The power of patents and their strategic use.

• Author: Bennett, David E.
• Position: The 2002 Law Journal

The business world is shifting from one in which value is derived primarily from tangible assets to one in which value is derived primarily from intangible assets. The value in companies such as Intel, Cisco and Hewlett-Packard lies in their technology and their ability to innovate, not in their buildings, inventory or equipment. Companies can no longer protect markets by controlling access to resources, as J.D. Rockefeller once protected his oil empire. In the knowledge-based economy, companies need an effective patent strategy to control access to their most valuable assets -- knowledge and innovation.

A patent gives its owner the exclusive right to make, use, sell and offer to sell the patented technology for a limited period. A company holding strong patents in its core technology can exclude competitors from lucrative markets, increasing profits and market share. A dramatic example of the power of patents is the battle 15 years ago between Polaroid and Eastman Kodak. Polaroid sued Kodak for infringement of its instant-photography patents. Kodak was required to pay Polaroid more than $800 million in damages and was forced out of the instant-camera market after investing about $1.5 billion in the business.

Big assets for little companies

Patents are not just for large companies. The proportion of patents issued to small companies and individual inventors is actually increasing. While patents are undoubtedly important to large companies, small companies are less likely to have diversified product lines and more likely to be dependent on a few key products. Protecting those products with strong patents is essential. Oftentimes, a strong patent is the only thing protecting small, innovative companies from larger, wealthier competitors. In 1996, Stac Electronics sued Microsoft for infringement of its data-compression patents, winning a verdict of more than $120 million. In 1998, Odetics sued Storage Technology for infringement of its automated-tape-storage patents and was awarded more than $70 million.

The number of patent applications being filed in the United States began to increase dramatically about 1980, coinciding with the growth in the computer and technology industries. In 1980, about 100,000 patent applications were filed and fewer than 60,000 patents were issued by the Patent Office. The last two decades have seen those numbers triple as companies scramble to gain or secure a foothold in the market. In 2001, 344,717 new patent...