assignment

Lesson 10: Intellectual Property Strategy

IBUS 718: Consulting & Organizational Development in the Multinational Corporation

Advertising - Incumbent firms can seek to make it difficult for new competitors by spending heavily on advertising that new firms would find more difficult to afford. This makes it hard for new competitors to gain consumer acceptance.

Capital - need the capital to start up such as equipment, building, and raw materials

Control of resources - If a single firm has control of a resource essential for a certain industry, then other firms are unable to compete in the industry.

Cost advantages independent of scale - Proprietary technology, know-how, favorable access to raw materials, favorable geographic locations, learning curve cost advantages.

Customer loyalty - Large incumbent firms may have existing customers loyal to established products. The presence of established strong brands within a market can be a barrier to entry in this case.

Distributor agreements - Exclusive agreements with key distributors or retailers can make it difficult for other manufacturers to enter the industry.

Barriers to Entry 1 (From Wikipedia)

Economy of scale - Large, experienced firms can generally produce goods at lower costs than small, inexperienced firms. Cost advantages can sometimes be quickly reversed by advances in technology. For example, the development of personal computers has allowed small companies to make use of database and communications technology which was once extremely expensive and only available to large corporations.

Government regulations - It may make entry more difficult or impossible. In the extreme case, a government may make competition illegal and establish a statutory monopoly. Requirements for licenses and permits may raise the investment needed to enter a market, creating an effective barrier to entry.

Inelastic demand - One strategy to penetrate a market is to sell at a lower price than the incumbents. This is ineffective with price-insensitive consumers.

Intellectual property - Potential entrant requires access to equally efficient production technology as the combatant monopolist in order to freely enter a market. Patents, trademarks, servicemarks, trade secrets and other IP may create a barrier to entry.

Barriers to Entry 2 (From Wikipedia)

Investment - That is especially in industries with economies of scale and/or natural monopolies.

Network effect - When a good or service has a value that depends on the number of existing customers, then competing players may have difficulties in entering a market where an established company has already captured a significant user base.

Predatory pricing - The practice of a dominant firm selling at a loss to make competition more difficult for new firms that cannot suffer such losses, as a large dominant firm with large lines of credit or cash reserves can. It is illegal in most places; however, it is difficult to prove. See antitrust. In the context of international trade, such practices are often called dumping.

Restrictive practices, such as air transport agreements that make it difficult for new airlines to obtain landing slots at some airports.

Research and development - Some products, such as microprocessors, require a large upfront investment in technology which will deter potential entrants.

Barriers to Entry 3 (From Wikipedia)

Supplier agreements - Exclusive agreements with key links in the supply chain can make it difficult for other manufacturers to enter an industry.

Sunk costs - Sunk costs cannot be recovered if a firm decides to leave a market. Sunk costs therefore increase the risk and deter entry.

Switching barriers - At times, it may be difficult or expensive for customers to switch providers

Tariffs - Taxes on imports prevent foreign firms from entering into domestic markets.

Vertical integration - A firm's coverage of more than one level of production, while pursuing practices which favor its own operations at each level, is often cited as an entry barrier as it requires competitors producing it at different steps to enter the market at once.

Zoning - Government allows certain economic activity in specified land areas but excludes others, allowing monopoly over the land needed.

Geography

Barriers to Entry 4 (From Wikipedia)

What is Intellectual Property? (IP)

Intellectual Capital

Intellectual Assets Intangible Assets

Intellectual Property

Why?

Why ?“Congress shall have the power to promote the progress of science and useful arts, by securing for

limited times to inventors the exclusive rights to their discoveries.”

United States Constitution Art. 1, Sec. 8, clause 8

Article 27. 1) Everyone has the right freely to participate in the

cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits.

2) Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.

Do not leave IP strategy to the lawyers.

Business Model

ROI

Enterprise Objectives

Business Objectives

Intellectual Property

Optimize ROI Value vs. Cost

Business Objectives

Intellectual Property

What IP is and how to protect it How to determine IP value within an enterprise How to use IP strategically and tactically

• Increase margins • Grow market share • Structure joint ventures • Licensing deals • Litigation strategies • Etc.

How to develop and execute an IP strategy

• Patents • Trademarks & Trade Dress • Copyrights • Trade Secrets • Industrial Designs • Mask Works • Geographical Indications • Know How • URL

Intellectual Property Rights

TM C

What is a Patent?

Conveys to its owner the right to prevent others from • Making • Using • Selling • Offering for sale • Importing

Exclusive right

Does not convey rights to its owner to exercise the invention

Patentable Subject Matter

Useful

Novel

Non-Obvious

New Applications for Existing Device or Material

Where is a Patent Enforceable?

Geographically limited: Granted by a state (national government) à International reciprocal filing rights: Patent Cooperation

Treaty (PCT)

How Long Does a Patent Last?

Time limited: 20 Years from original application filing date

à Term extended for delays in US PTO Examination Process (PTO = Patent & Trademark Office)

Who Has Invention Priority? First to file gets the priority date

• Patents • Trademarks & Trade Dress • Copyrights • Trade Secrets • Industrial Designs • Mask Works • Geographical Indications • Know How • URL

Intellectual Property Rights

TM C

Consumer’s Right To Identify Source Of Product Or Service

• Logos, Symbols, Words, Colors, Sounds & Combinations

Trademarks

Consumer’s Right To Identify Source Of Product Or Service

• Logos, Symbols, Words, Colors, Sounds & Combinations

• Not confusingly similar to existing marks

Trademarks

Famous Trademarks

Famous Trademarks

Famous Trademarks

Consumer’s Right To Identify Source Of Product Or Service

• Logos, Symbols, Words, Colors, Sounds & Combinations

• Not confusingly similar to existing marks

• Damages, injunction and criminal sanctions for counterfeiting

• First To Use vs. First To Register

• International reciprocal rights

• Perpetual if used correctly

Trademarks

• Aspirin - originally a trademark of Bayer AG

• Butterscotch - originally a trademark of Parkinson's

• Escalator - originally a trademark of Otis Elevator Company

• Heroin - originally a trademark of Bayer AG

• Kerosene - originally a trademark of Abraham Gesner

• Phillips-head screw - named after Henry F. Phillips

• Pogo - for the toy Pogo stick

• Thermos - originally a trademark of Thermos GmbH

• Yo-yo - originally a trademark of Duncan Yo-Yo Company

• Zipper - originally a trademark of B.F. Goodrich

Lost Trademarks

Total Image

• Distinctive • Non-Functional Feature • Distinguishes Goods Or Services

Trade Dress

Trade Dress Example: Restaurant Design • Layout, Color & Menus etc.

• Two Pesos v. Taco Cabana

Trade Dress Example: Dr. Pepper v. Coca-Cola

• Judge told jury to decide if design was “identical or nearly identical” à Jury ruled in favor of Abercrombie

• San Francisco Appeals Court sent the case back to trial because the judge gave the jury the wrong standards

• Judge told jury to decide if design was “identical or nearly identical” à Jury ruled in favor of Abercrombie

• What happened next and why?

Trade Dress Example: Levi's Jeans vs. Abercrombie & Fitch Clothing

Professor Dirk Brown

Source: GSMArena

Source: GSMArena

Professor Dirk Brown

• Patents • Trademarks & Trade Dress • Copyrights • Trade Secrets • Industrial Designs • Mask Works • Geographical Indications • Know How • URL

Intellectual Property Rights

TM C

Protect Original Works of Authorship

• Literary Works • Musical Works, Including Accompanying Words • Dramatic Works, Including Any Accompanying

Music • Pantomimes And Choreographic Works • Pictorial, Graphic And Sculptural Works • Motion Pictures And Other Audio Visual Works • Sound Recordings • Architectural Works • Computer Code

Copyrights

• International Rights

• Copying Occurs When • Access To Copyright Protected Work • Substantially Similar Reproduction

• Enforcement: Damages and Injunction, Criminal • Registration

• Required to Enforce © • Statutory Damages & Attorney’s Fees • Rights Accrue upon Creation of the Work

• US different from other countries • Duration ?

Copyrights

• Patents • Trademarks & Trade Dress • Copyrights • Trade Secrets • Industrial Designs • Mask Works • Geographical Indications • Know How • URL

Intellectual Property Rights

TM C

• Confidential

• Confers A Competitive Advantage

• Perpetual

• No Registration Required

• Civil and Criminal Enforcement Under State and Federal Law

• Similar Laws In Most Countries

Trades Secrets

• Patents • Trademarks & Trade Dress • Copyrights • Trade Secrets • Industrial Designs • Mask Works • Geographical Indications • Know How • URL

Intellectual Property Rights

TM C

• Original design of a useful article that makes the article attractive or distinctive

• Vessel Hulls

• Not utilitarian, commonplace, or insignificant variations of commonplace designs

• Term Is 10 Years If Registered With the Copyright Office Within 1 Year of Public Use

• Comparable Laws In Most Industrial Countries

Industrial Designs

Design Patents

• Original pattern etched in semiconductor materials

• Term is 2 years or 10 years if registered with the Copyright Office

• Comparable laws In most industrial countries

Mask Works

Geographic Indications

• Patents

• Trademarks & Trade Dress

• Copyrights

• Trade Secrets

• Industrial Designs

• Mask Works

• Geographical Indications

• Know How

• URL

Intellectual Property Rights

TM C

• Standards

• Product Specifications

• Federally Funded Research

• Biz Models

• Collaboration

• Internet Access (WIKI)

• Open Source, Free

Public Domain

Wizard of Oz Written in 1899 by Frank L. Baum

First performed as an on-stage musical in 1902-3

MGM film from 1939

Are these characters in the public domain?

Source: Prof. Henry Chesbrough, UC Berkeley, Open Innovation: renewing Growth from Industrial R&D, 10th Annual Innovation Convergence, Minneapolis, Sept 27, 2004

Patent Valuation Summary • Time Matters

• Context Matters

• Enforcement and other issues matter

• Best to use multiple methods • Replacement Cost • Market Value • Residual Enterprise Value • Income and Cash Flow Methods (Including Relief From Royalty)

IP Value =* CFx

(1 + i)x

𝑛

𝑥=1

ß Best approaches

à e.g. Infringement timing? Duration?

à e.g. License? Litigation? Sale?

Source: Alexander Osterwaldes & Yves Pigneur, Business Model Generation

Professor Dirk Brown

Technology Platform Chip-to-board

Flex-to-board

Board-to-board

Embedded

Source: Alexander Osterwaldes & Yves Pigneur, Business Model Generation

Professor Dirk Brown

#1. E.D. TX – 80% pantentee win rate*

#2. N.D. CA – 66% pantentee win rate*

#10. N.D. TX – 33% pantentee win rate*

* Post summary judgement

U.S. District Court Forum-Shopping: 7 Data Metrics

Best U.S. district courts in which to initiate patent litigation as patentee:

1. High patentee trial win rate: ED Tex, MD Fla, ND Tex

2. Fast time to trial: ED Va, WD Wis, MD Fla

3. High damage awards: SD Tex, ED Va, D Del

4. Low rate of granting summary

judgment: ED Tex

5. Low rate of granting stay pending post-grant

proceeding ED Tex

6. High chance case filed will go to trial:

D Del

7. High chance of granting preliminary

injunction: D Del

ED Tex, D Del

1. Low patentee trial win rate: ND Cal, SD Tex, SD Fla

2. Slow time to trial: ND Ill, D Mass, SD NY

3. Low damage awards: MD Fla, SD Fla, D Minn

4. High rate of granting summary judgment: CD Cal, WD Wash

5. High rate of granting stay pending post-grant proceeding

SD Cal, ND Ga, D NJ

6. Low chance case filed will go to trial:

CD Cal

7. Low chance of granting preliminary injunction:

ND Ga, MD Fla, D Mass

CD Cal D Mass SD Fla

Best U.S. district courts in which to initiate patent litigation as alleged infringer:

Source: Michael Elmer, Finnegan Law Firm

Map: Worldatlasbook.com

Win rate favors alleged infringer à ~12% patentee win rate Expensive

Win rate favors patentee Costs paid by losing side

Win rate favors alleged infringer à ~23% patentee win rate Slow time to trial (>2 years) Expensive (>$1M)

Win rates complicated Fastest time to trial Lowest cost Unlikely to be stayed for validity challenge Low damages

0

100000

200000

300000

400000

500000

600000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

United States of America

Source: WIPO

Pa te

nt F

ilin gs

Source: WIPO

0

100000

200000

300000

400000

500000

600000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

China United States of America

Pa te

nt F

ilin gs

Source: WIPO

0

100000

200000

300000

400000

500000

600000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

China

India

United States of America Pa

te nt

F ilin

gs

Source: WIPO

0

100000

200000

300000

400000

500000

600000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

China

European Patent Office

India

Republic of Korea

United States of America

Pa te

nt F

ilin gs

0

100,000

200,000

300,000

400,000

500,000

600,000

1787 1837 1887 1937 1987 2037

U.S. Patent Applications China

Mozart

Pa te

nt F

ilin gs

Michael Jackson

Source: WIPO

0

100000

200000

300000

400000

500000

600000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

China

India

United States of America Pa

te nt

F ilin

gs

Source: WIPO

0

100000

200000

300000

400000

500000

600000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

China

India

United States of America Pa

te nt

F ilin

gs

Source: WIPO

0

100000

200000

300000

400000

500000

600000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

China India United States of America Pa

te nt

F ilin

gs

Source: WIPO

Pa te

nt F

ilin gs

0

100000

200000

300000

400000

500000

600000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

China

India

United States of America

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1960 1970 1980 1990 2000 2010 2020

U.S. Trademark Registrations

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1960 1970 1980 1990 2000 2010 2020

U.S. Trademark Registrations

OHIM (E.U.)

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1960 1970 1980 1990 2000 2010 2020

U.S. Trademark Registrations

China

OHIM (E.U.)

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1960 1970 1980 1990 2000 2010 2020

U.S. Trademark Registrations

China

OHIM (E.U.)

Professor Dirk Brown

Summary of this Lesson In this lesson: • We discussed the importance of barriers to entry, and particularly

intellectual property, as a key strategic asset of the multinational corporation.

• You explored how intellectual property might be leveraged for the multinational corporation for which you are preparing the consulting presentation.