Why Do I Need Patents?
This is a question that large and small businesses, private inventors, academic institutions and investors regularly ask themselves. I have heard a variety of different answers including "to protect and encourage innovation", "to exclude competition", and even "to obtain kudos through publication". While all of these may to some extent be true, all too often the bigger picture is overlooked. The answer should of course be "because they will make me money".
The purpose of the patent system is to provide an opportunity for a patentee to prevent third parties from using his invention to their advantage. However, it is only an opportunity, and as a patent attorney a good deal of my time is taken up helping those who have squandered this opportunity or are on the verge of doing so. The fact is that the patenting process is a fragile creature which requires careful handling and maintenance if it is to be used to one’s advantage and not to become a burden to the proprietor. When used correctly, however, a technology protected by one or more patents can be an extremely powerful commercial weapon, and the number of success stories is endless.
How a patentee uses his patents depends on many factors. For example, the size of the company, the means or desire to exploit the invention, and general business strategy all contribute to the way in which a patent portfolio is managed and wielded. A patentee may choose to exclude all others from the market, thus maintaining exclusivity and allowing a premium to be charged for the commercial product protected by the patent. A patent can maintain a greater market share than if competitors could copy a product more freely. Dyson is one such company that has sought exclusivity by successfully suing anyone attempting to copy its technology. Alternatively, the patentee may choose to licence others to use the invention, thus obtaining remuneration through a royalty stream. A good example of this is the Philips Compact Disc technology. A number of patentees choose to sell their patents.
A strong patent portfolio is becoming increasingly important to young businesses and start-ups. I have been involved in raising significant capital for new companies based on a business plan underpinned by a strong patent portfolio. Investors and purchasers naturally look for any reason to lower the value of a target company, and will scrutinise an IP portfolio for any exploitable weakness. By identifying, actioning and implementing a patent strategy, one can show that this important aspect of the overall business strategy has been considered and provides one more reason to receive the investment/asking price. This can be summarized in the IP section of a business plan, which, as the single most important document influencing the decision to appraise prospective investment, can be worth its weight in gold. Investors want to make a high return on their investment, not just a good one. Products which are ring-fenced by patents are more likely to achieve a greater market share and a better unique selling point.
This whole exercise requires a good deal of organization and strategic planning. For example, an investor or purchaser does not necessarily look at the strength of the technology alone. In fact, one of the first questions asked is "who owns the patents and are there any third party rights?" This may, prima facie, appear straightforward. In reality, it is one area which causes the most trouble; poor organisation leading to unnecessary expense and poor emotional feel for the parties involved. An investor will also try to assess whether the target company has freedom to use its products, i.e. it does not infringe the patents of third parties. This is an area which is often overlooked by young businesses. In short, if one knows what investors or purchasers are looking for, it makes the task of showing them what they need to see much easier.
By way of comparison, venture capitalists have engaged me to reduce significantly the value of a company by simply attacking the weaknesses in a company’s patent portfolio. Unfortunately this is usually all too easy to achieve, albeit often entirely avoidable on the part of the party under scrutiny.
Intellectual property is playing an increasingly significant role within business, and in particular, the minds of investors, purchasers and competitors. One thing is clear: The question which should be asked by any technology driven business is not "why do I need patents?" but "can I afford not to have patents?"
Identifying and Protecting Innovation
It is extremely important to identify innovation at an early stage and initiate the processes required to best protect one’s intellectual property. One of the strongest forms of intellectual property is the patent. A patent is essentially a piece of property borne out of the innovation of a company. Innovation is the life-blood of any technology driven company and should be protected as such. No right-minded company director would commit the investment and go to the trouble of building a new factory without fitting locks to the doors.
Most countries have similar procedures for applying for and obtaining the grant of a patent. Most patent systems operate on the basis that any non-confidential disclosure of the invention prior to filing a patent application can lead to invalidity of the patent. Thus, it is important to identify an invention and file a patent application thereon before any public disclosure takes place.
If prior public disclosure is the first pitfall a potential patent applicant can fall into, poor drafting of a patent application is the second. As a patent attorney, one may well take the view that my advice would always be to seek the services of a professional. However, the patent system is highly complex and I have witnessed a number of avoidable disasters where companies or individuals attempted to draft and prosecute their own patent applications. In fact, I can honestly say I have not seen this approach work completely successfully on any occasion. My advice is always to obtain the counsel of a registered patent attorney if you intend to file a patent application.
Once a patentee has a published and subsequently granted patent, policing becomes extremely important. Using the analogy above, once the factory is built, it is merely common sense to fit alarms and surveillance systems, and be prepared to prosecute thieves. Failure to do so will only lead to repeated theft by anyone coveting your property. Accordingly, it is wise to establish some kind of competitor intelligence monitoring. This may be done through monitoring competitors commercial products and their publications, including monitoring patent publications. Once a commercial product is identified which falls within the scope of your patent, the patentee has the option of suing for infringement, negotiating a licence, offering the patent for sale etc.
Again, this situation requires sensitive handling and it is an unwise patentee who charges up to an infringing party waving a granted patent. A careful analysis of the allegedly infringing article is required to assess whether it does indeed infringe the patent in suit. Additionally, it may be wise to test the validity of a patent upon which one is about to sue for infringement. Furthermore, consideration of what the patentee really wants out of the situation is important. Apart from the fact that it is almost always advisable to avoid litigation wherever possible, there is usually some alternative course of action which works to the patentee’s advantage. For example, there is no point in upsetting an infringer by instituting infringement proceedings when they may be willing to take a licence and the patentee is willing to give one. The infringer may have a greater capability to exploit the invention than the patent owner, thus providing a royalty stream which outstrips the remuneration possible by maintaining exclusivity.
In summary, patents may be used in a variety of different ways and it is important to consider this when formulating and executing an appropriate patent strategy. Ultimately, if your patents are not making you money, they are not fulfilling their function. This is not usually a fault of the patents but of their management. Thus, good patent management is essential if one is to exploit a patent portfolio to its maximum potential and consequently to fulfil a company’s potential.
This article has concentrated on patents, but trade marks can be just as valuable, not only to new projects, but to established businesses.
If you would like to discuss any of the issues raised above, please do not hesitate to contact me at the address below.
E-mail: arnie.clarke@barkerbrettell.co.uk
Arnie Clarke is a patent attorney with Barker Brettell, a leading European patent and trade mark firm. Arnie specialises in chemistry, medical devices and engineering.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.