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Markets for Technology – Is the patent system
broken?
Annual Forum #ESMT2050
Prof. Dr. Stefan Wagner
TÜSIAD/TCCI Chair in European
Economic Integration
Berlin, 3. 7. 2014
#esmt2050
www.spiegel.de/netzwelt, May 9th 2014
7/7/2014 1Intellectual Property Rights and the Market for Technology
#esmt2050
Patents protect technical inventions against imitation
7/7/2014 2Intellectual Property Rights and the Market for Technology
US Patent US 5,250,534 – “Pyrazolopyrimidinone antianginal agents“ (Sildenafil)
Description Claims
#esmt2050
Patents are key to appropriate the value of inventions
7/7/2014 3Intellectual Property Rights and the Market for Technology
US-Patent US 5,250,534 – “Pyrazolopyrimidinone antianginal agents“ (Sildenafil)
Blockbuster patent
• Development of drugs costs about 1 billion USD
• 1,8 Mrd. Viagra pills sold by now
• Total revenues so far 25 billion USD (est.)
• Highly profitable business
 Cost of the active substance for 20.000 pills
roughly 650,- EUR
 Translates into 3,25 cents per pill which is sold
for 12,- EUR
• Patent expired in 2013, dramatic drop in prices due
to entry of generic drugs based on the equivalent
substance
#esmt2050
Patents promote innovation but limit competition
7/7/2014 4Intellectual Property Rights and the Market for Technology
Temporary exclusion right creates incentives to innovate and to disclose inventions
Good for
innovation
Bad for
competition
#esmt2050
• Discrete product industries
− One patent per product (or few patents per products)
− Examples: Pharma, Chemistry, Foold, Mechanics, Materials, ….
• Complex product industries
− Manufacturing and selling a product requires access to a large number of different patents
− Examples: Semiconductors, Computers, TelCo, Electronics, Audio-visual technologies...
Patents create different incentives in different industries
7/7/2014 5Intellectual Property Rights and the Market for Technology
A useful taxonomy
#esmt2050
Complex products require access to patents held by various players
7/7/2014 6Intellectual Property Rights and the Market for Technology
An example from smartphones: Apple vs. Samsung
#esmt2050
Fragmented ownerhsip of patents leads to an armsrace between encumbents
“There is certainly a level of mutually assured
destruction among the big companies.
If you build up your patent portfolio, I build up
mine—nukes pointing at each other.”
Greg Papadopoulos, CTO at Sun Microsystems
7/7/2014 7Intellectual Property Rights and the Market for Technology
The prisoners’ dilemma in complex product industries
#esmt2050
„arms race“ for the largest patent portfolio – the „patent explosion“
7/7/2014 8Intellectual Property Rights and the Market for Technology
The number of global patent grants more than doubled over the last 15 years
Source: WIPO, World Intellectual Property Indicators, 2013
“Even though we have 3,000 patents [awarded annually in America], if
we had to, I could make that number 10,000.” (John Kelly, IBM)
#esmt2050
Arms race: changing characteristics of patents
7/7/2014 9Intellectual Property Rights and the Market for Technology
US 8,046,721:
“Unlocking a device
by performing
gestures on an
unlock image”
#esmt2050
7/7/2014 10Intellectual Property Rights and the Market for Technology
US 5,946,647:
“System and method
for performing an
action on a structure
in computer-
generated data”
Arms race: changing characteristics of patents
#esmt2050
Both patents have been enforced in court in the US
7/7/2014 11Intellectual Property Rights and the Market for Technology
#esmt2050
Both patents have been enforced in court in the US
7/7/2014 12Intellectual Property Rights and the Market for Technology
#esmt2050
“arms race” und resulting conflicts in the smartphone industry
7/7/2014 13Intellectual Property Rights and the Market for Technology
Source: www.phonearena.com
#esmt2050
Non-practicing entities – a new breed of players in the market for technology
7/7/2014 14Intellectual Property Rights and the Market for Technology
Ever heard of
Digitude Innovations?
Source: www.phonearena.com
#esmt2050
Non-practicing entities – a self-assessment
7/7/2014 15Intellectual Property Rights and the Market for Technology
#esmt2050
Patents promote innovation but limit competition…
7/7/2014 16Intellectual Property Rights and the Market for Technology
Temporary exclusion right creates incentives to innovate and to disclose inventions
Good for
innovation
Bad for
competition
#esmt2050
… or is the patent system broken?
7/7/2014 17Intellectual Property Rights and the Market for Technology
Temporary exclusion right creates incentives to innovate and to disclose inventions?
Good for
innovation
Bad for
competition

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Markets for Technology – Is the patent system broken?

  • 1. Markets for Technology – Is the patent system broken? Annual Forum #ESMT2050 Prof. Dr. Stefan Wagner TÜSIAD/TCCI Chair in European Economic Integration Berlin, 3. 7. 2014
  • 2. #esmt2050 www.spiegel.de/netzwelt, May 9th 2014 7/7/2014 1Intellectual Property Rights and the Market for Technology
  • 3. #esmt2050 Patents protect technical inventions against imitation 7/7/2014 2Intellectual Property Rights and the Market for Technology US Patent US 5,250,534 – “Pyrazolopyrimidinone antianginal agents“ (Sildenafil) Description Claims
  • 4. #esmt2050 Patents are key to appropriate the value of inventions 7/7/2014 3Intellectual Property Rights and the Market for Technology US-Patent US 5,250,534 – “Pyrazolopyrimidinone antianginal agents“ (Sildenafil) Blockbuster patent • Development of drugs costs about 1 billion USD • 1,8 Mrd. Viagra pills sold by now • Total revenues so far 25 billion USD (est.) • Highly profitable business  Cost of the active substance for 20.000 pills roughly 650,- EUR  Translates into 3,25 cents per pill which is sold for 12,- EUR • Patent expired in 2013, dramatic drop in prices due to entry of generic drugs based on the equivalent substance
  • 5. #esmt2050 Patents promote innovation but limit competition 7/7/2014 4Intellectual Property Rights and the Market for Technology Temporary exclusion right creates incentives to innovate and to disclose inventions Good for innovation Bad for competition
  • 6. #esmt2050 • Discrete product industries − One patent per product (or few patents per products) − Examples: Pharma, Chemistry, Foold, Mechanics, Materials, …. • Complex product industries − Manufacturing and selling a product requires access to a large number of different patents − Examples: Semiconductors, Computers, TelCo, Electronics, Audio-visual technologies... Patents create different incentives in different industries 7/7/2014 5Intellectual Property Rights and the Market for Technology A useful taxonomy
  • 7. #esmt2050 Complex products require access to patents held by various players 7/7/2014 6Intellectual Property Rights and the Market for Technology An example from smartphones: Apple vs. Samsung
  • 8. #esmt2050 Fragmented ownerhsip of patents leads to an armsrace between encumbents “There is certainly a level of mutually assured destruction among the big companies. If you build up your patent portfolio, I build up mine—nukes pointing at each other.” Greg Papadopoulos, CTO at Sun Microsystems 7/7/2014 7Intellectual Property Rights and the Market for Technology The prisoners’ dilemma in complex product industries
  • 9. #esmt2050 „arms race“ for the largest patent portfolio – the „patent explosion“ 7/7/2014 8Intellectual Property Rights and the Market for Technology The number of global patent grants more than doubled over the last 15 years Source: WIPO, World Intellectual Property Indicators, 2013 “Even though we have 3,000 patents [awarded annually in America], if we had to, I could make that number 10,000.” (John Kelly, IBM)
  • 10. #esmt2050 Arms race: changing characteristics of patents 7/7/2014 9Intellectual Property Rights and the Market for Technology US 8,046,721: “Unlocking a device by performing gestures on an unlock image”
  • 11. #esmt2050 7/7/2014 10Intellectual Property Rights and the Market for Technology US 5,946,647: “System and method for performing an action on a structure in computer- generated data” Arms race: changing characteristics of patents
  • 12. #esmt2050 Both patents have been enforced in court in the US 7/7/2014 11Intellectual Property Rights and the Market for Technology
  • 13. #esmt2050 Both patents have been enforced in court in the US 7/7/2014 12Intellectual Property Rights and the Market for Technology
  • 14. #esmt2050 “arms race” und resulting conflicts in the smartphone industry 7/7/2014 13Intellectual Property Rights and the Market for Technology Source: www.phonearena.com
  • 15. #esmt2050 Non-practicing entities – a new breed of players in the market for technology 7/7/2014 14Intellectual Property Rights and the Market for Technology Ever heard of Digitude Innovations? Source: www.phonearena.com
  • 16. #esmt2050 Non-practicing entities – a self-assessment 7/7/2014 15Intellectual Property Rights and the Market for Technology
  • 17. #esmt2050 Patents promote innovation but limit competition… 7/7/2014 16Intellectual Property Rights and the Market for Technology Temporary exclusion right creates incentives to innovate and to disclose inventions Good for innovation Bad for competition
  • 18. #esmt2050 … or is the patent system broken? 7/7/2014 17Intellectual Property Rights and the Market for Technology Temporary exclusion right creates incentives to innovate and to disclose inventions? Good for innovation Bad for competition