Have you ever wondered why a product would cost much more than its manufacturing cost? If patents are causing the products to become more expensive, why are they even allowed?
Have you wondered why has China grown its patent portfolio internationally? What is so special about having patents?
Do you know that the most expensive patent portfolio was sold for $4.5bn by bankrupt Nortel Networks? Do you know that Apple and Samsung fought with each other by filing over 50 lawsuits in multiple countries to settle patent infringement disputes?
Discussion about the utilization of patents in this article would revolve around a theme designed to answer such questions.
So, what is the use of a patent?
A patent is used for legal protection (preventing others from making, selling, using, or importing your invention), licensing or selling your patent, excluding rivals to gain a competitive edge, increasing business credibility and value, seeking investment, enforcing and claiming damages from infringement, countersuing, etc.
As you can see, a patent is kind of like giving you a monopoly over your invention in the market for a limited period of time.
This monopoly guarantees that you can stop others from reaping the benefits of your patented invention; however, at the same time, it also doesn’t guarantee that you can realize the invention. That’s why we call them negative rights.
Whenever the discussion to make use of patents comes up, there are two types of answers.
One is general and fits for all, and the other one is specific to who keeps the patent.
For example, if you are a big corporation, you use your portfolio of patents for entirely different purposes than if you are an individual inventor. However, general principles remain the same.
In this article, we will see what the purpose of patents is and why they were envisaged in this way. Then we’ll look at how the patenting system works today and how you can employ it. At last, we will see the utility of patents with respect to the types of owners.
1. Purpose of Patent
Inventors are the ones who are propelling the world to become technologically advanced. Today, there are problems and then there are solutions. But solutions come at the cost of money and resources.
Imagine a scenario where an inventor spends his whole life and savings on solving a problem, hoping that one day, he will recover everything when he is going to offer his solution to the world in exchange for money or some other incentive.
However, the moment, he is ready with his market-worthy solution, someone with bigger resources copies it. What will be the fate of our inventor in this situation, I will leave it to your imagination.
Moreover, this incident will deter other inventors from putting their valuable resources into solving world problems. In other words, we now have a situation where there are problems, but no one wants to work on them.
To avoid such a situation, patent rights were envisioned. These rights forbid others from exploiting the patented work of the inventor for a limited period of time. This serves the following purposes:
- The problems of the world get solved,
- The inventor gets incentives and a chance to recover their investments,
- If the invention is left unprotected, the inventor would prefer to keep it secret.
- However, because of patent publication, the world gets the technical knowledge of the invention.
- Now, other people can use this knowledge to develop advanced solutions. This process provides building blocks for future advancements and the chances of missing blocks become less. Win-win for all.
- Once the patent expires after a limited period of time (around 20 years in most countries), everyone can use it for free.
- As a result, innovation takes off in society.
2. Use of Patent
2.1 Legal protection or litigation
Once you obtain a patent for ‘your idea turned into an invention’, you are legally protected from others using it. This is a big sigh of relief for you as an inventor, isn’t it?
However, you should also remember that it’s your job to enforce it.
To enforce, you have to keep an eye on the market if someone is infringing on your right. Moreover, you may have to take matters to the court.
If the opponent is a big player with massive resources then it may be really difficult for you to bring it to the negotiating table.
It is to remove the widespread misconception that once you somehow get the patent, your job is over which is far from the truth.
It simply gives you legal means to stand against alleged infringing players.
In some countries such as the US, litigation is a very costly affair. Therefore, enforcement of your legal rights is not that easy for someone with scarce resources.
2.2 License or sell
It is not always the case that the inventor or owner of the patent produces the invented product. Even if the owner decides to make, sell, market, or import, he still may want to share it with others for increasing profits or monetize his IPR, if that’s the case.
Intellectual property is similar to physical property in many ways. Just like you rent out, sell, or lease out the physical property, you can do the same with the intellectual property.
Sharing the patented technology, by way of licensing or selling, can help the spread of the use of invention more widely.
2.3 Competitive edge
When you have the right to exclude others from participating in technology, you can establish yourself as a leader in the market or gain more of the market share. What can be a greater advantage over your competition than this?
There are examples of many companies that were built using the monopoly over a particular technology gained through a web of patents.
2.4 Business value
You may have heard many products marketed as “patented”, “trademarked” or “US patent published”.
Any business can gain legitimacy through intellectual property and can actually increase the value of the business as a whole.
Moreover, by monetizing IP, a company can increase its revenue by adding a new dimension to the business for growth.
In fact, there are many companies mainly focused on generating IPR and then monetizing it through licensing or selling, or some other agreed mechanisms.
Based on this, you can understand that in merger and acquisition deals, it is often IPR that plays an important role in the valuation of an organization.
2.5 Commercialization and collaboration
You can manufacture and sell your product based on your patent either by yourself or with the help of investors and partners.
For example, if you develop a new type of kitchen gadget, you can make and sell them all by yourselves.
Or, if your resources are limited and you think that partnering with a big player which has a large outreach in the market along with resources can be more beneficial for you, you may consider partnering with such players in exchange for a share of the profits or licensing fees.
Since you own the patent, you can build your brand around it regarding your expertise in the field of patented technology. Thus, consulting fees can a source of revenue for you.
For example, suppose you have invented a new chain-less bicycle then any business trying to set up manufacturing of such bicycles would want your advice as you are the expert in the field.
So far, we have seen the utility of patents which are general in nature. But not everyone can take advantage of patents across the spectrum. That is why it becomes necessary that we discuss the applications of patents as per the type of owners.
3. Uses of patents as per their owners including advantages and disadvantages
3.1 Big Players
Large organizations use their intellectual property to not only build their business but also to stifle competition wherever possible.
For example, we all have heard about the famous Apple vs Samsung saga. This was not limited to just one lawsuit and easily must have cost millions of Dollars to both companies. That’s not possible when you have a crunch of resources or you are small.
Big corporations can fortify their position in one area of technology and use that as a bargaining chip to establish strategic partnerships and collaborations with other organizations.
For example, if company A sues company B for infringing one or more of its patents then company B also files a counterclaim alleging that A infringes one or more of its patents. This way, B can defend itself and can strike a settlement with A.
To enter new markets, companies build their patent portfolios in respective geographies and then leverage them to negotiate their way through into establishing themselves as a force to reckon with.
if one company has to enter the US phone market, it is going to have a tough time competing with established players. That is because the new entrant doesn’t have any IPRs in the US yet, which makes it vulnerable to IP infringement suits left, right, and center.
However, the new entrant is not naive and decides to pursue portfolio building strategy aggressively in the latest or upcoming technologies such as in new kinds of displays, 5G or 6G communication, etc.
Once it has enough portfolio of patents to crack licensing or partnership agreements with the existing folks, it decides to enter the US phone market.
The same can be observed in Huawei’s patenting strategies.
When we talk about how big companies employ patents to their advantage, the discussion of patent pool, patent thicket, blocking patents, cross-licensing, etc. comes up inadvertently.
For example, a patent thicket is a web of patents collectively covering almost every aspect of the technology leaving no room for others to get in.
When giants get into a situation where their own portfolio is not sufficient then they enter into agreements like pooling their patents, cross-licensing, etc.
Sometimes a group of companies may form a cartel to spin off money for profits if possible.
Further, there have been allegations and criticisms against heavyweights of the market for overutilizing the patenting system using practices such as “evergreening.”
Evergreening is practiced to prolong the patent protection of a product by patenting minor modifications of it. So, when the patent term of the product comes to an end, another patent with minor modifications protects the product.
Mostly, evergreening is practiced among pharma companies.
Sometimes, it is seen that multinationals become a nuisance to the same patenting system which they themselves used to grow.
If you are an industry leader today doesn’t mean that you will be dominating the market tomorrow.
Therefore, it becomes absolutely necessary for these multinational corporations to keep innovating and formulating their patenting strategy accordingly.
For this, these companies may choose their own area of expertise for further R&D or may explore different technological domains.
For example, you may have heard that Apple which is mainly known for manufacturing electronic products is secretly working on a self-driving car and this is apparent from its patent filings.
You may be surprised to know that some Mega enterprises mainly rely on licensing their IP for revenues.
For example, IBM, which holds the most patents of any company in the US, uses them to generate revenue through licensing and to attract investment in its R&D initiatives. Another notable point is that IBM’s patent portfolios are diverse and not restricted to one particular technology.
Similarly, Qualcomm’s significant earnings come from licensing its patents related to mobile technology.
Have you wondered how these giant firms monetize and get the maximum out of their portfolio consisting of thousands of patents?
These firms continuously track the market and look for potential areas where they can license their IP or file infringement litigation. Small players can’t afford such costly litigations and large IP teams for managing their portfolios.
3.2 Small and medium enterprise / Startups
While big enterprises generally use IPR to sustain their business and can easily engage in costly litigation, small ones use it to grow and protect themselves.
Imagine a small firm developing a chainless bicycle after a lot of effort, and when the time comes to reap the benefits, it is copied by a large corporation. Our small firm stands no chance against the mighty resources that a large one brings to the table.
However, that is not the only scenario. The small enterprise has the option of securing its work by getting a patent for it.
In such a case, if the large enterprise wants to manufacture chainless bicycles or the small firm doesn’t have the means to do it all by itself, then both entities can crack a licensing, merger & acquisition, or strategic partnership.
Another use of patents that a startup or small company can take is to gain credibility in the eyes of investors and lenders. In fact, several institutions offer loans in many countries while holding patents as collateral.
Credibility is not limited to loans only. If some investor believes in the small firm’s business idea and then comes to know that it is also protected from potential theft by way of patents, his confidence in your business grows manifold, and so do the chances of getting investment from him.
This is apparent from the case studies we did in this article on Shark Tank TV show.
As you are aware, there is always discussion about valuation around a startup. In that regard, IPR also plays an important role as a valuable property in addition to physical assets.
Startups can enter new markets under the protection of patents. If collaboration is required with a local entity in a foreign country, startups can start a joint venture with them.
This is unusual on the list, but you all have heard about the IP conflict between the USA and China. The conflict among other things is more focused on semiconductor technologies. No wonder, China has risen up as one of the world leaders in patents, especially in cutting-edge technologies.
The quest for superiority has spurred growth in R&D and, as a result, in patents. Look around at the most technologically advanced nations, and you find all of them without exception leading in innovation and, of course, in patents.
There are many roles that a robust patenting system can play in a country.
- Economic Growth
- Patents can fuel the economy of a country by incentivizing innovation and entrepreneurship.
- As a result, new industries and jobs are created helping the respective country to achieve its economic targets.
- Revenue collection also increases from patents through licensing, and other kinds of similar deals. Moreover, collection in the form of fees for application, examination, maintenance, etc. helps revenue in revenue substantially.
- National Security
- Patents related to defense technology can help a country to prevent foreign companies from acquiring sensitive tech.
- Further, IP can be used to achieve strategic goals as we have seen in the case of US and China.
- Technological advancement
- Patents are mainly about incentivizing technological advancement and innovative culture.
- Innovation in the medical industry leads to the betterment of public health in a country.
Academia is one of the most prominent patent filers everywhere, and why wouldn’t it be so? Universities are always at the forefront of the technological revolution.
Do you know that one of the common ways universities earn money is by licensing their patents?
For example, in 2022, alone, Stanford received $89 million in licensing revenue from 1,099 technologies. Google, over the period, has paid hundreds of millions to Stanford as it owned the patent for the page-rank algorithm.
Unlike industry, academia doesn’t necessarily develop products and services. Therefore, they are not in the game of creating a monopoly in the market or strategizing to take on the competitors, etc.
However, academic institutions do focus on monetizing their portfolio of patents proactively.
Normally, there are agreements that if a researcher invents something, the rights to it may be completely or partially owned by the university.
Here, it is interesting to note that the commercialization rate of patents owned by a university may not be higher than that of an industry.
Generally, when a researcher is working on something worthy of a patent, he is not motivated only for generating revenue from it. It may be one of the factors but it is also important for the researcher to get a patent so that it can enhance the credibility of his resume.
Therefore, commercialization may not be the primary cause for someone working in the university unlike in an industry.
Academia is not limited to universities alone; schools and research institutions are also part of it. Having said that, a school-going kid getting a patent is not same as a doctoral candidate getting one.
Young students are full of creativity and ideas. They have a unique perspective on the world and its problems. If their potential is utilized for innovation, it can benefit both the student and the world immensely. Some of the possibilities that come with holding a patent are:
- If the patent is commercially successful, the student may receive recognition and financial standing that may fund his/ her future education and business.
- Owning patents is likely to provide a competitive advantage in the job market or in future ventures as it shows students’ innovation and problem-solving skills.
- The whole process of patenting, i.e., from applying to obtaining, can be a great learning opportunity for young students in the field of intellectual property law and project management.
- In case, the patent aims to solve a social problem, the young scientists can improve the world by bettering people’s lives or the environment.
3.5 Individual inventors
In most cases, if the inventor is an individual, i.e., not associated with any corporation or institute, he has probably devoted a considerable amount of his time to working on the invention.
Chances are that he may have invested all of his money and most of his resources into it, hoping that there would be a day when the patent for his creation would help him recover and gain even more.
An individual inventor doesn’t compete for hegemony in the market or try to stifle innovation. He simply has a passion that motivates him to work, and, as a result, he creates something wonderful, worthy of a patent.
Sometimes, you may also find exceptions among solo inventors and patent owners who just want acknowledgment of the work and not the money by selling or licensing the rights.
In some cases, it is found that lone innovators end up investing all of their savings just to see their work turning into reality.
Therefore, It becomes crucial for the patent ecosystem to not let down such hardworking innovators not only to support them but to encourage future inventors also ultimately leading to the creation of an innovative society.
That is the reason governments all around the world support them with various schemes and incentives.
|Normally, individual inventors do not have the resources to enforce their patent rights again large corporations and therefore there is no licensing revenue for them. |
However, in such a desperate situation they end up selling their patents to non-practicing entities (NPEs). NPEs are those entities that do not practice in the field of patents owned by them i.e. they don’t make, sell, import, use, or market patented products or services.
These NPEs have adequate resources to go against any player and enforce patent rights even way beyond what is the actual worth of the patent. Such NPEs are often called patent trolls.
So, in one-way patent trolls are misuses the patenting system and in another way, help earn money for small or financially crunched entities.
So, getting a patent as an individual innovator is different from a big corporation owning a patent, however, there may always be someone who is more resourceful than even a large firm. When we are referring to an individual, we mean someone who has limited resources, as most of us do.
Some of the entities literally own patents for the purpose of trolling others, hence the name. They own patents for one simple reason: to make money. But you may ask, “What’s wrong with it?”
In simple terms, a troll is a person or entity that tries to extort money that is way beyond the actual contribution to the field of invention owned by them.
The practice of patent trolling is often practiced by NPEs which we just discussed in the previous section. So, the utility of patent rights is completely different for patent trolls than any other patent holder we have discussed so far.
These non-practicing firms have a battery of legal professionals and enough funding at hand. They look to build a large patent portfolio mostly by buying patents from those entities which are in need of money such as bankrupt firms, and individual inventors who can’t license their inventions to Practicing-Firms.
Generally, large enterprises use their portfolio to defend themselves against infringement suits by counter-suing the opponent. However, NPEs don’t even practice in the field of invention, thereby not having any product or service to infringe anything.
There are both criticism and support for the way by which patent trolling avail the benefit of the system.
In this article, we discussed various ways of employing patent rights. In that series, first, we discussed what was the purpose of developing a patenting system in order to understand its general use in the next section.
As we know, there are different types of patent holders each having different amounts of resources, priorities, circumstances, competition, motivation, etc. Therefore, the ways, these patent owners put to use their patenting rights are also not uniform. Accordingly, the advantages and disadvantages of holding and deploying patents are chatted about in this blog post.
We hope you have learned something meaningful while skimming through this piece. We have plenty of resources when it comes to learning about patents.