Module III

Innovation and IP Protection

Study Note:

This module should take you about 15 hours to study.

Learning objective

When you have completed this module you should be able to:

• List a number of IP Assets

• Define innovation;

• Identify ways in which innovation can be sustained through the creation of

new combinations;

• Describe businesses innovation;

• Describe the advantages of open innovation;

• Describe the usefulness of patent searches;

• Explain the IP Atom for IPM (lateral management of IP through innovation);

• Explain the role of the technology focused professionals in IPM with reference
to the IP Atom framework;
• Describe the relevance of the IP continuum of protection for IPM;
• Give three practical examples of IP value transference; and
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 • Explain the IP manager's role in securing IP protection

Prescribed Reading
• Anatole Krattiger and Stanley P. Kowalski
Module 8 IP Management
Unit 8.1 IP as a Driver of Global Innovation (pages 1-5)
Unit 8.2 Mobilizing IP to Advance Innovation (pages 6-12)
Unit 3 Principal Factors Driving Innovation (pages 13-16)
Unit 8.5 The Legal Foundations of IP (pages 17-20)
See IP Management Module 8 posted under Resources.

• Garry Gabison & Annarosa Pesole “An Overview of Models of Distributed

Innovation. Open Innovation, User Innovation, and Social Innovation” JRC
Science and Policy Reports (European Union) (2014) available
at [Link]
See JRC Science Report posted under resources.

• WIPO Guide to Using Patent Information (2015) access the guide and read
more on [Link]

Recommended Reading
Kamil Idris Intellectual Property - A Power Tool for Economic Growth (2003)
(Chapter 2: The Process of Economic Growth) available
at [Link]

Fabienne Picard “Open innovation and joint patent applications: the case of
greenhouse gas capture and storage technologies” Journal of Innovation Economics
page 107-122
[Link]

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1. Overview

1.1 Introduction:

From what you have learned in Modules 1 and 2, you now know that intangible
assets such as intellectual assets can become intellectual property through the right
appropriation regime. For example, a firm’s intellectual assets could consist of
explicit codified knowledge, manuals, best practices, databases, codified R&D
processes, or reports. You have learned that in the knowledge economy, intellectual
property accounts for an increasing share of the value of some of the most
influential, big and small companies. This is the reason why the business manager
can no longer ignore IP and its economic importance. As can be seen from the
regimes that the firm may follow, if managed properly, IP assets add value to the
company by improving productivity, enhancing the value of existing tangible assets
(therefore protecting the initial investment), improving the image of the firm (e.g.
trademarks) and by actually generating revenue as described and illustrated in the
few cases provided in Module 2.

Innovation has become a critical success factor for companies.

This module will be structured as follows: First the concept of innovation will be
explored and differentiated from invention. Thereafter the role of IP to sustain an
innovation-based advantage will be explored. The important benefits of utilizing open
innovation systems and patent information for the IP manager are covered there.

The next topic we will look at is how to identify IP assets, and then, what forms of IP
protection should be secured. We will look at the fundamental concepts at the base
of innovative activities. One of the interesting questions we will discuss is whether
innovation necessarily spills into patent filings, or whether other forms of IP
protection are more suitable.

The important management tools that address the specific frameworks of IP

protection are discussed. Frameworks establishing the relationships between the
regimes of intellectual property protection for products or services and how they may
be used to attain a competitive advantage are introduced. The frameworks we will
work with are the IP Atom, the IP continuum model and the principle of value
transference. These frameworks are explored as a means of attaining sustainable IP

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protection to add and create value. Finally, a number of short case studies illustrate
that the creative use of IPM frameworks can sustain a competitive advantage and
contribute to the creation of new wealth. In addition to the course material, please
do not forget to read the prescribed reading.

At different intervals please visit the online discussion forum, your tutor will send you
questions to assist you in applying the concepts you learn to specific cases that are
contained in the module.

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2. Innovation and IPM

2.1 Introduction to innovation

Generally put, developing a new idea and putting it into practice is referred to as
"innovation". As this course is focused on the competitive strategy of a private
enterprise in a market-driven business environment, the term ‘innovation’ is used
here to refer to the process of bringing valuable new products (goods and services)
to the market i.e., from the idea/concept formulation stage to the successful launch
of a new or improved product in the marketplace2 or to the outcome of that process,
so as to meet the explicit or implied needs of current or potential customers. In other
words, through innovation, an enterprise seeks to deliver to the market a new
product to solve a given problem, to increase efficiency, or to offer unique new value
to its customers.

Quick Example: From the Black Ford to Open Season

In the 1960’s, during the first era of mass production, the automobile
industry was heavily standardized. This is typified by the famous Henry
Ford quote: “You can have any color you like provided its black”.
Currently, customized cars are the norm and consumers are offered a very
wide range of options (colours, type of finishing extras such as a GPS, CD
shuffle, etc.). These “extras” all evolved as a result of innovative activity.

Take as another example, airline services. Such business transactions exemplify

innovation. In providing valuable function and services, they utilize IP (patents,
patent-pools, commercialization, trademarks, R&D) in a competitive market that is
becoming more and more personalized - addressing the customers’ needs.

The term innovation carries with it a much wider concept that goes beyond invention
(i.e. a singular idea of new knowledge of a product or process) Innovation involves
economic considerations that relate to market success.

2.2 Definitions

Definitions from notable sources illustrate that innovation is usually applied to a

product or a process.

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 ‘An innovation is the first economic success which can be referred to a
product, process or service- Fraunhofer, Technologie-Entwicklungsgruppe

Innovation is the transformation of an idea into a tradable product or

service, a new manufacturing or distribution process, or a new way of
providing service- OCDE, Manual de Frascati.

Innovation is ‘neither science [nor] technology [nor] invention, but the

application of knowledge, and it can be acquired through learning, research
or experience’- Padmashree Gehl Smpath.

In most academic and management literature, the term ‘innovation’ is differentiated

from ‘inventions’. Still, many refer to innovations and inventions as the same thing.
While the term innovation is often used in relation to inventions, it is essential to
realize that IP-related innovation is far from limited to patents. Innovation is typically
realized through the management decisions of those in the market to allocate
resources (investment) to change the competitive posture of their firms on one or
multiple dimensions of the existing business system.

2.3 Business Innovation

Innovation in the Schumpeterian sense comes from new combinations on all

dimensions of the business system. Scholars have recently characterized twelve
business dimensions where innovation can take place. 1 The pursuit of profitable
combinations of business is a competitive market race amongst established firms
and entrepreneurs that has no finish line and is pursuing investments to maximize
profits to increase their competitive advantage. The twelve forms of business
innovation are described below.

2.3.1 Offerings
Offering innovation is how new products or services are developed. A good
example of innovation of offerings is the development of Procter & Gamble’s battery-
operated Crest “Spin brush”. 2 The use of disposable batteries translated into ease of
use, affordability and portability. It should be noted that a company that exemplifies
innovation is Apple, which nearly doubled its product range from 2002-2009. 3

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2.3.2 Platforms
Platform innovation makes use of a set of common components to create diverse
offerings. A good example is Nissan Motor Co’s use of a small engine block to
create diverse upscale and sports model motor vehicles. 4

2.3.3 Solutions
Solution innovation is the creation of customised integrated combinations of
products and services. Sawhney and others 5 note that the company that
manufactures Deere farming equipment provides a good example of solution
innovation. Deere combined computing and a Global Positioning System solution to
provide support to farmers for the improvement of sowing, tilling and harvesting.

2.3.4 Customers
Customer innovation involves offering services or goods to new customer segments
– for example a computer company that offers computer training to pensioners.

2.3.5 Customer experience

Customer experience involves an innovation in the way in which customers
experience service providers before, during and after the interaction. This could
involve a more appealing waiting room, the offering of free coffee and tea or a
curtsey call afterwards.

2.3.6 Value capture

Value capture refers to mechanisms whereby a company recaptures the value it
creates. A case in point is the additional revenue online companies generate through
content licensing, advertising referrals and data on customer behaviour. The
Amazon system is a good example. 6 It tracks what people buy compared to what
other people that appear to have similar purchasing histories buy. This value
analysis is offered to the customer, resulting in value capture.

2.3.7 Processes
Process innovation refers to the re-design of internal processes to ensure higher
quality or faster turn-around time.

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2.3.8 Organization
Organizational innovation refers to the redefining of the company’s core business, or
business units’ roles, responsibilities and incentives. 7

2.3.9 Supply chain

Supply chain refers to the sequence of activities involved in moving a product (such
as a machine or a tool) and its related services (installation or repair) from the
supplier to the client. 8 Innovation in this dimension involves changes in the structure
or sequencing of events or in the collaboration of its participants. The clothing
retailer Zara has implemented supply chain innovation through the shipment of
garments on hangers. The storing of garments on hangers ensures that new designs
are displayed faster.

2.3.10 Presence
Point of presence innovation is the use of new points of presence where customers
can buy their goods.

2.3.11 Networking
Networking innovation involves the use of technology to deliver better services. A
good example is the “Notify me” facility developed by South African banks which
sends a customer an SMS message for every time a transaction is processed on
any of her bank accounts.

2.3.12 Brand innovation

Sawhney and others 9 characterise brand innovation as the leveraging or expansion
of brands in creative ways. The authors note the example of the London-based
easy-Group. Its brand was extended to more than a dozen industries, resulting in
“easyJet”; “easyCar”; “easyInternetcafé”; “easyHotel” and others.

It is noted above that one of the companies that exemplifies innovation is Apple.
Apple’s iPod is an example of innovation in:
 Offerings;
 Platform;

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  Supply chain;
 Presence;
 Networking;
 Value capture;
 Customer experience; and
 Brand. 10

2.4 Why innovate?

The following quotes from leading CEOs and management professionals pinpoint
the necessity of innovation briefly 11:

• “...If you think you will be successful in managing your company in the next 10
years in the same way you managed it in the past 10 years, you are very
wrong. To create success, one must challenge the present.” Roberto
Goizueta – Ex-CEO of Coca-Cola.

• “...it is not good enough to possess clients that are relatively satisfied …
Every satisfied client may change his mind. It is necessary to innovate,
anticipate the client’s necessities so as to give him more”. W. Edward
Deming.

• “Every organization needs a fundamental skill: innovation” Peter Drucker.

• “Competitors will inevitably overtake any company which stops innovating and
improving itself.” Michael Porter

Beyond highlighting the importance of innovation, the CEOs point out that a
business needs to innovate not only to gain a competitive advantage, but also to
survive as a business. Firms innovate by staying on the frontiers of their product-
consumer and product-competitor advantages – and looking to advance to the next
frontier. The development time for new products – the time to market – is getting
increasingly shorter and product life-cycles are also shrinking. New ideas go through
a selection process, and only some of them will lead to innovation. This means that
innovation should be ongoing, especially since the time lag between product
expansion and decline is getting smaller and smaller. A leading company within a

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given market will therefore be increasingly quickly “dispossessed” of its leadership at
the moment it stops innovating.

The following two examples are telling.

Examples:

On-going innovation:

Gillette case study

At the time when the company became number 1 in the razor industry (with their
“Gillette Sensor”) they continued to invest heavily in R&D. Several innovative
improvements were made to the existing shaving devices. Gillette felt that Sensor
had done its time. It unveiled “Mach 3” even before the sales started to drop. Mach 3
became the next leading product of this industry.

XeroxTM case study

The Xerox Company is well known for its photocopiers. It dominated the photocopier
market by producing big photocopying machines that could only be used in so called
“photocopying centers”. Xerox did not anticipate the demand for desktop
photocopiers (developed by companies such as HP or Canon) and thus lost a lot of
market shares, though the market was growing significantly at the time’12.

An enterprise’s decision to innovate may be influenced by the overall business

strategy (e.g. growth through innovation) or by a reaction to developments in the
market place.

2.5 Enabling Conditions for innovation

Innovation thrives in an environment where it is encouraged. The Business and

Industry Advisory Committee to the OECD notes that the ultimate cause of all
innovation is human creativity.

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However, it notes that ‘innovation does not occur in a vacuum; it requires a workable
structure of incentives and institutions. Government policies that foster the right
enabling conditions for innovation, and that allow entrepreneurship and markets to
flourish,st can provide a climate that encourages innovation and economic growth in
the 21 Century.’ 13 Increasingly, one of innovation’s core enabling conditions is
intellectual property protection.

The core conditions that foster innovation and encourage economic growth
include 14:

• vigorous competition and contestable markets;

• strong and sustainable fundamental research and development
infrastructures;
• sound policies and mechanisms to promote the science-innovation interface;
• efficient and transparent regulatory systems; and
• a strong emphasis on education at all levels.

At the end of Module 2, you were introduced to two central concepts found in IP
management and economic growth literature about the origin of innovation from
which strategies and models in innovative technology are derived, i.e. the
technology push, and market pull (also referred to as demand-pull).

This diagram is the illustration of

technology push and market pull
concepts as depicted in Martin,
Michael J.C.’s book on Managing
Innovation and Entrepreneurship in
Technology-based Firms

The hypothesis on technology-pull and market-pull (demand-pull) were first

projected by two economists Joseph Schumpeter and to Jacob Schmookler.
Schumpeter views the entrepreneur as the central actor in the innovation process.
He notes that the leading engine of economic growth was generated by innovative
technologies pushed through new methods that were engineered by the

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entrepreneur or the innovator (without necessarily considering the consumer’s
need). As described in Module 2, research that is performed solely for the academic
purpose of learning something new, with no motivation related to a human or social
need, may result in new inventions or a technology that is foreign to the market and
disrupts or displaces earlier products or services. Commercialization of such
inventions is often referred to as “technology push,” as the technology is being
pushed into the market that is not yet developed’.

In contrast, Schmookler noted that innovations that come into the market through
deliberate R&D (by considering the consumer’s needs) are called market-pull
(demand-pull).

2.6 Technology-push and market-pull & innovation

Innovation as a process is systematic in that it requires the effective participation of

individuals from different sections/divisions of an enterprise, such as technical
experts in R & D, marketing, management, finance, legal, etc., apart from outside
consultants, suppliers, outsourced component manufacturers/service providers,
business partners and lead users.

Following the technology-push and market-pull hypotheses, technological innovation

is commonly classified in the following ways:

• product vs. process;

• radical (basic or fundamental knowledge) vs. incremental improvement; and
• disruptive (causing dramatic change in price as a result of smaller/bigger or
more efficiency) vs. sustaining (sequential and/or complementary).

A lot of new ideas are created or born, but, quoting Brandt (2002), “most die a lonely
death, never seeing the light of commercial success.”

A new or improved innovation that meets customer expectations often offers an

innovator new business in a specific market territory without competition for as long
as it retains its innovative advantage. For most technology-based enterprises, a
successful invention results in a more efficient way of doing things or in a new
commercially viable product. The improved profitability of the enterprise is the
outcome of the innovation (i.e. the added value) that underpins a bigger stream of
revenue or higher productivity.

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SAQ 1
Choose the correct form of innovation:

Penicillin is an example of:

 radical innovation
 incremental innovation
 disruptive innovation
 sustaining innovation

SAQ 2

Choose the correct form of innovation:

The different models of “Renault Clio” are examples of:

 radical innovation
 incremental innovation
 disruptive innovation
 sustaining innovation

SAQ 3
Choose the correct form of innovation:

The television is an example of:

 radical innovation
 incremental innovation
 disruptive innovation
 sustaining innovation

SAQ 4

Choose the correct form of innovation:

MS “Windows 2000” versus MS “Windows 98” is an example of:

 radical innovation
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  incremental innovation
 disruptive innovation
 sustaining innovation

SAQ 5

Choose the correct form of innovation:

The Internet is an example of:

 radical innovation
 incremental innovation
 disruptive innovation
 sustaining innovation

SAQ 6

Choose the correct form of innovation:

Cheaper mobile phones made by new mobile companies to gain market shares are
examples of:
 radical innovation
 incremental innovation
 disruptive innovation
 sustaining innovation

SAQ 7

Choose the correct form of innovation:

Desktop photocopiers by HP and Cannon are examples of:

 radical innovation
 incremental innovation
 disruptive innovation
 sustaining innovation

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To summarize the outcomes of SAQ 1-7:

Penicillin, the television and the Internet are all examples of radical innovation. On
the other hand, the different models of “Renault Clio” could be considered
incremental innovations. MS “Windows 2000” versus MS “Windows 98” is an
example of a sustaining innovation whereas cheaper mobile phones made by new
mobile companies to gain market shares are examples of a disruptive innovation.
Desktop photocopiers are examples of disruptive innovation in that expensive
industrial copiers were replaced by small and cheaper copiers without necessarily
introducing new technology.

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2.8 Open innovation

2.8.1 What is open innovation?

Where there is increased co-operation between companies, sharing visions,
knowledge and resources, the practice of open innovation emerges. The most
important characteristic of open innovation is that companies do not do R&D alone,
but partner with other companies. Partners are often companies that have
complementary skills. For instance, an electronic company will partner with a
biomedical company if it wishes to make a biosensor.

Often larger alliances are established incorporating public institutions, as well. Open
Innovation often focuses around centers of excellence, where the necessary
resources are located. As an example, the High Tech Campus in Eindhoven
(Netherlands) grew from a Philips Research center with 2000 employees in the year
2000 to a campus with more than 40 companies and 4000 employees. In a sense,
this campus functions as a huge hub for knowledge and business networks.

2.8.2 Benefits of open innovation

The benefits of open innovation are many. Costs for R&D programs are shared. This
is important, as the financial risks involved in introducing a new product have
increased significantly. When videocassette recorders were introduced in 1975, they
cost around 1800 Euros. It took until 2000 before their price gradually dropped to
200 Euros. On the other hand, DVD recorders were introduced in 2001, also costing
1800 Euros, but already in 2004 their price was less than 100 Euros.

The time to benefit from investments in R&D has decreased significantly. At the
same time, the costs of R&D increased and the profit margins are diminished due to
the globalization of most product markets. There is sufficient critical mass for certain
research programs. Technologies can be matched with complementary or additional
technologies at an early stage of the research. Knowledge application depends on
networking and multidisciplinary approaches. Collaboration is of increasing
importance as innovation thrives when a larger knowledge base source and multiple
sources are combined. 15 A high tech center of excellence is also an attractive place
for professionals to settle. Lastly, open innovation also allows for co-creation of
business and market opportunities.

To conclude, collaboration in R&D offers many advantages. In the executive

summary of the report by the Australian government 16, ‘Powering Ideas: An
Innovation Agenda for the 21st Century’, the following is noted on collaborative
research:
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 "Collaboration stretches our research dollars further, spreads risk, favours
serendipity, propagates skills, and builds critical mass. It is increasingly the
engine of innovation."

Case study: Steptoe

The Steptoe company is making robots for the automotive industry. It is a major
player in a market dominated by 2 players, of which Steptoe is one. Steptoe’s
market share is about 40%, just like that of its major competitor: Autofac. Steptoe
has had major clashes in court with Autofac. Steptoe invests significantly in R&D,
just like Autofac does. Because robots are very complex apparatus, R&D in many
different technical fields is necessary: mechanics, electronics, hydraulics, physics,
metallurgy, optics, software programming etc.

SAQ 8

Read the case study above.

Steptoe asks you for advice with respect to R&D. Indicate which is the best option:
.
.
A. Work with other companies active in different market areas and claim 
exclusivity for your area.
B. Do not work together since open innovation means that any 
competitor, and thus also Autofac, can receive access to the
technology.
C. Work together with other companies and accept the risk that Autofac 
can get receive access to the technology.

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3. Patent databases

3.1 Valuable source of information

Though the primary function of patents is to protect inventions, its other important
function is the publication of a valuable source of technical information on each
invention. This feature makes them very interesting primary bibliographic resources.
Patents tend to be considered the most complete technical source of information
available. Patent databases are commonly used by those individuals or companies
that require extra information to analyze the technological activities of other
companies on a given product or market.

During the R&D period, researchers should periodically consult several sources of
information that could provide inputs for the success of their project. The European
Patent Office (EPO) estimates that 70% of the information in patent documents is
not available elsewhere. If you consider that more than 800,000 patents are granted
annually around the globe, it does not take a rocket scientist to realize the wealth of
information available in patent documents. Patent documents provide useful
information on the state-of-the-art and it can be used by an enterprise to avoid an
unnecessary waste of resources. Such information can provide useful insight into
conception, screening (whether an idea is new or not (state-of-the art)) and whether
to proceed further in developing an idea.

Patent information is available to the public in the form of publications, databases

and official gazettes. There are three main types of official gazettes published on
regular intervals by most national IP or Industrial Property Offices, international or
regional organizations such as WIPO, EPO, ARIPO (African Regional Intellectual
Property Organization), OAPI (African Intellectual Property Organization for French
speaking countries) :

- Patent and utility model gazette

- Trademark Gazette
- Industrial design gazette

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3.2 Usefulness of patent databases

3.2.1 Accessibility
A good illustration of the use of patent documents is available
at [Link]

Patent documents are easily accessible. Today many patent databases are
available freely on the Internet. Patent offices worldwide have agreed on publication
standards and the sharing of their publications, resulting in global, well-structured
databases. Patent data is also classified according to a universally accepted
scheme, subdividing the technical fields into very fine sub-domains. Classic scientific
publications, on the other hand, originate from many sources and do not respect
publication standards as patents do.

Since patent documents are systematically classified, one can quickly access an
enormous amount of information on a given subject. This patent relates to free
parking place indicators and is assigned to a technical subdivision of the
International Classification G08G1/14 containing another 193 patent documents, all
relating to that subject.

3.2.2 Patent information is up to date

Patent information is up-to-date. Most companies prefer not to disclose their

research results for obvious competition reasons. But if a company wants to obtain
exclusive rights on its invention, it must file a patent application that will eventually
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be published and made available to the public. This explains why patents are often
the first publication on a given invention and are therefore a very up-to-date source
of information on a technology.

3.2.3 Patent information contains more than mere technical information

Patents offer more than technical information. As patent documents can be legal
titles of ownership, they give precious indications on which companies hold a
technology, on inventors, on the length of ownership, on the free availability of a
technology when the patent is lapsed, etc.

This patent document relates to genetically modified plants comprising a

reporter system to detect landmines: these plants change from green to red
when they are in contact with explosives in the soil. An article relating to that
invention usually contains a few lines, while the corresponding patent
document describes this invention in 111 pages! This illustrates the huge
quantity of information that can only be retrieved from patent documents.

3.2.4 Patent information is cost effective

Free patent search tools that can be used to perform these searches are:

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 • esp@cenet®, a service coordinated by the European Patent Office working
closely with the European Patent Organization Member States. It offers an
extensive patent coverage: 45 million documents covering 71 different
countries or organizations - and gives access to the unique classification
scheme developed and maintained by the EPO called ECLA (accessible
at [Link] ).

• WIPO’s PATENTSCOPE Database provides access to international Patent

Cooperation Treaty (PCT) applications in full text format on the day of
publication, as well as to patent documents of participating national and
regional patent offices (accessible at [Link]

• DEPATISnet, a service provided by the German Patent and Trade Mark

Office, offers access to the patents of most industrialized countries using
various search options (accessible at [Link] ).

• The US Patent and Trademark Office Patent database covers US patents.

Part of the collection can be searched full-text. This collection is classified
according to the US Patent Classification scheme (accessible
at [Link]

• The Japanese Patent database offers access to Japanese patents and utility
models (accessible at [Link]
This list is far from exhaustive. More free databases can be found
at [Link]
Patent documents continue to be a relevant source of information and this resource
is often grossly underutilized. The failure to make use of this tool is detrimental to a
successful innovation strategy that utilizes IP.

If you are interested in learning how to use Patent Information, it is recommended

that you follow the Distance Learning Course ‘Basics on Patent Information Search
(DL-318)’.

3.2.5 Usefulness of patent information analysis

If you have performed a patent information search (or followed the WIPO DL-318
course), you will have noticed that you can localize and download a set of data.
Often the result is a large list of patents that can be further analyzed and correlated
in order to identify the various state-of-the-arts, firms, and trends, and the direction
of cutting edge knowledge. Patent Information Analysis is a specialized analysis of
data found in patent documents. It can also include literature, and academic writings
and bibliographies contained in patent documents, which in themselves can provide
a wealth of information on related research and firms involved in the research.

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Patent Information Analysis facilitates the mapping of a large set of data by the
creation of indicators (for managers).

[Link] Information that cannot be obtained from patents:

Some of the questions which cannot be answered by a patent.
An innovator seeking to answer which of the following questions will not receive the
answer from a patent?
1. Is the patent in use of not?
2. Who is using the patent and where?
3. What is the cost of the invention?

[Link] Information that can be obtained from patents:

Questions that can be answered by a patent:

1. What is the technological profile of a company or group of companies?

2. What is the patent portfolio of a firm?
3. What are the companies present in a given field?
4. Who are the main inventors?
5. What is the remaining time of protection of an invention?
6. What are the countries where the invention is protected, and for how many
years?
7. What is the degree of incentive for a given technology or application (number
and type of patents)?
8. What are the main competencies of a firm, or an inventor?
9. What potential for R&D do various companies have?
10. For a given product or material, what are the various domains of application?

This wealth of information found in patent documents and its standardized format
lent itself to sophisticated data analysis leading to methodologies that could be fine-
tuned to specific industries, such as pharmaceuticals, the oil industry, and others.
Software that generates Patent Analysis is also available, offering an automatic
service on many patent search databases.
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Examples:

Case study 1: £600,000 lost for failure to spend £20

Joff Wild 17 illustrates the value of patent databases in the lesson learned by a British
engineering company in the 1990's. The company was engaged in the development
of a new process to make products from metal wire. Several years were spent in
R&D on this new process and it was eventually ready for launch. A patent search
was done during the process of applying for a patent, and from the search results it
was clear that the idea underlying their new production process had been patented
in the US in the 1970's, although patent protection was not obtained in the UK. As a
result, the company could not obtain any form of IP protection for the time and
money spent on the R&D (amounting to £600,000).

Wild notes that the worst part of this story is the fact that:

"the company could have accessed the technology for the cost of the patent
search, approximately £20". 18

Patent information can also lead to design-around inventions, which may help to
“short-circuit” the lengthy time frame often required to take a new product to the
market. Furthermore, proper analysis of patent information may provide an insight
into the strategy of potential competitors and technology trends.

Case Study 2: Kogyo - Use of Patent Information 19

IG Kogyo Co., Ltd., boasts the top domestic share in metal siding (heat insulating
metal material for home exterior walls), and also exports the material overseas.
President Takashi Ishikawa hypothesized that cold winter temperatures accounted
for the high death rate from cerebral apoplexy observed in the region where he lives.
So he quit his work as a carpenter specialized in building shrines and temples, and
launched a venture business.

Mr. Ishikawa thought that the inside of a house would become warmer if strong iron
plates with some added heat insulating functionality were used for the exterior walls.
He wondered what should be combined with the iron plates to make them insulate
heat. One snowy morning, as he was lying in his "futon" (Japanese bedding), the

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mattress laid under the "futon" caught his attention. He realized that the inside of the
"futon" was warm because of the mattress.

He knew that the stuffing of the mattress was made from a material called urethane,
but nothing more.

Mr. Ishikawa left for Tokyo, dashed to Japan Patent Office and consulted
publications of unexamined patent application*, where he was able to obtain
much valuable information on urethane. Urethane is made by adding a foaming
agent to resin materials called polyol and polyisocianate, and mixing them by
machine. Its basic patent was owned by an overseas manufacturer, but its term was
to expire in June 1971, while the term of its related patents were also to expire in
June 1973, making urethane patent-free (meaning that the invention can be used
without paying a license fee due to the expiration of the patent term). Although
mattresses use soft urethane, it is possible to produce hard urethane by changing
the catalytic agent (a medium for speeding up the chemical reaction).

Mr. Ishikawa became convinced that a "construction material combining iron plates
with urethane will produce a revolutionary exterior wall material," and immediately
introduced his idea to a number of companies including large steel manufacturers.
However, none of them showed any interest; his idea was too eccentric for the steel
and construction material manufacturers at the time.

Left with no other option, Mr. Ishikawa started up his own company to commercialize
the new construction material. At first, his attempts repeatedly failed, nearly causing
him to give up on several occasions. After a long period of trials and difficulty, in
1976 he finally developed a technology to significantly accelerate the solidification
speed of urethane and succeeded in cutting costs. When he released the product, it
was a great hit. Since then, the company continues to work to improve the product's
performance and design. It has established a new category (metal siding) in the field
of home construction material, and has grown into a nationally known construction
materials manufacturer.

"The sales grew out of nowhere while we were absorbed in product development,"
says Mr. Ishikawa casually. However, his success was in fact backed by his
accurate market insight and strategy. His strong weapon was patent information. Mr.
Ishikawa says, "We no longer need to visit the Patent Office to acquire patent
information, but can just access it via the Internet. By combing through patent
information, one can grasp the trends of not only of industry, but also of society. As
long as one gathers information in an organized manner, there is no handicap to a
company being located in a provincial area."

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The number of industrial property rights owned by IG Kogyo exceeds 10,000,
including those pending before the Patent Office. This is an amazing number for a
company located in a provincial area with capital of 150 million yen (1.25 million
dollars). IG Kogyo has become renowned as a "patent strategy type company."

The important point is that one can learn about inventions of forerunners by
consulting patent information. He/she can then conceive new ideas and knowledge
from it, pondering what he/she might do as an inventor.

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SAQ 9
Case: Phonia
You are head of research of Phonia, a company selling mobile phones. Your CEO
has done some customer survey and has decided that he really needs a new
product on the market within 6 months with the additional functionality of an mp3
player. Without this new product Phonia would rapidly loose market share.
You have a research team available that can do this research, since they just
finished another project. The research team tells you it is sure that it can develop the
technology in 5 months without extra costs. It is also known that the technology
behind MP3 can be bought from a company called Technoliz specialized in licensing
technology.

What would be the best course of action? Indicate the correct approach:
.
A. Get the research team going so as to develop the technology for 
the new functionality in time
B. Contact Technoliz to get a technology license for MP3, so that 
your development team can make a flying start with developing
the new MP3 phone
C. Look for partners to develop the technology together, so that 
your own research team can learn from the partnership.

This leads to the discussion of the next two topics, the management of innovation
and different ways in which IP protection can cement the advantages of innovation.

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4. Strategies to Protect Innovation

4.1 Introduction

The last aspect of innovation management is the protection of innovative R&D

outcomes. It is imperative that an innovative idea be treated as a secret if an
enterprise wishes to appropriate potential commercial benefits from the idea (i.e. the
information surrounding the creation of the idea must be protected carefully as a
trade secret). It should be noted that not all commercially viable ideas can be or will
be patented, hence the importance of treating ideas as trade secret, in particular at
the inception stage, to prevent the erosion of a competitive advantage.

Case study 5: The Mug FactoryTM Innovation with Focus

Make no mistake, coffee mugs are big business. Wherever there is big business and
big money, there is innovation. And there is none more innovative than The Mug
Factory is, located in Queensland's Gold Coast and, the brainchild of Michael
Beverley.

Two years ago, Michael noticed that the humble coffee mug was, in fact, not so
humble at all, but one of the most popular gift items in the world market. Especially
when emblazoned with the latest in movies, famous personalities, cartoon
characters, prime-time TV programs, and other hot imagery.

"The key to a mug's success," says Michael "...is not what the consumer is going to
put inside it, but what the consumer sees on the outside when it's sitting on the shop
shelf. Like a lot of very popular gift products these days, coffee mugs are really just
extremely successful vehicles for licensed imagery." Known as licensed properties,
this imagery is bought for a set time and price from the license holders, such as
Warner Bros, Walt Disney & Company, and Gaffney International.

"This is a multi-billion dollar industry for the simple reason that people all over the
world will often choose a product decorated with licensed imagery instead of one
without it," says Michael. "As long as it's popular, the imagery could just as easily
come direct from Hollywood, like Star Wars, or originate from Australia, like Bananas
in Pajamas."

So when Michael decided to do mugs, he decided to produce the best coffee mugs
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you could find and carve out his share in this enormous market. To do this, he went
about mastering low-heat transfer technology; already an important step away from
the way most mugs is currently produced.

"Traditionally, an expensive decal is applied and then fired on at extremely high

temperatures in giant kilns. The whole process means that your average mug is
made with a lot of effort and a lot of cost. And amazingly, this does not necessarily
result in the best looking mug," says Michael.

Michael's aim was to produce mugs that looked alive with colour and imagery, and
were cheaper to produce in capital costs and labour. His Living PictureTM process is
an incredible mix of cutting edge innovation with low-tech production, so that one
person can produce a large number of mugs per day.

For Michael, the entire Living PictureTM process represents significant and valuable
intellectual property. His trade secrets are carefully documented so that Michael can
eventually sell or license the Living PictureTM process to another party, but they are
also guarded from exploitation through confidentiality agreements and employee
secrecy agreements.

Living PictureTM - a trademark registered with the Trade Mark Office of IP Australia -
is now a well-known brand in the licensing industry. Michael expects that consumers
will come to recognize it as well.

"Just like low-heat transfer technology, I can't say that I knew much about
intellectual property or ways to protect it when I first started out. But IP issues
are an essential aspect to the business I am in," says Michael.

Within a very short time, Michael's innovative approach paid off. Living PictureTM
mugs carry the most popular of licensed properties - Star Wars, Elvis, and Star Trek,
to name a few - and are distributed around Australia by one of the country's largest
gift wholesalers, Crystal Craft.

There are immediate plans to use the Living PictureTM process to do justice to a
range of Australian imagery. With stunning colours and striking graphics, expect this
range of mugs to jump out at you at a shop nearby. 20

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4.2 Match Innovation and IP Strategies

4.2.1 Introduction
All the tools of the IP system must be used to capture the benefits of innovation. The
acquisition of IP protection is discussed later in this module. IP Strategy is further
explored in Module 7. At this stage we would, however, like to mention which
specific IP strategies match the different types of innovation.

Source: [Link]

Many players are involved in facilitating the market success of innovation, and the
effective use of IP therefore plays an important role in reducing risk for the players
involved. Players are able to reap acceptable returns for their participation in the
process if IP is used effectively. IP plays an important role in facilitating the process
of taking innovative technologies to the marketplace. At the same time, IP plays a
major role in enhancing the competitiveness of technology-based enterprises,
whether such enterprises are commercializing new or improved products or
providing service on the basis of a new or improved technology.

4.2.2 Types of innovation

The competitive edge that an entrepreneurial business may gain with a radical or
disruptive innovation is likely to be longer lasting than that obtained merely
from an incremental innovation and a sustaining innovation, assuming that the
technological barriers to competitors taking advantage of similar innovations are
approximately equivalent.

Radical or fundamental innovation establishes a new class of product or service.

Entry of competition requires that the opportunity provided by that class is
recognized by a potential competitor before it attempts to enter the market. In the
case of an incremental innovation, not only are competitors for the class of product
already in place, but since the incremental innovation typically amounts to a better,
faster, or cheaper way to build the product, its advantages are far more quickly
understood and replicated.

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Generally, there is a need for devising:

• an offensive IP strategy for a radical innovation;

• an offensive IP strategy for a disruptive innovation;
• a defensive IP strategy for an incremental innovation; and
• a defensive IP strategy for a sustaining innovation.

4.2.3. Open Innovation & IP Ownership

The results of collaborative R&D are called shared IP. A company must therefore
choose carefully how it wants to deal with open innovation, i.e., choose where it
wants to do the R&D itself, what part of its own proprietary R&D to share with others
and what R&D it is not doing itself but relying on third party R&D. The logic of such
decisions is usually determined by the type of technology innovation strategy
mentioned above.

The next topic we will look at is how to identify IP assets, and then, what forms of IP
protection should be secured.

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5. IP Asset Identification
Effective IP protection of innovation depends on IP asset identification. One of the
most crucial roles of the IP manager is to identify new forms of IP that qualify for
protection and to take the necessary steps to secure protection.
The core elements to identify (tomorrow’s) valuable patents are:

• Technical Brightness
• Legal Strength
• Economic Potential

5.1 Technical Brightness

Do we have a platform technology which is protected by the patent or do we have

the 1001st variation of an established technical solution? Is it a technical solution
which could help a licensee become No. 2 or even No. 1 worldwide?

5.2 Economic Potential

Does the patent protect a technology that can be addressed to a worldwide (or
mass) market or are there only a few around the globe who are interested in it? Do
we have a monopolistic (few actors) or oligopolistic (many actors) market?

5.3 Legal Strength

Is the patent strong enough that the costs to destroy or to design around the patent
are higher than the royalty for the potential licensee?

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5.4 IP Asset Identification principles
• To identify valuable IP assets, the valuation has to be extended to a three
dimensional approach: technical, economical, and legal
• Patents protect technology
• For young technologies, markets have to be evaluated
• Replacement of common technologies and implementation have to be
evaluated
• State of the art and effort to design around have to be legally evaluated

SAQ 10

Can you explain briefly the major elements that help identify high potential IP
assets?

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6. Management Frameworks for IP Protection

6.1 Introduction

Frameworks are essentially useful tools that help organize information for decision-
making purposes. Strategy frameworks help illustrate the logic of why a firm does
what it does in any given market context to attain a competitive advantage. A host of
interesting books that were recently published espouse how the individual property
regimes can be “managed” in order to achieve market advantages from investments
in technologies (patents), 21 original expressions (copyrights) 22 to brands
(trademarks). 23

Successful innovations, be they technological or otherwise, will lead to a larger than

usual increment of margin or economic rent which may in turn finance further
investment in innovation. Intellectual property regimes exist to reward the
original innovator by making it difficult for others to duplicate the intangible
aspects of the innovation, thereby sustaining the market advantages of the
original innovation. Strategy dynamics should lead to market differences that can
be sustained. 24 Over the long term, firm logic must evolve to anticipate and
overcome market dynamics 25 that may outlast the limited lives of patents or
copyrights. 26 However, sustaining the advantage, especially in short life cycle
product markets, requires more than simply patents. All the regimes need to
be used in an appropriate, time sequenced manner. The two frameworks that
can assist in the decision making process is the IP Atom and the IP Continuum.

6.2 The IP Atom Framework

The IPM framework, illustrated below, sets up a relationship between the various
regimes of intellectual property (secrets, patents, copyrights, marks etc.) and the
management activities that lead to the aforementioned new combinations. This
framework, known as the IP Atom, has functional utility at its very core. The
rationale behind the purchase of ANY product or service has to do with the fact that
it provides the buyer with a measure of economic utility, or function. Milk, for

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example, slakes our thirst and or tempers our coffee. Cars provide transportation.
iPods® provide personalized music experiences.

In those cases where the function is unique, patents and/or secrets may be
reasonable regimes to hedge against competitive duplication. To inform customers
about the functional uniqueness of offerings, advertising is a form of original
expression that envelopes core utility and sends appropriate messages to the target
market. Used appropriately, copyright can secure the original aspects of expressions
against unauthorized replication by the competition.

The final and outer layer of the IP Atom is the source identifier used to build an
identity between the functional uniqueness at the core of an offering and its source
in the mind of the target customer. This component of the offering bundle is the
domain of trademarks, service marks and trade dress.

Viewed through the lens of the IP Atom framework (shown below) the functional
uniqueness at the core of any offering should be secured with a patent or trade

secret. Copyrights can be used to secure the original expressions in content or

advertising and send messages about the offering’s uniqueness.

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Trademarks and trade dress secure the uniqueness of the brand. If advertising
by either traditional or non-traditional means builds an equivalence between the
functional uniqueness (Patent, Trade secret) and the source (Brand, Mark), then the
source identity advantages of the original innovation may be sustained beyond the
limited life of the patent or the copyright via the goodwill accrued to the brand 27.

The IP Atom framework helps illustrate how technology focused professionals

should coordinate with creative and marketing/branding professionals to gain the
innovation-sustaining benefits of multiple forms of property. Allocating resources to
such an endeavour in a manner that is responsive to market opportunities is the
responsibility of IP management.

SAQ 11

The IP Atom helps reconcile which IP regimes with management practices?

A Patents and secret function with Marks and Brands 
B Traditional Knowledge with utility models 
C Registered designs with secrets 
D Source code with geographical indications 

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6.3 The IP Continuum Framework

The IP continuum relates the utility or functional strength of a property regime

(patents, copyright, TM) with the life of that protection, illustrated in the IP Atom. This
framework illustrates that as one moves from the patent regime to the trademark
regime (left to right on the IP Continuum), the functionality of protection decreases.
Patents allow the use of the full breadth and meaning of language to define and
claim the distinct and peculiar function of an invention. Trademarks by statute
cannot be functional in the sense that they cannot lead to utilitarian advantages.

As a result, the continuum illustrates that the life of the protection regime increases
as one traverses from patents or copyrights to trademarks, with trademarks having
indefinite life as long as they are properly used and maintained. As such, the
functional strength of the property form is inversely related to the life of the
property form. This suggests that patents and copyrights should be used during the
earliest stages of market entry. Simultaneously or soon thereafter, equivalence
between the patented uniqueness or original expression and the source/brand/mark
should be established through focused advertising. This form of advertising results in
a unique selling proposition (USP). If this is done properly, the advantages
embodied in the technical innovation (patent, trade secret) or original expression
(copyright) now move to the indefinitely long life regime embodied in the brand or
trademark. Hence, market advantage is sustained beyond the horizon of limited
rights regimes (patent, design or copyright) or the next wave of technological
innovation 28 if the company is actively innovating.

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SAQ 12

The IP continuum illustrates that the functional strength of the property form
is inversely related to the life of the property form. There is one form of IP
protection that does not fit into this framework with ease. Which form of
protection is this?

A Patent protection 
B Trademark protection 
C Copyright protection 
D Trade secret protection 
E Design protection 
F Licensing protection 
G Protection against unfair competition 

6.4 Preferable form of protection of innovation?

There are conflicting views on the most suitable form of IP protection for innovation.
Some argue that innovations are mostly patented, whereas others are of the opinion
that patenting of innovations are not that common.

6.4.1 Why is this important?

Several indicators have been used to measure the efforts of an enterprise in
undertaking research and developing innovative ideas. These include expenditure
on research and development (R&D), total sales, firm size, skilled work-force,
innovation strategies and robust IP regimes, etc. The measurement of innovative
activity (and also R&D activity) is often based on patenting statistics. How accurate
such statistical analyses are is an open question.

6.4.2 Patenting: advantages and disadvantages

A survey of economic studies reveals that patents are the most preferred form of IP
rights in relation to technological innovations. Proponents of this viewpoint often use
the terms ‘innovation’ and ‘invention’ as synonyms. This may explain why studies on
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innovation have, in many cases, treated patents as a proxy input for innovation. To
be specific, the number of patents owned by an enterprise has often been used as
one of the main indicators for determining the innovation intensity of that enterprise.
In addition, patents are also used as a measure of output of innovation.

The use of patents as a measure of innovative activity referred to above is not valid
as far as SMEs are concerned. Empirical evidence indicates that generally small and
medium-sized enterprises (SMEs) are more inclined to use trade secrets rather than
patents to protect their inventions and to sustain competitiveness.

The main reasons given by SMEs for shying away from patenting their inventions
include high costs, complexity of the patent system, especially relating to ‘prior art’
searches and the complexities involved in the drafting of patent claims. A study on
patenting activity in Australia indicates that 44% of firms used patents while 74%
used trade secrets as a way of protecting their innovative ideas. It also showed that
size was an important factor in determining the propensity to patent, i.e., 35% of
small firms with less than 20 employees used patents, while 75% of firms with more
than 500 employees patented their knowledge.

Furthermore, the concept of innovation is much wider than that of invention, which
only refers to the resolution of a given question. Innovative activities that fall outside
the patenting process are often disregarded. Anti-patenting views are also tied to the
patent application process. Patents provide a strong commercial viability for a
company to innovate. Yet, in order to receive such protection, the inventor needs to
provide a description of his invention and disclose precisely how it works; which will
be made public for about 2.5 years before he can expect to receive the patent grant.

Lastly, the type of industry in which the innovation takes place plays an important
role.

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Examples:

DELL Wal-Mart
Dell, the computer company, has a number of
patents and some pending applications in the Wal-Mart, on the other hand, appears
United States on its unique business models. A to rely more on the protection afforded
patent may reveal a lot of valuable information, by the law of trade secrets for the
but at the same time, it provides exclusivity in protection of its business model,
the marketplace. In 1999, Dell used its patent regardless of the fact that the law
portfolio as collateral in a $16 billion cross- protecting secret information is often
licensing deal with IBM that provided Dell with regarded as a relatively ineffective
lower cost computer components. This freed mechanism for protection against theft
Dell from having to pay IBM several millions of of proprietary information from past key
dollars in royalties and further reduced Dell’s employees to competitors.
cost of doing business. Source: WIPO Magazine April 2002
Source: WIPO Magazine April 2002

Menell notes that economic historians and industrial organization economists

conducted a series of empirical studies during the 1970s and 1980s and found that
patents were rarely the principal means of appropriating returns in most industries
(outside of pharmaceuticals and chemicals).

He notes:

In many industries, first-mover advantages, including the establishment of

production and distribution facilities, rapid progress down a learning curve
and other factors have proven to be at least as important as formal patent
rights. Similar results have been found in Japan and Germany...Taken
together, these studies suggest a growing consensus among economists that
intellectual property rights offer a real, but limited, incentive to innovate in
some industrial sectors, the importance of such rights vary significantly across
industries and fields of innovation and the linkage between intellectual
property rights and social welfare improvement is extraordinarily complex. 29

The economic importance of trademarks for (functional) inventions and for products
with short production cycles is great due to the length of patent granting
proceedings.

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6.4.3 Trade secret protection
Trade secrets can consist of inventions or manufacturing processes that do not meet
the criteria for patent protection. Wherever innovation concerns a patentable
invention, a SME will face a choice to either patent the innovation or to protect it as a
trade secret.

[Link] Protection of trade secrets

Trade secrets can be protected without any procedural formalities. The requirements
for the protection of trade secrets are the following:
• The information must be secret
• It must have commercial value
• The holder of the information must take reasonable steps to keep the
information secret.

[Link] Advantages of trade secret protection

• The protection lasts for an indefinite period

• No registration costs (although it may be expensive to keep the information
confidential)
• Trade secrets have an immediate effect
• No disclosure is necessary (as opposed to disclosure in filing a patent).

While a decision will have to be made on a case-by-case basis, in the following

circumstances it would be advisable to make use of trade secret protection:
• When the secret is not patentable.
• When the likelihood is high that the information can be kept secret for a
considerable period of time. If the secret information consists of a patentable
invention, trade secret protection would only be convenient if the secret can
be kept confidential for over 20 years (the protection period of a patent) and if
others are not likely to come up with the same invention in a legitimate way.
• When the trade secret is not considered to be valuable enough to be deemed
worthy of a patent (though a utility model may be a good alternative in
countries where utility model protection exists).
• When the secret relates to a manufacturing process rather than to a product,
as products would be more likely to be reverse engineered.

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 • When you have applied for a patent and are waiting for the patent to be
granted.

[Link] Disadvantages of trade secret protection

• The product or process embodying the trade secret may become subject to
reverse engineering
• Once the secret falls into the public domain, everyone may use it
• The enforcement of trade secrets is difficult
• The level of protection is not internationally uniform
• A trade secret can be patented by someone else through independent
development

6.4.4 Concluding remarks

The ultimate choice between the use of either the trade secret route or the patent
route for protecting innovation should be seen as a strategic business decision that
should only be made at a later stage of its development, when all the requirements
of patentability have been met.

Key point:
Initially, innovation must be protected as a trade secret. Later on, a part
of the innovative product or process may be patented, whereas the rest
of it should be protected as the associated trade secrets and know-how
or tacit knowledge that are associated with the patent.

The interplay between the various branches of intellectual property law and the
subsequent cumulative protection may be illustrated by the following case study.

MAPPI Case Study

Adam, an employee of ABC Incorporated, develops a new computerized auto pilot

system. The MAPPI's wonderful performance is due to the device's ability to
interpret sensory inputs. MAPPI is installed as an auto-pilot device in luxury motor
vehicles. The computer program may form part of a patentable invention. The
computer program may also be copyrightable. At the same time, certain processes
involved in the manufacture and installation of the invention may be protectable as

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trade secrets. The design of the MAPPI device may be protected as an industrial
design. The attractive packaging and instruction manuals may incorporate
copyrightable artistic and literary works. MAPPI, the name under which the product
is marketed, may also be protected as a trademark.

The technical drawings of the MAPPI, which are part and parcel of technological
innovations, are protected as trade secrets and/or by copyright. It is important for the
drawings to be dated so as to establish the date of creation. Technical drawings also
form an important part of the relevant patent application.

Each form of IP protection has several trade-offs. For example, the MAPPI qualifies
for all forms of IP protection. The advantages of patenting the invention are that the
owner has a strong monopoly right and that innocent infringement will not form a
defense. The disadvantages of patenting are the fact that the invention must be
disclosed and the fact that the duration of the patent is only 20 years.

Module 3 Assignment 1:

From what you have learned in the case studies, can you identify the advantages
and disadvantages of each form of protection, from the point of view of IP
management?

Type of right Advantages Disadvantages

Patent

Trade secret

Copyright

Industrial designs

Trademark

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6.5 Cost Implications

The cost implication is also an important factor to keep in mind where the patent is to
be protected internationally. The PCT minimizes international patent costs to a large
extent. Filing regional patent applications is an effective patent protection strategy.
Regional filings provide several advantages, such as standardized filing procedures,
the minimization of translation costs and an exemption from the requirements of
substantive examination in some designated countries.

In deciding what form of IP protection is applicable, the following questions are

helpful to ask:

• What type of application is most suitable: Should it be a provisional patent

application, a final patent application; an application for a utility model patent
or an industrial design?
• Which field of technology is involved and what is the difference between the
new IP and the prior art?
• What are the needs and demands of the marketplace?
• Should applications be lodged regionally or internationally – i.e. does this
product have both a domestic market and an international market?
• Is there any possibility to offer this IP in an e-commerce environment?
• Who are the likely infringers and the strongest competitors?
• What are the licensing possibilities?
• What are the present and future cost implications? 30

This leads to the discussion of value transference.

6.6 Value transference

The practice of innovation, including marketing the result from an invention or the
use of an original expression (as in the second layer of the IP Atom) or the
successful branding of the innovation, is sometimes called "Value Transference".
This premeditated practice, originally espoused by management academics, has
subsequently been embraced by legal theorists. 31

Key point:
Value Transference is a time sequenced logic for allocating
resources that yields an IP portfolio of assets that can build
and sustain a competitive advantage.

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Technological innovation can also be well supported by a combination of patent,
industrial design and a trademark. A look at the invention and development of the
vacuum cleaner provides a good example of strategic use of a combination of
different types of IP tools, namely, patents, industrial designs and a trademark.21 The
following table represents a sampling of case studies that exemplify the
management of innovations and multiple IP regimes to realize sustainable
competitive advantages in a variety of market contexts.

The table points to examples of multi-regime IP management from a variety of

market contexts, including personal watercraft (Yamaha® Waverunner), Agriculture
(Monsanto® Roundup ready seeds 32) and personalized music experiences (Apple
iPod). 33 The diversity of these contexts suggests that the IP management can work
in multiple market contexts where innovation is sought to build and sustain a
competitive advantage.

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SAQ 13

Indicate the correct answer and give reasons why the answers you did not
select are incorrect.

The management practice of using multiple IP regimes in a premeditated

manner to build and sustain competitive advantage is known as

A Patent prosecution 
B Copyright fair use 
C Value transference 
D Trademark dilution 

The following seven cases will illustrate the application IPM to expand IP protection
to create new IP or to use IP strategically to enforce rights.

An illustration of value transference:

DOLBY

An excellent contemporary example of value transference is demonstrated through

the premeditated IP management activities of Ray Dolby, the engineer and
entrepreneur who brings us the modern sound enhancements of Dolby Surround
sound and Dolby Digital. He began his career as an analogue sound engineer
working on methods to reduce the unpleasant noise or high frequency “hiss”
associated with analogue tape playback.

Dolby conceived various methods for reducing this noise and non-exclusively
licensed the patented technology to analogue tape recorder and VCR manufacturers
in Japan. In exchange for very reasonable terms on the use of his noise reduction
(NR) methods, he was able to get his name, Dolby, placed just adjacent to the
button on the device that activated his unique NR method. Because the Dolby NR
functioned uniquely well, Dolby’s name became synonymous with good sound
quality. Since his name was carried on the front of many consumer electronic
devices, this agreement built the brand equity. As such the value of the original
analogue inventions transferred, in part, to the Dolby® mark and brand.

When digital sound experience was born via the CD and digital movie theatres,
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Dolby was able to leverage this goodwill in his brand to become a sound standard
setter for DVDs, High Definition broadcasting and Home Theatre technologies. As
such, he was able to sustain the advantages of the original innovation into the next
wave of audio and video technology34.

SAQ 14

How did Dolby protect its investment in NR technology?

The Dolby example is but one of a number of instances where management used a
multi-IP regime approach to grow and sustain the competitive advantages of
investments in innovation.

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Case I: Aspirin

Trademarks are also useful in extending commercial benefits beyond the life of a
patent. The case of aspirin® provides a good example. Aspirin was developed in
1897 by Felix Hoffman, a research chemist working with the Bayer Company in
Germany. The production process and Aspirin as a substance were patented in
1899 by the Bayer Company.

Knowing that patents have a limited duration, the Bayer Company embarked upon
promoting a trademark for its new product. When the Aspirin patent expired, the
company continued to benefit from the sale of aspirin through its established
trademark Aspirin®. The Bayer Company has also used the two-track IP strategy,
i.e., using a trademark to protect market share after the expiry of a patent, for its
Cipro® product (ciprofloxacin for treatment of infections, including anthrax).20

Case II: The Purple Pill

A market where innovation investment risks are substantial and IP plays a critical
role in encouraging risk and reward is that for pharmaceuticals or ethical drugs. A
famous case where multiple regimes of property are used on a first mover
compound is that of AstraZeneca and its blockbuster proton pump inhibitor (ppi)
Prilosec® for chronic gastro esophageal reflux disease or GERD. 35 Long before the
compound patent expired (2001), AZ professionals examined all the possible IP
tools at their disposal to secure the advantages of their investment in the original
omeproazole molecule. One such option embraced the idea of advertising Prilosec
as “The Purple Pill” and delivering it to market with corresponding unique trade
dress. Through clever, direct to consumer advertising, AZ was able to build an
equivalence between the state of the art GERD solution and “The Purple Pill”.

A secondary hedge against the unavoidable entry and price based competition of
generic drug makers was the development of a second generation ppi compound
branded as Nexium® (patent expiry 2012). This drug with slightly improved efficacy
was introduced to the marketplace in early 2001 and branded as “today’s purple pill”.
By carefully targeted advertising segmentation and distribution control, AZ was able
to map a significant percentage of the brand loyal Prilosec customer set to the
Nexium compound. The agent of transference common to both pills was the colour
purple... This careful value transference executed across multiple generations of ppi
product formulations sustained the US$ 6 billion annual AZ revenue for the ppi
product category through 2006.

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Case III: Sweet n' Low

In the market for food ingredients, the management of the novel patented zero
calories sweeteners known as aspartame is a textbook example of branding a
functionally unique ingredient and sustaining the advantages through branding. The
context of this opportunity was a health scare and potential carcinogenic risk
associated with the incumbent artificial sweetener and then market leader,
saccharin. To assure their largest clients (Coca cola® and Pepsi-cola®) that
aspartame was safe, the manufacturer Searle® indemnified their customers against
the cost of future health related challenges to the product and placed a NutraSweet®
brand logo with a toll free number for customers to call in case of any concerns. The
marketing of the ingredient carefully built an equivalence of the low calorie
sweetness hit enabled by aspartame and the NutraSweet brand. When the patent
eventually expired, the competitors could not realize immediate penetration into the
market based on generic discounting alone. The loyalty to the NutraSweet brand
and mark sustained the advantages for a number of years.

Case IV: Snow White

The entertainment firm Disney® is actively pursuing a careful IP management and

value transference strategy in an effort to sustain the market advantages of its
investments in animation methods and the resulting original expressions. This has
been a long-term endeavour that began when they were confronted with the expiry
of the copyright on classic Mickey Mouse and Snow White Disney animations.
Additionally, the revenue from theatre goers and even digitally distributed products
was not expected to experience substantial profit growth.

One area, specific merchandising of the characters, was experiencing healthy

revenue and product growth. Character images can also be secured as trademarks
if the images are used as source identifiers. This realization bought about the birth of
the Disney consumer products division, an entity the licences the character rights to
interested parties in exchange for a royalty on goods sold. In 2006, the Disney
licensing engine generated US$15 billion in revenue. Disney has hence used
multiple regimes of intellectual property to transform itself from a content distribution-
based business model to a character licensing-based business model.

Case V: The Lion King

The Lion Sleeps Tonight-saga is an excellent example of the offensive use of the
value transference principle. The internationally well-known song, “The Lion Sleeps
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Tonight” was composed in South Africa. In the early 1930’s Solomon Linda, a Zulu
tribesman, who was a gifted performer and musician, wrote a song called “Mbube”.
“Mbube” means “lion” in Zulu. In 1939 the song was recorded in Johannesburg by
Gallo Record Company and Solomon Linda assigned his worldwide copyright in
Mbube to Gallo Africa for a sum of 10 shillings. Gallo then registered copyright in the
song in the US in its own name. In the 1950’s, Pete Seeger, a well-known US vocal
artist heard a recording of Mbube, from which he derived and recorded “Wimoweh”.

The song Wimoweh was popular the US. The copyright in the song was assigned to
a US music publisher, Folkways. In the early 1960s the song was rearranged by
lyricists Weiss, Peretti and Ceatore and the well-known song “The Lion Sleeps
Tonight” saw the light of day. It became a hit overnight and during the 1990’s it was
incorporated into “The Lion King”, the Walt Disney animated movie and stage
musical. The song is said have made many millions of US dollars over the year and
was regarded as part of American pop culture with the credit going to Weiss, Peretti
and Ceatore. The song’s humble roots were never acknowledged, Solomon Linda
was not given any credit and he died penniless in 1962. 36

In 2000, a South African journalist published an article on the unfortunate and

unknown South African artist who died penniless, yet had created a song that
earned royalties of over $15 million for its use in “The Lion King” movie alone.
Following the publication of this article, Gallo Africa appointed an IP attorney to act
for the children of Solomon Linda. The attorney found an innovative legal solution in
the 1911 Imperial Copyright Act. 37 Linda’s copyright in South Africa reverted to his
estate’s executor.

The attorney sued Walt Disney for royalties on behalf of the estate. However, as
Walt Disney is a US company, the jurisdiction of the South African court was a
problem. The solution lay in the successful attachment of over 200 of Walt Disney’s
South African trademark registrations. Trademarks such as Mickey Mouse and
Donald Duck, and the copyright registration Walt Disney held in the movie “The Lion
King” in South Africa were attached. Shortly before the case was to be heard, the
parties settled. In the terms of the settlement agreement, the heirs of Solomon
Linda’s Estate (his three daughters) were paid an undisclosed sum by way of
compensation for past uses of “The Lion Sleeps Tonight” and, furthermore, they
received an undertaking that royalties would be paid to the estate in for all future
uses of the song, on a worldwide basis. It was acknowledged by the defendants that
Mbube was the original song from which the song "The Lion Sleeps Tonight” was
derived and Solomon Linda was deemed to be the co-composer of "The Lion Sleeps
Tonight".
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In this case, the principle of value transference was used in an offensive manner.
The attachment of the trademarks and the film forced Walt Disney to submit to the
jurisdiction of the South African courts and could be used as leverage to obtain a
beneficial settlement.

Case VI: Tequila 38

Examples of similar, multiple IP regime management strategies working for products

in developing countries include the Juan Valdez trademark estate that has been
complemented by the Cafe de Columbia geographic indication. 39 Idris notes the
following regarding the protection of Tequila:

Tequila is a Mexican drink that has acquired a distinct identity, often

enhanced by bottle designs featuring some of Mexico’s characteristic
symbols. What few people know, however, is that Tequila is only produced
within a specific area in Mexico where its primary raw material, the cactus-like
agave plant, grows and that the name “Tequila” is protected as a
geographical indication in Mexico under a 1977 Presidential Decree. Under
this special legislation, “Tequila” can only be used for beverages originating in
five Mexican states which have the exclusive right to produce it. Today,
Tequila has earned a worldwide reputation. Because this term is a protected
geographical indication in many countries, competitors can be prevented from
using it for spirit drinks not from the distinct Mexican area of production, or not
made in compliance with the applicable Mexican legislation. For example, the
term “Tequila” is protected as an appellation of origin in accordance with the
Lisbon Agreement for the Protection of Appellations of Origin and their
International Registration (an international agreement administered by
WIPO). The sale of Tequila has been further enhanced because producers
are able to guarantee the quality of the product and can avoid the name being
used for products made with different ingredients which could taint the
reputation of the original Mexican product and mislead customers. 40

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SAQ 15

The value transference in Case V differs in one important aspect from Cases 1-
IV.

SAQ 16

The value transference in Case VI differs in another important aspect from

Cases 1-V. Explain the differences.

SAQ 17
Identify whether IP rights were used in an offensive or defensive manner in
Cases I-V. Give reasons for your answers.

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7. MODULE SUMMARY

Throughout this module you have learned about innovation, its importance and main
principles, as well as the link between innovation, economic development and
intellectual property protection. The use of open innovation has many strategic
advantages. Furthermore, the use of patent databases in the planning and
evaluation of R&D is a necessity, as patents are the most important public source of
technical information.

The module also explained the rationale for IP protection from a lateral point
of view. The IP Atom and the relationship between the duration and relative
strength of the different forms of IP protection was then illustrated by the IP
continuum model.

Cumulative protection and value transference principles offer an insight into the
provision of systematic and incremental forms of IP protection for market
penetration. Value transference involves careful IP management. IP protection is
sustained by the creation of multiple IP protection schemes. Examples of value
transference are the licensing of character merchandise to sustain copyright
protection in cinematographic films or the use of trademarks to extend market
advantages of patent protection. A third example of value transference is the transfer
of existing brand awareness of a product to new or associated products. The
successful application of the value transference principles through offensive and
defensive IP strategies were illustrated with reference to seven case studies.

Patent filing is the preferred tool for the protection of inventions, namely innovative
products and processes. However, patent filing cannot be viewed as the sole
measuring instrument for innovative activity, as trade secret protection is preferred
by SMEs for a variety of reasons. Trade secret protection, the protection of know-
how as well as the design protection, is an important vehicle for the protection of
innovative products and processes.

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1
See Mohanbir Sawhney, Robert C Wolcott & Inigo Arroniz “The 12 Different ways
for companies to innovate” (2006) 47 (3) MIT Sloan Management Review 75
(“Sawhney and others”) at 77-80.
2
Sawhney and others at 77.
3
See David Jacoby Guide to Supply Chain Management (2009) at 59.
4
Sawhney and others 77-78.
5
Sawhney and others 78.
6
See David Jacoby Guide to Supply Chain Management (2009) at 179-180.
7
See Sawhney and others at 79.
8
See David Jacoby Guide to Supply Chain Management (2009) at 32.
9
Sawhney and others at 80.
10
Sawhney and others at 80-81.
11
Quotes borrowed from Da Vinci’s Project for IP Course for SME’s (2007).
12 Taken from Da Vinci’s Project for IP Course for SME’s (2007).
13
Business and Industry Advisory Committee Creativity, Innovation and Economic
Growth in the 21 Century: An Affirmative Case for Intellectual Property Rights (2003)
BIAC Discussion Paper [Link]
[Link].
14
OECD Report p 17.
15
OECD Report p 17.
16
Powering Ideas: An Innovation Agenda for the 21st Century (2009).
17
Joff Wild "Investors learn to appreciate the value of IP" IP Value (2005)
[Link]
18
Source: Joff Wild "Investors learn to appreciate the value of IP" IP Value (2005)
[Link]
19
Case study taken from "Experience of Japan" published by the Institute of
Intellectual Property (Tokyo).
20
This case study has been compiled by IP Australia.
21
D. O’Connell, Inside the Patent Factory: The Essential Reference for Effective
and Efficient Management of Patent Creation J. Wiley Publishing, London, 2008.
22
D. Gervais Ed., The Collective Management of Copyright and Related Rights
Kluwers International Publishing, June 2006.
23
R. Post et al, Global Brand Integrity Management McGraw Hill, 2007.
24
D. Teece, “Profitting from Technological Innovation: Implications for Integration,
Collaboration, Licensing and Public Policy”, Research Policy volume 15, pp 285-305
(1986).
25
D. Teece, “Explicating Dynamic Capabilities: The Micro-foundations of
Competitive Advantage” Strategic Management Journal December 2007.
26
J. Conley et al, “Snow White Shows the Way”, in Managing Intellectual Property,
EuroMoney PLC publishers, June 2001.
27
J. Conley et al, “Inventing Brands: Opportunities at the Nexus of Semiotics and
Intellectual Property”, in Design Management Review, Spring 2008.

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28
Ove Granstrand The Economics and Management of Intellectual Property Edwin
Elgar Publishing, 1999.
29
Peter S. Menell "Intellectual Property: General Theories" in Encyclopedia of Law
and Economics (Eds. Boudewijn Bouckaert (Univ. Ghent) and Gerrit De Geest (Univ.
Ghent and Univ. Utrecht) (1999) [Link]
at 136.
30
Pipers Patent Attorneys "Filing Strategies" [Link]
innovation-patents
31
G Parchomovsky and P. Siegelman, “Towards an Integrated Theory of Intellectual
Property” in Virginia Law Review, V 88, No. 7, 2002; D. Charles, Lords of the
Harvest: Biotech, Big Money and the Future of Food Perseus Books, 2002.
32
D. Charles Lords of the Harvest: Biotech, Big Money and the Future of Food
Perseus Books, 2002.
33
D. Orozco and J. Conley, “The Shape of Things to Come”, Wall Street Journal,
May 12, 2008.
34
P. Hawkins Williams et al “A Profile of Dolby Laboratories: An Effective Model for
Leveraging Intellectual Property” Northwestern Journal of Technology and
Intellectual Property, Vol. 2, No. 1, 2003.
35
J. Conley et al., “AstraZeneca, Prilosec, and Nexium: Strategic Challenges in the
Launch of a Second-Generation Drug” Kellogg School of Management Teaching
Case Study Series, distributed through HBS Publishing case #5-404-752, 2005
36
Owen Dean “Case law: The Return of the Lion” WIPO Magazine (2006) available
at [Link]
37
Section 5(2) of the 1911 Act provides that the copyright reverts to the estate of an
author 25 years after such author’s death, notwithstanding any assignments of
copyright the author may have made during his lifetime. Copyright that reverted to
an estate became an asset of the late author’s estate and had to be assigned in
writing by the executor of that estate. This is also known as the “Dickens Provision”
at it was inserted into the Copyright Act of Great Britain in the early 20th century
after outrage that the works of Charles Dickens were generating huge profits for
publishing companies while his family was destitute see Mary Alexander, Mbube:
Linda's Lion Sleeps at Last [Link]
[Link].
38
Source: Tequila Regulatory Council quoted from Kamil Idris Intellectual Property -
A Power Tool for Economic Growth (2003) 181-182.
39
G. Silva, “Geographical Indications: The Case for Café de Columbia” online
presentation available at [Link]
accessed December 7th, 2008.
40
Quoted from Kamil Idris Intellectual Property - A Power Tool for Economic Growth
(2003) 181-182; Source: Tequila Regulatory Council.

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