Intellectual Property Innovation Business Technology and Innovation Lecture

Intellectual Property & Innovation Business, Technology, and Innovation Lecture 6 Spring 2014 Professor Adam Dell University of Texas School of Law 1

Basic Questions n n What is Intellectual Property? Why have IP Rights? q n Nonrivalry, nonexcludability & free-rider concerns Why Limit IP Rights? q q Contrast Commonly unlimited times for ownership of property. “Information wants to be free? ” Business, Technology, and Innovation 2

Different Types of Rights in Info n Trade Secret q n Utility Patent (hereinafter “patent”) q n n e. g. , genetically engineered organism, various software and “business methods” Design Patents and Plant Patents Copyright q n e. g. , formula for Coca Cola, method of manufacture, customer info e. g. , book, movie, song, software Trademark Business, Technology, and Innovation 3

Patent law n n n What is a patent? What can it cover? What are the legal requirements? How do you get one? Patent Trolls Examples Business, Technology, and Innovation 4

What is a patent? n A “right to exclude” (35 U. S. C. § 154) n For a “limited tim[e]” (U. S. Constitution) n In other words, it is a government sanctioned monopoly on the invention covered by the patent. The goal is to maximize the public good by incentivizing innovation via a limited monopoly. Business, Technology, and Innovation 5

Subject Matter, Duration, Rights n n n Subject Matter: Useful application of idea or knowledge, as embodied in novel and nonobvious product or process Duration: 20 years from filing date of patent application q Previously 17 years from patent issuance Right against making, selling or offering for sale, using, and importing q No requirement of copying q No “fair use” defense q Frequent challenges of patents’ validity Business, Technology, and Innovation 6

What can a patent cover? n Processes q n Products q n Making/using a product; Sequence of steps; Materials used; Process parameters; new use patents Machines; Compositions of matter; Manufacture (catchall category) Product by Process q Description of how to make a product. Business, Technology, and Innovation 7

What can a patent cover? n n n Okay, what does that actually mean? Historically, many things could not be patented. However, in modern patent law, you can patent just about anything that is not an abstract idea or a natural law or phenomena. q q You cannot patent e = mc 2, but you could patent an energy conversion device based on that principle. You cannot patent a computer algorithm, which is essentially a mathematical equation. n The modern workaround: call it a method for performing some task embedded in a computer processing system. Business, Technology, and Innovation 8

What can a patent cover? n Other examples q Bacteria genetically engineered to produce insulin n q Amazon’s One Click n q Termed a Business Method Patent. Transistors infused with hafnium to improve performance n q I. e. , Genentech’s original claim to fame I. e. , Intel High-k Silicon Technology Intermittent windshield wipers n n For those of you old enough to remember… See US Patent 3602790 Business, Technology, and Innovation 9

Legal Requirements n Utility q n Novel q q n We don’t want to grant patents on things so glaringly obvious that no one had ever thought to file a patent on it. Disclosure q n Has to be something new to the art Why would we grant a monopoly on something that’s already been thought of? Non-obvious q n Invention has to do something Have to actually disclose the invention Enablement q Disclosure has to tell the world how to actually practice the invention. Business, Technology, and Innovation 10

How do you get one? n Prosecution and Examination q q n Interference q n Trying to stop someone else from getting one Licensing q n Getting a patent granted US patents only enforceable in the US. Must file in other countries if you want protection there. Fortunately, standardized via WIPO and PCT. Obtain or grant an exclusive or non-exclusive right to a patent Litigation q Suing someone to enforce your patent(s), or to invalidate theirs Business, Technology, and Innovation 11

How do you get one? n n n Note: There are many rules and regulations behind the exact timing required to obtain a patent. We will not cover those here. Under America Invents Act, the U. S. transitions from a First to Invent patent system to a system where priority is given to the first inventor to file a patent application. Suffice it to say that in the US you must file with the US Patent and Trademark Office within one year of disclosure. DO NOT disclose your invention to the public before filing with the USPTO, or your invention will be conveyed into the public domain. Business, Technology, and Innovation 12

Patent Trolls n n n Very difficult to define what a patent troll is. In essence, it is a group whose business model is to aggregate patents and then sue infringers. Their revenues are derived from the damages or settlements arising out of these lawsuits. But, we cannot define them as an entity without an intent to commercialize technology who asserts its rights. That could also describe a research university. Business, Technology, and Innovation 13

Patent Trolls n Why do we care about trolls? q Some say they are a drain on our economy since they sue everyone in sight. n q n If a troll sues your startup, the uncertainty surrounding litigation will greatly hamper your ability to raise funds and the litigation itself will drain your coffers. Trolls maintain that they represent inventors who would otherwise never realize any returns from their labor. Why are there so many now? q They have been energized by the dot-com bust. After 2000 you had many failed startups which had accumulated many patents, and selling the patents to a troll was often the only way to monetize that investment in the wake of the bust. Business, Technology, and Innovation 14

Examples n SCO q q q SCO Group sued various licensees of Linux, claiming that it owned the source code of UNIX, portions of which were being illegally used without license in Linux. Novell sued SCO, claiming that it never handed over copyright ownership of UNIX, and won. Many consider SCO a patent troll n Though, in this case, it was over copyright, but the overall idea is the same Business, Technology, and Innovation 15

Examples n Genetics Institute q Founded in 1980 by Harvard scientists. Developed many cutting edge treatments. n EPO – treat anemia q q n Factor VIII – treat hemophilia q q n q q q Found to infringe on Genentech patents BMP-2 – accelerate bone growth q n Cross-licensed patents with Genentech to avoid litigation Sued Baxter for infringement, they settled t. PA – dissolve blood clots (treat heart attacks, strokes) q n Lost in court to Amgen after several rounds of litigation Won in Europe and Japan continued to sell there Successfully licensed And various others While technologically very impressive, GI never made much money largely because it lost out on the rights to EPO. GI was ultimately acquired by American Home Products Corporation in 1997, which purchased remaining outstanding shares of GI (40% of the company) for approximately $1. 3 billion. Imagine if GI had won its suits and held several of the crown jewels of both Amgen (market cap: $63. 91 B) and Genentech ($102. 02 B. ) Business, Technology, and Innovation 16

Examples n Amgen v. Genetics Institute q q q In 1987, two startups, Genetics Institute (GI) and Amgen filed for patents on erythropoietin (EPO) within weeks of each other. Upon issuance of the patents, the two companies sued each other. GI’s patent described purified EPO and several of its characteristics. It was found to be non-enabling; it did not tell anyone how to make EPO. Amgen’s patent was found valid and GI was subsequently found to infringe. Amgen has made over $22 billion from EPO (reported up to 2005) and has become one of the world’s dominant biotech companies. GI was bought out by AHP in 1997. Business, Technology, and Innovation 17

Some Thoughts from a VC’s perspective n Essentially technology companies are bought for either: capability (IP) or customers ($). n Because they couldn’t have built it themselves…. this applies to stuff that’s hard to build because they lack the people or the ideas. n Because they can use it as a weapon against competitors-important only in an IP landscape Business, Technology, and Innovation 18

BUT LOOK…INCREASE IN US PATENT APPLICATIONS ____________600, 000 ____________500, 000 2013 Business, Technology, and Innovation 19

There must be value…or VCs think they do. Business, Technology, and Innovation 20

There must be value…or VCs think they do. A trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers. In some jurisdictions, such secrets are referred to as "confidential information" or "classified information". Business, Technology, and Innovation 21

My View… Patents are a valuable way to protect investments in R&D. They are abused like many components of our legal system, but in general they work. The Patent Office needs to figure out a way to issue patent requests, and respond to patent challenges faster in order to keep pace with innovation. VCs think about and care about patents, but it’s usually just one of many considerations in evaluating a deal and very rarely is it a deciding factor. How much I know about patent and trademark law should be some indication to you of the relative value of patents in the real world of company building. ; ) Business, Technology, and Innovation 22