Intellectual Property
AREC/MECH 581
Sustainable Technology Entrepreneurship for
Scientists and Engineers
Gregory D. Graff, PhD
Assistant Professor
Agricultural and Resource Economics
Colorado 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
Source: Nakamura, Federal
Reserve Bank of Philadelphia,
WP 01-15, 2001
• 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
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
•
•
–
–
More clearly delineated boundaries
Comprehensive ownership
•
•
–
•
Easier to recognize, identify, label, define (categories & quantities)
Less variety (more homogeneous)
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
•
•
–
–
Fuzzy boundaries
Limited ownership
•
•
–
More difficult to recognize, identify, label, define (categories & quantities)
Huge variety (more heterogeneous)
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)
Forms of valuable intangible
or knowledge assets
•
Legal forms of intellectual
property rights protection
•
•
Trade Secrets
Bailment, Contracts (e.g. nondisclosure
agreements)
•
•
•
Undisclosed information: data, recipes, &
formulae
Production methods, business plans
Biological specimens, materials, reagents
Indigenous/Traditional knowledge
•
•
Technical inventions
Modified designs/production methods
•
•
•
Patents
Utility models
Industrial Designs
•
Company/ brand/ regional identity
•
•
Trademarks
Geographical Designations of Origin
•
Artistic, literary, & musical works
•
Copyright
•
Industry-specific embodiments of
valuable information
•
•
•
Integrated Circuit / Mask Works protection
Database Protections
Plant Variety Protections
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 Fuel
University 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
– Fringe
Updating 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
– 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.
access
• Optimal IP strategy will
always be a balance of
protection
PART IV:
How do academics use
intellectual property?