Intellectual Property

AREC/MECH 581Sustainable Technology Entrepreneurship for

Scientists and Engineers

Gregory D. Graff, PhDAssistant Professor

Agricultural and Resource EconomicsColorado State University

Overview today

I. Why does intellectual property matter?

II. What is intellectual property?

III. How do companies use intellectual property?

IV. How do academics use intellectual property?

PART I:Why does intellectual property

matter?

Rise of the ‘knowledge economy’ since 1980

• US gross intangible investments as a proportion of GDP – fairly stable in the 19 years from 1959 to1978, rising gently from

3.8 percent to 4.4 percent– rising quite briskly thereafter, to 10.5 percent in 2000

Source: Nakamura, Federal Reserve Bank of Philadelphia, WP 01-15, 2001

State of the ‘knowledge economy’ circa 2000

• Half of US businesses investment in intangibles – $1.0 trillion/year in intangibles (R&D, software, brands)

– $1.1 trillion/year in plant and equipment

• One third of the value of US corporate assets are intangibles– $5 trillion current equilibrium value of intangible assets

– $13 trillion market valuation of all US stocks

Source: Nakamura, Federal Reserve Bank of Philadelphia, WP 01-15, 2001

PART II:What is Intellectual Property?

What is Intellectual Property?

Intellectual

The intangible creations of the mind.

Property

Protected by a “bundle of rights” with respect to title, control, possession, use, exclusion, and disposition

Why does IP matter to you?

• Background IP – what has been created/invented/protected by others

• Foreground IP – what will be created/invented/protected by you

Why does IP matter to you?

Background IP:

– A reality check: • What has been tried before? • Did it work?

– A potential source of advantage: • May be available for partnering / licensing

– A potential constraint:• May be used to block you from entering the market!

Why does IP matter to you?

Foreground IP:

– A key asset: Critical to the growth, value, stability, success of a venture.

– A key incentive or collateral for raising investment.

– A key point of control in regulatory/ liability situations.

– A reward for innovation and risk taking.

Limitations of intellectual property

• Cost

• Limitations in scope

• Unevenness internationally

• Only as valuable as the market you are seeking to serve.

Differences in property rights over physical and intellectual assets

• Physical property rights– Tangible nature of asset to which rights pertain

• Easier to recognize, identify, label, define (categories & quantities)• Less variety (more homogeneous)

– More clearly delineated boundaries– Comprehensive ownership

• Rights (exceptions for eminent domain, property easements)• Terms (perpetual)

– Relatively easy to enforce (can be based on sheer physical control)

• Intellectual property rights– Intangible / technical nature of asset to which rights pertain

• More difficult to recognize, identify, label, define (categories & quantities)• Huge variety (more heterogeneous)

– Fuzzy boundaries– Limited ownership

• Rights (do not exclude use of duplicative discoveries/creations, except for patents)• Terms (temporary, except for trade secrets)

– More difficult to enforce (wholly based on confidence in contracting and legal system)

Legal forms of intellectual property rights protection

• Trade Secrets• Bailment, Contracts (e.g. nondisclosure

agreements)

• Patents• Utility models• Industrial Designs

• Trademarks• Geographical Designations of Origin

• Copyright

• Integrated Circuit / Mask Works protection• Database Protections• Plant Variety Protections

Forms of valuable intangible or knowledge assets

• Undisclosed information: data, recipes, & formulae

• Production methods, business plans• Biological specimens, materials, reagents• Indigenous/Traditional knowledge

• Technical inventions• Modified designs/production methods

• Company/ brand/ regional identity

• Artistic, literary, & musical works

• Industry-specific embodiments of valuable information

Patents• Cover inventions of technical nature, i.e. ideas useful in economic production.

What is an “invention” under U.S. patent law? – The creation, improvement, or new use of a

• Machine• Article of Manufacture • Composition of Matter • Process or Method

• An inventor does not inherently own the right. An application must be made for each invention, and a patent is granted by the government at its discretion.

– Criteria for an invention to be patentable:1. Novel: It must be truly new.2. Non-obvious: It cannot be something trivial or obvious to someone trained in the field.3. Utility: It must be shown how it is to be practically useful.

• Not a ‘positive’ property right. Owner must enforce their right through further legal actions.

• Patent term: in most countries is 20 years from date of filing.

Patent Examples

June 6, 2007 Food and FuelUniversity of Saskatchewan

Trademark & Geographical Designation

• Covers registered names of companies and products (e.g.“Intel”, “Kleenex”), graphical elements (e.g.“ ”), and claims of origin in a geographical region (e.g. “Champaign”, “Napa”), based on fact that identification of a product has important bearing on the value of that product:

– Can be an important means of protecting and appropriating returns to a technology embodied in the product.

– Even when copying is extensive, customers who care about quality or performance will pay more for the “real thing” than for a “knockoff”

• Legal basis is U.S. federal trademark statute (1870), based constitutionally on the right of Congress to regulate trade.

– A “use it or lose it” right: exist only once a trademark is used in trade, only for as long as it remains in use in trade, and only to the extent to which it is used

– Minimum term is 7 years, renewable indefinitely.

• Used in all combinations with other forms of IP:– Coke™ and the product’s formula (protected under trade secret)– Disney™ and its entertainment content (protected under copyright)– Viagra™ and the compound sildenafil citrate (protected under patent)

International considerations

• Much of the law underpinning IP is national or state law – no such thing as ‘global’ property rights

• Some property rights are more robust than others across national borders: – Knowhow & secrecy travel better than patents &

trademarks! Harder to pirate.

• International protections via patent require foreign filing– Raise numerous management and cost issues

International considerations

• International protections via patent require foreign filings– Patent Cooperation Treaty mechanism at WIPO– What countries do you need?

• Based on business plan, market & strategic considerations

– How much will it cost to file & maintain?

See: Graff, “Echoes of Bayh-Dole”, Chapter 3.3, IP Handbook, 2007

PART III: How do companies use

intellectual property?

IP Strategy

• R&D strategy: what R&D to pursue and how, given overall firm strategy– Commercialization strategy: what technology to develop and how, given

overall R&D strategy• IP strategy: what inventions to protect and how, given commercialization

strategy

• Stronger appropriability gives innovating firm more options and more bargaining power.

• Strategy evolves as uncertainty over technologies/competition is resolved.

• Almost always the case, from point of view of the innovating firm, that more IP protection is better. Especially early on, when uncertainty is greatest, company is smalles.

• Patents tend to be strongest form of IP.

DISCUSSION: Effectiveness of different means of appropriation

• The Yale survey (Levin et al, 1987) tested the relative effectiveness of patents and several other means of protecting advantage gained from innovation.

• They surveyed R&D managers from 650 publicly traded firms in 130 industries. Thus, representing opinions of established industry leaders who already control important complementary assets.

• They excluded firms without publicly traded securities, i.e. small technology firms for whom patents may be relatively (much) more important, and investment in complementary assets unfeasible.

• Do you think the relative importance of patents and other means they reflect are accurate? Sill timely? For the industry segment you know best? How important is the potential bias against small start-up firms?

DISCUSSION

DISCUSSION

Managing a Patent Portfolio• Asses IP owned by the firm as either

– Core– Supporting– FringeUpdating regularly as technology and markets evolve and uncertainty is resolved.

• Monitor environment– Defensively for core and supporting IP ==> identify and litigate threats– Offensively for supporting and fringe IP ==> identify license opportunities

• Seek opportunities to build core, such as by acquiring complementary IP

• Monitor maintenance costs vs. returns on fringe IP– Keep as options– Aggressively seek to license– Spin out as part of corporate ventures– Donate – Allow to lapse

Optimized appropriability conditions maximizes protection and innovation

• Optimal IP strategy will always be a balance of– Protecting current technology

position– Maintaining access to breadth

of technology needed to reach the market (FTO) or to assure future innovation

• Overly aggressive protection can initiate an IP arms race, raising the overall costs and slowing overall pace of innovation.

protection

ac

ce

ss

PART IV: How do academics use

intellectual property?