TEK-study of hich-tech Industry in Finland

Arto Lahti

Ulf Petrusson’s model

Technicalcontrol

Right basedproperty

Contracts basedproperty

SecrecyMarketpower

a) Artistic workb) Copyrightc) Copyright

license

a) Trade markb) Trade mark

rightc) Trade mark

license

a) Patentableinvention

b) Patentc) Patent license

An innovation based on property claimsas structural building bricks

.

Standards A positive example is the co-operation of the EU Commission and ETSI in the

GSM standard, laid down formally on a voluntary basis. Standards perform several important functions. Technical standards are powerful tools for protecting innovations and for establishing practically permanent mobility barriers globally. Technical standards can have three various institutional bases: Some technical standards like the GSM standard are based on public

initiative and are referred to as de jure standards. The technical standards, like the Microsoft’s Windows that market adopts

for various reasons, are often referred to as de facto standards. Open standards are in opposition to proprietary standards both de jure

and de facto standards. Open standards are not owned by a limited number of actors. Anyway, open standards are crucial drivers of growth and innovation. They ensure the compatibility of complementary products and economize vertical marketing and production systems.

The GSM case provides an example of how the IPR ownership affects market structure and market shares. The GSM market has been dominated by Ericsson, Nokia, Siemens, Motorola and Alcatel that together control 85% of the European GSM market that is the largest in the world.

Tekniikan akateemiset TEK ry - study

The Delphi method:

1. Patent2. Copyright; and3. Trade Secret

The survey method

1. Patent2. Copyright; and3. Trade Secret

Delphi method (flow chart)

Esitutkimuskeskeisen

kirjallisuudenpohjalta

Delfoi I:n tutkimusalueiden

valinta

Delfoi I:n tutkimusmenetelmän /

kyselykaavakkeen valinta

Delfoi I:n vastausten

jakaminen teemoihin

Käsitteet / teoriat /tutkimuskirjallisuus

Tutkimusalueet /viitekehikot

Mittaus- ja kysely-menetelmät

Aineiston analyysi /empiria

Delfoi II:nohjeistus

Menetelmän validiteetin

arviointi

Teemojen kokoaminenniiden kannatuksenja sisällön pohjalta

TASOT DELFOI I

Delfoi I:nsisällöllinenyhteenveto

Esitutkimuskeskeisen

kirjallisuudenpohjalta

Delfoi I:n tutkimusalueiden

valinta

Delfoi I:n tutkimusmenetelmän /

kyselykaavakkeen valinta

Delfoi I:n vastausten

jakaminen teemoihin

Käsitteet / teoriat /tutkimuskirjallisuus

Tutkimusalueet /viitekehikot

Mittaus- ja kysely-menetelmät

Aineiston analyysi /empiria

Delfoi II:nohjeistus

Menetelmän validiteetin

arviointi

Teemojen kokoaminenniiden kannatuksenja sisällön pohjalta

TASOT DELFOI I

Delfoi I:nsisällöllinenyhteenveto

The Delphi method

The Delphi method is a systematic, interactive research method which relies on a panel of independent experts. The carefully selected experts answer questionnaires in two or more rounds. In this study, questionnaires were send by TEK ry to 200 experts in 2003 two times.

After each round, a facilitator provides an anonymous summary of the experts’ forecasts from the previous round as well as the reasons they provided for their judgments.

In this stydy, the analysis was simplified to cover only three major IPRs:

1. Patent2. Copyright; and3. Trade Secret

Lahti, Kim, Hirvikallio, Matti, Kähkönen, Pekka, Lahti, Arto ja Sipilä, Kari (2006) The Global Growth Strategy and Immaterial Property Rights of Technogy Firms (Teknologiayritysten globaali kasvustrategia ja immateriaalioikeudet), Keuruun laatupaino Oy, Keuruu.

The Delphi method (some results/ Patent) A patent is a set of exclusive rights granted by a state to an inventor or his

assignee for a limited period of time in exchange for a disclosure of an invention. The procedure for granting patents, the requirements placed on the patentee and the extent of the exclusive rights vary between countries according to national laws and international agreements. A patent application must include one or more claims defining the invention which must be new, inventive, and useful or industrially applicable.

A patent is a limited property right that the government offers to inventors in exchange for their agreement to share the details of their inventions with the public. A patent provides the right to exclude others from making, using, selling, offering for sale, or importing the patented invention for the term of the patent, which is usually 20 years from the filing date subject to the payment of maintenance fees. Like any other property right, it may be sold, licensed, mortgaged, assigned or transferred, given away, or simply abandoned.

The main result of the study was that patent rights and especially patent litigations are expensive in global markets. Reffering to the Coasian hypothesis, patents may exclude competitors from using the invention, even if the competitor subsequently develops the same invention independently. This may be subsequent to the date of invention, or to the priority date, depending upon the relevant patent law (First to file, Finland and first to invent, the US). As Coase found, a short time to markets can be a bigger edge than patenting. A selective (in terms of regions/ patent forms) of patent strategy is important, in any case and a proper cost-value-calculation.

Pharmaceutical/ biotech patents and new business method/ software are new areas of patenting based on the WTO TRIPS

In regards to pharmaceutical patents, the preservation of exclusivity rights on medications prevents generic alternatives to enter the market and thus maintains a high price of drug treatments. This can have effects in the developing world as those who are most in need of basic essential medicines are unable to afford high priced pharmaceuticals. Another point of criticism is the vast investment needed in R&D and marketing. In response to the criticism against pharmaceutical patents it has been pointed out that less than 5% of medicines on the WHO’s essential drugs list are subject to patent protection.

The most visible conflict has been over AIDS drugs in Africa. Despite the role which patents have played in maintaining higher drug costs for public health programs across Africa, this controversy has not led to a revision of TRIPs. Instead, an interpretive statement, the Doha Declaration, was issued in 2001, which indicated that TRIPs should not prevent states from dealing with public health crises. After that the US and to a lesser extent other developed nations began working to minimize the effect of the declaration. A 2003 agreement loosened the domestic market requirement, and allows developing countries to export to other countries where there is a national health problem as long as drugs exported are not part of a commercial or industrial policy.

The problem of Finnish start-ups and growth companies in the market is the high mobility barriers and proctionistic policies by big nations.

Business method/ software are new areas of patenting based on the WTO TRIPS

The term patent refers to a right granted to anyone who invents or discovers any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof. Examples of particular species of patents for inventions include biological patents, business method patents, chemical patents and software patents

The TRIPS, particularly Article 27, are important elements in the debate on the international legal framework for the patentability of software, and on whether software and computer-implemented inventions should be considered as a field of technology.

There have been no dispute settlement procedures regarding software patents. Its relevance for patentability in the domains of, for example, computer-implemented business methods, computer science and software information technology remains uncertain, since the TRIPS agreement is subject to interpretation.

The problem of Finnish start-ups and growth companies in the software market is the high uncertainty concerning patent rights. The software patent law has been rejected by the EU Parliament.

The Delphi method: The patent portfolio theory and patent litigations

The patent portfolio theory is important for explaining such observable patterns in the modern patenting environment as firm-size differences in patent intensity and litigation rates or the value of patents. Patent litigations become more complex and costly and patents are no more ‘gold mines’. About 90% of international patents are owned by multinationals.

The fundamental argument here is that the real value of patents lies not in their individual significance, but instead in their aggregation into a patent portfolio. Thus, a patent portfolio is best understood as a collection of individual patents that share critical technological features.

A global patent portfolio can only be maintained trough continuous and large investments in R&D and patenting. Cross-licensing of patent rights is the instrument that MNCs efficiently use. Patent portfolios are the major element of modern mobility barriers model in the global markets.

Patent rights may become so fragmented that, effectively, no one can take advantage of them as to do so would require an agreement between the owners of all of the fragments.

Therefore, most of experts expected that business secrects are more important than patent rights to growth companies. A NDA should a standard method to be used when ever it is probable that an invention has been created by a team of persons.

The Delphi method: Copyright/ software Copyright gives the creator of an original work exclusive right for a certain time period

in relation to that work, including its publication, distribution and adaptation; after which time the work is said to enter the public domain. Copyright applies to any expressible form of an idea or information that is substantive and discrete and fixed in a medium. Some jurisdictions also recognize "moral rights" of the creator of a work, such as the right to be credited for the work.

Copyright has been internationally standardized, lasting between fifty to a hundred years from the author's death, or a shorter period for anonymous or corporate authorship The length and requirements for copyright duration are subject to change by legislation. For example, the US used to require copyrights to be renewed after 28 years to stay in force. The length of the term can depend on several factors, including the type of work (e.g. musical composition, novel) or whether the work was created by an individual or a corporation. In most of the world, the default length of copyright is the life of the author plus either 50 or 70 years

Some jurisdictions have required formalities to establishing copyright, but most recognize copyright in any completed work, without formal registration. Copyright is enforced as a civil matter, though some jurisdictions do apply criminal sanctions. Most jurisdictions recognize copyright limitations, allowing "fair" exceptions to the author's exclusivity of copyright, and giving users certain rights. The development of the Internet, digital media, and computer network technologies, such as peer-to-peer file sharing, have prompted reinterpretation of these exceptions, introduced new difficulties in enforcing copyright, and inspired additional challenges to copyright law's philosophic basis.

The Delphi method: Copyright/ software

"Computer programs, whether in source or object code, shall be protected as literary works under the Berne Convention (1971)." Article 10 paragraph 2 requires that arrangements of information are to be considered as "intellectual creations":

"Compilations of data or other material, whether in machine readable or other form, which by reason of the selection or arrangement of their contents constitute intellectual creations shall be protected as such."

The WIPO Copyright Treaty (WCT), although not binding on WTO members that have not joined the WCT, similarly provides in Article 4: "Computer programs are protected as literary works within the meaning of Article 2 of the Berne Convention. Such protection applies to computer programs, whatever may be the mode or form of their expression."

Article 13 of TRIPS provides that any limitations and exceptions to exploitation of intellectual property rights must generally be restricted.

The expert of Delphi were all convinced that computer programs can get a strong proctection by copyrights. The software patent law has been rejected by the EU Parliament. Software copyright, the relatively recent extension of copyright law to machine-readable software. It is used by proprietary software companies to prevent the unauthorized copying of their software. It is also used by proponents of open source software to encourage the disclosure of improvements to source code.

The Delphi method: Trade secret A trade secret is a formula, practice, process, design, instrument, pattern,

or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers. In some jurisdictions, such secrets are referred to as "confidential information" or "classified information".

A company can protect its confidential information through non-compete and non-disclosure contracts with its employees (within the constraints of employment law, including only restraint that is reasonable in geographic and time scope). The law of protection of confidential information effectively allows a perpetual monopoly in secret information - it does not expire as would a patent. The lack of formal protection, however, means that a third party is not prevented from independently duplicating and using the secret information once it is discovered.

The precise language by which a trade secret is defined varies by jurisdiction (as do the particular types of information that are subject to trade secret protection). However, there are three factors that, although subject to differing interpretations, are common to all such definitions: a trade secret is information that:

1. is not generally known to the public;2. confers some sort of economic benefit on its holder (where this benefit must

derive specifically from its not being generally known, not just from the value of the information itself);

3. is the subject of reasonable efforts to maintain its secrecy

The Delphi method: Trade secret (continues)

The sanctioned protection of such type of information from public disclosure is viewed as an important legal aspect by which a society protects its overall economic vitality. A company typically invests money, time and energy (work) into generating information regarding refinements of processes and operations. If competitors had access to the same knowledge, the first company's ability to survive or maintain its market dominance or market position and market share would be impaired. Where trade secrets are recognized, the creator of knowledge regarded as a "trade secret" is entitled to regard such "special knowledge" as intellectual property. One of the most significant differences between patents and trademarks and trade secrets is that a trade secret is only protected when the secret is not disclosed.

The expert of Delphi were all convinced that a written NDA (non-disclosure agreement) is an vital part of any company’s IPR-strategy. A NDA combined with the strong proctection of copyrights is a good combination. A NDA can as well be combined with a patent right. The final conclusion is that it is useful to use many of the IPRs, not only rely on one of them. This kind of strategic flexibility is especially important in SMEs that has not financial resouces to create a realiable proction using one IPR-element, such as patents, intensively in the form of portfolio.

The survey method: The questionnaire and

In the questionnaire, there are as a whole 27 proposal, to which respondents were asked to reply.

To be more specific the proposals were specified for three areas of technology;

a) Softwareb) bio- /medical technology c) Production/ machine technology

Together there are 81 proposals Likert-scale (from 1 to 5) was uses as the metrics. The number of respondents were 270

The survey method: The size of the companies

The survey method: The age of the companies

The survey method: Education of respondents

The survey method: Industry of respondents

The survey method: Position of respondents

The survey method: Ownership of respondents

270

The survey method: size vs. age

270

The survey method: size vs. industry

270

Patent: Proposal: It is difficult to defend the market position without patenting

270

Patent: Proposal: It is difficult to get VC capital without patenting

270

Patent: Proposal: Deep industry experience is the key point in timing of patenting

270

Patent: Proposal: Cross-licensing by big firms increase the patent cost of SMEs

270

Patent: Proposal: A patent infringement against SMEs may stop the patent process

270

Patent: Proposal: A patent portfolio is an essential part of patent strategy

270

Copyright: Proposal: An early customer pilot + copyright is a good standpoint for selling

270

Trade secret: Proposal: Core competence + trade secret support copyright

270

Trade secret (TS): Proposal: Definition of TS is broad when there are many competitors

270

Trade secret (TS): Proposal: A well-defined NDA is a good standpoint for negotiations

270