent office determines are:
Novel: if it has not been previously invented Obvious: if it is a clear next step in technological development to a person who is an expert in the field Useful: it has to work, have a use, and be functional

8-7
2009 Prentice Hall

A United States Patent

8-8
2009 Prentice Hall

First to Invent
The U.S. patent system differs from the patent systems in all other countries (except the Philippines) because the United States awards patents to the first party to invent something, not to the first inventor to file for a patent

8-9
2009 Prentice Hall

Nondisclosure
In the United States, patents are only awarded for inventions that have not been offered for sale, and have not been publicly disclosed, either in an open forum or in print, more than one year earlier

8-10
2009 Prentice Hall

Expansion of What Is Patentable

In recent years, the variety of things that can be patented has increased and now includes:
Genetically-engineered organisms Computer software Business methods

Raised issues:
Backlogs in the patent office More patent disputes Innovation hindered by property rights Blocking follow-on research
8-11
2009 Prentice Hall

Growth in Number of Utility Patents Issued

8-12
2009 Prentice Hall

Design and Plant Patents

There are two additional types of patents other than utility patents:
Design patents: given for the appearance of products Plant patents: given only for engineered plants that are reproduced asexually

8-13
2009 Prentice Hall

The Parts of a Patent

Two key parts:
Specification: how the invention works, and may include accompanying illustrations. The specification is what the inventor must trade-off in return for the monopoly right that they receive Claims: identify a particular feature or combination of features that are protected by the patent. The claims are what indicate whether another patent infringes on the patent

8-14
2009 Prentice Hall

Number of Claims

8-15
2009 Prentice Hall

Pioneering patents
A special case of patents with strong claims, which the control of these patents is important because they can be used to extract royalty payments from a large number of users Pioneering patents and patents with broad claims are especially important if starting a company The more pioneering the patent, and the broader its scope, the more competitor firms one can deter from imitating the new product or service
8-16
2009 Prentice Hall

Defining the Claims

The claims that are allowed to make are limited by what previous inventors, whose patents have already been granted, have claimed To determine what claims should be granted, the inventor has a duty to provide citations to previous patents whose technical art is built upon in creating the inventions

8-17
2009 Prentice Hall

Who Can Apply?

Only inventors can apply for, and be awarded, patents, which they do by applying to the USPTO

8-18
2009 Prentice Hall

Picket Fences and Brackets

Effective patenting strategy often involves the creation of a picket fence of patents around a core invention and bracketing, keeping an inventor from using the invention by patenting around it

8-19
2009 Prentice Hall

Patent Litigation
Patents provide the right to sue others if they infringe on the patent by making, using, selling or importing something covered by the claims of the patent If a company wins a patent infringement lawsuit, it can obtain:
An injunction prohibiting the infringing activity Lost profits or imputed royalties are common penalties when infringement is accidental As much as triple damages for willful infringement

Because patents that are invalid cannot be infringed, a common defense against infringement is to invalidate the patent by demonstrating that the inventor had disclosed the invention prior to filing for the patent, or that the invention is obvious to a person trained in the art Because small and new firms must spend a large portion of their revenues and senior management time to enforce their patent rights, large, established firms sometimes willfully infringe their patents, believing that they do not have the money or energy to fight back
8-20
2009 Prentice Hall

Patent Trolls
Patent trolls are companies whose purpose is to buy up patents and enforce their claims through litigation or threat of litigation

8-21
2009 Prentice Hall

Advantages of Patenting
Patents can:
Slow imitation Facilitate legal protection of intellectual property Enhance value chain leverage Make markets for knowledge possible Help new firms to raise money

8-22
2009 Prentice Hall

Why Companies Say That They Patent

8-23
2009 Prentice Hall

Barrier to Imitation
Patents can be an important barrier to imitation, and a powerful mechanism to capture the returns on innovation

8-24
2009 Prentice Hall

Legal Protection
Patents also help companies to use the legal system to protect their intellectual property

8-25
2009 Prentice Hall

Value Chain Leverage

Patents also give companies control over other firms in their value chain By owning patents that are used by customers or suppliers, companies can more easily influence their behavior, and make them act more favorably towards them

8-26
2009 Prentice Hall

Markets for Knowledge

Having a patent facilitates the sale of technology to other firms Patented technologies can be sold to others; technologies protected by secrecy cannot To license a technology to another company, one needs to obtain a patent on it
8-27
2009 Prentice Hall

Fundraising
Patents help new companies raise money because they provide a verifiable source of competitive advantage. Investors can see the mechanism through which the new venture will deter imitation, reducing their uncertainty about the value of the venture

8-28
2009 Prentice Hall

Disadvantages of Patenting
Not always effective at deterring imitation Gain may be greater by keeping it a secret Pace of change may make patent irrelevant Difficulty proving infringement

8-29
2009 Prentice Hall

Effectiveness at Deterring Imitation

Patents are not always effective at deterring imitation Other firms occasionally can invent around patents, the process of coming up with something that accomplishes the same goal as the patented invention without violating the claims of the patent By inventing around patents, other companies can use the invention without having to:
Pay royalties that reduce their profit margins Incur the high costs of developing the invention
8-30
2009 Prentice Hall

Benefits of Nondisclosure
Patenting is disadvantageous when a company will gain more from nondisclosure than from a governmentgranted monopoly A patent gives a 20-year control on the invention, but secrecy might allow that control to last longer

8-31
2009 Prentice Hall

Pace of Change
When technological change is very rapid, the invention that a patent protects will quickly become irrelevant. Given the time it takes to obtain a patent, and the cost of patenting, one probably wont be able to earn sufficient payback to justify the investment in it

8-32
2009 Prentice Hall

Difficulty Proving Infringement

If evidence cannot be gathered to prove that infringement actually occurred, or the fixed costs of defending a patent are so high that it does not pay to protect it through the court system, then the returns on the investment in a patent do not justify the cost

8-33
2009 Prentice Hall

The Advantages and Disadvantages of Patenting

8-34
2009 Prentice Hall

Effectiveness of Patents in the Industry

Patent effectiveness varies substantially across industries because of differences in the nature of technology, and these industry differences affect several aspects of technology strategy

8-35
2009 Prentice Hall

Effectiveness of Product Patents by Industry

8-36
2009 Prentice Hall