下载掌阅APP，畅读海量书库
立即打开
A good understanding of how IP rights affect revenue requires you to start with the markets into which a company sells its products or services. A market, at its simplest, is where buyers meet sellers. For our purposes, the key is to see what it is that consumers actually buy.
Sometimes this is all very simple. If your company sells baby products - baby clothes, toys, etc. - then the market is wherever people buy those products. Typically, a big portion of sales for consumer products like this will be online, on Taobao, Amazon.com, JD.com, eBay, etc.
In other cases, a business may be remote from the end market. Many companies sell components or parts that are integrated or assembled into larger products for ultimate sale to consumers (businesses or people). In these cases, the relevant market is a supplier market. In complex industries such as mobile phones or autos, the supplier market may be quite complex. A supplier might sell to a company that makes a single component, with that company selling the component to the maker of a sub-assembly, which is incorporated into the final product for sale in the end market.
The same breakdown applies to companies that sell a service. A small consulting company may be hired to work on manufacturing efficiency; its service contributes to a component, sub-assembly or final product, as the case may be. Other common services supplied along a supply chain are product design, marketing/advertising, and various software coding, updating, storage (e.g., cloud storage) and/or maintenance.
The overall practical goal of IP law is to secure valuable rights that help businesses make money. In the case of a simple product, sold directly to consumers, this translates into an obvious strategy: get as many IP rights as you can, have them defined as broadly as you can, and protect the product from market competition as well as you can for as long as you can.
For example, if your company was the first to develop the “Rubik’s Cube” puzzle, you might file a broad patent on the basic design. A figure from an actual early patent (Erno Rubik, U.S. Patent 4,378,116, “Spatial Logical Toy,” issued March 29, 1983) is shown here:
To protect the revenue stream from this toy, you might (1) file a broad patent on the basic design, and possibly some additional patents on manufacturing techniques, improvements in components of the toy (such as the inner mechanism); (2) file trademark applications in all major countries for a range of marks including “Rubik’s Cube,” “Rubik,” “Rubik Puzzle,” and so on; (3) place a copyright notice on the instruction manual and puzzle solving suggestion pages that are shipped with the toy; and (4) (for trade secrets purposes) mark as confidential all documents relating to manufacturing techniques and marketing plans, while also controlling access to manufacturing facilities and the location of strategic marketing planning. Other steps can be taken as well as the business grows and evolves.
Especially in the case of a broad, early patent, a single IP right can cover the entire product, which is sold directly to end customers. This is the simple - and rare - case where a single IP right “maps” onto a single consumer market. Strategy in such a case will mostly involve stretching out the period of protection and planning ahead for the day when the basic patent expires. (Much of the strategy in the pharmaceutical industry starts with this approach, because a single patent often covers the active ingredient or molecule in a valuable drug product。）
The Rubik’s Cube example is a rare one. Usually, IP rights do not map cleanly onto product markets. Patents typically cover technological components: small pieces of larger technologies. A patent may cover part of a mobile phone antenna, for instance; or a technique for compressing data to be sent over a network; a method for encoding location information on a CD; or any of millions of other small technological components.
For example, consider patents. Patents map onto technologies. The invention in an antenna patent may form part of a mobile phone antenna. The compression algorithm may be used in a software program for transmitting digital content such as music, video, or text. The popup menu may be part of a software program that handles calendaring or interfaces with travel-related websites.
Technologies, in turn, map onto products. The antenna is part of a mobile phone. The compression algorithm is part of a data streaming program used by music streaming companies or video websites. The popup menu may be part of a travel website or a suite of software for a mobile or desktop device.
Finally, products map onto markets. The mobile phone containing the antenna is sold in competition with other mobile devices, including phones, tablets, and watches. The data streaming program is incorporated into the software of one of several music streaming companies, or is used by one video streaming service (Netflix, say) that competes with others (Amazon Prime or YouTube, for example). The popup menu may be part of a desktop operating system such as Microsoft Windows, which competes with free operating systems such as Android for mobile; or it may be incorporated into one travel website (Kayak, for example) that competes with others (e.g., Expedia）。
This typically complex, multi-step “mapping” can be summarized in the following simple diagram:
IP Right → Components → Product → Product Markets
Consider a hypothetical example. Shanghai Suliao Plastics, Inc. (SSP) manufactures molded plastic parts for consumer products and the auto industry. It is a major supplier to Roberts Controls, Inc. (RCI), a large U.S. manufacturer of auto parts. RCI manufactures many car parts, from engine parts to electronic sensors to head lights and tail lights, etc. RCI has worked with SSP for many years, with SSP supplying the molded plastic tail light covers which are used in RCI tail lights. RCI sells complete tail lights for many models of U.S. vehicles.
The supply chain looks like this:
SSP protects its unique tail light lenses with several types of IP right. It has a trademark on “SSP” for use with molded plastic parts, as well as a separate trademark on its stylized logo (pictured above, on the left). As part of its supply agreement with RCI, SSP requires that when RCI sells complete tail light assemblies to auto companies, RCI must feature the SSP logo in connection with descriptions of the plastic tail light cover that it part of the RCI tail light. SSP believes that this “branding” helps bring attention to its unique plastic light covers. Raising “brand awareness” with auto companies helps SSP build a reputation for quality and distinctiveness, which in turn translates into the ability to charge a slightly higher price compared to “commodity” (unbranded) light covers.
In addition, SSP has a patent on the machinery it uses to produce its molded light covers. SSP was the first company to develop a molding process that injects liquid plastic into a mold on the inward-facing side of the light cover. This makes for a smoother outside surface, with no uneven places on the plastic cover. In the diagram below (a side view of a tail light cover), the injection point is labeled 252. Notice that it is on the back or inside of the light cover.
The various IP rights SSP holds protect it from competitive threats, and thus help protect its revenue streams. IP strategy is about maintaining and enhancing a company’s IP portfolio with an eye toward specific types of competition. Where is there potential competition for a company? How can the company prevent that competition or minimize its impact? What kind of IP protection would help against each kind of threat? These are the crucial questions to ask.
For SSP, an obvious and immediate source of risk comes from other companies in its supply chain. The basic law of business is that it seeks growth. A natural source of growth for companies is to move into businesses up or down the supply chains where they already operate. For SSP, this means threats from several sources:
●Companies that sell thermoplastic resins, which SSP uses to mold its light covers - i.e., “upward” vertical integration by suppliers to SSP;
●RCI and other auto tail light assemblers - i.e., “downward” vertical integration by SSP’s direct customers; and
●Auto companies, which buy light covers from SSP (as integrated into RCI tail lights）。
We can describe these supply chain threats generally as “squeezeout” threats: the threat that SSP will be squeezed out of its market by a current business partner or supply chain member.
Identifying squeezeout threats should shape part of SSP’s IP strategy. The question for SSP is how to build an IP portfolio that guards against the risk of a squeezeout. This involves acquiring and using IP rights that are especially effective against the specific risk of supply chain squeezeout.
Before we get to the strategy, let’s just summarize the squeezeout risks faced by SSP.
SSP Competitive Threat Chart
Now, for some strategy. What kind of IP rights does SSP need to protect itself against this risk of a squeezeout? The general answer is: IP rights specifically aimed at supply chain partners. What does this mean in practice? It means shaping IP rights that would bring SSP effective legal relief against its supply chain partners if one of those partners tried to take over SSP’s part in the supply chain.
It is easiest to see this strategy with in the case of patents. First and foremost, SSP needs to protect its innovative molding process. If it does so with an effective patent, supply chain partners would face a difficult choice: stay with SSP, replace SSP with an inferior substitute, or mount a challenge to SSP’s patent. The inferior substitute may lower market demand for the ultimate tail lights, which may well lead to a drop in revenue. A challenge to SSP’s patent will cost money directly out of pocket, and comes with uncertainty (30%-40% of challenged patents survive completely intact in most legal systems). That makes staying with SSP look like a good alternative. If the strategy works, SSP has protected its light cover revenue stream for the cost of one or more effective patents. If the revenue stream is large enough, this patent investment could have a very high return. (See Chapter Ⅲ for more on efficient IP portfolio budgeting。）
In addition to protecting its basic molding technology, SSP might also consider adding some claims and/or separate patents that cover the combination of its light cover and the other parts of the tail light assembly. This does two things: it protects against the chance that someone else in the plastics industry has invented the same injection molding technology; while the molding process might not be patentable, it’s possible that a patent on the molded cover as used in a tail light might be. It also protects against a possible move by RCI or other makers of tail lights, where they sell a tail light assembly without a plastic cover, expecting the purchasers of the light assembly to buy and install the light covers. A combination claim (covering (i) the light cover, plus (ii) the other parts of the tail light assembly) might well be infringed in this case even though RCI does not itself install the light covers.
In addition to patents, SSP should also protect its trademark and logo. RCI cannot infringe the SSP mark, so if RCI “squeezes out” SSP, RCI’s tail light assemblies will have covers that do not carry the SSP logo and RCI customers who have become accustomed to SSP-quality light covers might be disappointed. Finally, SSP can employ contract terms in its contracts with RCI, other direct customers, and SSP employees that protect against disclosure of SSP trade secrets. There may be many small but important aspects of its plastic injection process that SSP has perfected over time. Trade secret protection could be important. In the same way future product development and marketing plans can be protected. Broad contractual nondisclosure provisions help protect all these trade secrets.
The table below summarizes SSP’s strategy against squeezeouts. For completeness, it includes some common sense non-IP strategies as well.
Revenue Protection Strategies
Supply chain partners are not the only threats to a revenue stream. There is always the chance of entry by a new company, not currently in the industry. In the case of SSP, many companies work with injection molded plastics: makers of toys, household consumer products, and fabrication companies of all kinds. Entry could come from any of these. In addition, there is always the risk of outright counterfeiting: people and companies that make direct copies of a product to sell fake versions. A good IP strategy includes defenses against these risks as well, as this table shows:
Zhandou Cancer Therapies is a Shanghai-based biotechnology research company. Zhandou specializes in ways to modify natural white blood cells (or “T cells”) in the human body. The modifications Zhandou makes help the blood (T) cells work better in fighting blood-based cancers such as lymphoma.
Zhandou’s treatment works in two steps. A patient’s own white blood (or T) cells are removed from the patient’s blood. They are exposed to a special virus designed a new gene into the nuclei of the white cells: a gene that produces an extra connection point (or “receptor”) on the surface of the blood cells. This receptor attaches to a protein that targets cancer cells; then the receptor attaches to a cancer cell and transmits the protein into it. The protein, once inside a cancer cell, causes it to break down and die. The two diagrams below show (1) the cancer-fighting white blood cell (T Cell) with the extra receptor; and (2) transmission of the cancer-fighting protein from the T cell into the cancer cell:
Several factors affect Zhandou’s IP strategy. First is that in the biotech and pharmaceutical fields, patents are especially important. Patents are very effective at protecting inventive ideas in these fields, and the large potential revenue streams encourage companies to file many patent applications. In addition, the fact that this technology involves living organisms (cells and viruses) brings legal complexities. Patent claims must be drafted carefully to avoid rules that prevent ownership of pre-existing living things.
As with the SSP company case study, the central concern in IP strategy is to adapt IP holdings and use to the company’s business model. A clear map of the business model will help reveal risks to the company’s revenue streams. Then IP can be acquired and used to guard against these risks.
Zhandou is a small biotechnology startup company. Most of its employees are research scientists, highly specialized in the fields of immunology, biochemistry, etc. Zhandou also has a few managers, including a CEO, a Chief Financial Officer, and an IP expert. (See Chapter Ⅷ, A Business-Oriented IP Department.) But the medical technology field is very large and very complex. The Zhandou technology requires several very complex steps: (1) harvesting of human blood, to extract white blood cells; (2) clinical laboratory facilities to effect the transformation of those blood cells using Zhandou’s technique; and (3) re-insertion of the modified blood cells under carefully controlled medical conditions. Given this complexity, Zhandou will need partners if it is to get its technology into the marketplace.
The general structure of Zhandou’s market looks like this:
Zhandou Technology → Clinical Equipment and Services Companies → Medical Delivery (Doctors and Hospitals)
Given this structure, Zhandou will need to enter into contracts with clinical equipment and services companies - companies that specialize in handling and processing blood samples (and usually other medical samples as well). There is some risk of a squeezeout here, as there is in the auto industry supply chain in the SSP example. Zhandou will also need to take part in the contracts between these clinical services companies and the doctors and hospitals that actually treat the patients.
In biotechnology, however, the more significant risks may come from competitors who do not work with Zhandou. The field Zhandou works in - like virtually all medical/biotech fields - is crowded with competitors. These include not only rival startup companies (which are plentiful), but also the biotech subsidiaries of large pharmaceutical companies. Genentech is part of Roche Pharmaceuticals for example. And Takeda Pharmaceuticals of Japan has a large U.S. biotech subsidiary called Shire LLC. In addition, in many fields academic scientists produce research that may yield important practical applications. Universities and research institutes therefore frequently file patents and use them to launch startups or to encourage established companies to employ the new research. This makes academic science an extra source of competition in the biotech field.
The likelihood of intense competition should shape Zhandou’s IP strategy. In particular, because there may be several viable alternatives to the Zhandou cancer treatment process, Zhandou must draft its patents as broadly as possible. They should cover a number of alternative ways of accomplishing what Zhandou is trying to do, for example:
●Broadening the “families” of viruses that can be used to genetically transform patients’s white blood cells;
●Broadening the methods for introducing the virus into the white blood cells and stimulating production of additional receptors; and
●Broadly covering the methods for re-introducing the white blood cells back into the patients’s bodies.
Another crucial part of the Zhandou strategy is to understand the patent holdings of its competitors and likely future competitors. Biotech is so patent intensive that even a small company like Zhandou must learn as much as possible about the patent holdings of competitors. Without this knowledge, Zhandou could find itself working in an area that has already been “staked out” with heavy patenting from a large rival. It is also possible in many cases to alter a small company’s research so as to work around or avoid the patent holdings of competitors. The information concerning rival patents in a field is often collected into a large spreadsheet and/or PowerPoint deck called a “Patent Landscape.”
The Patent Landscape is also extremely helpful to a small company seeking funding from a venture capital or private equity firm. The last thing a VC or PE fund wants is to “invest in a lawsuit” - to have a company it invests in be sued for patent infringement. Large investors know that most or all of an investment financing round can be burned up in patent litigation - which is very complex and expensive in the biotech field. So these investors often ask for a presentation on the patent landscape facing a small company such as Zhandou. The purpose of this presentation is to show the potential investor that (1) Zhandou is aware of competitor patents that touch on its product under development; and (2) Zhandou’s technique either will not infringe any known patents, or Zhandou at least has a plan of how it would license or attack those patents if the need arises. This type of presentation carries a name that tells what the investors are looking for with this information: it is called a “Freedom to Operate” analysis, or FTO. An effective FTO gives a potential investor assurance that it is not “investing in a lawsuit.” It is investing in a technology that the target company, like Zhandou, can begin to commercialize without an obvious and immediate patent-related risk.
In this diagram, the little gears (representing technologies) on the left are covered by patents, sometimes more than one. The implicit point is that patents are not the same as technologies. And it is technologies that make up the inputs into Big Platform products or services, such as the Facebook platform or the Amazon marketplace.
Mapping Patents into Product Markets
To take one simple hypothetical example, consider a small company called Yasuo Software, Inc., located in Los Angeles. Yasuo specializes in software that shrinks the size of large files, then transmits the files, then “un-shrinks” them after transmission. This is called data compression, and it is essential for many software systems, including mobile phone software. Compression/decompression software allows very large files to be sent in a relatively brief period of time, without using too much transmission capacity (“bandwidth”）。
In the diagram above, Yasuo might be thought of as holding a few patents that go into the data transmit/receive software in a mobile phone. The general transmit/receive software might have been written by the mobile phone maker (Apple or Xiaomi, for example); or it may have been written by the company that makes the specialized data transmit chips that are part of the mobile phone; or it may have been written by a large group of widely dispersed contributors who work together to write software that is not owned by a single company, but is instead made available for free to everyone who wants it (“open source”）。 Yasuo’s software must fit into this larger software system, and it must work with different types of data chips and mobile phones.
Yasuo uses sophisticated mathematical functions to greatly increase the compression rate for digital files. The purpose of the functions is to use matrix transformation techniques (called “discrete wavelet transforms”) to take highly repetitive data and assign it a single value. A digital photograph usually requires around 200 kilobytes of storage and takes a minute to download in the standard “JPEG” format (named for the Joint Photographers Experts Group that set it). With Yasuo’s software, the download might require only 50 kilobytes and take 15 seconds to download.
There are so many small software components, and so many specialized companies, makers of large software systems very rarely seek out a patent license. This presents a challenge for a company such as Yasuo, which specializes in data compression protocols - a very small component of the overall software system. The software industry has evolved so that Yasuo can capture revenue streams in only one of a few ways:
●Yasuo can try to license its technology to large companies, despite the obstacles;
●Yasuo’s core programming team might be hired away by a large company such as Tencent or Google; this might involve acquisition of the entire Yasuo company, with the acquiring company discarding all assets its does not want, typically just keeping the core technical team as employees; or
●Yasuo might assert its patents against large companies that use technology similar to its discrete wavelet approach.
All of these business models require Yasuo to assemble a large and effective patent portfolio. In effect, patents for a company like Yasuo help generate or provide a revenue stream, rather than protecting a revenue stream. Because Yasuo’s direct customers are large and powerful, and because those companies are faced with many demands to license technology or answer patent enforcement efforts, only a strong patent portfolio will get their attention and provide an opportunity to generate revenue.