Don’t Take Patent Advice From Billionaires and Their Companies

By: Rowan P. Smith

Now more than ever, we’re seeing a plethora of articles making the bold claim that the world’s biggest and most powerful companies don’t really care that much about intellectual property. Although provocative, the articles oftentimes miss the point.

For example, in this article written by the Harvard Business Review, the authors describe several ways that big companies compete without relying on intellectual property. However, if you pay close attention, you’ll notice that the strategies are only relevant to the richest, most powerful companies. In direct contradiction to the authors’ claims, you’ll discover that these strategies ultimately rely heavily on strong intellectual property protections.

In short – please don’t take IP advice from billionaires and their companies.

If you run a small or midsize company, patents and copyrights, along with other forms of intellectual property protection, will continue to be your strongest assets in securing your revenue and market share. In fact, if your products are easily reverse engineered or copied, they may be your only protection.

How Large Companies Compete without IP

In the article, the authors describe how powerful companies use their vast resources to dominate markets even without relying on intellectual property protections. As interesting as it may be, it doesn’t tell the whole truth.

For example, HBO and Microsoft have both tolerated users pirating their content and software for years without asserting their intellectual property rights. Per the authors, HBO and Microsoft have tolerated this theft that’s potentially valued at millions of dollars for the primary purpose of growing their user bases.

However, this doesn’t mean they stopped caring about their intellectual property. Once they secured the desired numbers of users, each company implemented and deployed comprehensive and sophisticated copy protection schemes to secure their intellectual property. With those schemes in place, they are now able to recoup their lost revenue via sales to their expanded user bases. So, in the end, both HBO and Microsoft relied heavily on intellectual property protections such as copyrights to make these growth strategies effective.

The authors claim that Rolex is also willing to give away its intellectual property by not suing people selling counterfeit watches in Times Square. The claim is that these sales increase demand by creating a desire in people to own the real thing.

The truth is that Rolex doesn’t sue individuals selling fakes because they simply wouldn’t be able to secure significant damages – it wouldn’t be worth the effort. However, when it comes to other companies infringing on Rolex’s intellectual property, Rolex is quite happy to sue their competitors for intellectual property infringement to protect their market share.

So, can you afford to give your products away for a few years simply as an expensive marketing exercise? No, of course not. In reality, big companies aren’t doing that either.

SpaceX is another company that, per the article, claims to have “no patents.” That seems crazy, right? After all, SpaceX is a technology-driven enterprise. Surely, they care about patents.

Once again, this no patent filing strategy is built on SpaceX’s peculiar circumstances and market advantages, but doesn’t capture the reality they’re trying to portray.

First, SpaceX has very few competitors. Blue Origin (Jeff Bezos’ company) hasn’t launched anything into orbit yet, Lockheed Martin and Northrup Grumman aren’t ready to do so and United Launch Alliance is still working on execution. In such a lackluster competitive environment, the advantages of patents are minimized.

Second, SpaceX controls its entire platform by enabling it to rely effectively on trade secrets, a form of intellectual property protection, to protect its inventions. After all, you can’t go online and buy one of SpaceX’s boosters to tear it apart and learn how it works.

In SpaceX’s case, patents might not make sense at this time. They don’t have much direct competition and run low risk of reverse engineering, but this won’t last. Their patent filing strategy will change when US-based competitors mature and start winning SpaceX’s contracts. In any case, SpaceX does rely heavily on intellectual property in the form of its trade secrets.

To summarize, the article correctly notes that some of the world’s largest companies don’t care that much about intellectual property protections given a particular set of market conditions. Instead, these companies compete using their vast capital resources such as tolerating theft to increase user subscriptions, platform control with no risk of reverse engineering, existing customer relationships and existing channels of product distribution.

Your Business

As a small or medium sized business, however, you may not have these resources easily accessible to you. You don’t have millions of dollars to lose while building up your user base and you don’t have total control of a platform that prevents competitors from even seeing your products up close. A competitor can easily buy one of your products to learn all your secrets.

Nonetheless, if you’ve been careful, you have an IP portfolio.

You have registered copyrights on your content, design and utility patent protection on your products, and trademarks to protect your customer relationships. For all their massive resources, the world’s biggest companies, the companies that could launch a competitor to your product in the blink of an eye, cannot infringe those rights.

That is how you compete and how you level the playing field with even your most threatening competitors.

The article makes the case that some of the world’s biggest companies don’t care that much about intellectual property rights which may make sense for those companies given their peculiar circumstances.

Despite this, it’s not wise to try to emulate them. Small and medium-sized companies must protect their intellectual property diligently. In a fight with the big players, IP and patents may be the only option you have.

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Rowan P. Smith
Partner
Phone: 602.457.5225
Email: rsmith@messner.com
Office: Phoenix

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