According to a recent UN report, innovation efforts have been increasing worldwide despite economic recession. As often, figures were based upon the number of patents filed. Our experience, however, has taught us that not all patents are good indicators for innovation.
According to the world intellectual property organization (WIPO), a patent is an exclusive right granted for an invention. The latter – a product or process – provides a new way of doing something or offers a new technical solution to a problem. One of the primary reasons why companies are filing a patent application is this aspect of exclusivity, meaning that the company has the right to exclude others from freely making, using or selling the patented invention.
In our role as innovation consulting company, we have analyzed many patents over the years. Many of them appeared to have been filed for reasons other than exclusivity. Here, we present some unconventional reasons for filing a patent. Some of these reasons account for the fact that only about 7% of all patents in the world are active i.e. the fee has been paid.
1. Fiscal reasons
Fiscal benefits to boost companies R&D efforts exist in many countries. In Belgium, for example, fiscal policy has boosted the interest of companies to file for patents since the income of goods and services from patent licenses are taxed at 6.8% instead of the usual heavy 33.99%.These ‘fiscal’ patents often have very broad claims since it’s easier for the company to link the claims to different goods or services they sell. Still, a clear indication of this link is a prerequisite to benefit from the tax advantage.
2. Licensing reasons
Patents can be intended to generate license income from selling the patent or from licensing activities. If the patent is intended for such litigation purposes, the claims should be written as narrow as possible, describing as precisely as possible the invention and just the opposite of a fiscal patent. This is because broad claims are more difficult to defend in court.
Some companies build their entire business around licensing patents to others. They have no intention whatsoever to produce the protected goods or services but they lie in ambush until a company pops up that is suspected to exploit their ‘protected invention’. These types of companies are called ‘patent trolls’.
Non patent trolls entities will most often use these kinds of patents to forge powerful cross-licensing deals. Meaning you can use mine, if I can use yours.
3. Investor reasons
Companies in search of new investments will try to convince investors of the growth potential of their business in order to make a lucrative deal. One soft spot of most investors is the number of patents, since they tend to view them as a general indicator of value. Whether the patents actually add value is a completely different question and often hard to evaluate by an outsider. These patents are often a mere bait to catch investors.
4. Marketing reasons
Describing products as ‘patented’ offers value in the eye of many consumers. Somehow it conveys an image of high quality, technologically advanced and highly innovative. Even the term ‘patent pending’ is very powerful and some companies will drag on the process of patenting as long as possible without really being interested in obtaining a granted patent.
5. Personal glory reasons
Sometimes, patent applications are merely filed by individuals because of scientific or industrial career aspirations. From time to time, this striving for personal glory and achievement results in patents only for the sake of it. All glory comes at a cost…
6. Blockading reasons
Large companies with a cash-cow product will just do about everything to avoid competition from entering the market. Many organizations are patenting every possible alternative way to manufacture a certain product. These alternative manufacturing ways will never be used by the patenting company. In fact, their only reason for existence is to block competitors from manufacturing a competing product through alternative processes.
7. MAD doctrine’ reasons
Large organizations are working actively on ‘what if’ patent war scenarios. Therefore, they tend to collect and build a massive patent portfolio that probably will never be used in any other way than to deter other organizations from litigating them. MAD (‘mutually assured destruction’) is a cold war term meaning that if two superpowers have enough nuclear weapons to mutually destroy each other, game theory dictates it is actually the safest way to ensure the peace. A real case example of such MAD doctrine kind of thinking is the acquisition of Motorola by Google. It was said that the acquisition of Motorola – and with it its depot of patents – is their nuclear weapon. The strategic acquisition was said to be a strategic move for protection in patent wars against Microsoft, Oracle and Apple.
From the above, it is clear that the use of patents as indicator for innovation sometimes mismatches the very nature of many patents filed today. Analyzing patents in a systematic way, providing you with the bigger picture and a better understanding of the global technology landscape. That is what we do at CREAX.
- Köhler, C., Laredo, P., & Rammer, C. (2012). The Impact and Effectiveness of Fiscal Incentives for R & D