Strengthening patent protection increases confidence – small business investment proves

The current state of the law hurts small innovators in at least two ways: first, it impedes their ability to attract capital investment. Venture capitalists and others are more likely to feel comfortable investing in research-intensive startups and small businesses that have patents to secure their rights. If patent protection is unavailable or uncertain in specific areas of technology, it will be harder for those startups and small businesses to receive funding. 11 If those businesses start disappearing from the U.S. or never get started in the first place, or are started in other countries with stronger patent systems, America’s role as a global technology leader will suffer. Second, small innovators who lack access to robust, reliable patent protection will be less able to defend themselves against competitors, especially large, established competitors, who might copy successful products. Also, because the established competitor did not have to incur the research and development costs to create that successful product, it will be easier for them to undercut the smaller innovator on price. Even if the smaller innovator has a patent, if it is in a technological area falling within the uncertainty created by the Supreme Court’s line of § 101 cases, the established company can bet that it will have at least a reasonable chance of invalidating the patent if it is sued for infringement, possibly quite early in the litigation without that company incurring many litigation expenses. Academic researchers in areas with uncertain or unavailable patent protection also will face similar difficulties if they make discoveries with great potential for becoming consumer products because they will have trouble finding private sector partners and investors. For example, research that could lead to a new diagnostic tool will typically take significant investment beyond the initial laboratory success, including the expenses involved in FDA approval in many cases. Without patent protection to deter would-be copiers, the private sector will take its investment dollars elsewhere and the academic research will remain merely academic.

IP-savvy business leaders believe that, in a world where battles are increasingly being waged not for control of markets or raw materials but for the rights to new ideas and innovations, the management of intellectual property must become a core competence of the successful enterprise. Though still a minority among their peers, they nonetheless lead some of America’s most successful companies, including Microsoft, Lucent, IBM, Dell, Dow Chemical, and Gillette. These leaders all recognize that the knowledge economy has given rise to a new ecology of competition in which intellectual assets rather than physical assets are the principal wellsprings of shareholder wealth and competitive advantage.

Therein lies one of the next great corporate challenges: figuring out how to unlock the hidden power of patents. In this article, we will demonstrate how companies can manage and deploy their patents not just as legal instruments but also as powerful financial assets and competitive weapons that can enhance their commercial success and increase shareholder wealth. We use the terms patents and intellectual property interchangeably in this article, but patents are actually only one type of intellectual property (or legally protected intellectual assets); others include trade secrets, trademarks, and copyrights. We focus on patents for two reasons. First, patents are the most tangible form of intellectual property, they enjoy the strongest legal protection, and (except in the media and entertainment fields) they have the greatest effect on the commercial success and market value of companies today. And second, patent databases are a virtual Alexandrian library of information. When combined with new automated data-mining and visualization software, these databases can be powerful sources of rich competitive intelligence.

We recognize, of course, that patent strategy is not some Holy Grail for business success, and it is certainly no substitute for quality products, excellent operations, or effective marketing. But the strategic management and use of patents can significantly enhance a company’s success in three broad ways: by establishing a proprietary market advantage, by improving financial performance, and by enhancing overall competitiveness.