The Four Phases of Patent Usage

• Author: Kelce Wilson
• Position: Capital University Law School graduate, 2005
• Pages: 679-700

THE FOUR PHASES OF PATENT USAGE

KELCE WILSON*

I. INTRODUCTION

A common trend is observable in consumer, high-technology

industries: many companies tend to follow a predictable, four-phase path in

their usage of patented intellectual property (IP). The author denominates

these phases as “Incubation,” “Defense,” “Saturation,” and “Depletion.”

They are typically sequential and largely correspond with four stages of a

business lifecycle: start-up, growth, maintenance, and decline.1 Criteria are

provided for identifying, within the context of patents, the particular phase

in which a company may find itself. Transitions between phases—for

example, a pre-Depletion transition period—are also described. Other

forms of IP, such as copyrights and trademarks, may require an entirely

different analysis than is presented here.2

The first three phases—Incubation, Defense, and Saturation—are

associated with manufacturing, while the Depletion phase is often defined

by a company’s status as a non-practicing entity (NPE). It should be noted

that NPE status may be obtained by multiple routes, including the

following: choice, when intentionally bypassing the first three phases;

short-circuit, perhaps due to financial failure or because a new product

lacks sufficient marketability to support successful completion of the

manufacturer’s Incubation phase; and obsolescence, when a

Copyright © 2012, Kelce Wilson.

* Capital University Law School graduate, 2005; also holding an MBA and a PhD in

Electrical Engineering. I would like to thank P rofessor Michael Distelhorst for teaching so

enthusiastically about the intersection between law and commerce, and also Rachel

Gagnon, Claudia Tapia Garcia, and the Capital University Law Review staff for their

assistance preparing this article. The opi nions expressed herein are those of the author an d

do not reflect the views of the author’s employer.

1 See Susan Saltonstall Duncan, Staying Ahead of the Curve: Tracking the Trends, LAW

PRACTICE, Oct.–Nov. 2006, at 60, 61 (noting the business cycle).

2 Mark A. Lemley, Should Patent Infringement Require Proof of Copying?, 105 MICH.

L. REV. 1525, 1525 (2007) (noting the uniqueness of patent law).

680 CAPITAL UNIVERSITY LAW REVIEW [40:679

manufacturer’s product line ages to the point that it can no longer sustain

the Defense or Saturation phase.3

As a preview, the widely-touted purpose of the patent system, which is

“to promote innovation,”4 is most likely to be fulfilled to its full potential

in the Incubation phase, often somewhat less likely in the Defense phase,

and lesser still in the Saturation phase. Patents used in the Depletion phase

may be tax-like burdens,5 either placed on new market entrants by older

manufacturers that wish to avoid competition from the current generation

of innovators, or placed on most manufacturers (both new and old) by

“patent troll” entities practicing ex post assertions against independently-

invented products. One potentially useful definition of a patent troll is an

entity that demands payment for a patent that is disproportionately high

relative to the value of that patent’s teaching to the industry, and is neither

using the patent to preserve market share for its own unique products, nor

is using the patent in a cross-license, so that it can continue to profitably

manufacture products for the marketplace.6 Not every NPE is a patent

troll, and not every patent troll is an NPE.

The four various phases may each be defined by a patent owner’s

primary intended use of patents, or at least by an objectively-defined

primary intended use. This can be ascertained by examining the

relationship between IP rights (IPR) and common revenue stream

scenarios. This analysis applies to industries in which portfolio cross-

licensing is common and is thus expected at some point during the lifespan

of a patent.7 Some industries, in which patents typically remain unlicensed

to preserve a monopoly for as long as possible, may not have much

3 See FED. TRADE COMM’N, THE EVOLVING IP MARKETPLACE: ALIGNING PATENT NOTICE

AND REMEDIES WITH COMPETITIO N 62–67 (Mar. 2011).

4 Id. at 1.

5 Leigh Kamping-Carder, Video Game Industry a Boon to Lawyers, LAW360 (Aug. 19,

2011), http://www.law360.com/articles/245300. See also Dan Rivoli, Tort Costs Make US

Cos. Less Competitive: Panel, LAW360 (May 24, 2011), http://www.law360.com/articles/

246840.

6 Kelce S. Wilson, Is Licensing a Patent Selling an Invention?, INTELL. PROP. TODAY,

Feb. 2011, at 11.

7 See John M. Browning & Carla S. Mulhern, Licensing in the Presence of Technology

Standards, LICENSING J., Aug. 2009, at 1, 7 (providing a brief explanation of cross-

licensing).