Management of intellectual property rights. Strategic patenting

AuthorJosephine Chinying Lang
Publication Date01 Mar 2001
Journal of Intellectual Capital,
Vol. 2 No. 1, 2001, pp. 8-26.
#MCB University Press, 1469-1930
Management of intellectual
property rights
Strategic patenting
Josephine Chinying Lang
Nanyang Business School, Nanyang Technological University,
Keywords Intellectual property, Patents, Methods, Computer software
Abstract This article reviews emergent global trends in intellectual property protection and
identifies patenting as a strategic initiative. Recent developments in software and method-of-
doing-business patenting are fast transforming the e-business landscape. The article discusses the
emergent global regulatory framework concerning intellectual property rights and the strategic
value of patenting. Important features of a corporate patenting portfolio are described.
Superficially, the e-commerce landscape appears to be dominated by dotcom
start-ups or the ``dotcomization'' of existing brick-and-mortar companies. But,
in reality, at its very bedrock is intellectual property (IP). In this connection, the
recent avalanche of patenting of software and method-of-doing-business (MDB)
in the USA is a very significant development with regard to rules governing IP
rights and, therefore, e-commerce. Together with the World Trade
Organization's (WTO) IP rules, there is an emerging global regulatory
framework for IP rights, an understanding of which is necessary for designing
effective e-commerce strategies. This paper is organized as follows. Section 1
highlights recent legal developments concerning IP rights while section 2
discusses the emergent regulatory framework. Section 3 focuses on the
strategic nature and the value of patenting in e-commerce. Finally, section 4
outlines a corporate patenting portfolio.
Recent legal developments
Patenting is no longer an administrative burden or a peripheral concern but a
vital source of competitive advantage in the knowledge economy where value
is generated from protected ideas, knowledge, skills, and methods. The
burgeoning numbers of patents awarded point to the growing strategic
importance of patenting. In the USA an estimated 17,500 software patents were
issued in 1998, and about 22,500 in 1999. Companies such as IBM, NEC, Canon,
Samsung, Sony, Toshiba, Fujitsu, Motorola, Lucent Technologies, and
Mitsubishi were among the top ten private-sector patent recipients in 1999
(Quan, 2000). With licensing, patents can be a valuable source of revenue. For
example, licensing revenues accounted for a fifth of IBM's profit in 1999.
The law in the USA had long held that MDB could not be patented. In 1998,
in the State Street Bank & Trust Co. v. Signature Financial Group, however, the
US Court of Appeals for the Federal Circuit ruled that a method-of-doing-
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Management of
property rights
business could be patented. In this new business environment, a firm that owns
a software patent or MDB patent has, in fact, an entry barrier in the form of a
20-year exclusive right. Patents granted by a country generally prevent people
other than the inventor from making, using, offering for sale, selling the
invention, or importing the invention into the country concerned for a period of
time, usually 20 years.
Besides patents, there are other forms of IP protection afforded by
international agreements and national laws including copyrights, trademarks,
geographical indications, industrial designs, layout designs of integrated
circuits, and trade secrets. Nevertheless, of these, patents provide the strongest
form of IP protection (Hicks and Holbein, 1997). The common characteristic
found in all these various forms of IP protection is the exclusive right to
exclude others from certain activities.
Each form of IP protection contains a set of norms which helps to specify
what subject matter is protected, the procedures for achieving protection, the
duration of protection, and legal remedies for infringement of the IP right.
Copyright and copyright-related rights provide protection to original works for
a longer period of about 100 years. Copyrights are primarily rights in the
distribution medium ± rights to copy and distribute, publicly to perform or
display. But in digital networks, distribution is different from print, celluloid,
broadcast, or CDs. Copies are perfect and almost costless and redistribution is
costless digitally. So producer rights are threatened unless copies can be
Ideas, principles, themes, procedures, methods, systems, processes, or
concepts cannot be copyrighted. A major limitation for most copyright owners
is the ``doctrine of fair use''. That is, an action is not construed as an
infringement if it is done for purposes of criticism, comment, news reporting,
teaching, scholarship, or research. UNESCO, which administers the Universal
Copyright Convention, has not established an effective global copyright regime
because there is no meaningful system for encouraging compliance.
Another form of IP protection is the trade secret that concerns guarded and
undisclosed information with commercial value. Trade secret protection, which
may last for an indefinite period of time, tends to be broad and includes recipes
such as Coca-Cola, formulae for materials, compilations of information,
computer programs, production processes, business information, and financial
information. The rights of a trade secret owner tend to be limited because the
owner does not have the absolute power to exclude others from specific activity
except to prohibit the illegal acquisition of the protected secret by the breach of
confidence, breach of contract, or industrial espionage (Hicks and Holbein,
1997). So, trade secret protection is useful only if secrecy is maintained which
means the invention must be difficult to reverse-engineer and the chances of
someone else discovering or developing the secret are minimal (Pooley and
Bratic, 1999).

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