Patent protection
Michael D. Santoro
Our focus is on patent protection within the context of entrepreneurs and entrepreneurial ventures. While patents can provide some pro tection against imitators and their subsequent second mover/follower advantage, procuring a patent can be time consuming and costly, espe cially for the entrepreneur who must often com pete against larger, more established firms with more financial, organizational, and human re sources. In addressing this topic, we begin with a brief overview of patents, trademarks, copy rights, and business method patents. We then consider the role of patent protection in provid ing competitive advantage to both entrepreneurs and the larger, more established firms with whom entrepreneurs must often compete. We conclude by presenting key patent procurement issues, including the costs of procuring and maintaining a patent, and discuss their implications for entrepreneurs and entrepreneurial ventures.
Patents, Trademarks, and Copyrights
The United States Patent and Trademark Office (USPTO) defines a patent as an intellectual property right granted by the government to an inventor to exclude others from making, using, offering for sale, or selling an invention for a limited time. In order to be patented an invention must be novel, non obvious, adequately de scribed or enabled, and claimed by the inventor in clear and definite terms. Three types of patents are granted by USPTO. Utility patents are for processes, machines, articles of manufac ture, composition of matter, or improvements thereof. Design patents are granted for ornamen tal design(s) of an article of manufacture. Plant patents are for asexually reproduced plant vari eties. Utility and plant patents are granted for a term, which begins with the date of the grant and usually ends 20 years from the date of first ap plication; design patents are in effect for 14 years.
Trademarks are also registered with USPTO and are used to identify goods and physical com modities – which may be natural, manufactured, or produced – that are sold, distributed, or trans ported via interstate commerce. Trademarks also include service marks that identify services performed by the owner/owners for the benefit of others.
Unlike patents and trademarks, copyrights are registered with the United States Copyright Office and provide protection to the authors of original works of authorship, including literary, dramatic, musical, artistic, and certain other intellectual works. Available for both published and unpublished work, a copyright gives its owner exclusive rights to reproduce the work, prepare derivative work, distribute copies, and display the work(s) publicly.
Business Method Patents
Recent technological advances in telecommunications and the Internet have created a need to patent methods of doing business, also known as business method patents, chiefly for the protection of e commerce and other Internet related activities.
Amazon.com’s ‘‘411’’ patent is one of the first significant business method patents granted by USPTO. The 411 patent describes a method for placing a purchase order via a communication network in which a consumer can complete a purchase of an item using only a single action, such as a single click of a computer mouse button on the consumer’s computer system (Lesavich, 2001). While business method patents can provide some protection from imitation, they offer only minimal defense, since many common business practices already employed in a number of industrial sectors are largely associated with automated computer processes and/or work in conjunction with the Internet. Thus, to achieve sustainable competitive advantage from business methods, entrepreneurs and entrepreneurial ventures might be better served to focus more attention to exploiting tacit knowledge ex changes, since these are generally more difficult for competitors to fully understand, assimilate, and enact.
Patent Protection and Competitive Advantage
Since innovation is one of the primary foci for entrepreneurs and entrepreneurial ventures, ex ploiting, leveraging, and protecting one’s tech nologies, products, processes, and intellectual property is one of the entrepreneur’s fundamen tal concerns. Beyond the satisfaction of custom ers’ needs and/or the efficiencies of operations that a patented innovation can generate, patents offer several additional ways to create competi tive advantage. First, a patent can be a very effective barrier to entry. Polaroid Corporation won a patent infringement lawsuit against East man Kodak Company that forced Kodak out of the instant photography market. In addition, Kodak had to pay Polaroid more than $909 mil lion in damages for patent infringement. Second, a patent can be the basis for stimulating both horizontal and vertical strategic alliances between the patent holder and other firms. Third, a patent can be used to generate royalty income, sometimes in the millions and hundreds of millions of dollars, through licensing to a third party. Fourth, patents can be used as leverage in the negotiations of an acquisition, sale of a busi ness, or appropriation of start up capital. Fifth, patents can be sold or auctioned to generate additional funds. This was the case when Expo nential Technology Inc. auctioned off 45 pend ing and issued patents for more than $5 million that was used to pay off some of the firm’s outstanding debt (Picarille, 1997). Sixth, a patent can be used as support for launching a counter claim during a firm’s pending patent infringement suit. The giant chipmaker Intel Corporation filed such a counter claim against Digital Equipment Corporation, alleging that Digital infringed on 14 of Intel’s patents when designing the Alpha processor. Three months earlier, Digital had filed a suit claiming that Intel had infringed on 10 of its patents when constructing the Pentium, Pentium Pro, and Pentium II (Picarille, 1997).
Patent Protection Issues
While patents can help firms achieve their ob jectives and provide the potential to develop a competitive advantage, procuring a patent can be a formidable task, particularly for entrepren eurs and entrepreneurial ventures with limited time, resources, and little experience in these matters. We cite several reasons for this. First, the filing of a patent can be a complicated, la borious, and time consuming process. To begin, an inventor must convince USPTO that their invention is an original idea. This normally requires that a thorough patent search be con ducted prior to filing a formal patent application. Moreover, USPTO usually takes approximately two years to award a patent, while patents for high technology inventions can take longer. This long duration in obtaining a patent can defeat the purpose of securing intellectual prop erty protection, particularly in fast cycle indus tries where obsolescence is incessant. Delays in procuring a patent can also pose serious prob lems in securing funding for entrepreneurial start ups. Take, for example, the case of Teseda Corporation, a two year old start up firm that developed an integrated circuit tester. Teseda Corporation based much of its support for a third round of funding on the upcoming patent award for its innovation. However, backlogs at USPTO in awarding patents put in question whether the needed funding would come in time (Roberts, 2003).
Second, patents can be expensive even if a patent attorney is not retained, since patent application fees range from $380–770, issuing fees range from $480–1,300, and maintenance fees range from $910–3,220. The time and costs required to procure a patent can be particularly debilitating to an entrepreneur or start up patent protection 203 entrepreneurial venture since the available time and financial resources are often stretched thin and cannot be diverted from focusing on central facets of the enterprise.
Third, a patent may not always be an effective recourse to protect intellectual property. An individual inventor when threatened with a law suit that could prove financially devastating to the business may have to settle out of court in order to ensure survival of the business. To this point, Diametrics Medical had devised a tech nology that was estimated to create $3 billion revenue in the medical equipment market. However, a Fortune 100 conglomerate, Pitts burgh Paint Glass, sued Diametrics for patent infringement and theft of trade secrets. Because this lawsuit could have threatened the firm’s existence, Diametrics settled the lawsuit for $5.25 million so it could continue to operate (Welles, 1994).
Conclusion
Patents can assist firms of all sizes by serving as an effective barrier to entry and source of rev enue, competitive advantage, and value creation. Patents can be essential to entrepreneurs and entrepreneurial ventures in protecting new tech nologies, new products, intellectual property, and first mover advantages. However, securing a patent can prove to be a daunting task for some entrepreneurs, since many entrepreneurs and entrepreneurial ventures cannot afford the time and money to procure patent protection. Paradoxically, large, more established firms are often better equipped to procure patent protection, since they may have more financial, organizational, and human resources, including patent attorneys, who are knowledgeable in patent procurement and who can handle the complex ad ministrative issues surrounding securing a patent.
Bibliography
Lesavich, S. (2001). Are all business method patents ‘‘one-click’’ away from vulnerability? Intellectual Property and Technology Law Journal, 13 (6): 1 5.
Picarille, L. (1997). Patents promise protection and profits. Computer Reseller News, 754: 3 8.
Roberts, B. (2003). Patent applications pile up. Electronics Business, 29 (10): 21.
Welles, E. (1994). Blood feud. Inc., 16 (12): 60.