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)[1]. This was
invented in the early 70’s by Electrovert to counter the popular Oil-intermix™ wave
of Hollis Automation [2]. The Lambda Wave gave low bridging, icicle and dross
rates without the mess of oil intermix. Electrovert sought and obtained patents
in the US [3], 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 [4].
“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 [5] 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
[6].
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.
References
- Special Thanks to Don Elliott of Elliott Technologies,
Quebec, for his insights regarding the Lambda Wave. Don was a co-inventor
of the Lambda Wave.
- Electrovert and Hollis are now part of Speedline, which is a division
of Cookson.
- Elliott et al, “Wave Soldering of Printed Circuit Boards”,
US patent 3,921,888, Nov 25, 1975.
- "Understanding the Value of Patents in Advanced Packaging",
Advanced Packaging, July 2002.
- The opposition process in the US is called “Inter Partes Reexamination.” It
is more limited than the European opposition process.
- "Patent Quality Control: A Comparison of U.S. Patent Re-examinations
and European Patent Opposition," with Stuart J. H. Graham, Dietmar
Harhoff, and David C. Mowery. NBER Working Paper No. 8807, revised November
2002.
Copyright © 2003 - This article
is an excerpt of the training program “Understanding the Value
of Patents” given at APEX 2003
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