« Globalization of Innovation - conference on India and China | Main | Economic humility »
August 21, 2007
Make or sell
Are patents a defensive tool to ward off competitors or an offensive means of generating new revenues? That is a debate in the business community. Some see intellectual property as a vast new source of revenues through licensing (remember the popular business book from 1999 Rembrandts in the Attic: Unlocking the Hidden Value of Patent). But in most cases the defensive nature of patents wins out -- since as the lawyers keep telling us, patents are not positive right (a right to exploit) but a negative right (a right to exclude).
Today's Washington Post has a good illustration of this tension. Ford brags about its advanced intellectual property management system and licensing system in Ford Global Technologies. But Ford makes no excuses for an aggressive in the defense use of patents. According to their 2006 financial SEC filing (10-K):
Our policy is to protect our competitive position by, among other methods, filing U.S. and international patent applications to protect technology and improvements that we consider important to the development of our business.The Post story (Cindy Skrzycki - Ford Sees the Light, and It's Not a Generic Import) reports on the latest:
Is the headlight of a Ford F-150 pickup truck a unique design protected by patent or an easily replaceable generic part? The answer to that question will determine winners in the $16 billion-a-year U.S. market for vehicle replacement parts.Ford claims that its original equipment is the result of extensive design and engineering work and therefore subject to patent protection. Predictably, the insurance companies and the makers of replacement parts are upset:
So far Ford, the second-largest U.S. automaker, has the upper hand, using patents as the latest tool in a 20-year battle to keep imported parts out of the country. On Aug. 7, the Bush administration let stand a ruling by the U.S. International Trade Commission that bans imported versions of headlights and six other patented parts for the F-150.
"This attack using patents is using a different mechanism to achieve monopoly pricing," said David Snyder, vice president and assistant general counsel for the American Insurance Association, a District trade group that took the importers' side in the case. "It's a battle in a long-running war."(By the way, this case is not over, as it now before the US Court of Appeals for the Federal Circuit.)
To me, it serves as a perfect illustration of the due nature of the patent system -- to foster innovation through creating monopoly rights. As the old joke goes, the genius of Detroit is to take parts individually worth $50,000 and turn them into a car selling for $20,000.
It also serves as an illustration of the tension with in a company over licensing out the technology or making it inside. The old business decision used to be make or buy. But the value of the product is in the IPR, not the production process. So the inside versus outside decision is now in terms of make versus sell (license). In such an environment, the "lets-hold-it-close" mentality still holds sway today.
But business process in the 20th Century eventually moved away from the fully integrated Rouge plant where Ford shipping in iron ore and other commodities at one end and spit out finished cars at the other. As the I-Cubed Economy unfolds, the same process is likely to happen with intellectual property. More and more, companies will end up looking at the make versus sell decision, and sell.
The trick for national economic policy, of course, will be whether the people they sell to are still making the product in the US.
Posted by Ken Jarboe at August 21, 2007 8:37 AM
Trackback Pings
TrackBack URL for this entry:
http://www.athenaalliance.org/mt/mt-tb.cgi/1518