Patents Essay

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A patent is a contract between society as a whole and an individual inventor. The objective of a patent is to provide the holder a temporary  monopoly on his or her  innovation  and  thus  to encourage  the  creation and disclosure  of new ideas and innovations  in the marketplace.  A patent  provides the owner exclusive rights  to hold, transfer,  and  license the  production and sale of the product  or process. Patents  are part of the  area of intellectual  property  law that  covers copyright and related rights, trademarks  and service marks,   appellations   of  origin,  industrial   designs, layout designs of integrated circuits, and undisclosed information  such as trade secrets.

Patents are provided for products or processes that are new and/or  involve new steps and that can have industrial application. A patent is the result of a unique discovery, and patent holders are provided protection against infringement by others. In general, machines, products, plants, compositions of elements (chemical compounds),  and  improvements on  existing  items can qualify for patent protection.

Patents   go  back  as  far  as  ancient  Greece  and Rome. Pliny wrote  that  one  day, an inventor  came before Emperor  Tiberius  to show him his invention of unbreakable  window  glass and  to  beseech  him for an inventor’s fee. Tiberius asked whether anyone else knew the  formula.  The man  assured  him  that the invention  was absolutely secret, whereupon  the emperor  immediately  cut his head off “lest gold be reduced to the value of mud.”

In 1623 England enacted the Statute of Monopolies under King James I, which declared that patents could be granted only for “projects of new invention.” In the 18th century, the English judicial systems developed the prerequisite  that a written description  of the invention must be submitted. These developments led to modern United Kingdom and U.S. patent law. Now all member countries of the World Trade Organization (WTO) are duty bound to enforce minimum standards of patent  protection.  Any noncompliance is liable to attract legal action.

International And National Provisions

The  WTO’s  Agreement  on  Trade-Related  Aspects of Intellectual  Property  Rights (TRIPs) provides the international standards  for patents.  TRIPs requires country signatories to allow the patenting of product or process inventions  subject to the normal  tests of novelty and inventiveness.  Three exceptions  to patentability  exist: (1) inventions  contrary  to morality; (2) innovations dangerous to life, health, or the environment,  or to treatment of humans or animals; and (3) plants and animals (other  than  microorganisms) used for the production of plants or animals.

TRIPs  confers  an  exclusive  patent   on  making, using,  offering  for  sale, selling, and  importing  for these purposes. Process patent  protection must give rights not only over use of the process, but also over products  obtained directly by the process. Patent owners also have the right to assign, or transfer  by succession, the patent and to conclude licensing contracts. The term of protection is 20 years, counted from the filing date. Under  all patent  systems, after this  period  has expired,  people  are free to  use the invention as they wish.

Although  all WTO  members  are  subject  to  the patent   provisions   in  the   TRIPs  agreement,   patents  are  actually  granted  under  national  laws, so the rights are also national  in scope. An Australian patent,  for  example,  can  be defended  only against infringements  in Australia. But the Patent  Cooperation Treaty (PCT), concluded  in 1970, allows inventors to patent  an innovation  simultaneously in other countries.  A patent  application  filed under  PCT  is called a PCT application. After an inventor makes an application  under  PCT, the  International Searching Authority  (ISA) carries  out  a thorough  search  and provides a written opinion on the patentability of the invention. Again, granting procedures are handled by the relevant national authorities. No such thing as an international patent exists.

One new form of patent deserves special mention. Business  method   patents   claim  new  methods   of doing business. This type of patent  emerged  in the late  1990s,  with’s  famous  one-click- shopping patent. IBM owns a patent on a process for paying software  developers.  Such  business  process patents may actually hold back innovation.

As important as patent  protection is, numerous controversies   have  arisen,  such  as  the   excessive prices of patented  human  immunodeficiency  virus/ acquired  immune  deficiency syndrome  (HIV/AIDS) medicines  in  South  Africa. TRIPs  unwittingly  has caused a problem in that pharmaceutical companies can charge excessive prices for patented antiretroviral medicines. In this case, U.S.-patented triple therapies for  HIV/AIDS  could  cost  more  than  $10,000 per person per year—far beyond the ability of sick South Africans  to  pay. Meanwhile,  competitors launched generic equivalents of these patented  drugs, forcing large pharmaceutical companies  to cut  their  prices to around $1,000 per person per year. As dramatic as this cut was, the cost was still three times higher than the cheapest offer from the Indian generic company, Aurobindo:  $295 per person  per year. The pressure from generic-drug  firms has played a pivotal role in decreasing the prices of patented drugs.

Planning,  Application, And Use

Because quite often the patent process is complex, typically taking three years, careful planning is required. Experts recommend the following basic rules:

  1. Pursue patents that are broad, are commercially significant, and offer a strong position.
  2. Prepare a patent plan in detail.
  3. Have your actions relate to your original patent plan.
  4. Establish an infringement budget.
  5. Evaluate the patent plan strategically.

Patent applications must include detailed specifications  of  the  innovation   that   any  skilled person in the specific area can understand. A patent application  has two parts: specification and claims. The specification  is the  text  of a patent  and  may include any accompanying illustrations. Its purpose is to teach  those  fluent  in this  area of technology all they need to understand, duplicate, and use the invention.   The  specification  may  be  quite   long. Claims  are  a  series  of  short  paragraphs,  each  of which identifies a particular  feature or combination of features that is protected  by the patent. The entire claims section, at the end of the patent,  typically is one page long or less. After the application  is filed, an examiner will determine  whether the innovation qualifies for patentability  by researching  technical data in journals as well as previously issued patents. Based  on  those  findings,  the  application  will be rejected or accepted.

Although  intellectual  property  may represent  a significant share of some firms’  market  value, only a small percentage of issued patents is commercially valuable.  Also,  many  patents   go  unimplemented, and so firms may want to sell unused or underused patents  to monetize  intellectual  property  assets for other purposes.

A survey of 150 technology  firms  and  research universities  in  the  United  States,  western  Europe, and Japan found that only 15 percent had no unused patents. Although patent holders may have many legitimate reasons not to exploit their patented inventions, the situation led to the creation of patent exchanges  or patent  licensing markets,  which set a fair market value on a patent and facilitate its sale.

Value Of Innovation Versus Cost Of Patent

Any inventor  must  weigh the  value of the  innovation against the time and money spent to obtain the patent. Also, it is important to remember  that many patents  are declared  invalid after being challenged in court. One reason is that the patent holder waited an unreasonable  length of time before asserting his or her rights. A second reason  is that  those bringing suit against the patent  holder are able to prove that the individual misused the patent rights. A third reason is that other parties are able to prove that the patent  fails to meet tests of patentability  and therefore is invalid.

Truth be told, the entrepreneur might waste a lot of money on protecting  intellectual property that could have funded marketing and product development. Another   factor  is  whether   the  invention   will  be obsolete  before the  patent  is issued, especially in a fast-moving  market.  Neither  is there  any guarantee that  a patent  is valid. Many cases have been lost by showing that the patent  examiner was mistaken and missed an important precedent.  A good example is the Toyota RAV4, which was copied perfectly as the Chinese-built Jonway UFO. Toyota has not been able to stop UFO sales because it did not get proper patent protection for the car’s design in Europe. The UFO is identical to the RAV4 down to the body panels and doors,  which  are interchangeable  with  the  original Toyota model parts. BMW and Daimler have started lawsuits to try to prevent the launch of Chinese clones of their  own cars. The brands  argue that  the  lookalikes could hurt their brand images.

If, after careful review, an entrepreneur concludes that the innovation will withstand any legal challenge and is commercially worthwhile, a patent should be pursued. If a challenge is mounted, legal fees may be sizable, but a successful defense can result in damages sufficient to compensate  for the  infringement  plus court costs and interest. In fact, the court may award damages  of up  to  three  times  the  actual  amount. In addition,  a patent  infringer  can be liable for all profits resulting from the infringement  as well as for legal fees.


  1. Arora, A. Fosfuri, and A. Gambardella, Markets for Technology: The Economics of Innovation and Corporate Strategy (MIT Press, 2001);
  2. Martin Bader, “Managing Intellectual Property in the Financial Services Industry  Sector: Learning From Swiss Re,” Technovation (v.28/4, 2008);
  3. Robert Choate  and  William  H. Francis, Patent  Law: Trade  Secrets—Copyright—Trademarks (West, 1981);
  4. Moses I. Finley, “Technical Innovation  and Economic Progress in the Ancient World,” Economic History Review (v.18, 1965);
  5. Andrea Fosfuri, Marco S. Giarratana, and Alessandra Luzzi, “The Penguin Has Entered the Building: The Commercialization of Open Source Software Products,” Organization Science (v.19/2, 2008);
  6. David E. Gumpert, Burn Your Business Plan!: What Investors Really Want From Entrepreneurs (Lauson Publishing, 2002);
  7. Dietmar  Harhoff, Patent Validation  at the Country Level:  The Role of Fees and  Translation  Costs (Centre for Economic  Policy Research, 2007);
  8. Justin Malbon and Charles Lawson, Interpreting and Implementing the TRIPS Agreement: Is It Fair? (Edward Elgar, 2008);
  9. Roger LeRoy Miller and Gaylord A. Jentz, Business Law Today (West, 1997);
  10. Nuno Pires de Carvalho, The TRIPS Regime of Antitrust  and  Undisclosed Information  (Kluwer Law International, 2008);
  11. Al H. Ringleb, Roger E. Meiners, and Frances L. Edwards, Managing in the Legal Environment (West, 1996);
  12. Ronald D. Rothchild, “Making Patents Work for  Small Companies,”  Harvard  Business Review ( July/August 1987);
  13. Carl Shapiro, Patent Reform: Aligning Reward and Contribution (National Bureau of Economic Research, 2007);
  14. Ronald P. Taylor and Paul Germeraad, “Visualize Your Intellectual Property,” Research-Technology Management (v.51/4, 2008).

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