markets for technology1 topic 5: patents, licensing and basic strategies a. what is a patent? b....

Markets for technology 1

Topic 5: Patents, licensing and basic strategies

• A. What is a patent?• B. Three distinct uses of IP as business tool

– As a strategic tool to exclude rivals– As an asset to use in bargaining– As an asset to sell

• C. Dangers– Poor choice of licensing strategy: the GIF patent– Gaming the system & changing legal norms

• D. Buying patented technology– University/industry licensing: Founding of SUN


A. What is a patent?• Inventor gains right to exclude others for 17/20 years

– Usually wants to exclude an imitator– Provides “incentives to innovate”

• What the patent office does in the US– Non-obviousness (to someone schooled in the art)– Novelty (beyond what already is patented)– The patent examiner has LOTS of discretion (but is subject

to later review by courts & *rarely* by own supervisors)– First to invent first to file

• Examples & other stories– Does anyone here have a patent in their name?


B. Patents as a busines tool to exclude rivals

• The intended public policy behind patent systems – Frames traditional analysis & most examples

• In practice: A variety of strategies– Clustering (e.g., Xerox in 1960s, Polaroid in 1970s)– Bracketing – sometimes w/an eye toward a later bargain

(e.g., HP medical systems division)– Often used w/other mechanisms (to slow down rival)

• Sometimes not used b/c disclosure required– Worldwide: disclosure 18 months after filing for patent &

contesting of patents prior to issuing


B. Patents as an asset to be used in bargaining

• Impede another firm’s “design freedom”– Holders of chip patents threaten Intel

• Collect a pay-off through the threat of suit– Shut down another business w/preliminary injunction

(e.g, the TI approach)– Collect royalties & damages after the fact (e.g., the

Kodak/Polaroid suit)

• Entry into cross-licensing deals & patent-pools– How big is your stack of patents?

• Any way else to use it as a bargaining tool?


B. As a tool to collect revenue• Large firms w/large R&D labs

– Classification s/w makes it easier not to “lose one”

• Why license out and not exploit it themselves?– Generates revenue w/o hurting profits too much– Foreign market: Either b/c it is cheaper to trade in license

than trade output or foreign firm understands local demand– The patent of more value to another firm (who already has

key assets in place – e.g., biotech & big pharma)– The growth of niche firms (e.g., specialized engineering

firms in chemicals or VCs in biotechnology)

• A new trend: To control versions do not use patents– Sun & Java trademark


C. Dangers: poor licensing of patented technology

• What happened to the GIF patent?– A patent within a standard format . . . What is LZW?

What role does it have in GIF?– Why did CompuServe develop GIF in the first place?

• Unisys’ June agreement– Costs/benefits of action– How was the license structured?

• CompuServe’s 12/29 announcement– Costs/benefits of action– What position did they put themselves in?


C. Lessons from looking back

• Did management blunder?– Public relations: Timing of actions/announcements– Business relationships with developers: Implicit norms

about paying for IP when it is already widely in use

• Was it worth the trouble?– To Unisys? To CompuServe?

• Structuring licensing deal that makes sense– What would you do differently?– Matching the structure of the license w/structure of

market


C. Another danger: Gaming the system

• Sneak one by patent examiner– Biotech, computing and other young technologies

• Find a sympathetic judge for a new ruling– Take advantage of changing norms– When are the courts an effective weapon?– The higher court tends to favor IP holders since 1982

• Lawsuits slow, but business cannot tolerance delay– Ex: Microsoft views lawsuits as cost of doing business

• The future is cloudy: Patents for algorithms and Internet business methods????


C. An example of shifting legal norms: Lotus/Borlund

• Patenting at the edges of legal convention• An example: Lotus’s best case

– Protect “look and feel” which they developed– It is popular b/c it is original

• Borland’s best case– Method of operation– Enable interoperability

• Risks/returns of this sort of strategy– On the edge of shifting norms– Legal maneuvering back and forth


D. Buying patented technology

• Firms acquire technology – Through hiring knowledgeable personnel (e.g., SUN)– Through licensing a patent– Through investing in own talent and own R&D– Through acquisition of business unit (e.g., Cisco)

• The trade-off b/w personnel/license– Own personnel may be necessary for smart licensing

practices (e.g., complement not a substitute)– Lawsuits over trade secret (e.g., Walmart/Amazon).– Boundaries of non-compete clauses always challenged


D. An example: The founding of Sun Microsystems

• Technological incubation at universities– Also at government labs

• Who owns what?– Government funding and the Bayh/Dole Act

• Move technology to the commercialization– Which is more mobile? Licensing or personnel?

• Why did VC want the inventor & not just license? – What benefit goes w/hiring personnel?– What is the drawback with hiring personnel?


Learning points

• Strategic use of patents– No cookbook– Possibilities for careless decision making– Licensing

• Difficulties/possibilities for acquiring knowledge through market mechanisms– Dependence on legal norms

• If you ever find yourself with one of these problems hire a good lawyer!

markets for technology1 topic 5: patents, licensing and basic strategies a. what is a patent? b....

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