Patents and Licensing


Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published February 19, 2003

An expected competitive advantage resulting from a new product improvement generates considerable excitement in your workplace. You share in the excitement but fear attempts by your competitors to use the improvement in their own products. Assume your improvement qualifies as an invention. Though you have the prospect of securing intellectual property rights to protect your invention, you are vulnerable to failing to achieve your desired level of protection if efforts to secure rights are not conducted carefully. Diligent pursuit of a patent application is one way for you to secure intellectual property protection for the invention.

Identifying Rights

Before beginning the preparation of a patent application, you should understand the nature of the patent rights in your invention that would benefit you. The patent laws are complex and patent professionals should be consulted. Your patent attorney should explain to you the targeted scope of patent protection for your invention from both technical and competitive perspectives.

The patent attorneys you select should have backgrounds and expertise in technologies involved in your products as well as excellent communication skills. Careful listening and active questioning are hallmarks of patent attorneys that are able to quickly comprehend and isolate key features of an invention and understand the client’s needs, concerns, and objectives. An understanding by patent attorneys of the needs of businesses and institutions of all sizes is enhanced when coupled with the experience of advising businesses ranging from entrepreneurs to multinational corporations regarding a variety of technologies.

Protecting Your Competitive Advantage

Your development of patent strategies will benefit by involving patent attorneys in identifying and securing patent rights from the emergence to the commercialization of your technologies. You should be comfortable working with your patent attorney for the navigation of your patent application through government patent offices, the generation of revenue for you in the marketplace, and the prospective exploitation of your patent rights. A utility patent application will include a specification, drawing, and claims. The specification includes a detailed description of how to practice the invention that is defined by the claims. The patent claims define the invention by positively reciting the owner’s rights to exclude others from practicing the invention. Your patent attorney should develop with you a patent strategy including claims that are consistent with your commercial objectives. The patent strategy should map out short, intermediate, and long-term objectives.

In the short-term, you should expect to have your patent application filed with claims that serve to define your prospective rights in the invention. Your patent attorney should focus the language of the claims on what you and your patent attorney agree to recite as the improvement of your invention over the prior art. Any misunderstandings must be avoided or resolved and consensus achieved between you and your patent attorney to ensure the patent application describes and claims the invention in ways that are consistent with your business interests.

You and your patent attorney should direct the claims toward activities of your competitors rather than would-be customers. The patent attorney should have proven skills in crafting claim sets which serve to isolate and define with gradations the novelty that you will commercially exploit. The claims should be neither unduly narrow nor mistaken in their identification of the invention. The claims should serve to preserve your rights in the face of publication of your patent application.

After filing the patent application with the U.S. patent office, and foreign patent offices if desired, your patent attorney should anticipate the interaction with the patent office that will be required to secure the issuance of a patent including claims that cover your invention and distinguish the invention from the prior art. During prosecution of your patent application in the patent office, your patent attorney should continue to communicate with you. Your patent attorney should remain current on the developments and changes in your goals and keep you informed of tactical decisions and your opportunities for participation in the prosecution of your patent application.

The patent office must agree to the claims which issue but is not obliged to guarantee that the language of the claims will serve your commercial interests. Your patent attorney should strive to avoid having your patent issue with claims that cover only an invention other than the invention which you intend to exploit. Patent attorneys should also strive to avoid disclosing in the specification and drawing an unclaimed invention that is important to the client. An adverse consequence of the failure to claim the desired invention is that upon issuance, the patent will disclose the invention to the client’s competitors without the client holding any patent rights to exclude others from making, using, or selling the invention.

The patent examiner’s actions with respect to your patent application in the patent office may require the development of alternative strategies. Your patent attorney should ensure that the strategies pursued are consistent with your objectives. The skill your patent attorney employs in the preparation of your patent application before filing in the patent office will serve to expand the range of alternatives available to you in the patent office during the prosecution of your patent application.

In the long-term, you are entitled to expect that the patent which issues on your invention will be consistent with the goals of securing patent rights that are beneficial to you and allowable in view of the prior art. The patent gives you as patent owner a bundle of rights that include the right to exclude others from making, using, or selling a product or process covered by the patent. By having the right to exclude others from practicing the patented invention, you may exploit the patent rights by arranging for your direct control over the manufacture, sale, and use of products by businesses and organizations under the patent.

Exploiting Your Rights

You may carry out the exploitation of your patent rights through licensing. For the patent owner that does not desire to manufacture products for sale under a patent or lacks the resources to do so, licensing may be an attractive option. Contract law permits the patent owner to license others as licensees to make, use, sell, or import the patented invention in return for the payment of a royalty to the patent owner. The license can be customized so as to grant to another all or part of your rights in the patent for a limited or unlimited period of time. You may grant multiple licenses to multiple parties. Alternatively, you may grant an exclusive license to one party and reserve rights for yourself. An exclusive license may be tied to the licensee’s performance. To maintain the status of an exclusive licensee, the licensee may be required to generate specified royalty payments such as minimum annual royalties for the patent owner.

The patent owner can receive payment from a licensee in a lump sum, a continuing royalty schedule based on a percentage of sales, or a combination of both. You may want to consider how to incorporate into the license a right to use future improvements of your patented invention such as through the payment of an additional royalty. The patent license may be limited to a certain geographical territory within a country. Field of use restrictions constitute another variation on the rights granted under a patent license. The licensee may be permitted to practice the patented invention within specified parameters, for example, a particular range of physical size, power capacity, or class of customers. You should expect your patent attorney to suggest numerous license terms for you to consider in fully exploiting your patent rights and achieving your commercial objectives as owner of the patented invention.

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About The Author

Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.