– Thoughts on Strategy and Management

Firms do without patents

In a competitive and dynamic environment it is crucial to stay ahead of your competitors. To achieve this position your organization has to focus on certain aspects like innovation, quality leadership and branding to create some kind of advantage. If your competitive advantage is established primarily on technology and innovation, patents seem to be an appropriate way to protect your position. This is right; isn’t it?

Opposite to this “standard approach” the number of German engineering firms that do without patents has increased. Going this way these firms want to avoid that their patent descriptions will be misused for product counterfeiting. Sometimes patent descriptions represented a rich source for product counterfeiters. For example SMS group (steel works engineering) reduced its number of patents registered. According them in particular Chinese product counterfeiters would misuse patent descriptions for copying.

The approach not to register patents seems to be strange at first sight. Both advantages and disadvantages are linked with this step to stop or at least to slow your competitors. So let us start with the pro’s:

  • According to the “German Patent and Brand Office” the patent description is available for 18 months after patent registration and has enough valuable information for external experts.
  • The required technical and scientific knowledge to understand disclosed information is available in China.
  • According to the Association of German engineering firms (VDMA) the legal process to protect patent rights at law it not so far developed that it actually should be.

However this approach has some major disadvantages, too:

  • If your company does not to register patents means not to have legal protection worldwide. One potential thread: Products that have been presented on fairs etc. can be copied by everyone. Your competitors (not even just from China) will be very thankful for this option.
  • Patents represent intangible assets of your organization. They are a potential source to generate fees from license. A well managed portfolio of licenses can be a driver for the economic value of your organization. (Example: In 2000 IBM achieved an income of 1.8 billion USD from patent licenses, which represented 16 % of net profit)

It is not easy to make the right decision in terms of patent registration. One helpful option to make this decision is to test / evaluate the knowledge that is required to understand patent information.

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