business, technology, and innovation 1 intellectual property & innovation lecture 6 spring 2014...

Business, Technology, and Innovation

1

Intellectual Property & Innovation

Lecture 6Spring 2014

Professor Adam DellUniversity of Texas School of Law

Business, Technology, and Innovation 2

Basic Questions What is Intellectual Property? Why have IP Rights?

Nonrivalry, nonexcludability & free-rider concerns

Why Limit IP Rights? Contrast Commonly unlimited times for

ownership of property. “Information wants to be free?”


Different Types of Rights in Info Trade Secret

e.g., formula for Coca Cola, method of manufacture, customer info

Utility Patent (hereinafter “patent”) e.g., genetically engineered organism, various

software and “business methods” Design Patents and Plant Patents Copyright

e.g., book, movie, song, software Trademark


Patent law

What is a patent? What can it cover? What are the legal requirements? How do you get one? Patent Trolls Examples


What is a patent?

A “right to exclude” (35 U.S.C. § 154)

For a “limited tim[e]” (U.S. Constitution)

In other words, it is a government sanctioned monopoly on the invention covered by the patent. The goal is to maximize the public good by incentivizing innovation via a limited monopoly.


Subject Matter, Duration, Rights Subject Matter: Useful application of idea or

knowledge, as embodied in novel and nonobvious product or process

Duration: 20 years from filing date of patent application Previously 17 years from patent issuance

Right against making, selling or offering for sale, using, and importing No requirement of copying No “fair use” defense Frequent challenges of patents’ validity


What can a patent cover?

Processes Making/using a product; Sequence of steps;

Materials used; Process parameters; new use patents

Products Machines; Compositions of matter; Manufacture

(catchall category) Product by Process

Description of how to make a product.



Okay, what does that actually mean? Historically, many things could not be patented. However, in modern patent law, you can patent just

about anything that is not an abstract idea or a natural law or phenomena. You cannot patent e = mc2, but you could patent an energy

conversion device based on that principle. You cannot patent a computer algorithm, which is

essentially a mathematical equation. The modern workaround: call it a method for performing some

task embedded in a computer processing system.



Other examples Bacteria genetically engineered to produce insulin

I.e., Genentech’s original claim to fame Amazon’s One Click

Termed a Business Method Patent. Transistors infused with hafnium to improve

performance I.e., Intel High-k Silicon Technology

Intermittent windshield wipers For those of you old enough to remember… See US Patent 3602790


Legal Requirements Utility

Invention has to do something Novel

Has to be something new to the art Why would we grant a monopoly on something that’s

already been thought of? Non-obvious

We don’t want to grant patents on things so glaringly obvious that no one had ever thought to file a patent on it.

Disclosure Have to actually disclose the invention

Enablement Disclosure has to tell the world how to actually practice the

invention.


How do you get one?

Prosecution and Examination Getting a patent granted US patents only enforceable in the US. Must file in other

countries if you want protection there. Fortunately, standardized via WIPO and PCT.

Interference Trying to stop someone else from getting one

Licensing Obtain or grant an exclusive or non-exclusive right to a

patent Litigation

Suing someone to enforce your patent(s), or to invalidate theirs


How do you get one?

Note: There are many rules and regulations behind the exact timing required to obtain a patent. We will not cover those here.

Under America Invents Act, the U.S. transitions from a First to Invent patent system to a system where priority is given to the first inventor to file a patent application.

Suffice it to say that in the US you must file with the US Patent and Trademark Office within one year of disclosure. DO NOT disclose your invention to the public before filing with the USPTO, or your invention will be conveyed into the public domain.


Patent Trolls

Very difficult to define what a patent troll is. In essence, it is a group whose business model is to

aggregate patents and then sue infringers. Their revenues are derived from the damages or settlements arising out of these lawsuits.

But, we cannot define them as an entity without an intent to commercialize technology who asserts its rights. That could also describe a research university.


Patent Trolls

Why do we care about trolls? Some say they are a drain on our economy since they sue

everyone in sight. If a troll sues your startup, the uncertainty surrounding

litigation will greatly hamper your ability to raise funds and the litigation itself will drain your coffers.

Trolls maintain that they represent inventors who would otherwise never realize any returns from their labor.

Why are there so many now? They have been energized by the dot-com bust. After 2000

you had many failed startups which had accumulated many patents, and selling the patents to a troll was often the only way to monetize that investment in the wake of the bust.


Examples

SCO SCO Group sued various licensees of Linux,

claiming that it owned the source code of UNIX, portions of which were being illegally used without license in Linux.

Novell sued SCO, claiming that it never handed over copyright ownership of UNIX, and won.

Many consider SCO a patent troll Though, in this case, it was over copyright, but the

overall idea is the same


Examples Genetics Institute

Founded in 1980 by Harvard scientists. Developed many cutting edge treatments. EPO – treat anemia

Lost in court to Amgen after several rounds of litigation Won in Europe and Japan continued to sell there

Factor VIII – treat hemophilia Cross-licensed patents with Genentech to avoid litigation Sued Baxter for infringement, they settled

tPA – dissolve blood clots (treat heart attacks, strokes) Found to infringe on Genentech patents

BMP-2 – accelerate bone growth Successfully licensed

And various others While technologically very impressive, GI never made much money largely

because it lost out on the rights to EPO. GI was ultimately acquired by American Home Products Corporation in 1997,

which purchased remaining outstanding shares of GI (40% of the company) for approximately $1.3 billion.

Imagine if GI had won its suits and held several of the crown jewels of both Amgen (market cap: $63.91B) and Genentech ($102.02B.)


Examples

Amgen v. Genetics Institute In 1987, two startups, Genetics Institute (GI) and Amgen

filed for patents on erythropoietin (EPO) within weeks of each other.

Upon issuance of the patents, the two companies sued each other.

GI’s patent described purified EPO and several of its characteristics. It was found to be non-enabling; it did not tell anyone how to make EPO.

Amgen’s patent was found valid and GI was subsequently found to infringe.

Amgen has made over $22 billion from EPO (reported up to 2005) and has become one of the world’s dominant biotech companies. GI was bought out by AHP in 1997.


Some Thoughts from a VC’s perspective Essentially technology companies are bought for either: capability (IP) or

customers ($).

Because they couldn’t have built it themselves….this applies to stuff that’s hard to build because they lack the people or the ideas.

Because they can use it as a weapon against competitors-important only in an IP landscape

BUT LOOK…INCREASE IN US PATENT APPLICATIONS

2013


________________________600,000

________________________500,000


There must be value…or VCs think they do.


There must be value…or VCs think they do.

A trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers. In some jurisdictions, such secrets are referred to as "confidential information" or "classified information".


My View…

Patents are a valuable way to protect investments in R&D.

They are abused like many components of our legal system, but in general they work.

The Patent Office needs to figure out a way to issue patent requests, and respond to patent challenges faster in order to keep pace with innovation.

VCs think about and care about patents, but it’s usually just one of many considerations in evaluating a deal and very rarely is it a deciding factor.

How much I know about patent and trademark law should be some indication to you of the relative value of patents in the real world of company building. ;)

business, technology, and innovation 1 intellectual property & innovation lecture 6 spring 2014...

Documents