Where the most prolific “patents machines” are to be found, and in the pharmaceutical sector, where incumbents must disclose for regulatory and safety reasons their formulas and therefore need protection from copycat or generic products.
Patents apply in principle on inventions or technical creations, not discoveries, though in some countries discoveries such as genes can be patented. These inventions must fulfill certain conditions (novelty, inventive step, useful and applicable at industrial level and so on) and the patent is granted by a government for a limited time and a limited extent of protection. Let us stress that patents provide a right to exclude others not a right to make, use or sell. It is not because a firm has a patent on something that it has freedom to exploit it.
To gain patent protection an inventor must disclose or describe his/her invention and justify its novelty (it is not part of the state of the art), inventivity (it is not trivial or obvious for a skilled person) and applicability (an example of actual implementation can be presented). The inventor must also specify the extent of protection requested, both in terms of geographies covered and types of applications. These “claims” are validated or invalidated by the relevant patent office and can be contested in courts.
What is important to stress is that, here again, patents are not good things per se and the number of patents is a very dangerous criteria for assessing the performance of a business (or region). Many patents are applied for but never used, and a patent is in no way a validation of the quality or the value of an invention (only of its novelty, inventiveness and applicability – see above).
Patents can bring important direct and indirect benefits to the firms claiming them, but they also have significant direct and indirect drawbacks. These are discussed below.
Patents can provide significant direct benefits to their owner. First, by definition, they are a way of acquiring exclusive rights over technologies and to control their development. Second, they allow an organization to convert inventions into valuable tangible assets that can be accounted for, rented (licensed) or sold. It is indeed much easier for a firm to sell or provide as collateral a patent (which is a tangible asset) than it would be for an invention alone (which is not). Finally, patents can provide their owners with an innovative and/or credible image.
From an operational point of view, patents can therefore be used to gain local exclusivity, and protect core and related or associated technologies as well as to maintain a good reputation and leadership. Firms such as Qualcomm and IBM have, for example, extracted strong revenue streams from their patent portfolio.
Patents can also provide significant indirect benefits. First, as they are published, they prevent competitors from patenting and can signal competitive invention. They can also provide their owner with a strong bargaining position vis-à-vis existing or potential competitors – for example, for negotiating cross-licensing. Finally, patents can be used to preempt accidental or malicious leaks of information from staff members as well as to motivate them and reward their innovativeness.
From a strategic point of view, patents can therefore be used to block the entry of competitors, keep them away from specific areas or surround them. Patents can also be used to build strong negotiation positions and prevent others from patenting their product. Technology-intensive industrial firms such as those in the chemicals and petrochemicals sectors indeed engage in such “patent chess”, where dissuasion tactics are common and where the same firms can collaborate on some technologies but compete fiercely over others.