April 1, 2006

Protect your intellectual property with patents

Sheila Watson  /  CRBJ

Given the role innovation plays in the nation's productivity and economic growth, the task of securing intellectual property is a critical success factor not only for businesses, but also for the overall economy as well.

That was the topic presented by W.C. "Chip" Hood at the most recent "Fridays @ the Corridor" meeting, hosted by the Charleston Digital Corridor. Hood, an attorney with Needle & Rosenberg, gave a few examples of the importance of intellectual property.

The following licensing revenue for patents-that is, the money brought in from merely allowing other organizations to use technologies they had patented - was reported:
* IBM - $1.5 billion for 2001.
* Hitachi - $428 million for 1996.
* Canon -$127 million for 1997.

The trend is for increases in IP assets versus tangible assets in a company. "A recent British study showed that 40 percent of a company's value is not shown in any way on its balance sheet," Hood said.

Take Disney, Microsoft and Proctor & Gamble, for instance. Hood noted that more than 80% of the market value of these companies is said to be in IP assets. Microsoft's book value "is $90 billion, although its market capital is $270 billion," he said. "The majority of all that is in IP assets."

Hood pointed to the flip side as well-the cost of not protecting the IP. "Eli Lilly's patent on Prozac was declared invalid in 2000. Shortly thereafter, shareholders dumped $36 billion in Lilly stock value, roughly a third of the pharmaceutical giant's market capitalization."

Assuming a company completes its patent application process correctly and in a timely fashion, the rewards are significant. Royalties from inventions earn an estimated $150 billion per year worldwide and are expected to grow 30% annually over the next five years, Hood pointed out.

What inventors need to know

"It's important to know what a patent is and what it is not," Hood said. The short answer, he said, is that a patent is a contract between the inventor and the government. The inventor agrees to fully disclose the invention to the public and in exchange receives a "limited-time monopoly" on the invention.

Conversely, Hood said, a patent is not a guarantee of rights by the government, a right to practice the invention or inevitable. "You must enforce your rights on the patent," he said. "That's where a lot of businesses go wrong. It's up to you to protect your patent against those who are infringing on your right. A wise man once said, 'A patent is an invitation to a lawsuit.' Basically, you're looking at a lot of time with lawyers."

In addition, he said, the patent lasts 20 years from the filing date and is not renewable. Despite the drawbacks and legal concerns, Hood said inventors should be encouraged to file paperwork for patents as early as possible.

"It's important to start the ball rolling," he said. "It can help reduce potential damages in the long run."