What are patents good for?

By Shaun Hendy 08/01/2010

I’ve spent a lot of time in this blog analysing the distribution of patents both geographically and amongst companies. In this post I’ll briefly look at the value of a patent, firstly from the perspective of the inventor, and then from society’s point of view.

A patent for an invention protects its inventor from being scooped by other inventors by granting a monopoly for the use of the invention for a fixed period of time. Inventors need to pay the bills, so this monopoly provides an opportunity to receive a return on the time, effort and capital expended in producing the invention. The inventor can obtain this return on investment by commercially exploiting the invention themselves, by licensing the use of the invention to others or by selling the patent. Often the costs of producing the invention will have been met by an employer or investor, giving them a share of the patent from the outset.

Granting monopolies is not something we do lightly in free market economies, as we recognise that monopolists are likely to exploit their position by pricing above the market. Indeed, pharmaceutical companies are often heavily criticised for this, reducing availability of the latest drugs to the less well off. However, without the potential for monopolistic profits, the drug companies argue that they would not be prepared to invest in the risky business of drug discovery in the first place. A patent is a social compromise.

But there is another benefit to society that in the long run may be just as important. To be granted the patent, the inventor must publically disclose the workings of their invention as completely as possible. This allows others to improve on the invention, speeding the innovative process, and ensures that the invention will be available to all once the patent expires. Now the inventor must compromise — without disclosure, secrecy may allow the retention of the inventor’s monopoly for a longer period.

Not all inventors will accept the trade-off inherent in a patent. Inventors can always choose to try to exploit their invention by keeping key details secret e.g. the infamous Coca Cola recipe. However, more and more these days, inventors are also releasing their inventions to the public for free e.g. open source software development. In this case the inventor will either need to rely on an alternative business model, or will have to get a day job!

0 Responses to “What are patents good for?”

  • I would suggest that patents serve several additional purposes,
    1. An obvious deliverable/output to funders/employer.
    2. A bargaining chip for trading access ( aka blackmailing ) between competitors.
    3. Priority claims if competitors patent their IP in the same area.
    4. Marketing of company’s expertise to people searching that field.

    None of the above require the patent to actually be useful, which is surely the case for most patents. As a cynic, I would suggest that the vast majority of NZ research patents fit category 1.

    On the global front over the last decade, using patents and copyright to protect IP has been like bring a knife to a gunfight, as enforcement against infringers is inevitably very expensive, with the expense increasing with the IP value ( consider Apotex against Big Pharma ).

    Patents will not protect monopoly should governments decide to appropriate the IP, recent pharma examples include Brazil and Thailand with Merck’s AIDs drugs ( eg Efavirenz ), and India’s threat to Novartis’s Gleevec. The USA threatened Bayer with breaking Ciprofloxin patent during a major scare ( anthrax ).

  • Yes, I think it would be very enlightening to be able to “value” patents, and undoubtably some of their value to their owners comes from the 4 aspects you note.

    I’ll confess I’m less cynically disposed though, at least when it comes to international phase patents. It’s quite expensive to obtain a PCT patent, and as three quarters of these come from the private sector in New Zealand, I would be surprised if these were solely just deliverables for a funder, employer or investor.

    There is a nice story on the IRL website (http://www.irl.cri.nz/newsroom/media-release/superconductor-patent-granted) on their battle to obtain patents for the superconducting BSCCO ceramic. I would agree that part of the value of this patent comes from your point 1 i.e. as a deliverable, which gave their team the time to develop the skills needed to build superconducting devices from ceramics (now being commercialised through http://www.hts110.co.nz/). It also helps them to market their skills as you also point out.

  • It’s not my field, but a simple search of the NZ patent database for Industrial Research Limited indicated that, of the 370 applications ( give or take a few dozen ), the vast majority were abandoned, expired, or voided pre-acceptance.

    I would suggest that percentage indicates many of those applications were intended to be outcomes/deliverables. Obviously that ratio can’t be extrapolated to all applicants, but patent applications are such a neat and tidy outcome for all funded research intended to be applied commercially, similar to publication in peer-reviewed journals for fundamental research.

  • Actually, it’s not uncommon to apply for a provisional patent before one publishes or gives a scientific talk on a topic. Once your work is public domain it is no longer patentable, so if there is a possibility that the work might be patentable it can be prudent to file a provisional patent that establishes your priority. Some (wealthier) overseas research labs do this as a matter of course for all published work. A provisional patent gives you a year to decide whether or not to proceed to the next stage but an organisation like IRL will only be able to afford to take a few of these provisionals forward so many will be abandoned as you observe.

    So I would be surprised if many applications are made and then not carried through solely to produce a deliverable. In fact, the Performance Based Research Fund only counts full, granted patents as research outputs, and getting a full patent granted is sufficiently expensive that the inventor has to make a pretty good case about its likely commercial value to their employer.

  • A quick look on the Morst site only found a 1998 review of PGSF Output 7 ( Manufacturing etc ), and that included patent applications – it may have changed. I also recognised that, for PGSF, it will often ( and should ) be the industrial partner of a CRO/CRI who files patents.

    Anyway, as I know very little about patent processes this could be a learning experience.

    My assumption would be that priority can be claimed only on full patents that have been examined and granted, even if they subsequently expired. If we can claim priority from applications that have been voided before acceptance, that would seem, to me, to be unjust – as competitors would not have been able to see or challenge them.

    So, looking at IRL’s current portfolio of about 370 , I see listed:-
    10 – Cognated – presumably folded back into an earlier application.
    17 – In Progress though the system.
    28 – Abandoned – presumably now public property, possible useful for priority?.
    47 – Granted and Sealed – Solid IP for IRL to use as priority/market/license etc.
    60 – Expired or Not Renewed – presumably now public property, but still useful for priority.
    214 – Voided Pre-Acceptance – no value for anything other than as a deliverable?.

    Now my assessment above are purely based on instinct, so any professional who can enlightened me would be greatly appreciated.

  • Once a patent application is voided, I agree that its value may only be as an output (although a very weak one that would count for very little), but that doesn’t mean that this was the intended goal of the original application. For instance, the inventor may file in good faith but subsequently not be able to meet the examiners requirements for the patent, because of prior art or otherwise. If it is a provisional, the inventor may decide not to proceed for a variety of reasons e.g. they are unable to persuade their employer to meet the financial costs of a full filing.

    And no, the priority date for a patent can be different to the filing date.

  • The rules relating to the claiming of priority for patent applications come from the Paris Convention for the Protection of Industrial Property to which most of the countries in the world are members, including New Zealand.

    Under the Paris Convention, a person who files a patent application in one Convention country has 12 months from the filing date of the application to file a patent application in another Convention country and claim the filing date of the earlier application as the “priority date” for the later application.

    The priority date is important because it is the date at which the invention will be examined by an Intellectual Property Office for novelty and obviousness. Information that enters the public domain after the priority date will not be able to be taken into account in determining whether the invention is novel or obvious.

    The patent application from which priority is claimed must be the first application for protection of the invention filed by the inventor or their assignee in a Convention country. However, it does not have to be an examined application or a granted patent. Indeed, many patent applications claim Convention priority from a provisional specification – a document which describes the invention but will not be examined by the Intellectual Property Office and serves only to establish a priority date.

  • Thanks very much for that response Adrian. I think what lies at the core of my view on rationale for filing ( valid or not ), is what does “voided pre-acceptance ” mean in the patent world?.

    I was taking it to mean that the application had become invalid, and thus normally couldn’t continue to be a basis for priority. I assume any documents referenced in the application ( eg workbooks etc ) could subsequently be used in further applications.

    I suppose the key question would be, is it acceptable and/or usual to claim a priority date from a voided application?.

  • The term “Voided pre-acceptance” is defined on the IPONZ website as:

    “A Patent application is made void. The applicant did not overcome or address the objections within the prescribed time limits. Or a provisional Patent application has had no Complete Specification filed within the prescribed time limit.”

    My guess is that many of Industrial Research Ltd’s would fall under the latter category, and have been filed to obtain a priority date before information was made public (e.g. in the form of a scientific talk or journal article).

  • Some random comments:

    Patents in progress can derive value from their potential monopoly, so you don’t need to wait for a grant to derive income, particularly if the patent is progressing well. Also as Bruce notes patents can have value just to stop others entering a market.

    A patent can have value through licensing just to set up an ongoing commercial relationship with a company that is a technology buyer in the area you are developing in. The direct returns from the lciense could be quite low, but for a local developer the value of the ongoing relationship could be very high.

    NZ Patents have a lower threshold than in many other jurisdicttions (they can be published overseas as long as they haven’t been published in NZ) so this makes them a bit less robust as a predictor of international value, but with the internet this difference is diminshing and the current review of the Act plans to change this.

    Notwithstanding this NZ patent exaimination is quick so it is often useful to do a local national filing once a provisional has been lodged to identify the robustness of the claims. If it doesn’t stack up you can still pull the application before its published and start again using the orgional provisional. If it does stack up a postive NZ examination will do no harm when other exaimners come to do their thing.

    Otherwise you’d have to say for most situations a NZ patent is of limited value for a local industrial inventor because our market is relatively so small. If the invention is good the value will lie in the large economies and you are better off spending your money there. A large proportion of NZ patent work is inward bound as I understand it.

    Just becuase a patent gets granted and sealed doesn’t mean it’s secure property. Lots of money is spent on lawyers trying to overturn patents, and I’ve seen a US patent granted when subsequnet national examination in another jurisdiction turned up prior art.

    Finally, patents aren’t the be all and end all. Lots of companies use trade secrets (as Shaun notes) and rapid development cycles to stay ahead. Patents do however facilitate trade in IP, and are seen by investors as more tangible than prospective cash flows from things like know how and trade secrets – which is why you see technology start-ups boasting about their patent portfolios.