The collective experience, skills and general know how of a firm lead to the develop- ment of intellectual assets. These intellectual assets may be in the form of documents, drawings, software programs, data, inventions and processes (Sullivan 1998). As these explicit assets are codified, tangible or contain physical descriptions of a firm’s
Critical thinking and reflection
given the diversity of individual personalities in a team, what measures could you take to maintain or increase your team’s social capital? For example, how would you get more introverted colleagues to develop social networks across and outside your organisation? in addition, how could you promote shared understanding of problems and alignment of views? How would you gauge whether the level of your team’s social capital has risen or decreased from one year to the next?
Chapter 3 / intellectual capital 77 knowledge and processes, a firm has the right to claim ownership to this intellectual property in the form of patents, copyrights, trademarks and trade secrets. In an increas- ingly knowledge-based economy, strategic management of intellectual property may well lead to competitive advantage where value is generated from protecting the knowl- edge, skills, processes and ideas of a firm. It can no longer be left purely as a technical or legal imperative in successful organisations.
Patents are a common form of intellectual property and provide a high level of pro- tection. They can enable firms to gather valuable sources of revenue through licensing agreements. In the US, there has been a marked growth in software patents and, since 1998, a ‘method of doing business (MDB)’ has been given the right to be patented under case law. Hence, a firm can provide an effective barrier to entry if it owns a software patent and an MDB patent for at least the twenty-year life of the patent (Lang 2001).
However, the real life of patents is typically 15–17 years from the original date of appli- cation. MDB patents can include information systems, investment systems, e-commerce systems, insurance systems and training methods. Maxwell (2002) shows that the life of the patent can be extended almost indefinitely by using a smart patent in the form of a continuation patent, as shown in Table 3.2. This has the benefit of rewarding honest innovation and discouraging competitors who may try to exploit a patent’s weakness.
The process of securing a patent involves filing a patent application at a Patent Office. The proposed patent undergoes an ‘examination period’ often lasting a few years where the examiner enters into a dialogue with the inventor about the precise language to be used in the patent. Once the patent is issued, it has a life of twenty years. However, if the inventor files an application for a continuation patent (child of the original patent) before the original patent (parent) issues, the examination period for the patent is extended to allow the inventor to make changes that may take into account competitor offerings. This process can be continued for generations, creating grandchildren patents and so on where each continuation patent is filed just before its parent issues (Maxwell 2002), as shown in Figure 3.5.
Copyright is primarily concerned with the rights to the owner in the distribution medium to prevent infringements on copying, distributing, performing or displaying material. It protects the original works for a longer period of 100 years. In the case of the creator’s death, copyright lasts for 70 years. However, in our age of digital networks, because of the ease of distribution and the minimal cost of making perfect copies on digital printers, there is a pertinent threat to copyright unless digital information can be encrypted.
Table 3.2 Characteristics of patents and continuation patents
Patent Continuation patent
• description of invention • allows changes to original patent
• Citations of ‘prior art’ • Can add new ‘claims’
• related publications and patents • Can add newly discovered ‘prior art’
• ‘Claims’ – descriptions of exclusive rights of patent holder
• Can be modified taking into account competitor’s product
Ignoring or mismanaging intellectual property rights can have disastrous results for firms. One example illustrating the minefield of intellectual property rights is the case of Kodak in 1975. Polaroid had erected vast patent barriers in the high-growth instant camera market. Kodak was well aware of these patents but it was advised by its lawyers that they were invalid. Kodak took a calculated risk but was found to have infringed Polaroid’s patents soon after it launched a line of instant cameras and films. Kodak was ordered to pay $925 million in damages to Polaroid, shut down its manufacturing plant and retrieve the 16 million cameras sold to consumers between 1976 and 1985 (Rivette and Kline 2000). This example illustrates the strategic importance of intellectual capital and how it can result in the potential demise of a company.
There can be considerable differences in laws on intellectual property and their enforcement in countries worldwide. There have been attempts by the World Trade Organization to promote harmonisation of intellectual property laws. In 1995 the WTO negotiated an agreement on Trade Related Aspects of Intellectual Property Rights. This agreement establishes the right of member states to impose sanctions on TRIP signato- ries that do not fulfil their obligations under TRIPS. It is interesting to note that TRIPS protects computer programs as literary works under the Berne Convention.
Issue date
PARENT ORIGINAL
PATENT
File continuation
patent File
patent application
Examination period
(may last a few years) Extend examination period Issue
date
Issue date
Extend examination period File
continuation patent
CHILD CONTINUATION
PATENT
GRANDCHILD CONTINUATION
PATENT
GREAT GRANDCHILD CONTINUATION
PATENT File
continuation patent
Time Figure 3.5 Smart patents: using patents and continual patents
Critical thinking and reflection
what might you consider patenting in your organisation? How would you decide on the strategic importance of a patent? How would you scan the competitive environment to ensure that your intellectual property rights were not being infringed? From your experience, how effective do you find patents as a barrier to entry for competitors?
Chapter 3 / intellectual capital 79