Patents: Boxing gloves or shining armors?

By : |September 19, 2013 0

INDIA: A few days back Cornwall Police seized some 300 designer bags’ counterfeit avatars. These were knock-offs ranging from Michael Kors, Louis Vuitton, Tory Burch, Coach, Prada, Hermes and the many others.

Back here in India, Hermes, the luxury lifestyle brand that totes high-end bags, reportedly sought an injunction order from the Delhi High Court to stop an Indian firm from selling handbags resembling its Birkin range.

Not hard to guess how selling counterfeit designer goods is zipped into an industry worth $1 billion a year. As per some estimates in media, a slice as big as seven per cent of trade across the globe scoops in cheap, illegal copies of high-end luxury goods.

It has been reported that this counterfeit market for luxury products is stitching away at a pace twice as fast as the luxury market in India, and new-age channels or online portals are only helping the frenzy.
Keeping the temptation of owning a suave, stylish minaudière aside for a minute; just think whose side you would be if you were to stand around an ethical fence.

The high-street designer firms who invest so much in building coveted brands? The imitator who flatters and democratizes fashion towards your door step? Or the poor craftsman and backyard artist who is the real brain behind a design some times and is seldom acknowledged by either, once his bag-full-of-creativity is bought away with a heavy wallet?

Tough question as always. But that’s the way the smartly-coined Streisand effect runs. Or may be this is exactly what a defender expects when s/he is making a feint in the ring called marketplace. In all the punches and kicks that follow, what often bites dust is the real source and value of an innovation.

Tech Wars in Courts

Technology soils are ironically the very rings where apples are pitted against oranges. While many sing psalms worshipping the trailblazer of innovation (and you know who we are talking about), there are also critics who try to shift the spotlight on how this particular company does not invent everything in its own skillet. It sniffs around for ingredients that will make a compelling concoction and all it does when it comes to being creative is related to the ‘recipe’. Does that mean that if you assemble flour, capsicum, mozzarella, and tomatoes in a new way which is user-friendly to eat and is aesthetic enough to drool at, you have cracked an IP here? Even though you did not invent or discover mozzarella in the first place?

Well, the debate on that is still on the backburner. But think of it this way. What if this same baker threatened to knead your store into an intricate lawsuit in case you tried to make a Gnocchi variant with the same stuff they have? Pot shifted on the front burner now?

That seems to be the drift for the industry as we see it presently. Hardly any week passes by without a new headline spilling beans on how company A is suing company B for infringing patents just a week after company B itself accused company C for copying B’s IP in the way it designed it products.

Then a few days later, company A is found eking out substantial dough for a licensing penalty to a patent firm. Zemblanity at its worst, eh!
Patents are caught in a pendulum that swings between defensive and offensive extremes, while there is another needle juxtaposed nearby clocking licensing revenues in the new-world-order of technology businesses.

It’s hard to value a single patent until it’s been successfully asserted in litigation. Large companies assert multiple patents in each dispute because they won’t know what their strongest patents are until they sue, Florian Mueller unravels. This award-winning intellectual property activist-turned-analyst with 25 years of software industry expertise spanning across different market segments, contends that it doesn’t mean too much if a patent office grants a patent.

“That decision is typically based on very incomplete knowledge of the prior art. It only gets interesting when a patent is used in a major dispute and when someone puts serious resources behind an effort to prove a patent invalid.”

Patents typically start as a defensive tool to help a firm protect its intellectual property. After demonstrating the value of that technology, a firm may have the opportunity to license it to other companies.

Like Michael Krigsman, an ace industry analyst and advisor explains, preventing IP theft through the use of patents can require expensive litigation so few companies undertake those lawsuits. “Patent trolls take it a step further by targeting companies that may infringe patents the troll purchased; in this case, the patent becomes an offensive economic instrument divorced from its original purpose as defender of intellectual property.”

IP: Brakes or Levers?

It should not surprise us then to hear the CEO of a true-blue with-an-open-source-DNA Enterprise software company saying that even this firm has to be on a patent-plucking mode just to ensure that its defense posture stays strong. We are after all talking of a market where even though patents are supposed to impede innovation in software development, one has to watch out for trolls that hover around like vultures and acquire patents ferociously just for defensive purposes to protect oneself from lawsuits.

The investment of time and money to innovate in technology can be substantial, which is one important reason the patent system exists. But Patent trolls siphon off the economic benefit of innovation away from those actually creating core intellectual value.

“These trolls reduce the financial incentive for innovation by taking away reward from the innovators. Patent troll lawsuits are really financial instruments that create little value for anyone other than the patent holder.” Krigsman alludes to the changing colours of IP chessboards today.

Where does it leave that guy tucked away in an intense den, pinafore atop and working tediously on cracking a new organic patent? Does this new litigation-painted world leave a quintessential R&D engine on the margins?
May be it is time to surmise that innovation is losing its direction with too much catch-up competition and patent-lawsuits, trolls etc distracting its real essence.

R&D Ripples

This has been a debated topic from ages. Patents play an important role in innovation and economic performance, is how Kaip Sridhar, Managing Director, RIPL (Ricoh Innovations Pvt Ltd.) answers. We need to look at this effect differently for each area. Patents aren’t necessarily bad for innovation; even patents on a core technology, he gathers from his experience.

On the other hand, N Chandra, Marketing Director, LSI is of the view that patents are a space that requires both offensive and defensive postures. Companies need to have both kind of footwork in this constant battle of wits. It is a sad way of doing business but alas, it is also the fact.

“Specially, with all these patent trolls around. So we do have a strong portfolio and IP makes both strategic and tactical sense today.”

He elaborates further how LSI India is the largest set-up in the world for LSI. “The kind of work that we do is on the track of engaging with customers and two to three years ahead of time. The development effort hence, mirrors their side of environment and with testing too. The acceptance cycle is long. Our work is very cutting-edge and it forces our engineers to be innovative, and we keep filing lot of patents.”

The unit also derives licensing revenues from IP, to the tune of five percent of our total revenues, reflecting that LSI is quite active and aggressive in patent areas.

Innovation means developing new and better solutions in response to practical needs. In business, of course, economic drivers underlie innovation; in other words, people try to innovate solutions in business because they want to gain revenue for their company, Krigsman reckons.

Delivering beyond a cost-stigma then could be a turning point for R&D centres. Gleaning some pages from EMC India Center of Excellence (CoE), Shailendra Ravi, Senior Director at EMC avers that there are two kinds of aspirations. One is on employee involvement in high-end technology and then there are organisation’s expectations with investments. It is a journey and function of meeting both – corporate ROI needs and employee’s appetite to grow. In any typical R&D centre, some business units with deep expertise sit along with other cost-centered units. One needs to have an arbitrage with efficiencies, future, responsibility and consistency.

“That said, some R&D centres are way ahead than others because they have a different maturity level. It depends a lot on the culture.”

Sridhar illustrates how his team has been working on some of the real game changers, the recently announced Visual services and solution business uses a patented technology called Ricoh Visual search. “This is the beginning for a real augmented reality experience to connect physical world into digital content.”

As to what makes any patent really worthwhile, Sridhar is clear. Its offence edge? Defense edge? Licensing revenue potential? He believes it is the combination of all of these, to produce new break through products (Offence edge), to protect the lead market penetration (defense edge) and for licensing model for technology penetration which will enable fast adoption.

One is seldom surprised to find what could salvage a shipwrecked vessel, specially when it comes to selling something created but not leveraged so far. This February, Eastman Kodak Company, in a restructuring stroke, completed a transaction for the sale and licensing of its digital imaging patents for net proceeds of $527 million. This could be one page out of monetization of IP assets. Incidentally, completion of the sale enabled Kodak to repay a substantial amount of its initial DIP loan, and to satisfy a key condition for its newly approved financing facility, and position its core Commercial Imaging business for future growth and success. The company that commanded an enviable kitty of hundreds of patents saw pursuers like Google and Apple in the fray for its IP.

These are also times when strange bed-fellow partnerships are formed allowing competitors to blunt any potential infringement litigation. Remember how a group including Apple, Microsoft and RIM chased Nortel Networks Corp.’s more than 6,000 patents for $4.5 billion.

Some companies try to patent a technology or method that’s painfully obvious, and which is already in broad use or that someone else has already invented. These are patents worth fighting, Sridhar reminds.
Most R&D Centres continue to apply for patents, the Question of ‘how many’ revolves around the organization though, Ravi points out. “We file a lot of patents and people are rewards if you are actually filling gaps, it’s a different scenario. Your intent will decide what road you take. For most companies, innovation is driven by customers.”

The answer evades

Markets for technology are increasingly important for the circulation of knowledge, in Sridhar’s viewpoint. Patents still play a pivotal role in the development of technology transactions. The quality, (novelty) and breadth of patents in critical areas need to be reviewed.

Governments, as he rightly suggests, should explore ways to encourage alternative means of disseminating knowledge, such as the public domain, and to improve the diffusion of patented inventions. The role of patents in the expanding world of open source software also needs to be evaluated.

Probably some degree of IP enforcement is a sign of a vibrant and healthy technology sector. Mueller, for instance is not concerned about negative implications of disputes between large players. Those organizations need IP protection to justify their investments in innovation. But he does agree that it would be a good idea to curb litigation, and the best solution is to increase patent quality.

Didn’t an MIT Professor hinted in a study about counterfeit sales in China that imitation could be the best advertisement for the real haute-couture brands. A rip-off could be an addictive trigger and a signal of the real brand’s popularity as Renee Richardson Gosline discovered in her thesis. Customers buying the fake fare, interestingly formed attachments to their phony Vuittons and later on formed a craving for the real thing and within a couple of years, more than half of these women actually abandoned their fake purses for authentic ones.

As the scuttlebutt goes, some really top luxury brands (you must have never heard of a sale with these names) of such handbags burn leftover stock every year, just to make sure they are never sold at a lower price, and hence the premium-image never compromised. 

Bizarre? May be not if you really love and value what you create. Then you may deem it better to reduce your creation to ashes than to haul someone else over the coals. There is more than one way of tackling the so-called ‘counterfeits’. Well, whatever works!