The drive for innovation is an important input when it comes to achieving competitive advantage, but does the rising cost of litigation and changing risk/reward analysis of obtaining patents deter innovation? Initially created to encourage innovation and technological progress, many observers claim that today patents regularly hinder firms’ innovative activities. This session discusses current hot topics with regard to the regulation of the market for technologies.

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
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3. #esmt2050
Patents protect technical inventions against imitation
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US Patent US 5,250,534 – “Pyrazolopyrimidinone antianginal agents“ (Sildenafil)
Description Claims

4. #esmt2050
Patents are key to appropriate the value of inventions
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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
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A useful taxonomy

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Complex products require access to patents held by various players
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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
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The prisoners’ dilemma in complex product industries

9. #esmt2050
„arms race“ for the largest patent portfolio – the „patent explosion“
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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
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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
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Both patents have been enforced in court in the US
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“arms race” und resulting conflicts in the smartphone industry
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Source: www.phonearena.com

15. #esmt2050
Non-practicing entities – a new breed of players in the market for technology
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Ever heard of
Digitude Innovations?
Source: www.phonearena.com

16. #esmt2050
Non-practicing entities – a self-assessment
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17. #esmt2050
Patents promote innovation but limit competition…
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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?
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Temporary exclusion right creates incentives to innovate and to disclose inventions?
Good for
innovation
Bad for
competition