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2009 Prentice Hall8-2

Learning Objectives

1. Explain why firms can easily and quicklyimitate most of their competitors products andservices

2. Define a patent3. Identify the different types of patents4. Identify the key parts of a patent5. Outline the trends over time in the expansion

of what is patentable6. Define patent infringement7. Discuss the benefits and limitations of

patenting

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Why You Need Intellectual PropertyProtection

Helps to deter imitation by competitorswhich will undermine your profits frominnovation

Competitors can imitate ones products by: Reverse engineering themHiring ones employees

Working on similar projectsReading ones publications and patentdisclosures

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The Amount of Time It Takes toImitate New Products

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What Can Be Patented?

Patents cannot be obtained on naturalsubstances or ideas

Patents can be obtained only on: A working processMachineManufactureComposition of matter

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Novel, Non-Obvious and Useful

Patents are only granted for inventionsthat the patent office determines are: Novel: if it has not been previously invented

Obvious: if it is a clear next step intechnological development to a person who isan expert in the field

Useful: it has to work, have a use, and befunctional

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A United States Patent

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First to Invent

The U.S. patent system differs from thepatent systems in all other countries(except the Philippines) because theUnited States awards patents to the firstparty to invent something, not to the firstinventor to file for a patent

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Nondisclosure

In the United States, patents are onlyawarded for inventions that have not beenoffered for sale, and have not beenpublicly disclosed, either in an open forumor in print, more than one year earlier

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Expansion of What Is Patentable

In recent years, the variety of things that can bepatented has increased and now includes:

Genetically-engineered organisms

Computer softwareBusiness methods

Raised issues:Backlogs in the patent officeMore patent disputesInnovation hindered by property rightsBlocking follow-on research

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Growth in Number ofUtility Patents Issued

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Design and Plant Patents

There are two additional types of patentsother than utility patents:

Design patents : given for the appearance of

productsPlant patents : given only for engineeredplants that are reproduced asexually

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2009 Prentice Hall 8-14

The Parts of a Patent

Two key parts:Specification: how the invention works, and mayinclude accompanying illustrations. The specification

is what the inventor must trade-off in return for themonopoly right that they receiveClaims: identify a particular feature or combination of features that are protected by the patent. The claimsare what indicate whether another patent infringes onthe patent

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Number of Claims

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Pioneering patents

A special case of patents with strong claims,which the control of these patents is importantbecause they can be used to extract royaltypayments from a large number of users

Pioneering patents and patents with broadclaims are especially important if starting acompany

The more pioneering the patent, and the broader its scope, the more competitor firms one candeter from imitating the new product or service

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Defining the Claims

The claims that are allowed to make are limitedby what previous inventors, whose patents havealready been granted, have claimed

To determine what claims should be granted,the inventor has a duty to provide citations toprevious patents whose technical art is builtupon in creating the inventions

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Who Can Apply?

Only inventors can apply for, and beawarded, patents, which they do byapplying to the USPTO

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Picket Fences and Brackets

Effective patenting strategy often involvesthe creation of a picket fence of patentsaround a core invention and bracketing,keeping an inventor from using theinvention by patenting around it

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Patent Litigation Patents provide the right to sue others if they infringe on the patent

by making, using, selling or importing something covered by theclaims of the patent

If a company wins a patent infringement lawsuit, it can obtain: An injunction prohibiting the infringing activityLost profits or imputed royalties are common penalties wheninfringement 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 bydemonstrating that the inventor had disclosed the invention prior tofiling for the patent, or that the invention is obvious to a persontrained 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

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Patent Trolls

Patent trolls are companies whosepurpose is to buy up patents and enforcetheir claims through litigation or threat of litigation

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Advantages of Patenting

Patents can:Slow imitationFacilitate legal protection of intellectualpropertyEnhance value chain leverageMake markets for knowledge possible

Help new firms to raise money

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Why Companies Say That TheyPatent

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Barrier to Imitation

Patents can be an important barrier toimitation, and a powerful mechanism tocapture the returns on innovation

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Legal Protection

Patents also help companies to use thelegal system to protect their intellectualproperty

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Value Chain Leverage

Patents also give companies control over other firms in their value chain

By owning patents that are used bycustomers or suppliers, companies canmore easily influence their behavior, andmake them act more favorably towardsthem

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Markets for Knowledge

Having a patent facilitates the sale of technology to other firms

Patented technologies can be sold toothers; technologies protected by secrecycannot

To license a technology to another company, one needs to obtain a patent onit

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Fundraising

Patents help new companies raise moneybecause they provide a verifiable sourceof competitive advantage. Investors cansee the mechanism through which the newventure will deter imitation, reducing their uncertainty about the value of the venture

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Disadvantages of Patenting

Not always effective at deterring imitation Gain may be greater by keeping it a secret

Pace of change may make patentirrelevant Difficulty proving infringement

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Effectiveness at Deterring Imitation

Patents are not always effective at deterringimitation

Other firms occasionally can invent aroundpatents, the process of coming up withsomething that accomplishes the same goal asthe patented invention without violating theclaims of the patent

By inventing around patents, other companiescan use the invention without having to:Pay royalties that reduce their profit marginsIncur the high costs of developing the invention

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Benefits of Nondisclosure

Patenting is disadvantageous when acompany will gain more from non-disclosure than from a government-granted monopoly

A patent gives a 20-year control on theinvention, but secrecy might allow thatcontrol to last longer

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Pace of Change

When technological change is very rapid,the invention that a patent protects willquickly become irrelevant. Given the timeit takes to obtain a patent, and the cost of patenting, one probably wont be able toearn sufficient payback to justify the

investment in it

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Difficulty Proving Infringement

If evidence cannot be gathered to provethat infringement actually occurred, or thefixed costs of defending a patent are sohigh that it does not pay to protect itthrough the court system, then the returnson the investment in a patent do not justify

the cost

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The Advantages and Disadvantagesof Patenting

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Effectiveness of Patents in theIndustry

Patent effectiveness varies substantiallyacross industries because of differences inthe nature of technology, and theseindustry differences affect several aspectsof technology strategy

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Effectiveness of Product Patentsby Industry

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