Patents, their uses, and their purposes, are often misunderstood. These misunderstandings arise from all sorts of places, from Shark Tank® episodes to the movie Flubber®. For most people, misunderstandings about patents are not problematic. For entrepreneurs, business owners, or other decision-makers, these misunderstandings can hamstring a start-up or expose a business to dangerous liabilities. To that end, this article explains a few fundamentals regarding patents and why companies acquire them.
What is a patent?
A patent is a property right in a new, useful, non-obvious invention, such as a new gumball machine, a new composition of asphalt, a more efficient way for a cell phone to get on the Internet, or a new method of distilling water. Things like catch-phrases, abstract ideas, art work, slogans, or mathematical equations cannot be patented.
Conceptually, a patent can be thought of as a bargain between society (via the government) and an inventor. Because of the cost associated with developing an invention as compared to simply copying that invention, market incentives for many inventions are to keep them secret. To further the public knowledge and incentivize the dissemination of knowledge associated with inventions, patent law adjusts normal market forces to grant a limited-time monopoly to an inventor in exchange for a detailed publication of how their invention works. Additionally, after the patent expires, the invention is in the public domain. Because of the bargain involved, patent law requires that the inventor be actually adding something to the public knowledge. Thus, a public disclosure of an invention (for example, by offering a product for sale, doing a poster session at a conference, or mailing samples to customers) can destroy the possibility of acquiring patent protection because the knowledge has already been given to the public. The US provides for a short window after such a disclosure to file a patent application, but most foreign countries are not so lenient and any disclosure can prevent patent rights being acquired in foreign countries. This can be a potential trap for many start-up or early-stage companies who seek investor funding or provide web releases before adequate protections or safeguards are in place.
Another aspect of patents that emerges from the fundamental bargain is that the applied for invention must be new. If the patent sought is already in the public knowledge (“anticipated”) or is a trivial variation or combination of knowledge already in the public knowledge (“obvious”), then a patent cannot be obtained.
Because a patent only allows for an exclusionary right, situations may arise in which the same product or method may be covered by more than one patent, potentially from more than one company. Thus, even if one patent has expired, it does not guarantee that a person who does what is claimed cannot be infringing a different patent. Similarly, licensing a patent right from one company does not guarantee that another entity won’t sue you on a different patent covering the same technology.
What are claims?
One of the most important parts of a patent are the patent claims. The claims are the verbiage that describe the actual property boundary, and appear as numbered paragraphs at the end of a patent. When an inventor wants to enforce her property right in court, she must show the judge that the alleged infringer has actually done every single thing mentioned in her patent claim. Taking a basic example, if the inventor has a patent with a claim for a stool with a back and four legs, she would have to show the judge that the alleged infringer has a stool with a back and four legs. A stool without a back, or a stool with only three legs, would not be infringing the patent claim. However, a stool with a back and four legs with additional features such as rolling wheels, a cushion, etc. would still infringe the patent claim.
Additionally, the claims are what is examined by the patent office to determine if the invention for which protection is sought is indeed new and non-obvious. For example, the patent office may look at the claims of a patent application and respond to a patent applicant that the claims are too similar to previous inventions. In response, an applicant might add more detail to make clear that what is invented is new and non-obvious. However, by adding additional detail, fewer potential infringers can be prevented from using the invention. Continuing the stool example, if a claim covered a stool with a back and legs, and a more detailed feature of an “arm rest” was added to the claim, makers of stools without arm rests would no longer be infringing that claim.
Why do companies/inventors get patents?
Patents serve a number of strategic considerations for companies, several of which can be explained with reference to the nuclear weapon analogy. First, if a competitor or other player in the market is using a patented invention, the nuclear missile can be fired at the competitor, i.e., the competitor can be taken to court to be prevented from making, using or selling the patented invention. Second, the presence of the patents may have a deterrent effect on new players entering the market. For example, a company may consider branching into a certain space covered by a patent, but the threat of potential lawsuit may deter them from entering the space. Third, a patent can act as a deterrent from having other companies sue the patent holder. The reasoning is similar to the Cold War stand-off between the US and the USSR. We have our nuclear bombs, and you have your nuclear bombs. If we bomb you, you will bomb us while our bombs are in the air and there is mutually-assured destruction. In like manner, if you sue me, and I sue you, we will both end up owing each other money. In some circumstances, rather than going the lawsuit route, companies will enter into cross-licenses, partnerships, joint-ventures, or other agreements to make use of each other’s patent rights without having to fight in court.
Patents can also serve as a value generator. For example, patents can be the basis of royalty-bearing licenses, or can be used as a saleable asset. As another example, patents are considered as one of the intangible assets that can increase the valuation of a company. Additionally, the acquisition of patents can also serve to generate good will and other intangible benefits. For example, press releases and recognition by customers or peers as innovators carries a certain benefit. Additionally, the acquisition of patents shows that a company’s products or processes are unique.