Technology companies have become increasingly vulnerable to attack by patent sharks, which the authors describe as firms with hidden intellectual property that surface, threatening to sue, when their IP rights are inadvertently infringed. The usual methods of defense don’t work well because they are designed for repelling visible competitors. Shark attacks usually catch companies by surprise, leaving them no time to respond effectively. The shark business is growing in importance, attracting more venture capital, and going international. To avoid shark attacks, the authors advise, companies will have to go beyond relying on legal remedies. They will essentially have to turn their R&D processes inside out. Henkel and Reitzig offer five principles to help.
Sharks have been attacking manufacturers and R&D-based companies until now by taking advantage of legal loopholes concerning preliminary injunctions and damages. Although recent U.S. Supreme Court decisions have aimed to make things more difficult for sharks in the United States, the authors don’t believe this will lead to the extinction of patent sharks in the United States. Patent sharks simply find new ways to go about predation. The latest strategy is to trap manufacturers with patent-protected technology that is difficult to substitute for, not only under time pressure but also in the long run, once it is integrated into a complex product or technology standard.
Companies should not expect legal changes to solve the problem for them, nor should they wait to tackle the problem until it gets to court. Henkel and Reitzig believe that companies will have to change how they think about IP protection, how they relate to competitors, how they set standards, and how they structure their internal R&D processes. To help do these things, they offer five principles, some of which companies have been slow to adopt even though they make good sense regardless of the patent shark threat. The five principles are to move away from amassing huge patent portfolios for cross-licensing with competitors; develop smarter, simpler standards and design more-modular components; cooperate earlier with competitors; make sure that functional groups within and among firms share information about shark attacks; and abandon the practice of filing for patents on ever smaller, less significant inventions. One difficulty the authors don’t address is the collective action problem of their fifth principle. It may be a good move for companies collectively, but may put any individual company at a disadvantage.
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