Finding the Balance:Intellectual Property in the Digital

Age

Robert A. Burgelman, Philip Meza, Harvard Business Review (case study), Feb. 2003

2013. 11. 06.

POSTECH Strategic Management of Information and Technology

Table

of

Contents1. Introduction

2. Types of Intellectual Property Rights

3. Compromise and Cross License

4. IP Protection in the Wake of the Internet

5. Discussion Issues

3

Introduction

■ Concepts of intellectual Property (IP)– The ownership of intangible and non-physical goods– Protected by various forms of property rights granted under legal vehicles, such as patents

and copyrights– Designed to promote creativity without unduly restricting dissemination– Ex) Microprocessors, movies, computer programs, movies, photographs, paintings, sculp-

tures and even genetically altered mice

■ History of intellectual property– Fifteenth-century: First recorded patent was issued in 1421 by the Republic of Florence in

Renaissance Italy (the design of a ship used to transport white marble)– Sixteenth century: English law began to recognize copyright protections– Late 1990s: US Congress extended the terms of copyright protection for certain

classes of IP and made illegal certain technologies that enabled the circumvention of copyright safeguards

– 2000s: high technology and entertainment industries rely upon IP rights to protect the huge investments needed to create products such as software programs, movies and musi-cal recordings

4

Types of Intellectual Property Rights (1/5)

■ Patents– Meanings• The right to exclude others from producing or using the inventor’s discovery or invention for a set period of time• To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries

– Requirements• Novelty - Cannot be patented if:

The invention was known or used by others in the United States before the patent applicant invented it The invention was patented or described in any printed publication, before the patent applicant invented it The invention was patented or described in a printed publication in any country more than one year prior to

the inventor's U.S. patent application The invention was in public use or on sale in the United States more than one year prior to the inventor's U.S.

patent application

• Useful Requires that the item is operable, since a machine that can not perform its intended purpose cannot be con-

sidered useful in the ordinary sense of the word

• Non-obviousness Sufficient difference from what has been used or described before that a person having ordinary skill in the

area of technology related to the invention would not find it obvious to make the change

5

Types of Intellectual Property Rights (2/5)

■ Patents (cont’d)– Types• Utility patents - the most common and cover four general types of inventions or discoveries

Processes: such as industrial or technical procedures, methods of doing business, and software Machines: combinations of mechanical and electrical elements, including special purpose computer systems,

even if dynamically configured from a general purpose computer by software Articles of manufacture: tangible, manmade or manufactured items, generally including all products not con-

sidered "machines" or compositions of matter; they may include a CD-ROM or other physical embodiment of a software program

Compositions of matter: physical entities where the substance itself is the important element, such as chemi-cal compositions, mixtures of ingredients and new chemical compounds

• Design patents - Protect new, original, and ornamental design for an article of manufacture• Plant patents - protect inventors who discover and asexually reproduce any distinct and new vari-

ety of plant

– Development of IT• Software had been excluded from patenting because the process of performing the program’s

function involved underlying mathematical algorithms, which were considered unpatentable• In 1981 the United States Supreme Court held that software-related inventions could be subject

to patent protection

6

Types of Intellectual Property Rights (3/5)

■ Copyrights– Meanings• Protects the particular way in which a work, such as a poem, movie or com-

puter program is expressed• Offers a less restrictive but far longer-lasting form of IP protection comparing

with patents• Protects only physical representation of a given work and not the ideas, con-

cepts, procedures, processes or methods of operation that may underlie that representation

• Must be “fixed” or recorded in some format and must be original, that is, inde-pendently created by its author

• Ex) Disney’s Mickey Mouse is protected by copyright the idea itself of a fun-loving mouse is not subject to copyright

– Six rights in copyrights• Right of reproduction / Right to create derivative works / Right to distribution /

Right to performance / Right to display / Right to digital transmission

– Development of IT• Computer program: not copyrightable because they do not meet the minimal

copyright requirement for creativity Software was subject to copyright protection in the United States after Con-gress passed the 1976 Copyright Act

7

Types of Intellectual Property Rights (4/5)

■ Trademarks– Meanings• Protected names and images that are used to label goods or services• Ex) company or product names, images (e.g., Mickey Mouse), logos (e.g.,Nike’s “swoosh”),

slogans (e.g., “Intel Inside”), product design and product packaging (e.g., the distinctive Coke bottle)

• Prohibit others from selling goods or services under the same or a confusingly similar name

– Issue• Web-related trademark controversies, such as “cybersquatters”

Register identical or similar well-known names with the idea of selling them at high prices to the trademark owner or other interested parties

Use well-known trademarked names in meta-tags for their sites so search engines will misdirect users to that site

E.g., www.psy-Gangnam.com , www.gangnamstyle.com, www.psystyle.com www.Gangnam-style.com

8

Types of Intellectual Property Rights (5/5)

■ Trade Secrets– Meanings• Information of any sort that is valuable to its owner, not generally

known, and has been kept secret by the owner• Information, including a formula, pattern, compilation, program,

device, method, technique, or process that derives independent economic value from not being generally known and not being readily ascertainable and is subject to reasonable efforts to maintain secrecy

• Makes it illegal to deliberately copy an established commercial idea or information that a company keeps secret

– Benefit of trade secrets• If Coca-Cola’s inventor had applied for a patent on the formula for the

soft drink he created in the mid-1880s that patent would have expired around 1903

• By leaving the formula unpatented, Coke has been able to defend its flavor under trade secret laws

9

Compromise and Cross License

■ The gap between technology and regulation– Patents and Regulation can slow down technological development– In the absence of clear IP ownership, companies able to negotiate solutions that enable

them to exploit fast-paced technological changes

■ A Example of Compromise – IC Industry

– A cross-licensing agreement is a contract between two or more parties where each party grants rights to their intellectual property to the other parties

– Other companies that wanted to produce ICs had to negotiate a royalty with both Fairchild and TI

– The IC brought Fairchild and TI hundreds of millions of dollars of royalties over the years

Legal bat-tle?

VS.

First inventor of IC More advanced IC

Cross Licensing

10

IP Protection in the Wake of the Internet

■ New threat to existing business models of copyright holders– New digital technologies combined with the Internet created much more significant

threats– Digital technology enables users to create perfect copies of movies and recordings

and distribute them virtually without cost– VCR’s case: Because the quality of pirated analog recordings was often lower and dis-

tribution was difficult to scale, these activities did not threaten the copyright owners Pirated DVDs or digital movie files: different situation!!

– Establishment of the law: Digital Millennium Copyright Act (DMCA)• Digital duplications restricts technological development and infringed the fair use of contents

owners• DMCA made it a crime not only to copy a protected work, but to de-encrypt an encrypted

work without authorization

– Digital Rights Management (DRM)• A combination of software encryption and new hardware designed to make digital copying impossible without permission

Looking for solutions

11

Discussion Issue 1

■ What are the advantages and disadvantages of IP regulation?

– Advantages• Protecting inventor’s knowledge from imitations• Encouraging creative activities as his/her own property• Revenue from licenses or sale

– Disadvantages• Monopolizing the information and generating Information Gap• Hindering inventive activities due to excessive regulation• Usually benefit large firms and not small individuals

12

Discussion Issue 2

■ How can firms deal with illegal copy problems nowadays?

– Improvement of contents’ distribution channel• Buy and sell contents on the new distribution platform such as app-store

Raise accessibility and remove a probability to imitate• Simplify the management of contents via cloud services such as Google Docs

Reduce contents owners’ inconvenience No need to install any kind of software

– Providing services in online online contents are more controllable than ones in offline• Ex) in music industry, to provide streaming music service rather than digital file Netflix

– Good Downloader Campaign• Trying to establish and develop the wholesome downloading culture• Pay fairly, download fairly• Helping the growing recognition of the importance of protecting media copyrights. 

13

Q&A

Thank you!