Editor’s Note: José Cortina is a member of the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A.
RESEARCH TRIANGLE PARK, N.C. – In a recent article, I wrote about the importance of patenting inventions and conducting patent searches. Such searches are conducted to determine: 1) if technical developments are patentable; and 2) to identify patents which may block the sale of products embodying new technical developments. What was left unsaid in the article is that patenting strategies can take many forms and ultimately should be tailored to meet the needs of the business implementing the strategy.
In one scenario, a company may choose to pursue patenting of every innovative development as an aggressive way of enacting barriers to competition. Patents obtained vary in strength and scope. Executives at such companies may reason that in obtaining large numbers of patents, competitors may feel hindered in their development of competitive products due to fear of a suit, and the aggressive use of those patents by the owners in litigation. Alternatively, they may choose to “level the playing field” by establishing an aggressive licensing program. In this manner, such companies can recover development costs through royalties. This also has the effect of raising a competitor’s cost to eliminate any price advantage a competitor may have obtained through copying and lack of independent research.
Of course, such an approach requires large expenditures to procure patents. The patent process must become organized as part of the overall business process of the entity, and budgeted on a year to year basis. In many cases, such entities have large groups of in-house patent attorneys who are assigned to serve different business units. As one may appreciate, only the largest companies such as IBM, 3M and Texas Instruments can afford such expenditures, but the payout is often very high resulting in at least hundreds of millions of dollars in revenue resulting from royalty payments received.
An alternative approach to that previously discussed is to use the existence of pending patent applications or patents as a “marketing tool.” However, the marketing approach may differ, depending on the audience.
One type of audience is the typical consumer and the company’s products may be ordinary consumer products. The patents are not used as an enforcement tool. Instead, a company may seek patents irrespective of whether the patents obtained provide “broad” protection as a marketing strategy. The intent of such a program is to allow the marketing team to tout the company’s products as containing unique “patented” technology.
Whether or not the patents are broad, enforceable, etc. is irrelevant. The primary goal is to create an impression in the consumer’s mind that the products are somehow superior. A well thought out trademark strategy may also come into play in such an approach, but the topic of trademarks and the interplay with patents is too complex to deal with in this article.
A second type of marketing approach is for early stage companies seeking protection as a way of attracting investors. However, there is great variation in how this approach is implemented. In some cases, potential investors only care that patent applications have been filed, and are not concerned with the quality or breadth of the portfolio. Other investors conduct extensive due diligence on the quality of applications filed, and if found lacking will forgo investing in the company. Thus, a start up company, when considering what approach to follow, must assess its target investor audience and decide what approach to pursue.
Obviously, obtaining patents of great strength is preferable, but this may result in additional expenses to obtain an asset, the quality of which may ultimately prove meaningless to the investors. A further complication is that it may be difficult to find a patent attorney willing to write a patent application satisfying bare minimum requirements as this could cast a shadow on the attorney’s perceived competence.
The most dangerous thing a company can do is ignore patents completely. While a company at a very early state can generally operate “under the radar” while ignoring patents, a more serious problem may arise as the company grows. Not only may such a company have ignored protecting its own inventions, but it also may have ignored patents owned by others and be in peril as an ongoing business.
Often when faced with infringement charges, such a company’s reply is that the technology involved is something everyone has been doing for years. However, when asked to provide proof that such technology was in widespread use prior to the filing date of patents under which they are charged, and that the patents are invalid, they are unable to provide tangible proof.
An example of this is Vonage, a company that went public recently, was sued for patent infringement and lost, and is now facing a potential injunction shutting down its business. In the Vonage case some of the patents involved were filed as early as 1997, so to prevail in its defense Vonage needed to have shown that general knowledge of the VOIP technology involved in the patents had to have occurred prior to 1997. This proved to be a difficult task since VOIP was generally in its infancy in 1997.
A. José Cortina is a registered patent attorney with the law firm of Daniels, Daniels & Verdonik, P.A. He focuses his practice on the intellectual property needs of small to large technology companies, including providing patent, trademark, copyright, counseling, licensing, conflict resolution and transactional services. He is experienced in a broad range of technologies, including electronics, communications, computer hardware and software, biomedical, materials, and selected chemical and chemical engineering technologies.
