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2 Selecting the most suitable protection for intellectual property
To clarify the basic concepts used when speaking of industrial property rights, the terms intellectual property and intellectual property rights should first be explained (incidentally, the English terms are often used in specialised literature written in languages other than English).
The terminology is based on the concept of property, which relates to tangible resources, while the term intellectual describes the intangible nature of the resource. The use of this resource is regulated by appropriate rights (see also Winter 1987 and Bouchaert 1990).
2.1 Protection by patents
The procedure before the patent offices (patent prosecution) plays a major part in obtaining patent protection. The patent application process typically involves, first, the generation of reports of inventions and, second, the procedure before the patent offices, the two stages having the following steps:
Generation of reports of inventions:
1. Identification of invention disclosure reports.
2. Evaluation and selection of invention disclosure reports.
Procedure before the patent offices:
3. First filing / release / secrecy / "blocking" publication.
4. Subsequent applications, applications abroad.
5. Maintenance of patents and other property rights.
1. Identification starts with the generation and search for suitable ideas including, for example, finding an idea, associated discussions with inventors and project managers and also reviews at project milestones.
The patent attorney not only has a rather passive role to play in recording ideas for patents at project reviews but also has an active role to play in moderating and stimulating ideas for possible patent applications with a view to uncovering both specific product concepts and also wider-ranging potential innovations. The patent attorney also helps with abstraction from the existing product concepts and in thinking outside the box. A new combination of knowledge and experience and a moderated change of perspective stimulate new ideas for patents. The following steps can be clearly distinguished here:
a) Clarification of the problem: systematic delimitation and definition of the problem in the area to be patented.
b) Finding the ideas: creativity and divergent thinking dominate; creativity techniques are useful here, eg the morphological box, TRIZ, the 6-3-5 method or traditional brainstorming. The important point here is that, in this phase, ideas are stimulated but not yet assessed.
c) Selection of ideas: provisional selection of ideas which are at least to be pursued. This step focuses on structuring, assessing and compressing the ideas to the most promising pointers to solutions.
d) Implementation: production of reports of inventions.
2. The reports of inventions are preferably evaluated in a team which includes representatives of the patents function, R&D, innovation management, operations and marketing. It is useful to have meetings at regular intervals. Important factors are evaluation not by individuals but by the team, and also the composition of the assessment team. An individual written assessment can, however, also be made via the patents department according to precisely defined, specified criteria.
3. The first filing comprises searches and filing with a patent office. Releases should be made country-specific. "Blocking" publications can be made by publishing in journals, in display cabinets, on the Internet or in other media.
Alternatively, prior to a first filing, consideration should generally be given to whether the benefit achievable from a later patent is actually expected to be in a reasonable ratio to the cost. If there is the added problem that potential infringement can probably not later be demonstrated, consideration should be given to whether it is not better to keep the invention secret. This is, for example, often the case with production processes which take place in manufacturing plants that are not accessible to outsiders and are very companyspecific.
If, despite the fact that little benefit is anticipated, there is the risk that third parties in the same field could obtain interfering patents, state of the art can be generated by publishing the idea by means of what is called a "blocking publication". This then prejudices other later patent applications, albeit including those of the enterprise concerned.
4. When subsequent applications are placed, ideally there is a review of whether the evaluation criteria underlying the first filing still apply. A major factor is, however, the costly selection of the countries in which further property rights are to be acquired. Especially suitable criteria are the sales market countries and the countries where competitors' production sites are located (blocking).
5. The maintenance of property rights needs to be a separate process step in which the evaluation criteria are reviewed again before the fees are paid to offices.
The time frame for payment of the costs in the individual countries plays an important part here. The European countries charge annual fees, whereas in the USA fees are payable only every four years after grant. It is not therefore necessary to abandon a patent between the fee payments. As a rule, property rights are not explicitly abandoned; fees are simply no longer paid. The particular advantage of this is that, if a wrong decision is made, it may be possible to remedy the situation and restore the property right.
The generation of patents is normally based on individual decisions made by individuals in SMEs and by expert teams in larger enterprises. Such teams, also known as patent liaisons or operational patent committees, are composed of a number of experts with market, technology and patent expertise. These teams often meet once a month or once a quarter to evaluate new reports of inventions, first filings, subsequent applications and the maintenance of patents.
A patent generation sequence typically comprises the following process steps: report of invention, first filing and subsequent application, and also maintenance. An important factor is the broad and active integration of relevant stakeholders by the patents department, for example inventors, project managers, R&D staff and product managers. These form the operational patent committee for decision-making purposes. If the patent applications are drafted by external firms of patent attorneys, an interface and coaching function needs to be set up through the patents department or, in smaller enterprises, through the person in charge of patents.
2.2 Scope of application of patents
Patents prohibit the imitation of an innovation only in those countries in which a patent application has been filed and a patent has been duly granted (principle of territoriality).
The international PCT procedure starts with a single patent application process, following which patent protection can be sought in up to 127 countries at present (2005). Key criteria governing the choice of countries are:
• markets where the enterprise and its competitors have a presence
• production sites where the enterprise and its competitors are located
• country-specific legislation, for example enforceability of the patents
• cost aspects, for example based on translation requirements
The sectoral and enterprise-specific configurations of the value added chain, and also their flexibility, have a considerable impact on the optimal choice of countries. The guiding principle for the choice of countries is derived from competition strategy issues. Major criteria here are the sites where competitors are located and also current and potential markets:
• Automotive industry: BMW has virtually no granted patents in the USA. In the case of international applications, the US designation is withdrawn following publication of the unexamined application. The reason for this is that BMW's main competitors are not located in the USA. Other car manufacturers gear their patent strategy more to future markets than to their competitors. Their rationale for this is that, at the moment, production can be relatively easily relocated and it is easier to predict the markets of the future.
• Electrical industry: Leica Geosystems and its competitors have little geographical manufacturing flexibility and gear their patent filing strategies very much to production sites. More or less the same is true of the capital-intensive semiconductors industry.
• Pharmaceuticals industry: in numerous countries such as Switzerland the pricing of pharmaceutical products is affected by national regulations. At the same time, price depends on the innovativeness of the products, and the number of property rights is considered to be an indicator of the level of innovation. Schering therefore selectively places patent applications in such countries in order to create a better climate for its pricing policy. Patent strategy thus becomes an integral component of corporate product and pricing policy.
2.3 Cost of patents
With a relatively wide spread of countries, it costs some EUR 25 000 to obtain and maintain a patent family in Europe over 10 years. These costs vary according to how the applications fare, and they peak especially when an application leaves one phase to enter another, since attorney and translation costs are incurred. This is especially true when an application leaves the international Patent Cooperation Treaty patent application procedure to enter the regional or national phase and when it leaves the European patent application procedure to enter the national phase.
In the case of granted patents, the renewal fees increase according to the stage of life they have reached (Fig. 3). The legislator thus intends there to be an increase in the opportunity costs for the non-use of a patent. However, numerous enterprises still neglect to carry out a regular review of their existing patent portfolio and thus overlook the fact that their expenditure on unnecessary patents is gradually creeping up. These are then hidden costs which do not create a competitive advantage.
Since the fees and costs are also dependent on the specific rules in the countries concerned, enterprises must give very careful thought to the choice of countries in which patent protection is later to be sought. Although the international PCT procedure involving a bundle of applications is generally more expensive and also takes longer than individual procedures, overall costs can be cut where there are large patent portfolios. The longer international filing and search procedure allows more time to select the procedures which are actually going to be pursued in the light of the state of the art, corporate activities and competitors' activities. The "international" phase of the procedure enables applicants initially to engage in a filing procedure with relatively clear formalities for a bundle of applications and to use that time to make their final choice of countries before further translation and attorney costs become payable. This in turn precludes expensive wrong decisions, in the sense of unnecessary patent applications, and enables the portfolio to be optimised in cost terms at a very early stage
Over a 10-year term, the expected overall accumulated cost of patent protection for an invention with a relatively broad patent portfolio is some EUR 15 000 in North America (USA, Canada), some EUR 25 000 in Europe (Germany, Austria, Switzerland, the United Kingdom, France and Italy) and again some EUR 25 000 in Asia (Japan, South Korea, China and Taiwan). These costs are made up of one block of costs for obtaining a granted patent and another block of costs for maintaining patent protection:
- The cost of obtaining the granted patent is made up of internal costs such as employment costs for the patents department or the person in charge of patents, and external costs. The external costs include those of external patent attorneys and translations, and also fees to offices.
- The cost of maintaining patent protection mainly involves the renewal fees. Numerous enterprises also use the services of external organisations or law offices to pay the renewal fees worldwide. This generally involves a lump sum per country and renewal fee in the form of a retainer.
The median length of time taken to grant a patent application at the European Patent Office, for example, is as much as four years, and the patents are held for a total of 10 years on average (European Patent Office 2004). The cost of obtaining the granted patent and thus of obtaining patent protection accounts for some 75% of the accumulated overall cost, excluding internal charges. Should it emerge, only after grant, that the patent protection originally sought is in fact no longer needed, this will therefore prove to be an expensive mistake.
Further high costs can arise if the patents are later enforced. For example, the average cost of infringement proceedings in the USA rose 25% between 1999 and 2001, from US$ 400 000 to US$ 499 000 for each individual case (AIPLA 2001). It should also be borne in mind that in the USA a party generally has to bear the cost of its own attorneys.
Consider cost-benefit ratio
The proportion of costs accounted for by patents within the field of innovation has risen steeply in many enterprises in recent years. The reasons lie especially in the increase in the number of patents, although defending patent infringement cases frequently now accounts for a large block of costs.
Clear cost-benefit considerations should therefore also include the serious likelihood of patent enforcement. In other words, applications should be filed only if the patents can also be enforced.