Technology companies increasingly face situations in which developing new products involves navigating around dozens or even hundreds of different patents owned by several companies. As a result, innovation is frequently prone to litigation. In addition to making innovation more costly, the looming threat of lawsuits increases strategic complexity and market uncertainty.
The mobile and Internet sectors offer useful examples of how companies can contain the threat of patent litigation. By joining technology consortia, companies such as Apple, Cisco Systems, Ericsson, Google, and Qualcomm pool their patent portfolios to develop markets for technology together. In doing so, they not only become more effective innovators but also augment their chances to capture the value these new markets offer.
There are specific challenges associated with participating in technology consortia. For example, managers must identify which technological areas to target for developing patents and which kinds of licensing agreements are most beneficial. Perhaps more importantly, companies need to balance the enforcement of their own intellectual property (IP) rights with the pursuit of the collective good, as it is in every participant’s interest to make sure that no party carries its private interests too far and fractures the patent pool by refusing to contribute a critical technology.
Therefore, managers need to understand the implications and nuances of being part of a collective if they are to innovate effectively, create new markets together, and compete successfully in these markets.
Mitigating Patent Risks
In developed economies, patent systems give inventors temporary monopolistic rights to profit from their patented inventions. But the current patent paradigm seems misguided for high-tech industries where products are increasingly complex and made out of components developed by multiple companies. A product such as Apple’s iPhone, for example, embeds hundreds of patents that encompass everything from the touch screen interface to photo sharing and 4th generation (4G) wireless communications. Similar examples can be found in the pharmaceutical industry. This leads to what University of California at Berkeley professor Carl Shapiro refers to as “the patent thicket effect,” which he defines as the “dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology.” In such settings, the development of new technologies depends on a company’s ability to assemble numerous components, with each involving one or more patents that may be owned by different companies.