8_Protecting_Innovation.pdf

8_Protecting_Innovation.pdf - 8 PROTECTING INNOVATION The...

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Unformatted text preview: 8. PROTECTING INNOVATION The Digital Music Distribu=on Revolu=on §  In 1991, Fraunhofer IIS of Germany invents the MP3 format; by late 1990’s the format is wildly popular. §  In 1999, Shawn Fanning releases Napster, a free soAware program that allows users to easily share MP3 files (“peer-­‐to-­‐peer”) §  The RIAA starts to worry about illegal trade of copyrighted music. In 2001 it gets a court ruling against Napster, taking it offline. §  However, new peer-­‐to-­‐peer music services began to sprout up to meet the demand of the large populaTon of “music pirates.” §  In 2003, Apple opens its iTunes Music Store – a one-­‐stop-­‐shop for music files from the five major record labels. Now record industry is earning significant revenues from MP3s. §  In 2006, France pushes Apple to loosen its restricTons on iTunes music and iPods. Should Apple use a more “open” model? §  By 2011, sales of digital music surpassed the sale of physical music for the first Tme. However, some analysts anTcipated a move away from music ownership altogether, with users instead just listening to music streamed from services such as Pandora and SpoTfy. 9-2 The Digital Music Distribu=on Revolu=on Discussion Ques=ons: 1.  What industry condiTons lead to the revoluTon in audio distribuTon? Which stakeholders stand to benefit most (or least) from this revoluTon? 2.  Why did the music stores created by the record labels fail to a[ract many subscribers? What, if anything, should the record labels have done differently? 3.  What factors led iTunes to be successful? 4.  What new models of music distribuTon have emerged, and what do you think will influence whether they endure? 9-3 OVERVIEW § Firms must decide whether and how to protect their technological innovaTons. § ProtecTng innovaTon helps a firm retain control over it and appropriate the rents from it. § However, someTmes not protecTng a technology is to the firm’s advantage – it may encourage others to support the technology and increase its likelihood of becoming dominant. 9-4 APPROPRIABILITY § Appropriability: The degree to which a firm is able to capture the rents from its innovaTon. § Appropriability is determined by how easily or quickly compeTtors can copy the innovaTon. §  Some innovaTons are inherently difficult to copy (tacit, socially complex, etc.) §  Firms may also a[empt to protect innovaTons through patents, trademarks, copyrights or trade secrets. 9-5 INTELLECTUAL PROPERTY Ø  According to EU: Intellectual property is divided into two categories: •  Industrial property: includes invenTons, trademarks, industrial design, and geographical indicaTons of source; •  Copyright: includes literary and arTsTc works such as novels, films, musical works, painTngs, photographs, and architectural designs. Ø  Industrial properTes: •  Patents: Legal right to posses invenTon in certain period •  Trade marks: signs, symbols, le[ers or words that represent a company or product and serve to differenTate it from compeTtors. •  Industrial design: outward appearance of a product or a part of it, which results from the lines, contours, color, shape, texture, materials and its ornamentaTon. •  Trade secrets Ø  Intellectual properTes are protected by naTonal laws and The different types of IP (I) Legal right What for? Patents New inventions Application and examination Utility models New inventions Application and registration Copyright Original creative or artistic forms Exists automatically Source: EPO How? 7 The different types of IP (II) Legal right What for? Trade marks Distinctive identification of products or services Use and/or registration Registered designs External appearance Registration Trade secrets Valuable information not known to the public Reasonable efforts to keep secret Source: EPO How? 8 One product - many IP rights Trade marks §  NOKIA §  Product "208" §  Start-up tone Patents and utility models §  Data-processing methods §  Operating system §  Operation of user interface Copyright §  Software §  User manuals §  Ringtones §  Start-up tone §  Images Designs §  Form of overall phone §  Arrangement and shape of buttons §  Position and shape of screen Trade secrets §  Some technical know-how kept "in-house" and not published Source: EPO 9 Optional Examples of valuable intellectual property Coca-Cola® Apple® iPod touch® Polaroid® instant camera Source: EPO Harry Potter DNA copying process 10 PATENTS Ø  The first account of a "patent system" In the ancient Greek city of Sybaris (destroyed in 510 BC), leaders decreed: "If a cook invents a delicious new dish, no other cook is to be permi6ed to prepare that dish for one year. During this =me, only the inventor shall reap the commercial profits from his dish. This will mo/vate others to work hard and compete in such inven=ons.“ Source: EPO First patent granted in Venice, Italy, in 1474 Ø  Senate of Venice, 1474: Any person in this city who makes any new and ingenious contrivance, not made heretofore in our dominion, shall, as soon as it is perfected so that it can be used and exercised, give no=ce of the same to our State Judicial Office, it being forbidden up to 10 years for any other person in any territory of ours to make a contrivance in the form and resemblance thereof". Source: EPO Ø  UK:1624, USA:1790, Germany: 1877 Ø  Turkey: 1879 (first during Osmanlı), current law in 1995 Source: EPO PATENTS Ø  Legal right to posses invenTon in certain period (about 20 years) Ø  Usually naTonal with some internaTonal perspecTve •  Each country has its own patent system (Türk Patent EnsTtüsü in Turkey) •  European Patent ConvenTon (EPC) •  InternaTonal organizaTons such as Patent ConvenTon Treaty (PCT) and World Intellectual Property OrganizaTon (WIPO) •  “Priority filing” rights in other countries for 12 months aAer first filing •  US, Japan and European Patent Offices are the largest (triadic patent family) PATENTS Ø  Describe the invenTon in details Ø  Has an owner, can be bought, sold and transferred Ø  Accessible to public, no secrecy Ø  What can be patented? •  Should contain some novel idea •  It should not be obvious •  It should be useful Ø  What can not be patented? •  Discoveries, •  a scienTfic theory or mathemaTcal method •  aestheTc works such as literary, dramaTc or arTsTc work •  method for performing a mental act, playing a game or doing business •  the presentaTon of informaTon, or a computer program •  ..... PATENTS Ø Patent Laws Around the World •  Countries have their own laws regarding patent protecTon. Some treaTes seek to harmonize these laws. •  Paris Conven=on for the Protec=on of Industrial Property –  Foreign naTonals can apply for the same patent rights in each member country as that country’s own ciTzens. –  Provides right of “priority” – once inventor has applied for protecTon in one member country, they can (within certain Tme period) apply for protecTon in others and be treated as if they had applied on same date as first applicaTon. •  Patent Coopera=on Treaty (PCT) –  Inventor can apply for patent in a single PCT receiving office and reserve right to apply in more than 100 countries for up to 2 ½ years. Establishes date of applicaTon in all member countries simultaneously. Also makes results of patent process more uniform. 9-15 PATENTS •  Countries that are members of Patent Coopera=on Treaty PCT Covered countries Non-PCT Covered countries 9-16 What is a utility model? A utility model grants the holder the exclusive right to prevent third parties from: •  exploiting an invention (e.g. making, using, offering for sale) •  without authorisation in the country where the utility model was registered for a short period (3 to 10 years). Ø  The holder has to disclose the invention to the public. Ø  Reveal invention (disclosure) Source: EPO Get protection (utility model) 29 Scope of protection compared with patents Utility models Ø  Ø  Ø  Ø  Ø  Ø  Ø  Ø  Patents Registered territorial IP right Available in limited number of countries No central filing in Europe Protection for 3 -10 years Search reports in some countries only Registered and published after a few months Generally no substantive examination (novelty, inventiveness) Reviewed only in revocation or infringement proceedings Source: EPO Ø  Ø  Ø  Ø  Ø  Ø  Ø  Ø  Registered territorial IP right Available in most countries Central filing possible (e.g. EPO for Europe) Protection for up to 20 years Search reports standard Application published after 18 months Substantive examination (novelty, inventive step) Grant or refusal after substantive examination procedure 30 PATENTS § Patent Strategies § It is typical to assume that an inventor seeks a patent because they desire to make and sell the invenTon themselves. § However, inventors and firms may moneTze patents in a range of different ways, including licensing the technology to others, or selling the patent rights to another firm that can be[er uTlize the technology. § SomeTmes firms seek patents just to limit the opTons of compeTtors, or to earn revenues through aggressive patent lawsuits. These acTons are someTmes referred to as "patent trolling." §  Apple claims to be the #1 target for patent trolls, having faced nearly 100 lawsuits between 2011 and 2014 9-19 PATENTS § Dense webs of “patent thickets” can make it hard for firms to compete, and sTfle innovaTon. § Firms someTmes buy bundles of patents just to create a “war chest” to defend themselves from lawsuits by offering a credible threat of retaliaTon. § For example, in 2011, the bankrupt Nortel aucToned off its massive patent porvolio. A consorTum called Rockstar Bidco that included MicrosoA, Apple, RIM, Sony, and Ericsson, won the aucTon for $4.5 billion, beaTng out Google which bid $4.4 billion. Google subsequently bought 1,030 IBM patents that covered a range of technologies. These patents were not necessary for Google's business directly; rather they provided a retaliaTon threat to others that might a[ack them through patent suits. 9-20 TRADEMARKS §  Trademarks and Service Marks: a word, phrase, symbol, design, or other indicator that is used to disTnguish the source of goods form one party from goods of another (e.g., Nike “swoosh” symbol) §  Rights to trademark are established in legiTmate use of mark; do not require registraTon. §  However, marks must be registered before suit can be brought over use of the mark. §  RegistraTon can also be used to establish internaTonal rights over trademark. §  Two treaTes simplify registraTon of trademarks in mulTple countries: Madrid Agreement Concerning the Interna=onal Registra=on of Marks, and the Madrid Protocol. Countries that adhere to either or both are in Madrid Union (85 members) 9-21 COPYRIGHTS §  Copyright: a form of protecTon granted to works of authorship. §  Copyright prohibits others from: §  §  §  §  §  Reproducing the work in copies or phonorecords Preparing derivaTve works based on the work DistribuTng copies or phonorecords for sale, rental, or lease Performing the work publicly Displaying the work publicly §  Work that is not fixed in tangible form is not eligible. §  Copyright is established in first legiTmate use. §  However, “doctrine of fair use” sTpulates that others can typically use copyrighted material for purposes such as criTcism, new reporTng, teaching research, etc. §  Copyright for works created aAer 1978 have protecTon for author’s life plus 70 years. 9-22 COPYRIGHTS § Copyright Protec=on Around the World §  Copyright law varies from country to country. §  However, the Berne Union for the Protec=on of Literary and Ar=s=c Property (“Berne ConvenTon”) specifies a minimum level of protecTon for member countries. §  Berne convenTon also eliminates differenTal rights to ciTzens versus foreign naTonals. 9-23 TRADE SECRETS § Trade Secret: informaTon that belongs to a business that is generally unknown to others. §  Firm can protect proprietary product or process as trade secret without disclosing detailed informaTon that would be required in patent. §  Enables broad class of assets and acTviTes to be protectable. §  To qualify: §  InformaTon must not be generally known or ascertainable. §  InformaTon must offer a disTncTve advantage to the firm that is conTngent upon its secrecy. §  Trade secret holder must exercise reasonable measures to protect its secrecy. 9-24 EXAMPLE: An anti-allergy sprayer and spray NEBU-ALLERG Source: EPO 45 Which elements can be protected? §  Medicinal product §  Nozzle §  Brand name: –  "NEBU-ALLERG" §  Pumping system §  Sprayer can §  Logo §  Slogan: "Press green for go!" §  Domain name §  Advertising material Source: EPO 46 Patents and designs (I) Medicinal product Patents for –  the active ingredient? (the "chemical X") –  the method of making X? Better as a trade secret? –  the formulation? (combination of X with other ingredients) –  the method of use? (i.e. treatment of allergies using X) Source: EPO 47 Patents and designs (II) Nozzle Pumping system §  patent §  utility model §  patent §  utility model Sprayer can §  designs: registered and unregistered §  trade mark But who owns all this IP? Source: EPO 48 Trade marks, copyright and domain names §  Brand name: NEBU-ALLERG §  Logo: trade mark ® trade mark ® §  Slogan: "Press green for go!" §  Advertising material: trade mark ® copyright © §  Domain names: - - Source: EPO Who owns all this IP? 49 THE EFFECTIVENESS AND USE OF PROTECTION MECHANISMS § In some industries, legal protecTon mechanisms are more effecTve than others §  E.g., in pharmaceuTcal patents are powerful; in electronics they might be easily invented around. § It is notoriously difficult to protect manufacturing processes and techniques. § In some situaTons, diffusing a technology may be more valuable than protecTng it. § However, once control is relinquished it is difficult to reclaim. 9-30 Theory In Ac=on IBM and the A\ack of the Clones §  In 1980, IBM was in a hurry to introduce a personal computer (PC). It used off-­‐the-­‐shelf components such as Intel microprocessors an operaTng system from MicrosoA, MS DOS. §  It believed that its proprietary basic input/output system (BIOS) would protect the computer from being copied. §  However, Compaq reverse engineered the BIOS in a ma[er of months without violaTng the copyright, and quickly introduced a computer that behaved like an IBM computer in every way. Compaq sold a record-­‐breaking 47,000 IBM-­‐compaTble computers its first year, and other clones were quick to follow. 9-31 THE EFFECTIVENESS AND USE OF PROTECTION MECHANISMS §  Advantages of Protec=on §  Proprietary systems offer greater rent appropriability. §  Rents can be used to invest in further development, promoTon, and distribuTon. §  Give the firm control over the evoluTon of the technology and complements §  Advantages of Diffusion §  May accrue more rapid adopTons if produced and promoted by mulTple firms §  Technology might be improved by other firms (though external development poses its own risks). 9-32 THE EFFECTIVENESS AND USE OF PROTECTION MECHANISMS §  Produc=on Capabili=es, Marke=ng Capabili=es, and Capital §  Factors influencing benefits of protecTon vs. diffusion •  •  •  •  •  •  Can firm produce the technology at sufficient volume or quality levels? Are complements important? Are they available in sufficient range and quality? Can the firm afford to develop and produce them itself? Is there industry opposiTon against sole source technology? Can the firm improve the technology well enough and fast enough to compete with others? How important is it to prevent the technology from being altered in ways that fragment it as a standard? How valuable is architectural control to the firm? Does it have a major stake in complements for the technology? 9-33 Discussion Ques=ons 1.  What are the differences between patents, copyrights, and trademarks? 2.  Consider a firm that is considering markeTng its innovaTon in mulTple countries. What factors should this firm consider in formulaTng its protecTon strategy? 3.  When will trade secrets be more useful than patents, copyrights or trademarks? 4.  Can you idenTfy a situaTon in which none of the legal protecTon mechanisms discussed (patents, copyrights, trademarks, trade secrets) will prove useful? 5.  Describe a technological innovaTon not discussed in the chapter, and idenTfy where you think it lies on the control conTnuum between wholly proprietary and wholly open. 6.  What factors do you believe influenced the choice of protecTon strategy used for the innovaTon idenTfied above? Do you think the strategy was a good choice? 9-34 ...
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