Strategic Patent Management and Intellectual Property Rights

Posted on Dec 17, 2024 in Economy

Strategic Patent Management and Intellectual Property Rights

Extracting Value from Intellectual Property Rights

In addition to being used directly by a firm, a patent can be:

  • Sold: The assignee sells all of their rights to a third party.
  • Licensed out: The assignee holds the ownership and sells the right to use the invention under certain conditions for a limited time.

Understanding License Agreements

A license agreement can be very complex and generally includes:

  • Extent of the rights of use: Duration, geographical reach, scope
  • Degree of exclusivity: Exclusive vs. non-exclusive licensing
  • Allowance of sub-licenses
  • Termination clauses
  • Right to use trademarks or trade names
  • Technical assistance due by the licensor
  • Payment terms: Generally fee + royalty
  • Duty of confidentiality

Advantages of Licensing

Licensing-Out

  • Obtain revenues
  • Reduce production costs
  • Reduce risk for customers
  • Gain access to markets that would be hard to reach
  • Expand the range of products related to a technology
  • Gain access to another company’s technology

Furthermore:

  • Standard setting
  • Compulsory licensing

Licensing-In

  • Save on R&D expenditures
  • Accelerate the innovation process/commercialization of new products
  • Expand the product range
  • Avoid litigation

Furthermore:

  • Gain access to standards

Cross-Licenses and Patent Pooling

Cross-licenses (with or without royalties): Two firms agree to exchange parts of their own patent portfolios. Needed also when a single firm owns all rights upon certain inputs.

Patent pooling: A single agreement to license a bundle of patents that are all strictly complementary for using a certain invention. Each firm having a useful technology confers it to a new company which will serve as the licensor (high risk of anti-trust litigation: need to ensure that each and all patents are complementary rather than substitutes).

Case Study: RFID Patent Pool

A patent pool has been constructed by a consortium of twenty providers of the new technology of radio frequency identification (RFID). The pool bundles a number of patent rights and reduces risks of infringements for end users, while allowing assignees to manage their IP efficiently. The consortium charges a single royalty fee and revenues are shared among the partners according to the rights held. The pool lowers the cost of RFID equipment, thus encouraging adoption. To join the pool, a company or individual must hold patents deemed essential to the product.

Mandatory Licensing

  • If the assignee fails to use the patent after having it granted.
  • If the invention blocks or bans further applications.
  • There is generally some ethical concern.

Why Inventors Patent

Besides the “deadly sins” of inventors (patents with no economic value, inventions that are more complex than the problem they attempt to solve, etc.), patents are:

  • Used to signal a company’s commitment in a certain area, enhance reputation, and convince partners
  • Used to capitalize R&D costs and reduce taxation
  • Used to build up “bargaining chips”
  • Used to avoid somebody else’s patent on a substitute technology (strengthen one’s own exclusivity)
  • Used to avoid somebody else’s patent on complementary technology
  • Used to increase the probability of somebody’s infringement (shark patents)

Six Purposes of Patents

  1. Defensive/Competitive Position
  2. Signal/Formation
  3. Cooperation
  4. Financial
  5. Bargaining/Negotiating
  6. Offense/Aggression

Strategic Use of Patents

  • Technological barriers: Creating barriers of patents with the purpose of increasing the imitation costs/times of followers along a technological trajectory.
  • Ad hoc blocking patents: Same as above but “on-target” patents aimed at saving R&D costs
  • Fencing: Inventing around a single patent to strengthen the exclusivity of the invention that is being protected.
  • Flooding: Patenting as much as one can in a technological domain to discourage entrance from competitors, or to build up bargaining chips for possible future cross-licensing, etc.
  • Besieging: Patenting all complementary assets and components needed to effectively use a valuable patent.
  • Torpedo patents: Same as besieging, but made by other (non-assignee) firms, with the purpose of stealing the surplus from the innovator.

Managerial Practices and IP Goals

Improving Firm’s Competitive Advantage

  1. Protecting process and product innovations
  2. Improving R&D efficiency

Return on Equity

  1. Profiting from licensing
  2. Lowering operative costs
  3. Increasing market capitalization

Strengthening Competitive Position

  1. Entry barriers
  2. Exclusive exploitation of business opportunities
  3. Risk reduction

Managerial Practice: IP Portfolio

IP managers make decisions on:

  1. Maintenance, discard, sale of patents
  2. Commercialization of rights
  3. Strategic positioning of patent portfolios
  4. Demand, market, elasticity for a patent license

Strategic choices should take into account:

  • Need to access complementary patents
  • Standardization process
  • Intellectual property value chain
  • Firm’s own risk management model