Patents are assets that can be used as swords or shields.
Michael E. Godar
Donna M. Fisher
St. Louis, Mo.
In the late 1950s, an ambitious young inventor named Walter G. Moehlenpah came to the firm where I work to patent a device that made roof trusses by hydraulically pressing nailing plates into wood. With patent in hand, he created a company based on his new technology. Soon, a larger company copied his press.
Moehlenpah filed a lawsuit against the company for patent infringement and won. The judge ordered the infringing company to stop any further manufacture, use, and sale of the infringing device. Moehlenpah preserved his exclusive position in the market and his company grew into Mitek Industries, the world's largest maker of truss-fabrication equipment.
So as you can see, patents protect and reward inventors willing to invest in new technology and disclose it to the public. And the patent process is democratic. Patents work for large corporations, smaller companies, and independent inventors alike. They even work for companies out-side the U.S. In 2004, for example, five of the top 10 companies receiving the most U.S. patents were Japanese.
ADVANTAGES OF PATENTS
Patents protect inventions in several ways, but are based on a single premise: They give inventors the legal right to prevent others from making, using, or selling a device or process for a given period of time. This "right to exclude" does not let inventors make, use, or sell their inventions, it only gives them the right to stop others from doing so. The distinction is important, as the following example illustrates.
If Company A patents a basic widget, and Company B later patents an improved widget, one upgraded with bells and whistles, Company B can stop Company A and others from making, using, and selling upgraded widgets. However, the improved widget includes all the features of Company A's basic widget, so Company A can use its dominating patent to stop Company B from making, using, and selling its version of the widget. In other words, Company B's patent only lets it stop others from making the improved widget.
There are several reasons Company B may want to pursue this course. It may believe Company A will pay to license its patent. It may want to use the patent as leverage to do a business deal with Company A, possibly slicing up the future market for improved widgets. It may want to sell its patent to Company A or another competitor or the patent on widgets is soon to expire and Company B wants to be first out of the blocks with an improved version.
A patent owner also has the right to stop others from selling his invention or products of his patented process in the U.S., regardless of where they are made. As a result, U.S. patents can be used to halt the sale of infringing goods in this country even though they are made out-side the U.S. So patents provide greater profit margins. They also shield companies' basic products or processes from the competition, making it more likely patent-holding companies will grow and prosper.
Filing of a patent application lets inventors use the familiar "patent pending" notice. Although no one can stop others from making a device or using a process until it is patented, a "patent-pending" label often stops others from copying, especially if it requires a substantial investment in tooling, advertising, and other costs. Faced with the risk of losing a major investment if a patent is granted, competitors usually decide not to risk copying after seeing the "patent pending" notice.
Patents are also universally recognized as having economic value, adding to the total worth of a company. And patent licensing can be a source of substantial new revenue for companies as well as universities and nonprofit institutions. For example, licensing revenue at IBM went from $30 million in 1992 to over $1 billion by the year 2000. And Harvard University took in $23.7 million in licensing royalties and fees last year. More and more companies use existing and future patent portfolios not only to protect their technology, but to license others to use their patents, typically in noncompeting fields of use.
Patent licensing also resolves disputes among competitors. This often happens when two companies have patents covering similar technologies. For example, assume Company A patents an invention and believes Company B is infringing that invention. Meanwhile, Company B patents a different device Company A would like to use. To resolve the dispute, the companies may cross-license so that each company can use both inventions. This can save substantial litigation expenses and be mutually advantageous.
Patents are also used defensively. For example, Company A invents a product but decides not to commercialize it immediately, or it may invent a process but only uses it internally. If Company A doesn't file a patent on its product or process, it runs the risk that Company B may independently develop the same invention and patent it. This lets Company B stop Company A from making, using or selling a product it was first to invent. To head this off, Company A can file for a patent primarily to ensure its right to later use the invention.
On a large scale, patents play a vital role in the world. The exclusive rights afforded by patents provide a powerful incentive to innovate and substantial rewards for doing so. Further, information disclosed in patent documents provides a building block for ongoing R&D, leading to more advances. On a more local but perhaps more significant scale, patents can give your company an exclusive market position. As Walt Moehlenpah once said, "A good idea will get you off to a good start, but protecting that idea is the key to success."