Patents - The First of Three P's of Intellectual Property
By Tntra, based on a conversation between Mehul Desai and Charles Cella
Houdina Radio made news back in 1925 when it navigated a driverless 1926 Chandler in the traffic of Manhattan by operating it via a radio signal from a car following it from behind. Seventy years later, Carnegie Mellon University's Navlab project "No Hands Across America" drove approximately 3,000 miles in a semi-automatic car that steered by itself while the driver just needed to control the acceleration and braking.
In July 2013, VisLab's car BRAiVE broke all barriers and automatically navigated two-way streets, crosswalks, traffic lights, roundabouts, and other obstructions in Parma, Italy. The first patent to be achieved by the company was its original camera and sensor systems. The patented combination of camera and sensors did wonders as it helped to take in and process the information related to the vehicle's surroundings and input commands to a computer.
The Rising Demand of Patents
In the year 2021, many global companies patented several of their innovations. Huawei Technologies left everybody behind with 6,952 international patent applications filled. At the same time, IBM again maintained its first rank in patent grants. In 2021, IBM had 8,682 patents assigned to them. Such data is evidence that big businesses like to protect their innovation against litigations and infringements.
The Covid-19 pandemic should have ideally slowed the patent applications. Instead, there was a rise of 4% in the number of applications. Although the economic breakdown led to an average fall of 3.5% in global GDP, the number of patents filed through WIPO rose, reaching a high of 275,900. In the US alone, the number of applications increased by at least 18,000 in 2020. Even during the tough economic and social pressures, innovators maintained their trust in patenting.
A darker side of patents is litigation. As per Wilson Sonsini Goodrich & Rosati law firm, 5000 to 6000 patent cases are filed annually in the US. In fact, in 2020, the number of litigations related to patents in the USA rose to high levels since 2015. In comparison to 2018, there were 400 more US litigation cases in 2020. This is why more awareness about patenting is necessary so that innovators might become empowered and make sound decisions.
Intellectual property has multiple modes of value creation. This paper focuses on Patents, the first of the three P's of Intellectual Property. Patents can uniquely provide value to a company and the world at large. They help to promote science, innovation, and risk-taking capabilities. Through this paper, we are addressing the multiple aspects of patents and their future.
The following sections will answer several questions about how and what patents to file and which ones are more valuable and suitable. Today, IP strategists provide thoroughly detailed IP filling procedures. However, in the early 90s, patent attorneys pushed back interesting questions to their clients. The majority of entrepreneurs lacked actual business training, and the industry as a whole lacked the knowledge of more nuanced concepts of Intellectual Property. This gulf made way for IP strategists to value creation through a well-designed IP strategy.
IP strategists utilize comprehensive strategic IP methodologies to help clients define and align their patent and core business strategies. Apart from designing the architecture of patent portfolios to manage a category, IP strategists also assist with redefining old IP categories. The primary function of an IP strategist is to have a strategy surrounded by the philosophy of creativity, control, and clarity.
This paper features the many myths that prevail around Patents leading to their underutilization. As a misconception, Patents are usually equated with litigation. On the contrary, patents are a medium for generating significant control over innovation and ideas. It helps to translate inventors' value through fair participation in the market. This paper also focuses on how companies with aligned IP and business strategy will have the upper hand in securing the highest market share and achieving a competitive advantage.
The paper concludes by attending to the immediate need for the future of patents. The geopolitical implication of a growing intellectual property market in the global south will be significant. It might become more assertive and, thus, lead the global IP market. It also highlights the signs that major businesses should look towards, like creating positions for Chief IP Officers to have a better focus on IP-led services.
1. Initial Phase of Patents
There has been a long-standing debate about what patents should be filled for one's IP protection and how those patents might be valuable as opposed to others. However, in the early '90s, such questions were not entertained by patent attorneys, and hence there was a dearth of knowledge regarding IP across the industries.
Businessmen and entrepreneurs with an MBA degree lacked the deeper knowledge of the fine aspects of Intellectual property. However, very few strategic people in the patent business worked within the organizations and aligned patent programs in silos. On the contrary, reportedly, there was a lack of IP specialists on the service side.
As experts claim, there was a scarcity of the vision to see through a category of content-based patent strategy that existed in a hidden way. Moreover, there was a disconnect between what the patent experts were saying and the instincts of an inventor or an entrepreneur. As a result, there was a massive gulf between the attorneys and business-trained clients with enormous opportunities for value creation involving the creation of clear patent categories.
This opened up the space for IP strategists to help innovators feel safe about their fate. But, in the end, it is all about supporting people who are driven by curiosity and talent and passionate about science and innovation.
2. Terminologies - Patents and Patent Portfolios
- In simple terms, Patents are legal rights issued by the government. The issued right excludes others from making, using, selling, or importing a novel or new invention for some time. In the US, it is 20 years from the filing date for most patents, except for a few shorter ones.
- Sometimes referred to as negative rights, it is a unique property that doesn't give any right to the patent owner; however, it only allows the right to control the ability of other people to do things.
- Legally patents exist with the intent to promote science and innovation. By rewarding people for developing new things and investing in development and innovation, society is rewarded by receiving those for the long term in exchange for the patent owner receiving a short-term monopoly on the technology.
- Anything novel and non-obvious that's useful and sufficiently technical can be patented through the patent prosecution process.
- Over time the patents can be grown into different portfolios. Multiple patents might be required to own the rights to an invention. For instance, a smartphone device these days probably crosses 100000 patents. Building out a portfolio typically leads to looking at a range of targets to try and cover the product with multiple features or build something bigger.
- Once a business has figured out a territory, it might want to claim control over the market. To do that, owners may establish their claim cloud. A claim cloud is a metaphor that defines a comprehensive coverage of many different variations or combinations around a product. The idea behind picket fencing is to block any bridges to the island and thus gain more control over how a product is used in the market.
- It is suggested that a move from a single patent on a single feature out to a patent portfolio is much more beneficial. It may enable the innovator to impact a much broader set of activities. In some cases, patent portfolios might have a broader impact on the product category.
3. The 3 C's of a Category-Leading Patent Portfolio
Strong Force is an innovation company that uses proprietary methodologies in distinct ways to envision, innovate and lead a market category via intellectual property. Its methodology includes the "3Cs" of creativity, clarity, and control, which it considers the hallmark characteristics of a viable "blueprint" for a category-leading IP portfolio.
Creativity provides the raw fuel that differentiates the entities and workflows in a category and provides the novelty and nonobviousness required to have standalone patents within a category. Raw creativity is geometrically expanded in the Strong Force methodology by breaking inventive threads into constituent "vectors" and "building blocks" and reassembling them into a host of permutations and combinations.
While most tactical patenting efforts have good prospects for favorable returns, patent portfolios have exceptional value only when they stand out from other patents at the same time that the category to which they relate has high value. If investment in a portfolio is premature, even a category-leading portfolio may yield only average returns. If the investment is too late, competitive patents may command a share of the profits that would otherwise flow to the leader. Therefore, it can be good to initiate investment in a sweet spot, 4 or 5 years ahead of product companies, that results in category-leading control as a category undergoes rapid growth. While there is no crystal ball, aligning IP investment with comprehensive market analysis, referred to as seeking "clarity," can dramatically improve the return profile of IP investment.
Also, businesses often innovate in silos without realizing the potential integration between different areas. A combinatorial methodology like the one used by Strong Force can often provide an early indicator of clarity in areas where silos disappear and technology converge. Finally, IP strategists can use patent landscape analytics, enhanced by automation and artificial intelligence, to discover favorable technologies and subcategories where others have so far missed the script.
Each patent provides a legal monopoly over its claimed subject matter, and a portfolio of strategically aligned patents can provide a degree of control over innovation throughout a category. Control can be translated into value in many ways. Portfolio owners can shield product suites from the competition. Third-party threats can be countered by patents that "box-in" competitor products. Patents can be licensed to generate revenue or catalyze development partnerships. Ultimately, a portfolio, by controlling entry into and behavior within a category, can serve as a strategic lever of exceptional value.
4. Untangling Misconceptions about Patents
Patents are often criticized due to a linkage with litigation. However, aggressive patenting should not be confused with aggressive litigation. Like other forms of property, patents provide a degree of control over an area (in this case, innovation). Control can be enforced through litigation, but just like a fence around a homeowner's yard, a patent can benefit its owners simply through the respect it generates from others.
In 2020, the US courts awarded $4.67 billion due to patent litigation to the aggrieved party. Litigation, by its nature, is high stakes, high profile, and painful. Counterparties often use negative publicity to deter others from asserting their patents. Litigation is most likely in cases where there is high uncertainty about how claims will be interpreted, which is often the case with small numbers of patents, such as covering a single technology or feature. However, with a few exceptions, most large companies don't enforce their patents aggressively. More broadly, once they control a space, large, category-leading patent portfolios require little litigation to yield their benefits. Businesses that build portfolios of thousands of patents targeted around an area diminish uncertainty about outcomes because counterparties who are active with product suites in a category have very little prospect of entirely avoiding thousands of claims across hundreds of patents. In such cases, negotiations are a more rational option for both parties than litigation. In sum, the linkage between patent ownership and patent litigation is much weaker than many perceive.
Multiple defensive and offensive strategies may be deployed to exercise control over a category. However, the better way of operating might be to focus on the value category. The control may be translated through focusing on assets that diminish the chances of getting sued, generating licensing revenue, asserting patents outside the scope of litigation to maintain product exclusivity, partnering with parties around a set of patents, and licensing them to standards bodies to encourage the development of standards.
Companies that are highly aligned in their IP and business strategies have enormous competitive advantages. By lining up the medium and long-term road maps and visions to areas that may secure market share for an extended period in alignment with brand and competitive differentiation, there is a chance that one might become a category leader.
Another misconception, often promoted by industry giants, is that patents slow innovation. In fact, patents can restore the balance in an industry, particularly for small enterprises, and yield profits that encourage further innovation. Large companies that win through other market dynamics, such as natural monopolies, network effects, and other tactics, tend to free-ride on the innovation of other companies and individuals. For instance, large companies extensively use open-source software while contributing relatively little code in return. Patents can restore some of the rewards of innovation to the actual innovators by returning a fraction of the profits that result from a giant company's market share to other innovators.
5. Future of Patents – From Company Structure to Geopolitical Implications
The future of patents is promising and worth noticing. It may be affected by several local and domestic legal, geopolitical and geostrategic factors. For instance, as per experts' claims, European patents are in good momentum with the help of centralized, unified examination. There is less divergence across various sub-nations across Europe. The European patent system is becoming more robust and much like the US system. Overall the changes reflect Europe's position as a decisive innovator. This alignment between the US and Europe would naturally progress to a more expansive regime where you're well on your way to a global patent.
On the other hand, China has also garnered global watchers' attention. Recent studies show that it is cheaper to file patents in China. The Chinese government continues to pay its innovators who file for patents successfully. There appears to be a tsunami of patent filings there. In a world of global patents, experts believe that while you might get an international patent, the enforceability in countries could be different. It might still stay decoupled as they are today.
The future is also looking at the gradual rise of the global south. It is popularly believed that the dynamics seen in China are similar to what is being observed in the global south world. There is no question that the market drives innovation and that innovation happens where the core production activities happen. Therefore, the experts suggest that countries like China, India, Japan, and South Korea might be the hotspot of global patents.
As opposed to the highly disruptive innovation or regime-shifting style of the US and Europe, the Global South might go ahead with the market-driven approach that takes things known to exist and makes them better, faster, and cheaper.
Much of the future of patenting may be dependent upon the governments. The US innovation advantage is a blend of market economy and government support for academia, the defense industry, space travel, and more. Traditionally governments in the US had been supporting big projects to solve collective problems. However, industry watchers say that the US is much less into innovation now, whereas China is supporting innovation in a big way.
For market reasons, the importance of IP and patents, particularly, might become stronger throughout the global south. Driven by market forces, collectively, the global south will become more and more assertive when it comes to IP.
IP strategists believe that having C-suites' attention on intellectual property in the future is the only way to align an IP program with a company's vision. However, it is observed that IP operations mostly slide under CFOs or legal teams, and therefore it gets treated as a risk management mechanism or financial mechanism. Similarly, if business units are charged with IP strategy, it becomes subject to the boundaries of short-term product market fit and results. Such a narrow vision leads to missing out on the category-focused vision.
The future belongs to enterprises that are not traditionally bound. Experts say that companies that adopt an ecosystem-driven approach may have a huge competitive advantage. While the changes will take time, professionals believe that the companies might look a lot like today but with a better systemic focus on IP. As IP may become an important part of the world, a dedicated Chief IP officer may become a reality.
The essential questions for any innovator about Patents are - why, which, and how. The IP practices may help an owner apply the "Why and How of Patents" to their specific situation to help align their IP strategy with the overall business and technology objectives and develop an approach that may lead to patent applications.
It might be helpful to look at a patent portfolio or program at the outset to generate a degree of control over fate. Building a product portfolio may help with enhanced control over the product. It may also cover the risk of litigation due to distributed claims. While building a patent portfolio, ensuring the hallmark 3C characteristics (Clarity, Control, and Creativity) may help achieve a robust category-leading IP portfolio.
In the future, the European markets are expected to keep up with their identity as innovators. A centralized, unified examination and strengthened system similar to the US may lead Europe towards global patents. At the same time, experts believe that the global south might become an IP producer rather than just an IP consumer following the market-driven, cost-effective approach.
About Tntra and Strong Force
Tntra provides software services and product engineering to partners – from new economy startups to large corporations – around the world. We have the necessary infrastructure – virtual to support global customers who need IP-led product engineering services. Our IP practice is targeted at enabling startups and enterprises to achieve Intellectual Property ownership of software products and solutions that accelerate digital transformation and enhance enterprise value. Strong Force is Tntra's founding partner and supports the client with the design and architecture of new patent portfolios to control a category in the competitive market.
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