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Wizards And Trolls

Accelerating technologies, patent reform and the new era of IP

19Nov

Not long ago, protecting intellectual property (IP) was primarily the purview of technology and pharmaceutical companies. More recently, however, industries in the path of these accelerating technologies have begun to find themselves grappling with an urgent and often critical need for IP fluency. The following excerpt of the article “Wizards and Trolls: Accelerating technologies, patent reform, and the new era of IP,” published in Deloitte Review, examines how technology advancements and patent reform are reshaping how organizations address IP issues.

From banking to health care to retail, technology is enabling a fundamental change of value propositions, business models, supply chains and business operations. It has recently become so pervasive across industries that it is barely noteworthy to suggest that almost every company is, to some extent, a technology company.

In this new era, the United States also has experienced a fundamental shift in how IP is managed and monetized. Two landmark pieces of legislation—the America Invents Act and the Innovation Act (the former passed and the latter in Congress as this article goes to press)—will have a dramatic impact on the patent system and companies’ behaviors regarding patent management strategies.

The convergence of these two forces—technology acceleration and patent reform—has created an urgent need for business leaders to reassess their IP strategies. This urgency is magnified for sectors that have not traditionally thought of themselves as technology companies and often do not possess the requisite IP knowledge or expertise required to effectively utilize IP in both offensive and defensive strategies.

Consider the travel industry, for example. From 1999 to 2011, according to the Travel Industry Association of America, online bookings jumped from roughly 15 million per year to nearly 70 million. The flurry of innovation in the travel booking space, from the giants to start-ups creating new offerings, has led to roughly 50% of all travel today being researched and booked online.1 With any technological disruption of an industry, there is often an important patents storyline—in this case numerous patent disputes, many initiated by trolls. (Trolls are companies that hold broad patents strictly for the purpose of extracting value through licensing or litigation). Indeed, industry associations, such as the American Society of Travel Agents, which represent travel agents, have been pleading with legislators to help curtail frivolous infringement suits.

U.S. Patent Reform and Impact

This pattern of technology encroachment followed by heavy IP activity has been repeating itself. According to the World Intellectual Property Organization (WIPO), total worldwide patent filings eclipsed the 2 million mark for the first time in 2011. WIPO’s 2012 report showed the strongest year-over-year patent filing growth in two decades, with applications reaching 2.35 million and 9.2% growth over the prior year. For the first time in history, China surpassed the United States in total patent filings. According to Scott Frank, president and CEO of AT&T Intellectual Property, “This is just the tip of the iceberg—technology is evolving faster than ever and there’s more invention and patenting than ever before. Companies are becoming increasingly sophisticated in their IP strategies. IP management is going to become more and more important in our society.”

An index produced by the engineering publication IEEE Spectrum, called the Patent Power Scorecard, ranks companies on the quality of their patent portfolio, measuring on dimensions such as generality, originality and growth. These types of indices give some insight into factors beyond just the size of the portfolio and reinforce the importance of patent quality.

Patent quality has another dimension beyond the value of the underlying asset. The understandability, validity, enforceability and the scope can all impact value of the patent and the potential for infringement and IP litigation. According to IPWatchdog.com, there has been a sharp increase in the number of patent infringement cases being initiated over the past few years in the United States, leading up to the implementation of patent reform.2 Much of the increase has been attributable to the trolls, and there are many observers who feel that poor patent quality is a key contributing factor.

The United States has responded with a sweeping overhaul of its legislative framework on patents. Central provisions of the Leahy–Smith America Invents Act (AIA) went into effect on March 16, 2013. The law, designed to adopt global leading practices, represents the most significant change to the U.S. patent system since 1952. It brings the United States into alignment with the rest of the world on a “first-inventor-to-file” system instead of a “first-to-invent” system. In the first-to-invent system, an inventor who demonstrates that he or she is the first to invent would be awarded the patent, regardless of whether or not the individual was the first to file for the patent. In this system, an original inventor could pursue an “interference proceeding” to demonstrate proof that he or she was the first to invent. The new system eliminates interference proceedings as it requires that the inventor be the first to file. So long as the inventor is the first to file, that individual is the rightful owner of that invention.

The AIA includes several key provisions:

— Trolls cannot file infringement suits against dozens of defendants in a single action.

— A third party can take control of a transferred patent (for example, an inventor sells his/her patent to a third party) as it goes through the application process.

— Proceedings in the U.S. Patent Office make it more efficient to challenge issued patents.

— The “micro-entities” filing fee is substantially lower than fees for large entities.

The principal justification for the AIA reforms is that they will promote innovation and technological progress in the United States. But there are many points of view, including vocal dissension, about whether the reforms will achieve the desired ends.

A cross-sector challenge

The twin currents of patent-law change and accelerating technological transformation and disruption have made it essential for business leaders to master the dimensions of IP management through a contemporary lens. While the experience and perhaps the edge in this case may lie with companies that have been steeped in technology for years, it is increasingly clear that these tides are affecting sectors that will find IP to be a completely new challenge.

For companies without robust IP management programs, there are immediate actions that can be taken. First, the importance of effective IP management must be given visibility, and a good way to do that is to invite or hire an IP leader into the C-suite. Second, the C-suite can immediately begin its educational journey to baseline fluency by inviting subject-matter experts to provide lessons on trends, laws, and best practices. This will likely ignite understanding and a needed sense of urgency. Finally, because IP management is multidimensional, the IP leaders should be given the necessary budget and resources to be effective. This is perhaps where senior leadership will feel the greatest anxiety, as IP management has a substantial sticker price. Budgets will be needed for staff, incentives, education, patenting, litigation, and other activities. But the benefits and payback should not be underestimated.

Produced by John Levis, chief innovation officer, Deloitte Touche Tohmatsu Limited; Don Fancher, principal, Deloitte Financial Advisory Services LLP and national leader, Intellectual Property practice; Eziah Syed, senior manager, Deloitte Touche Tohmatsu Limited, Global Innovation; and John Hudson, senior manager, Intellectual Property practice, Deloitte Financial Advisory Services LLP.

Read the full article “Wizards and trolls: Accelerating technologies, patent reform, and the new era of IP” to learn more about how companies can address the growing and critical need for IP fluency.

For more research from Deloitte University Press visit http://www.dupress.com

Endnotes

1. “Growth of the travel industry online,” WWW Metrics, <http://www.wwwmetrics.com/travel.htm>.

2. Gene Quinn, “The rise of patent litigation in America: 1980–2012,” IPWatchdog.com, April 9, 2013, <http://www.ipwatchdog.com/2013/04/09/the-rise-of-patent-litigation-in-america-1980-2012/id=38910/>.

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