Management of Technology (OM476)

1. Management of Technology (OM476) Protecting Innovation February 15, 2006 S. Fisher

2. Agenda • When should firms try to protect their technological intellectual property (IP)? • To what degree? When is it advantageous to share IP with other firms? • What types of IP protection are available and appropriate?

3. Discussion Question • Do you agree or disagree with the following quote? Why? “The patent as stimulant to invention has long since given way to the patent as blunt instrument for establishing an innovation stranglehold.” Reback, G.L. (2002). Patently Absurd. Forbes.

4. Appropriability • How easily could others imitate the invention? • Reverse engineering • Especially a concern with software, pharmaceuticals, music • Extent of appropriability helps determine the need for some type of protection.

5. Types of IP Protection: Patents • Must be useful and “non-obvious” • Good for 20 years from filing date • USPTO issued 181,000 patents in 2004 • 406,302 patent applications filed in 2005 • Current “patent everything in sight” mentality • Business processes (Amazon’s 1-Click feature) • Basic food products (Texas company RiceTec tried to patent basmati rice) • Results in higher prices due to royalty payments and legal costs Source: US Patent and Trademark Office. http://www.uspto.gov/web/offices/pac/doc/general/index.html#patent

6. Example: NTP vs. RIM • NTP, Inc. sued Research in Motion, maker of the BlackBerry for infringement of five patents on wireless e-mail technology • NTP wants to be paid for the technology • NTP won the case; an injunction was issued that could shut down RIM’s network • On a side note, Handspring had to license RIM’s keyboard technology for use in the Treo Source: Wood, L. (Feb. 7, 2006). BlackBerry lawsuit FAQ. Computerworld. Retrieved at http://computerworld.com/networkingtopics/networking/story/0,10801,108445p2,00.html

7. Another example: Generic drugs • Manufacturers of generics apply to the FDA to obtain drugs coming off patent • Must duplicate the active ingredients, although they cannot look exactly the same • Tests for bioequivalence are much less demanding than tests for initial FDA approval • Results in tremendous price decreases • Leads pharma companies to re-formulate • Claritin to Clarinex

8. Other types of IP Protection • Trademarks • logo, slogan, brand name • Hostess HoHos® • used to “indicate the source of the goods and to distinguish them from the goods of others.” (USPTO.gov) • no time limitation • Copyrights – “original works of authorship” including literary, dramatic, musical, and artistic, both published and unpublished. • For works created after 1978, protection lasts for the author’s lifetime plus 70 years Source: US Patent and Trademark Office. http://www.uspto.gov/web/offices/pac/doc/general/index.html#patent

9. Advantages of IP Protection • Gain some time to recoup R&D investments • Results in intangible assets that can be favorable to investors • Earn royalty and licensing fees • IBM earns nearly $1.2 billion annually (Business Week, Dec. 26, 2005) But, patents do not guarantee solid revenue or profits!

10. IP Protection in the Developing World • Standards between countries are just not the same. • Businesspeople must follow laws in their country, not the country of the patent owner. • Paris Convention, PCT try to help ease problems “Who owns what? is sure to emerge as one of the most contentious political and geopolitical questions in a flat world – especially if more and more American companies start feeling ripped off by more and more Chinese companies.” -- T. Friedman, The World is Flat

11. TRIPS • Trade-Related aspects of Intellectual Property Rights • Developed by the World Trade Organization (WTO) • Intent is to equalize IP protection laws across countries belonging to the WTO • Interesting waiver to protect public health, especially with AIDS drugs Source: http://www.avert.org/generic.htm

12. Dept. of State Watch List • Office of the U.S. Trade Representative maintains a list of countries with high IP infringement rates • Problems with 52 countries in 2005 • Countries on priority watch list include Argentina, Brazil, China, Egypt, India, Indonesia, Israel, Kuwait, Lebanon, Pakistan, the Philippines, Russia, Turkey, Ukraine and Venezuela Source: http://usinfo.state.gov/usinfo/Archive/2005/Apr/29-580129.html

13. Starbucks vs. Xingbake • Starbucks has 300 outlets in China • Xingbake translates to Starbucks in Mandarin • Starbucks sued for trademark infringement • Won case in January; viewed as a major breakthrough • Xingbake cannot use name, must pay a fine • Toyota, General Motors fighting similar cases with product knock-offs

14. Trade Secrets • Does not require disclosure of the actual information to others • Formulas for Coke Classic® or Kentucky Fried Chicken • Often involves management of people and knowledge • Enforced through non-disclosure agreements signed by employees or others exposed to the information • A small Silicon Valley firm sued Yahoo in 2005 for stealing trade secrets by hiring away 13 engineers working on a voice recognition project

15. The Economic Espionage Act FBI guidance on protecting your company’s IP: 1. Recognize there is a real threat. 2. Identify and valuate trade secrets. 3. Implement a definable plan for safeguarding trade secrets. 4. Secure physical trade secrets and limit access to trade secrets. 5. Confine intellectual knowledge. 6. Provide ongoing security training to employees. Source: http://www.fbi.gov/hq/ci/economic.htm

16. Open vs. proprietary systems • Open systems can help with technology diffusion • Proprietary systems allow the creator to control the technology and potentially profit from it • Often on a continuum

17. Next few classes • Monday – Discussion of Apple case • Wednesday, Feb 22 – Prepare Honda Today case • Team 4 presenting • Team 8 asking questions (and exec summary) • All other teams preparing exec. Summary • First exam is on Monday, Feb 27 • 25 points • Will cover all readings, class discussions, and case material • Format – MC, short answer