Crash course on patents: What is a patent and why is it useful

A patent is a temporary government-granted monopoly right on something made by an inventor. The historical purpose of the patent system was to encourage the development of new inventions, and in particular to encourage the disclosure of those new inventions. For applicants, patents are an attractive way to to gain exclusivity or to earn licensing income, although patents are also used as bargaining chips (e.g. in cross-licensing).

What is a patent

A patent is a temporary government-granted monopoly right on something made by an inventor. There are actually various kinds of patents. The most well-known type is the utility patent, which protects inventions. Design patents protect new, original and ornamental designs of articles of manufacture. Some countries also have plant patents, which are granted to anyone who invents or discovers and asexually reproduces any distinct and new variety of plants. Since the utility patent is the most popular and the most powerful, this document will focus exclusively on utility patents.

A utility patent gives a 20-year right to stop anyone from practicing the protected invention. This is not necessarily the same as having a monopoly on practicing the invention, since there may be patents held by others that also cover some aspect of the invention. For example, to build a car you need an engine, a transmission and wheels. Each of these could be protected by one or more patents held by different entities. This would mean that none of them could build a car without the permission of the others. However, any of them could stop an outsider from building a car.

The purpose of the patent system

The historical purpose of the patent system was to encourage the development of new inventions, and in particular to encourage the disclosure of those new inventions. Inventors are often hesitant to reveal the details of their invention, for fear that someone else might copy it. This leads to keeping inventions secret, which impedes innovation.

A government-granted temporary monopoly on the commercial use of their invention provides a remedy for this fear, and so acts as an incentive to disclose the details of the invention. After the monopoly period (usually 20 years) expires, everyone else is free to practice the invention. And because of the disclosure made by the inventor, it is very easy to practice the invention.

The temporary monopoly also gives the inventor a chance to recoup the investments he made during the development of his invention. He could for instance use the patent to monopolize the market, excluding possible competitors by enforcing his patent. He could then set a high price and make a nice profit. He could also request money from others in return for a license to practice the invention. The licensing income then provides extra income.Licensing a patent can be very lucrative business.

Also, when the patent is published with all the details of the invention, other people learned of the existence of this invention. They might then be inspired to think up enhancements or alternatives to the patented invention. This is particularly true when the inventor refuses to license his invention, or when the licensing fee is too high. Third parties could then develop alternative technologies to work around the patent. Presumably they would then patent these alternatives. And then society benefits by having two inventions rather than one.

Use of the patent system

Applying for patents can be very expensive, especially when doing so in multiple countries. This makes a patent system the most useful for larger companies. Small inventors will often only apply for patents in their own country, if they do so at all. The most popular reason to apply for patents is the possibility to earn licensing money, although in some fields (particularly pharmaceuticals) exclusivity is the most important reason.

Another important reason to file for a patent is that it is a much stronger right than copyright. Copyright only protects your own particular expression of some idea, and does not protect against independent redevelopment or reimplementation of that idea. A patent protects the idea itself, provided the idea represents an invention. The patent holder can then go after the people who independently practice that idea, even if those people never knew of the patent or the invention.

Patents can also be used as bargaining chips. If one company has a patent on a particular invention which another company wants to practice, the other company will have to pay. But if the other company also has patents on inventions (likely to be) used by the first company, the other company could negotiate a lower license fee, or perhaps even close a zero-sum deal. In the e-commerce industry, patents also served as a very important indication of the worth of a company. Many venture capitalists refused to invest in a company that did not have at least a patent application on its product(s) or service(s).

Because a patent is a right to exclude others from practicing in invention, the patent system affects everyone. You cannot choose to ignore patents or decline to participate in the system. The patent holder can take infringers to court to enforce his patent, and possibly to recover damages suffered from the infringing activities. Also, unlike with copyright, independently developing an invention is not a defense. So even if you are developing something by yourself, without paying any attention to what the rest of the world is doing, you could still be stopped by someone who holds a patent on what you are developing.

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