Understanding the Value of Patents
By Mark Nowotarski, Advanced Packaging Magazine Online, July 2002
Patents are becoming increasingly important to the electronics packaging industry. The number of patents in new packaging technology is growing by more than 40 percent per year.1 Both technology companies, such as Tessera, and packaging sub-contractors, like Amkor, are aggressively asserting their patent rights, and the patent laws themselves are undergoing significant and rapid transformation.
Benefits of Patents
Patents are a simple exchange between the public and an inventor. An inventor reveals to the public exactly how to practice a new invention. In exchange, the public, through government policy, grants to the inventor the right to exclude others from practicing that invention for a limited period of time.
The value of patents to the public is that they completely and accurately disclose new inventions. And patents reveal secrets: An inventor must disclose exactly how to produce the invention in sufficient detail so that anyone, including competitors, can recreate the product, service, or method. This is called "an enabling disclosure." If an invention is public for more than a year before an inventor files a patent application in the U.S., the invention is considered public knowledge and the inventor is not entitled to a patent. Such rules in Japan and Europe are even stricter. There an inventor is not entitled to a patent if their invention has been public for any period of time before the application is filed.
The public is now learning about inventions much more quickly. The recently implemented American Inventor's Protection Act requires that all U.S. patent applications, with some exceptions, be published 18 months after they are filed. This should increase the value of patents to the public by shortening the time between when an invention is made and when it is revealed. It also helps reduce the damage caused by so-called "submarine patents." These are patents that have been kept secret for many years by extended processing in the patent office. By the time they surface, the inventions they claim have become widely adopted. The patent holders can then attempt to demand large license fees. Submarine patents are rare, but their impact can be substantial.
The classic example of a submarine patent is the "Computer on a Chip" patent issued to Gilbert Hyatt.4 The original application was filed in 1970, but the patent didn't issue until 1990. Hyatt then successfully licensed the patent for more than $70 million.5 That kind of money, however, provokes determined opposition. Texas Instruments (TI) challenged the Hyatt patent contending that one of its employees, Gary Boone, invented the computer on a chip first. At last count, the Federal Circuit Court agreed with TI stating that Gary Boone's invention was made before Hyatt's and that the "single chip" part of Hyatt's patent was therefore invalid. Fortunately for Hyatt, another more valuable part of his patent, "microprocessors with interrupts," still stands unchallenged.
The American Inventor's Protection Act seeks to compensate inventors for early publication of their discoveries by granting provisional rights to charge "reasonable" royalties on the inventions claimed in their applications. They are entitled to these royalties as long as the patent that finally issues has claims "substantially identical" to the original application. There is a lot of uncertainty as to what means, and there are other important conditions, but the net effect of the law is to increase the value of patents for patent owners.
The right to exclude is the most misunderstood aspect of patents. Most people think that a patent gives an inventor the right to practice his invention, but this is not true. No less an inventor than Thomas Edison understood that the right to exclude meant that a third party could prevent him from practicing his own inventions if that party owned a patent that covered his basic ideas. His solution to that dilemma, which is still considered the best approach today, was to conduct a thorough search to identify any patents that covered his intended method, contact the owners of those patents and negotiate a suitable license agreement. When he wanted to develop the light bulb, for example, he secured a license from Henry Woodward and Mathew Evans. Woodward and Evans owned a patent7 that covered the basic approach Edison wanted to take.8 Their patent disclosed an electric light bulb that used a carbon filament, but their filaments burned out quickly and required excessively high currents. Edison solved both problems with a high-resistance carbon filament. He then pursued his own patent9 on the improvements and successfully commercialized his invention. Edison could have been stopped in his tracks if he had not obtained a license from Woodward and Evans first.
Patents will continue to gain importance as competitive tools in the electronics packaging business. They reveal new inventions. They protect inventors by giving them the right to exclude others from practicing their inventions. They are presumed valid. These are the three most significant facts about patents that both inventors and managers need to understand to fully capitalize on their value.
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