Protecting inventions vide patents is an indispensable requirement for a company to be successful. Protecting patents is not simple. It requires a patent-filing strategy as well as management of the IP assets in a way that it brings revenue to the company. But above all, one should be aware of the pitfalls of the patenting system and learn to combat them efficiently by devising a holistic and customized patent strategy. This article outlines the basics of a patenting strategy and the explores the intricacies of the patenting system.
Abraham Lincoln's view on the patenting system rings true even centuries after it was made. He opined that the patent system is the "the fuel of interest to the fire of genius."
The concept of patenting inventions can be traced way back to the 14th century. The system was introduced in order to encourage the inventors by awarding them exclusive rights over their inventions for a specific period of time. During the period of exclusivity, the inventor could reap the benefits of his hard work by exploiting his patent in any number of ways. However, in exchange of the exclusive rights, the inventor had to concede to a public disclosure of the invention, once the period of exclusivity was over.
The patenting system today has undergone a lot of changes and refinement, making it a complex and diverse system. Though the basics of patenting are the same, i.e. exclusive protection for a specific period; patents today are used to give companies' leverage against its competitors. Patents can be used to enhance the competitiveness and market value of a business in the economy. Patents are used as weapons of defense and offence; to be ahead of others as well as to stop others from overtaking one's progress. Companies stringently protect their IPs and have IP management portfolios because they realize that a single, novel patent can be the only difference between one's company success over others. The importance of owning patents cannot be over-emphasised. A single example will help exemplify this position; the technology of xerography developed by the Xerox Corporation created a new industry in itself.
When a company invents a technology that gives it an edge over other companies, it is obvious that the company will want to be entitled to an exclusive use of that invention. Protection is sought to keep the company ahead of others, by not allowing anyone to use the patented product/ process. Usually, in a company, the employee(s) who invents the product is the Inventor(s) and the Inventor(s) assigns the rights to the company. Patent rules and rights differ depending on the country, but in most countries, it includes a right of exclusive use of the patents for a limited period of 20 years.
Rights of the Patentee/ Company:
During this 20 years period, the patentee gets the exclusive rights to:
- Enjoy monopoly rights over his invention
- Stop others from making, using, selling, importing, offering for sale or distributing the patented invention without his permission
- Monetize his patent by selling or licensing
From the standpoint of business enterprises, these exclusive rights mean that its competitors cannot create similar products that infringe the patent; and if they do infringe on the patent, the patentee company can sue them. In case the competitors want to use the patented product/ process, they would have to get a license from the patentee company by paying royalty. Also, during this period of 20 years, the R&D team of the patentee can further improvise on the patent.
Points to be taken care of while patenting:
Despite the obvious gains in patenting an invention, not all inventions can be patented. Patenting is an expensive procedure and some inventions are not worth patenting. Also, as against general notion, patent protection is not international; it is a national process and one should understand the risks involved while choosing jurisdictions. One should also be aware of other's IP and respect the same to safeguard oneself from unnecessary litigation or royalty payment. It is for this reason that companies must have a patenting strategy in place. This will help them determine what inventions need to be patented.
Expensive Procedure; How to combat it?
More often than not the costs of patenting deter companies from patenting their inventions. In the US (as well as in most other countries) attorney fees are charged by the hour and it can be anywhere between $250- $500 per hour. To combat the cost, most foreign companies employ Indian IP firms such as Intepat IP Services to cut costs of patenting while maintaining the quality of their patent applications.
Another strategy is to evaluate the inventions and separate the important inventions from the non-important ones. Only inventions that are important and patent-worthy must be patented. Also, one should evaluate in which countries the future of the product lies and then file patents accordingly in those jurisdictions. Filing patents in numerous jurisdictions without a definitive strategy is simply a waste of money.
When should a product/ process be patented:
Though there is fierce competition to patent inventions and gain exclusive rights over them, one should not patent each and every invention. Sometimes, the product is not worth the money (not lucrative enough) to be invested in and protected. To estimate whether your product is worth patenting, the question to be asked is- Is the invention successful enough that the competitors want to obtain it?. If the product would generate a meager amount of profits, it is not worth patenting. If it would be successful enough to justify the potential legal expenses incurred in defending the product, then you can consider patenting it. You can also consider patenting it if the product is successful enough to earn royalty and generate revenues for your company by licensing it to others.
After getting a patent there are many ways of earning money from a lucrative invention. You can license it, mortgage it or market the patent yourself.
Patent Procedure; Which countries should a patent be obtained?
Patents are territorial. As against the general notion that a patent is universal, a patent is protected only nationally, not internationally. There is a system for International Patent Protection. The only way of protecting patents on a global basis is to file a patent in each country separately. You might have heard about the PCT (Patent Co-operation Treaty) and nurtured a wrong notion that PCT applications are protected internationally. The truth, however, is that PCT Applications are preferred only because it gives extra time to the Applicant in deciding in which countries he wants to file a national patent application. Deciding the jurisdictions in which to file a patent is an important decision. The procedure for obtaining a patent is expensive and jurisdictions must be chosen with utmost care. Mostly, in such decisions, countries where the product will not be launched should not be chosen. Countries, where the company will be doing business, should be chosen. A market analysis will reveal the future of the invention in a respective economy.
Be aware of other's IP rights (Patent Trolls):
If your product becomes successful, there might be companies holding patents that can drag you into unnecessary litigation or ask you to pay royalties to the tune of lakhs of rupees. There are companies who patent inventions but do not utilize them. They wait for other companies to develop similar products, and once these products become successful, the patentee companies start suing them or asking for royalties. These companies are Patent Trolls.
The Blackberry case made everyone aware of the hazards that patent trolls can pose to your invention. NTP never made or sold anything but thrived on licensing its patents to other companies. In the early 1990s, it purchased patents relating to wireless e-mails. When Blackberry maker, RIM, started providing wireless e-mail services, NTP sued RIM for infringing its patents. What ensued was a legal battle that resulted in RIM paying NTP a one-time payment of a whooping $612.5 million.
To avoid messy situations like the one illustrated above, one should be sure that the product of a company does not infringe any patent. To this end, a patent search must be conducted to confirm that no similar product using the same technology exists. "It is always better to do a preliminary patent search before delving into the R&D or product developments to avoid investing money in unnecessary avenues", says Senthil Kumar, Chief IP Consultant of Intepat IP Services Pvt Ltd, Bangalore, India.
Patenting and Success:
Notwithstanding the risks involved, there is a definite correlation between patenting and business success. Companies with patents are four times likely to be successful as compared to the alternative of companies without patents. The reasons for success, besides the exclusive rights, are as follows-
1. IP Valuation– Knowledge is now considered to be an asset and is protected vigorously by companies in the form of IP protection. The corporate strategy includes the management and protection of IP assets. The first and foremost step in the strategy is the correct valuation of your company's IP.
Valuation is important insofar as licensing and investment options are concerned. Moreover, valuation is important for mergers and acquisitions (M&A). For obvious reasons, companies with technological overlap in their patents are more likely to form mergers than ones where there is no overlapping.
Companies perform IP valuation of their assets and usually, segregate the IP assets into three categories:Very valuable patents that are worth defending, moderately valuable patents or patents that are not used or planned to be used, yet are valuable to others and Patents that are not likely to be used and not are of no value
Dow Chemicals, which had 29,000 patents, classified its patents in the above three classes and the first class was segregated for business growth purposes, the second was offered for licensing and the third class was donated or abandoned.
2. Patents and Investment– How to rope in investors:
Patents can bring in investment to the company. When investing in a company, an investor would want to be assured that his investment would be protected and that he would gain some returns for his investment. When patents are a part of the IP assets of a company, they form an assurance to the investors that the company would gain a unique position in the market due to its protected inventions and there is a possibility of financial gains from the same. Patents undeniably increase the credibility of a company in the economy making it a lucrative forum for investment. Analysts have also found that companies with great patents, i.e., those cited by others in their patent applications, are likely to be a better investment option than those holding patents that are never cited ["Follow the Patents," BusinessWeek, 8 January 2007]
While investing, several questions may arise in the mind of the investors- some being- When will the validity of the patent expire? Can the patent be reverse engineered or worked around to make similar inventions? Can it be proved invalid?
These uncertainties in the minds of the investor can be removed by making a patent portfolio wherein a patent search of similar products is done to prove your leverage against the currently available/ patented products. The patent search report would consist of inventions consisting of similar products and would also cite how your product is different and advantageous as compared to the ones available in prior art.
3. Patents and Licenses– How it brings revenues
After a patent is granted, the same can be licensed to others in order to create revenue for the company. Some businesses thrive on the revenues collected from the patents they license to others. Licenses can be exclusive- where there is a sole licensee who can use the patent- or non-exclusive- where there are several licensees who can exploit the patent.
The power of licensing to others may be used as a weapon to obtain royalties in cases where there is an infringement of your patent. In such infringement scenarios, the patentee company usually sends cease and desist letters and obtains injunctions against the competitor who infringes their patented product. However, if a company is not willing to defend its patents through the expensive and time-consuming process of litigation, especially when they are of the opinion that the patent is not that successful/ lucrative to invest money in litigation, it can bargain with the competitor and obtain royalties for the infringing operations of the competitor. More often than not, the infringing party is willing to pay royalties than get tangled in litigation procedures.
Patent strategy, when applied in the right way, can make your business leap light years ahead of others. For this, a patent-filing strategy and an IP management strategy should be customized according to the needs of the company. If properly executed, these strategies could lead your company to unprecedented success giving it a definitive edge over its competitors. For this, a foolproof IP strategy must be in place.
The above article was initially published on Intepat Blog.
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.