Patents and Intellectual Property are Key Assets!
This Patent information is a portion of my paper (GWR) from The University of Akron School of Law (Oct. 14, 2007)
TO “PRE” OR NOT TO “PRE”: “PRE”- EMPTION, ARTICLE 9 AND OTHER SPEED BUMPS ON THE ROAD TO CONTINUED ECONOMIC PROSPERITY (Copyright 2007)
Intellectual property has become the most valuable asset in business today, for example from 1978 to 1992 the market value of manufacturing and mining companies has been transformed from 62 percent ownership in physical assets and 38 percent in intangible assets to 38 percent ownership in physical assets and 62 percent in intangible assets (e.g., refer to FIG. 1 below).[i] However, companies still need to borrow money, even if the value of the company is based upon intangible assets.[ii] Therefore, as intangibles continue to grow in importance in the U.S. economy, the creation of a system is needed that will allow consistent, enforceable and easily created secured transactions in general intangibles and more specifically intellectual property.[iii]
A U.S. patent grants an exclusive set of rights to the patent holder. The patent can be a utility patent (e.g., a machine, an article of manufacture, a new and useful process, or a composition of matter)[iv], a design patent[v] (i.e., based on an ornamental design) or a plant patent (i.e., an asexually reproduced plant).[vi] Based upon USPTO data, growth in the number of U.S. utility patent applications is growing rapidly, as can be seen below.[vii] Referring to the following chart, the number of applications remained relatively constant from 1963 until 1984, when the number of utility applications rose dramatically.[viii]
One of the main reasons for the growth in patents is the outcome of various infringement lawsuits in the millions, hundreds of millions and in some cases billions of dollars.[ix] The definition of “patent infringement” is found in 35 U.S.C. § 271(a) which defines direct patent infringement as the making, using or selling of a patented invention in the U.S. without authority from the patent owner.[x] In Polaroid v. Eastman Kodak, 867 F.2d 1415, the case involved the instamatic camera.[xi] The court had to determine whether the claims in ten patents were valid and if so whether Kodak infringed those claims.[xii] It was held that Kodak infringed several of Polaroid’s patent claims and a final damage award to Polaroid was approximately $873,000,000. Large infringement awards, patent licensing fees, patent commercialization, and the like, continue to drive patent filings in the U.S and throughout the world.[xiii] For example, IBM has exploited intellectual property licensing generating over $10 billion in revenue in a single decade[xiv] IBM’s very profitable and efficient licensing division consults with other businesses on how to make best use of their own patent portfolios.[xv]
One has to think only for a moment to come up with revolutionary patented products that led to continued economic prosperity in this country. Some of most recognized patented products include mobile cell phones[xvi], computers[xvii], hybrid cars[xviii], genetic sequencing[xix], DVD players[xx], iPods[xxi], digital cameras[xxii], pharmaceuticals[xxiii], navigation systems[xxiv], polymerase chain reactions[xxv] and heart pace makers[xxvi]. Worldwide sales of mobile phones are forecast to grow to a billion phones in 2008.[xxvii] Computer hardware sales made up 17 percent of all e-commerce sales, the highest among merchandise lines in 2003, with total sales of $6.7 billion.[xxviii], and hybrid car sales in 2006 were 254,545 hybrids sold, up from 199,148 in 2005, according to nationwide auto registration data compiled by R.L. Polk & Co.[xxix] The sale of Prozac,® since its inception by Elli Lilly, has resulted in $21 billion in sales[xxx], and the U.S. pharmaceutical market in 2005 grew by 7 percent to $252 billion.[xxxi]
The sale of DVD players increased from 15 million total units sold in 1997-2000 to 12 million units sold in 2001, and a total in 2002 of over 30 million DVD players in U.S. households.[xxxii] Apple announced in April 2007, that over 100 million iPods were sold since being introduced in November of 2001.[xxxiii] Each of these products has had numerous patents filed to protect a segment of the product design and spin off products.[xxxiv] For example, thousands of patents were filed with respect to cell phones.[xxxv] A partial list of patents that involve cell phones at the USPTO website, as of July 22, 2007 is included in the Appendix II.[xxxvi]
Many of the products mentioned supra have resulted in multiple secondary businesses that support them, for example, consider the cardiac pacemaker.[xxxvii] It has resulted in smaller and smaller devices, improvements in batteries[xxxviii], software[xxxix], pacemakers for animals[xl], sensors, actuators, and the like. All of these business offshoots have led to increased economic prosperity in the U.S.[xli]
According to the Organization for Economic Co-Operation and Development (OECD), today’s economy is becoming increasingly knowledge-based with new technology based companies playing an important role.[xlii] In the United States during the 1990’s, research and development in small and medium-sized enterprises increased at approximately twice the pace of research and development in large firms with the smallest companies increasing at the fastest rate.[xliii] A trend driving this growth in part was venture capital funding which provided an advantage for new technology-based firms.[xliv] As the OECD stated “patents are especially important to new technology-based firms because such firms often have few assets other than their intellectual property, and need patent protection to attract venture capital.”[xlv]
[i] Mr. Avramovich illustrates the disparity between fixed assets and the market value of the 500 companies that compose the Standard and Poor’s Stock Price Index. The fixed assets of those 500 companies ending in December of 1995, were estimated at $1.2 trillion, according to Standard and Poor’s, however those companies had a combined stock market valuation of $4.6 trillion. The difference of $3.4 trillion (almost 4 to 1) attributed to intangible assets and “networks of intellectual capital” in those firms.
[ii] See Olufunmilayo B. Arewa, Measuring and Representing the Knowledge Economy: Accounting for Economic Reality Under the Intangibles Paradigm, 54 BFLR 1 (2006).
[iii] Id at 6. Mr. Arewa states “Intangibles now also constitute on average sixty to seventy-five percent of corporate market value.”
[iv] 35 U.S.C. § 101 (2007) refers to Inventions patentable. The section states “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.”
[v] 35 U.S.C. § 171 (2006) refers to patents for designs. The section states “Whoever invents any new, original, and ornamental design for an article of manufacture may obtain a patent therefor, subject to the conditions and requirements of this title.
The provisions of this title relating to patents for inventions shall apply to patents for designs, except as otherwise provided.”
[vi] 35 U.S.C. 161 (2007) refers to plant patents. The section states that “Whoever invents or discovers and asexually reproduces any distinct and new variety of plant, including cultivated sports, mutants, hybrids, and newly found seedlings, other than a tuber propagated plant or a plant found in an uncultivated state, may obtain a patent therefor, subject to the conditions and requirements of this title. The provisions of this title relating to patents for inventions shall apply to patents for plants, except as otherwise provided.”
[vii] See various USPTO documents at http://www.uspto.gov/web/offices/ac/ido/oeip/taf/reports.htm#by_type (last visited August 19, 2007).
[viii] See various USPTO documents at http://www.uspto.gov/web/offices/com/annual/index.html (last viewed September 2, 2007).
[ix] See David O. Taylor, Wasting Resources: Reinventing the Scope of Waiver Resulting from the Advice-of-Counsel Defense to a Charge of Willful Patent Infringement, 12 TXIPLJ 319, 320-321, (2004).
[x] See 35 U.S.C. § 271(a) which defines infringement of a patent at http://www.uspto.gov/web/offices/pac/mpep/documents/appxl_35_U_S_C_271.htm (last visited August 19, 2007).
[xi] See Polaroid Corp. v. Eastman Kodak Co., 641 F. Supp. 828, 829, 228 U.S.P.Q. (BNA) 305, 305-06 (D. Mass. 1985).
[xiii] See Roger D. Blair, An Economic Analysis of Damages Rules in Intellectual Property Law, 39 WMMLR 1585, 1236-1237, (1999).
[xiv] See Gideon Parchomovsky; R. Polk Wagner, Patent Portfolios, 154 UPALR 1, 49-50 (2005).
[xv] See Id. In addition, there are numerous books that have been written on patent licensing, for example, See e.g., Rivette et al., “Rembrandts in the Attic: Unlocking the Hidden Value of Patents,” Harvard Business School Press (1999); or See Paul S. Hoff, “Inventions in the Marketplace: Patent Licensing and the U.S. Antitrust Laws,” Aei Pr (1986); or See Harold Einhorn, “Patent Licensing Transactions,” Lexis (2007).
[xvii] See James W. Cortada, “The Digital Hand: Volume II: How Computers Changed the Work of American Financial, Telecommunications, Media, and Entertainment Industries,” Oxford University Press (2006); See Lawrence D. Graham, “Legal Battles that Shaped the Computer Industry,” Lawrence D. Graham (1999).
[xviii] See Sherry Boschert, “Plug-in Hybrids: The Cars That Will Recharge America,” New Society Publishers (2006). See Curtis D. Anderson, “Electric and Hybrid Cars: A History,” McFarland & Company (2005). According to a January 2, 2006 article in “Hybrid Car Review” the number of hybrid vehicles sold in the United States increased from 83,924 units in 2004 to 205,748 units in 2005, an increase of 245%.
[xix] The following comments involving genetic sequencing by Dr. Nathan Slotnick, was based on a CNN interview that took place December 19, 1999. Humans through our own unique DNA genetic makeup are predisposed to certain conditions and diseases. Determining the DNA sequence through the human genome project, will allow researchers, health care professionals, etc., to better define diseases and identify those individuals for cure and/or true preventative medicine. If someone knows years in advance of an increased risk in developing atherosclerosis, that individual may choose diets and activities, and his/her doctor could choose medications that could lead to a healthier life. In the near future, we will be able to design medications specifically based on an individual’s own genetic makeup. Ultimately we could correct the DNA sequence itself to “cure” a genetic disease in an individual.
[xx] See Aaron Barlow, “The DVD Revolution: Movies, Culture, and Technology,” Praeger Publishers (2004).
[xxi] See Peter Tschmuck, “Creativity and Innovation in the Music Industry,” Springer (2006).
[xxii] See e.g., Robert E. Krebs, “Groundbreaking Scientific Experiments, Inventions, and Discoveries of the Middle Ages and the Renaissance (Groundbreaking Scientific Experiments, Inventions and Discoveries through the Ages),” Greenwood Press (2004).
[xxiii] See e.g., Jie Jack Li, “Laughing Gas, Viagra, and Lipitor: The Human Stories behind the Drugs We Use,” Oxford University Press (2006); Meika Loe, “The Rise of Viagra: How the Little Blue Pill Changed Sex in America (Sociology)” New York University Press (2006).
[xxiv] See Virginia A. Baldwin, “Patent and Trademark Information: Uses and Perspectives,” Haworth Information Press (2004).
[xxv] See Jonathan P. Clewley, “The Polymerase Chain Reaction (PCR) for Human Viral Diagnosis (Pcr for Human Viral Diagnosis)” CRC Press, Inc. (1994). Polymerase Chain Reaction (PCR) is a technique that provides a very sensitive method of amplifying small quantities of DNA.
[xxvi] See The National Society of Professional Engineers (NSPE) recognized the work of electrical engineer Greatbach in developing the implantable pacemaker (U.S. Patent 3,057,356), in 1983 as “one of two major engineering contributions to society during the past 50 years.” Greatbatch licensed his patent to Medtronic in 1961. (See e.g., Electronic Design article dated October 27, 2003 by Roger Allan, “A Short History Of The Pacemaker”.)
[xxvii] See e.g., BBC News article dated October 4, 2006 at http://news.bbc.co.uk/go/pr/fr/-/2/hi/technology/5403588.stm (last visited August 19, 2007).
[xxviii] See e.g., U.S. Census Bureau data at http://www.census.gov/mp/www/cpu/fact_of_the_day/005705.html (last visited August 19, 2007).
[xxix] See e.g., MSNBC article dated February 26, 2007, Hybrid Sales Growth Slowed in 2006 at http://www.census.gov/mp/www/cpu/fact_of_the_day/005705.html (last visited August 19, 2007).
[xxx] See e.g., CNNMoney.com article by Bethany McLean, A Bitter Pill Prozac made Eli Lilly. Then along came a feisty generic maker called Barr Labs. Their battle gives new meaning to the term ‘drug war.’,dated August 13, 2001. The article is available at http://money.cnn.com/magazines/fortune/fortune_archive/2001/08/13/308077/index.htm, (last visited August 19, 2007).
[xxxi] See Edwin Bailey, Genetic Engineering and Biotechnology News article dated August 1, 2006, BioMarket Trends (Overview of the Global Pharmaceutical Market). See Madhu Agrawal, Global Competitiveness in the Pharmaceutical Industry: The Effect of National Regulatory, Economic, and Market Factors, Pharmaceutical Products Press (1999).
[xxxii] See Library of Congress Copyright Office Notice of Inquiry In re Exemption to Prohibition on Circumvention of Copyright Protection Systems for Access Control Technologies, (2002).
[xxxiii] On April 9, 2007 Steve Jobs, Apple’s CEO announced that the 100 millionth iPod® had been sold as well as 2.5 billion songs, 50 million TV shows and over 1.3 million movies.
[xxxiv] See USPTO various class (e.g., 455) and subclass (e.g., 551 and 555) searches.
[xxxv] See http://patft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&p=1&u=%2Fnetahtml%2FPTO%2Fsearch-bool.html&r=0&f=S&l=50&TERM1=455%2F550.1&FIELD1=ORCL&co1=AND&TERM2=&FIELD2=&d=PTXT for a search of class 455 and subclass 550.1 on the USPTO website (last visited September 2, 2007).
[xxxvi] Partial list of “spin off” patents from the UPSTO website in Appendix II.
[xxxvii] See The National Society of Professional Engineers (NSPE) recognized the work of electrical engineer Greatbach in developing the implantable pacemaker (U.S. Patent 3,057,356), in 1983 as “one of two major engineering contributions to society during the past 50 years.” Greatbatch licensed his patent to Medtronic in 1961. (See e.g., Electronic Design article dated October 27, 2003 by Roger Allan, “A Short History Of The Pacemaker”).
[xxxviii] See Victor Parsonnet, M.D., Power Sources for Implantable Cardiac Pacemakers, American College of Chest Physicians (1972).
[xxxix] See Dolores R. Wallace, Failure Modes in Medical Device Software: An Analysis of 15 Years of Recall Data, Information Technology Laboratory National Institute of Standards and Technology (1995).
[xl] See H. Edward Durham Jr., CVT, LATG, Cardiac Pacemakers in Small Animals – What Technicians Need to Know, Veterinary Technician (2000).
[xli] See Olufunmilayo B. Arewa, Measuring and Representing the Knowledge Economy: Accounting for Economic Reality Under the Intangibles Paradigm, 54 BFLR 1 (2006).
[xlii] See Patents and Innovation: Trends and Policy Challenges, Organisation for Economic Co-Operation and Development, (2004). The original member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became members subsequently in the years indicated: Japan (1964), Finland (1969), Australia (1971), New Zealand (1973), Mexico (1994), the Czech Republic (1995), Hungary (1996), Poland (1996), Korea (1996) and the Slovak Republic (2000).
[xliii] Id at page 16. The trend in increased R&D in small firms is supported by increased venture capital funding in the activities for new technology-based firms to their advantage. Patents are critical to new technology-based companies because they often have few tangible assets other than IP, and need patent rights to attract venture capital.