Thursday, March 22, 2012

#MARKETS: "Sharing Patents Encourages Innovation"

Instead of preventing competitors from infringing on their patents with costly litigation, business researchers now say that patent holders can often profit even more by free-licensing their patents to competitors

Apple has enforced cease-and-desist judgements against Samsung's Galaxy Tab for its obvious attempt to mimic the iPad, but business researchers claim that sometimes free-licensing patents can increase profit for patent holders.

Litigation attorneys may disagree, but economists now maintain that free-licensing patents to competitors can sometimes fatten the bottom line of patent holders. Consumers almost always benefit when competitors independently extend important innovations, and since the overall market expands, the original patent holders can often benefit too.
All too often technology innovators either spend big bucks to protect their patent portfolios from infringement by competitors, or they ask for big royalty payments in return for licensing them. But according to a new study by a University at Buffalo economist, the practice of free-licensing important patents can sometimes profit patent holders even more. (The study will be published this summer in Economics Letters.)

Free-licensing is an "evolutionary step" in patent practices, according to visiting professor of economics at the University at Buffalo, Gilad Sorek, who claims that "too-tight" patent protection policies at enterprises can hinder technological progress, restrict consumer benefits, and ultimately reduce overall profits.

Free-licensing is the practice of allowing all comers to use patented innovations in order to increase the pool of users and thus stimulate the number of competitors who independently expend their creative talents developing its ideas. If patents are closely held, then only a single enterprise can develop them, resulting in one-dimensional creativity that can only result in limited value to consumers. When an enterprise licenses its patents to a single collaborator, then two-dimensional development efforts can result, but often both enterprises will either succeed or fail together. However, by free-licensing patents to all comers, an expanding three-dimensional matrix of innovation results that can spread to areas that were unforeseen by the original patent holder. This can expand the overall market and benefit the consumer, developers, and the original patent holders. The result is an expanding horizon of success that gave rise to the aphorism: "A rising tide lifts all boats."

Sorek's study admits that the original patent holder may lose market share as a result, but their selfless efforts create not only technological value, but also inflate the esteem felt by consumers for the original patent holders brand.
The most famous example of this phenomenon, perhaps, is when Adobe put the Portable Document Format (PDF) into the public domain, and as a result created a lasting contribution to all computer users everywhere.

A more recent example is when IBM, in collaboration with AstraZeneca, Bristol-Myers Squibb, DuPont and Pfizer donated a massive database from their group's vast patent portfolio to the National Institutes of Health to facilitate drug discovery and other medical innovations. The vast database containing more than 2.4 million chemical compounds extracted from about 4.7 million patents and 11 million biomedical journal abstracts from 1976 to 2000. Its use will facilitate immeasurable benefits to mankind in the area of drug discovery, especially in support of advanced cancer research.

The massive database was extracted using the IBM's strategic IP insight platform (SIIP) and leveraged analytics delivered by IBM's SmartCloud Enterprise