Are companies realising the full power of patents?

In ear­ly-Decem­ber, just weeks before AstraZeneca’s coro­n­avirus vac­cine began receiv­ing reg­u­la­to­ry approval around the world, the Cam­bridge-head­quar­tered drug­mak­er agreed a $39-bil­lion deal to buy US biotech firm Alex­ion.

The size of the trans­ac­tion was dri­ven, in part, by Alexion’s pipeline of rare blood dis­ease treat­ments and its block­buster drug Soliris. Such med­i­cines are often the dri­ver of bumper merg­ers and acqui­si­tions in the phar­ma­ceu­ti­cal indus­try because of the pow­er of patents, a type of intel­lec­tu­al prop­er­ty (IP) pro­tec­tion that pre­vents oth­ers from copy­ing a prod­uct and sell­ing their own ver­sion of it for a set num­ber of years, typ­i­cal­ly two decades.

“Patents are very com­mon in the phar­ma­ceu­ti­cal indus­try,” says Michael Gavey, head of the Lon­don IP group at Sim­mons & Sim­mons. “Drugs require a lot of skill and effort to devel­op, and take years to get through pre-clin­i­cal and clin­i­cal tri­als before they can receive mar­ket­ing approval, cost­ing many hun­dreds of mil­lions of pounds, so com­pa­nies rely on patents to pro­tect their invest­ment.”

The telecom­mu­ni­ca­tions indus­try is also depen­dent on patents to pro­tect their prod­ucts from copy­cats. Apple, for instance, spent sev­en years locked in a patent dis­pute with Sam­sung, accus­ing its South Kore­an rival of “slav­ish­ly” copy­ing the design of the iPhone.

“Increas­ing­ly, the val­ue of a busi­ness is locked up in its tech­nol­o­gy, and to pro­tect the busi­ness and also have the oppor­tu­ni­ty to extract val­ue from any tech­ni­cal advances it may have invent­ed, it’s vital to pro­tect inven­tions with patents,” says Simon Ayr­ton, part­ner at IP spe­cial­ists Pow­ell Gilbert.

While many com­pa­nies apply for patents to pro­tect their prod­ucts, there are oth­er ways busi­ness­es can lever­age the val­ue of those patents, says Simone Frat­tasi, head of glob­al IP at trans­port and logis­tics com­pa­ny A.P. Moller-Maer­sk.

For tech­nol­o­gy com­pa­nies, patents can be a form of risk mit­i­ga­tion. For exam­ple, if a third par­ty makes a claim for patent infringe­ment, then there may be an oppor­tu­ni­ty for cross-licens­ing if that third par­ty is also infring­ing one of the alleged infringer’s patents. Some com­pa­nies may also have a num­ber of patents they intend to sell or mon­e­tise through licens­ing agree­ments, rather than devel­op prod­ucts them­selves.

Dig­i­tal trans­for­ma­tion trends also mean some tra­di­tion­al busi­ness­es are hav­ing to rethink how they man­age their IP. Frat­tasi says Maer­sk no longer just con­sid­ers itself a con­tain­er ship­ping com­pa­ny, it is also becom­ing a tech­nol­o­gy com­pa­ny, with many of its new inno­va­tions relat­ing to soft­ware devel­op­ment.

“Sud­den­ly the typ­i­cal com­peti­tor is not anoth­er sea car­ri­er, but it could be a tech­nol­o­gy com­pa­ny oper­at­ing in the same space with a very large patent port­fo­lio,” he says. “That changes the lev­el of IP risk.”

As well as avoid­ing the risk of infring­ing oth­er patents, one of the main chal­lenges com­pa­nies face when fil­ing a patent appli­ca­tion is ensur­ing they offer suf­fi­cient pro­tec­tion for their inven­tions. This means it is cru­cial to get the draft­ing right.

“If your claims are too broad then your patent might not be grant­ed or it may be held invalid. But if you draft too nar­row­ly and don’t prop­er­ly cap­ture your inven­tion then your patent cov­er­age won’t be ade­quate and you will fail to realise the com­mer­cial val­ue of your inven­tion,” says Gavey.

Com­pa­nies that are fil­ing patents also need to be wary of non-prac­tis­ing enti­ties, some­one who owns a patent but doesn’t pro­duce any prod­ucts, some­times referred to as “patent trolls”.

Ayr­ton says while the term “troll” often implies some­body who is try­ing to game the patent sys­tem, non-prac­tis­ing enti­ties include a wide-range of patent hold­ers, such as uni­ver­si­ties that have invest­ed in research and now own valu­able patent rights they want to license.

“That’s not to say there aren’t unscrupu­lous trolls out there who know their rights may not be valid if they are ever chal­lenged,” he says. “They typ­i­cal­ly threat­en infringe­ment pro­ceed­ings against lots of peo­ple, but gen­er­al­ly accept mod­est roy­al­ty pay­ments on the basis that they don’t want to make it eco­nom­i­cal­ly viable for some­one to con­test the valid­i­ty of the patent in court.”

Giv­en that most patents expire after 20 years, busi­ness­es also need to think about how to con­tin­ue pro­tect­ing their prod­ucts once a patent runs out.

“One way is to look to file more patents for new­er fea­tures that are relat­ed to the prod­uct, but it also relates to oth­er IP. You have to invest in devel­op­ing a brand and asso­ci­at­ing the brand with your suc­cess­ful prod­uct so ulti­mate­ly that can car­ry the mar­ket share you’ve built up for­ward, then you don’t have such a cliff-edge effect when the patent expires,” says Chris de Mauny, senior asso­ciate at Bird & Bird.

Take Dyson as an exam­ple. While its bag­less vac­u­um clean­er con­cept is no longer pro­tect­ed by a patent, its brand rep­u­ta­tion built on the suc­cess of that inno­va­tion means it still has a com­pet­i­tive advan­tage in the bag­less vac­u­um clean­er mar­ket, says de Mauny.

This under­scores the impor­tance of hav­ing a diver­si­fied IP port­fo­lio that doesn’t rely only on patents.

“As pow­er­ful as patents are, they should not be con­sid­ered in iso­la­tion,” says Andrew Pitts, patent attor­ney at Mew­burn Ellis. “Patents can be effec­tive­ly sup­ple­ment­ed by oth­er intel­lec­tu­al prop­er­ty rights that are usu­al­ly cheap­er to obtain or arise auto­mat­i­cal­ly. For exam­ple, while a patent pro­tects the way a prod­uct works, design rights can some­times also be used to pro­tect the appear­ance of the same prod­uct.”

Some com­pa­nies are also start­ing to devel­op more trade secrets rather than mechan­i­cal­ly fil­ing patent appli­ca­tions for their inven­tions, says Frat­tasi.

“If you think about inven­tions that are unde­tectable, maybe an algo­rithm in a piece of soft­ware, keep­ing it a secret may be a bet­ter option than dis­clos­ing that infor­ma­tion,” he says.