How Equipment Companies Obtain Value from Patents
By Mark Nowotarski, Circuit Net, March 4, 2003
Patents are powerful tools for growing a business. As with most powerful tools, however, they can be easily misused. To avoid misuse, it is essential that different types of companies tailor their patent strategies, employee training and competitive tracking in accordance with their basic business models.
There are several very different types of basic business models used by companies that serve the electronics assembly market. These types include equipment companies, such as Cookson Electronics Equipment (Franklin, MA), service providers, such as Sanmina-SCI (San Jose, CA), technology licensing companies, such as the Lemelson Foundation (Incline Village, NV) and commodity suppliers, such as Praxair (Danbury, CT). All four classes of companies must employ their own brand of strategic planning, employee training and competitive tracking in order to obtain value from their patent portfolios. This article specifically examines equipment companies.
The success of equipment companies is based on their ability to sell differentiated equipment. They are constantly inventing new and improved mechanical and software means for automating the electronics assembly process. These inventions can be major innovations, such as the computerization of equipment control, or minor improvements, such as the use of titanium fingers in wave solder machines. Whether major or minor, all improvements can be protected with patents. Patents give their owners the right to prevent others from making, using or selling their inventions, irrespective of the significance of the inventions.
Equipment inventions are easily copied. A potential infringer needs only to buy a piece equipment, take it apart, and reverse engineer it to copy its inventions. Alternatively, equipment patents are easily enforced. A patent owner need only purchase a competitive product and take it apart to determine if that product violates their patent. Equipment companies, therefore, file a large number of patents on improvements to their products.
Filing a patent is a substantial investment. Broadly filed international patents can cost $100,000 each in preparation , filing, and maintenance fees, and translation costs.
Equipment companies often have very similar strategic plans for obtaining value from their patents. Elements of a strategic plan can include filing patents in the countries where they or their competition are doing business, identifying and suing infringers, avoiding infringement themselves and licensing competitors when necessary.
Consider the Lambda Wave™ for wave soldering(Figure 1). This was invented in the early 70’s by Electrovert to counter the popular Oil-intermix™ wave of Hollis Automation . The Lambda Wave gave low bridging, icicle and dross rates without the mess of oil intermix. Electrovert sought and obtained patents in the US , Japan, Europe and other countries. These patents gave Electrovert the right to exclude competitors from making, using or selling similar solder waves. Their ability to exclude others from making Lambda Waves helped them significantly in maintaining and growing their market share.
Figure 1 US Patent 3,921,888 Elliott et al, Nov. 25, 1975
Electrovert exercised constant vigilance to identify and stop infringers. They filed several lawsuits in the US, Japan, Germany and France to protect their intellectual property rights. They prevailed in each of these cases. As a result, competitors had to license the technology and pay damages. This is not to say that Electrovert made money on their lawsuits. More often than not, the outcome was breakeven relative to their legal costs. None-the-less, these lawsuits were worthwhile investments in terms of generating respect for the rest of their patent portfolio.
Equipment companies often implement employee patent training programs. Business leaders are taught how to balance the cost of a patent relative to the value of increased market share and sales. They are given guidance on comparing the relative cost of an infringement lawsuit versus the value of establishing respect for their patent portfolios. Sales people are taught that patent rights can be lost due to an early “offer to sell” of a patented improvement. They are also given guidance on how to respond to customer inquiries regarding the validity of their patents, the scope of their patents, and the consequences of violating their patents. Technologists and inventors are taught how to identify a patentable improvement and how to record and protect their inventions through timely patent application filings.
It is particularly important that all employees understand that a company can loose their right to a patent once an invention is offered for sale in the US or once an invention is made public anywhere in the world. Inventors have one year from when an invention is offered for sale in the US to file a patent application in the US. This one-year anniversary is called a “bar date”. Once a bar date has passed, an inventor is prevented from getting a patent. Similarly, once an invention becomes public anywhere in the world it also triggers a one-year bar date in the US. In Europe, Japan and most of the rest of the world, the bar date is instantly triggered when an invention becomes public. It is critical, therefore, that equipment companies have all publications and sales literature reviewed by a competent patent attorney/agent prior to publication to prevent unwitting disclosure of new inventions that could be patented.
Competitive tracking of patents helps insure that equipment companies do not inadvertently infringe someone else’s patents. A first company can be sued for patent infringement even if they feel they already have patents covering their invention. A second company that has earlier patents covering the same broad class of inventions can sue the first company.
Thomas Edison understood this when he set out to develop a practical incandescent light bulb. Two Canadian inventors, Woodward and Evans, had an earlier patent on the general approach Edison wanted to take. Edison wisely bought a license to the Woodward and Evans patent before he began his development program. He could then develop and commercialize his improved light bulb without getting sued for infringement .
“Patent watches” are an ideal way to keep track of competitive activity. Patent watches are periodic reviews of recently issued patents that identify which ones are of potential significance. Patents can be significant by virtue of what they claim, what they disclose or who owns them. Patents of interest should be routed to appropriate legal, technical and business people for an assessment of their significance and for a recommended course of action.
Very often, a patent watch will reveal a significant patent that a particular company feels is invalid. In Europe, Japan and most recently in the US, there are “opposition” proceedings  whereby a third party can challenge the validity of a patent. These proceedings are less expensive and often more amicable than resorting to a lawsuit. An opposition proceeding typically costs about $50,000 in filing and legal fees and takes about two years to complete. Oppositions are worth the investment. Historically, patents that are opposed are completely revoked about a third of the time, reduced in scope about a third of the time and upheld about a third of the time .
Equipment companies make tremendous use of patents to protect their innovations from unauthorized copying. This helps them achieve their key criteria of success, the sale of advanced high end products. The cornerstones of their strategic planning is vigorous enforcement of patents. The most important aspect of their employee training is to make sure employees understand that premature offers for sale or publication can sacrifice their rights to a patent. The most important part of their competitive tracking is setting up patent watches to be able to identify competitor’s patents that they might potentially infringe.
Copyright © 2003 - This article is an excerpt of the training program “Understanding the Value of Patents” given at APEX 2003
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