Why Patent?

Why Pursue a Patent?

What is it that motivates a person or a company to seek patent protection? Patent applicants range from individuals with a good idea to large corporations competing in an aggressive commercial environment. The reason is simple - patents provide a commercial advantage.

Industrial property laws have a commercial origin and purpose and serve a commercial end. Legislation covering industrial property creates statutory rights which serve to manipulate the marketplace, and sanctions unnatural market practices generally towards the restraint of free trade. Unnatural market practices? In a world where competition is encouraged and monopolies are generally discouraged, the patent monopoly might, at first blush, seem to be an unnatural market practice.

However, managers and business executives should think of a patent as means of obtaining a legally enforceable monopoly.

What other reasons could there be to pursue a patent? Pursuit of a patent entails overheads, both in the establishment and maintenance of the patent right. A patent has a limited life (usually 20 years). Moreover, patents are expensive to defend.

In the author's experience, many enterprises do not seem to understand the import of formal protection of industrial property rights. Nor do they seem to understand the role of such assets in the marketplace, in the balance sheet, in the reporting of profit and loss, or in assessing the performance of the enterprise as a commercial entity. Moreover, few senior managers and even chief executive officers have more than a meagre appreciation of the profit potential a patent right possesses.

In most cases, it seems, this is because intellectual property rights are little understood, and so, for convenience, are overlooked. Apart from being a market aberration, patents in particular are often regarded as a quaint legal curiosity; in awestruck ignorance, both factory worker and senior manager alike see this "Deed of Letters Patent" create this powerful monopoly right with a flourish of the Commissioner's pen and the Seal of the Patent Office.

That does not mean to say that commercial enterprises do not participate in the protection of intellectual property rights - quite the contrary. There are some organizations that seem to overspend in the establishment of such assets, either outlaying far more than the worth of the asset or spending beyond the earning capacity that the asset should return.

Investment in a patent, design, trade mark, or the like, should be made as part of business planning in any commercial venture. All other expenditure seems to be scrutinized in great detail. However, because patents rights are not well understood, such scrutiny often does not extend to the appropriateness or otherwise of pursuing patent protection for new developments in technology, let alone the expenditure which may be proposed for such an exercise.

In other instances, of course, there are organizations who happily and efficiently indulge in the practice of assessing the value of patent protection, taking advantage of the protection where appropriate, and incorporating the necessary factors that patent protection generates into an ongoing strategy for commercial development. Depending on the market in which a commercial enterprise operates, and the corporate objectives laid down by the owners of an enterprise, the strategies that emerge out of each situation will differ greatly. However, it is the author's belief that a strategy incorporating an intellectual property brief is vastly superior to a strategy that omits such a brief. In the harsh world of commercial reality, the difference can mean success or failure - profit or loss - market leadership, or mere market participation.

All of this does not mean, however, that the person upon whose shoulders it falls to make the decision needs to understand the complexities of patent law. That is for your patent attorneys. It merely requires an awareness of the potential that patent laws offer on a commercial front, and an idea of how far patent rights can be taken into the marketplace.

The appropriate strategy to adopt will depend upon such factors as the nature of the product, the stage of product development, the position of the enterprise in the manufacturing sector and the marketplace for the product, the existence of possible strategic development or marketing partners or particular marketing or development opportunities, and the likely competitive position of the product within the market.

Below are some specific examples of what may motivate a commercial enterprise to embark upon a course of patent protection. The purpose of such an exercise is to achieve a desired commercial end, such as:

to raise capital,
to break into a new market or market segment,
to gain a lead over competitors,
to make a defensive move against competitors
or even purely for publicity purposes.

Patent protection is only one tool among many in a comprehensive business plan. However, in order to raise capital, an enterprise may have to protect its technology to prevent exploitation until the capital is raised and the business developed. Capital would be required to set up manufacturing and marketing operations, and patent and design rights should prevent competitors from exploiting the technology until such operations are active, and moreover, profitable.

If a technology is non-specific in its application, or the application of the technology covers a vast market, then the technology would usually only require successful penetration into only a small part of that market before return on capital can be realised. Thus, in such a case, it is the strength of the patents, coupled with a co-ordinated plan of approach to the broader markets, that gives incentive to investors to place their capital in a venture seeking to exploit those patents rights. Whilst it was said earlier that pursuit of patent rights entailed overheads, such expenditure should as a rule of thumb only be a small proportion of expenditure used in the larger exercise of establishing a new product, or even a new enterprise.

Separate from the issue of raising capital, an enterprise may be motivated to gain market position over its competitors. Of course, any technology that might be applied in some markets would require a raising of the enterprise's product above the status of a "me too" product. For low value added products, this may not be a viable proposition, and funds earmarked for patent protection may best be directed towards gaining market position by direct forms of competition. However, the establishment of a lead in both technology and the protection of that technology should be able to give an enterprise a leading edge, or even a leading role in the particular market from which the enterprise derives its profits.

Additionally, where an enterprise is geographically small, a patent right may be used to take a new or improved product to other markets around the world. Smaller enterprises have many advantages over larger ones, particularly in their flexibility, and such advantages may married to the advantages that large enterprises have by appropriate business relationships being forged. The existence of a patent right for the small enterprise strengthens their negotiating position with any other potential licensees.

Having established a market position, the diligent enterprise has an obligation to be ever vigilant against losing that position to a competitor. Patents have a useful defensive role when coupled with a comprehensive research and development program. The enterprise may or may not be the market leader, however, participating in the patent system will not only defend against similarly diligent competitors, but also allow the enterprise to take advantage of serendipitous advances in technology or brief windows of marketing opportunity should they by chance occur.

Finally, the publicity value that patents confer should not be overlooked. One might ask whether publicity value is gained in having a product patented. Indeed, there are some products which would achieve greater market acceptance should the marketing impetus include mention of such protection. High profile or high technology products in particular gain not only from the exclusion of others to participate in the exploitation of the products, but also gain a status that cannot be gained in the absence of such protection. Of course, to assert a patent right, at least an application would have to be in fact made; otherwise, the entrepreneur would be indulging in deceitful conduct. But in the assessment of a new product, the publicity value of validly asserting intellectual property rights may be the deciding factor in whether such protection is sought.

Another aspect of publicity value in intellectual property rights is in the general image of the enterprise from the outside, and the creation or maintaining of a healthy corporate culture within. Such attention to the products of the inventive skill of the staff within an enterprise shows the competitors and the clientele that the enterprise is committed to excellence. Furthermore, the employees of such an enterprise are more highly motivated, more loyal, and consequently, more likely to produce outstanding efforts and results. Additionally, a form of goodwill may be established so long as competitors maintain the belief that an enterprise will vigorously defend its rights.

In conclusion, perhaps it is apt to consider the title above. Why pursue a patent? The answer perhaps is that the same entrepreneurial skills should be applied to this question as would be applied to other decisions that must be made in perpetuating commercial volition. In one aspect, it might be considered that governments have orchestrated a system which uses the entrepreneurial urge to gain some advantage for the public from the statutory control of patent monopoly rights. However, it must be remembered that patent right conferred, in exchange for providing a teaching of new and inventive technology in the patent specification provides a commercial advantage to the patentee.

It is comforting to see that enterprises are showing an increasing awareness of, and willingness to participate in, the exploitation of patent rights. Moreover, the community at large is bound to benefit from the exercise.

Bill Anderson

Prologue - April 2020. Bill Anderson is a retired patent attorney, formerly with the firm AHEARN FOX in Brisbane, and has been involved as an intellectual property practitioner for thirty years, qualifying as a Patent Attorney 2000. Prior to becoming an intellectual property practitioner, he was a Principal, founding Technical Advisor and Intellectual Property Manager for MEMTEC Limited, a high technology separations company. Bill is an Honours Bachelor of Engineering in Chemical Engineering, specialising in membrane technology and bioprocess engineering.