C Gopinath

The murky world of intellectual property

C.GOPINATH | Updated on March 09, 2018

Patents are bought and sold through layers of shell companies, and people will not talk for fear of being dragged to court.

An Austrian court convicted an engineer last month of stealing technology from American Superconductor (AMSC) and selling it to a Chinese company, Sinovel Wind Group Co. AMSC makes control systems and other advanced electronics, and had developed the software specifically for Sinovel's turbines. Sinovel was, till recently, a major customer of AMSC, and accounted for nearly 80 per cent of its sales. Sinovel slowly stopped buying AMSC products, which the US company felt was the result of theft of its technology. Companies try hard to protect their intellectual property (IP) in various ways. If you find somebody copying your logo, or even, as was discovered recently, setting up whole stores in China almost identical to Apple Co.'s retail outlets, you can take them to court.

But when your IP is something embedded deep in a product, the best you can do is to seal the unit and make sure not many people have access to the innards. Hitachi put some of the controls it designed for a Chinese company in such a black box.

The inability of the Chinese company to understand the intricate design while trying to adapt the control system is said to have contributed to the recent high-speed train crash in China.

The whole idea of a patent is to encourage innovation, and make it available widely while the inventor can rest secure in the knowledge that he or she can profit from the invention. But at times companies hesitate to take a patent on an item of IP if it is difficult for them to identify and enforce the violation.

In securing a patent, a company would have to provide a lot of details of the item being patented, which they are reluctant to do if they cannot find out who is stealing their IP. That seems to have been the case with the binary codes in the software of the control systems that AMSC was supplying Sinovel.

PROTECTING INVENTIONS

The theft was revealed in a manner that might have come straight out of a suspense thriller. AMSC field engineers on a visit in China came across a turbine that was not supposed to be working, and when they opened the machine they found that the electronic control system had been replicated very closely, except for an identification number.

That started an investigation around the world which led to the engineer in Austria, who admitted that he downloaded the software and sold it to Sinovel. (The AMSC case appears to be one of trademark and copyright infringement, and not patent violation.)

There are other ways of acquiring technology legally. When Google announced its intent to acquire cellphone manufacturer Motorola Mobility Solutions, it was seen as Google's effort to acquire relevant technologies patented by Motorola. Google is eyeing the telecom market, having already started supplying operating and application software for mobile telephones. Kodak, in financial trouble for a while, has offered to sell about 1100 patents, which amounts to about 10 per cent of its portfolio, to raise cash. These patents on digital imaging are attractive to makers of tablet computers.

Firms normally value their technology for the competitive advantage it gives them. You could build products based on the technology, and prevent competitors from replicating features that require technologies you have developed.

UNSAVOURY DEALS

The US patent office since the mid-nineties started issuing patents for obvious (or obscure) software features, which many feel are ‘silly'. Did you know that patents have been issued for a ‘system and method for providing and displaying a web page having an embedded menu', and a patent for ‘an on-line backup system'? It is said that about 30 per cent of US patents are for things that have already been invented! Perhaps it is just another stimulus package to create work for courts and keep lawyers busy.

Many software engineers actually complain that the patenting system hinders innovation, leading to a movement to end software patents. The cost involved in filing for patents and protecting them through court procedures seem to be driving away any but the largest enterprises.

Increasingly, access to technology seems to be emerging as a profitable business in its own right and not for the products they can create.

Some companies have found that they can make a decent living hoarding patents and charging others for its use, or just threatening to charge them.

A recent radio programme broadcast over National Public Radio was titled ‘When patents attack!' The programme narrated the story of an entrepreneur who started a company for photo sharing and then received a notice that they were in violation of patents. The company accusing them was not prepared to reveal what they were in violation of, till the case was in court. That would cost the entrepreneur a lot of money, so the cheaper alternative was to pay less and settle out of court.

The radio programme went on to interview inventors of patents and firms owning them now and found several of those involved stonewalling, leading the programme narrator to conclude that there was a lot of unsavoury activity going on in the business of making money on patents. They are bought and sold through layers of shell companies, and people would not talk because of confidentiality clauses in legal settlements or the fear of more lawsuits. Such companies are now referred to derogatorily as ‘patent trolls'.

The US last month passed a law changing its system from ‘first to invent' to ‘first to file.' Large companies are pleased with the change saying it will eliminate protracted litigation, but small firms and entrepreneurs fear that it gives an advantage to large companies who have the means to keep a continuous flow of applications going at the patents office.

Unfortunately, the rules surrounding patenting seem to be killing the very idea of widespread innovation it was supposed to help.

(The author is professor of International Business and Strategic Management at Suffolk University, Boston, US.)

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Published on October 09, 2011
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