Why is So Little Attention Focused on Patent Economics?

I have no doubt that the answer to the title question is that the analysis is too difficult. If a company could find a close to optimal way of harvesting inventions from its troops and gainning patent protection for these inventions, the advantage it would thereby gain would be so great that, depending on the field, it could easily put out of business all of its competitors. 

As manufacturing becomes easier and represents a smaller and smaller portion of national product, manufacturing plants are bound to represent a smaller portion of the total wealth of the nation. What part of the pie is bound to grow?? Energy reserves are a likely candidate. We may also note that energy reserves may include land for growing biofuel. Land may increas in value as manufacturing plants take up a smaller portion of the pie. I also feel that patent rights are bound to increase as part of the pie, as other assets lose value by comparison. For manufacturing enterprises the message should be clear: Patent or Die. Maytag, which was not long ago purchased by Whirlpool for a relatively small amount, was patent poor. If Maytag had invested in a patent portfolio like Samsung and LG did, it might very well be alive today. 

In any event, with patents becoming so important, why is it that there is so little written on how a company can optimize its strategy for obtaining the maximum valued patent portfolio at the minimum price? I believe that a very important part of the reason is that it is just so difficult to analyze. Another part of the issue, is how a company can get the most out of its portfolio, once the patents are obtained. Again, this is very tough to analyze. In fact, we may be reduced to relying on heuristics to come up with any meaningful guidance. 

We can at least start by breaking up the problem into a progression, and examining each part individually:

1. Originating Inventions.

2. Recognizing Inventions.

3. Gaining patent protection for inventions.

4. Applying and profiting from patents, after patent grant.

I will make a general observation about these steps: In each step it pays to understand a little something about the patent system. And it helps to have a close relationship between the various people involved.

This perhaps can give insight into why large companies do not completely dominate the world. Big companies have huge advantages, but I believe that when it comes to developing a valuable patent portfolio, they also have huge disadvantages. We will explore this further in further posts. 

Why Would Mentadent Style Toothpaste Die???

Some may ask, "why would you think that Mentadent style toothpaste might die in the first place." The reason is that it may take a patent monopoly to generate enough profit, not counting advertising expense (that is, what the profit would be if there was no advertising but sales were the same) to fund an advertising campaign needed to promote the Mentadent style to the point where it is worthwhile for stores to carry it. Monopoly profits will be the greatest. If competitors enter the field, total profits will decline, and profits for the original patent holder will drop dramatically. Under these circumstances, the erstwhile patent holder has neither the means nor the incentive to spend much money promoting the Mentadent style and neither do the new market entrants. Accordingly, total sales of that style may drop. At the same time, the stocking problem of the stores carrying the style are greatly complicated. Should they carry only the original?  Or the original plus one competitor? or two competitors? And this is for declining sales for that style of toothpaste. Under these circumstances, it is likely that some stores will opt out altogether, sales will fall even more, and eventually all the market participants will withdraw. 

If would-be competitors do this analysis they might not enter that competitive space. Or, if they do enter that space, it may just be for the purposes of killing Mentadent, either to claim the space for their own, or to get rid of that part of the market, leaving the consumer with only the tube style toothpastes to choose from.

Real Time Experiment in Patent Economics

On April 16 of this year U.S. Patents 5,020,694 and 5,038,963 will expire. These two patents cover an early version of the Mentadent toothpaste dispenser, which did not accomodate refills. For those unfamiliar, Mentadent is a style of toothpaste in which two different flowable substances come out of the dispenser simultaneously onto one's toothbrush. A number of interesting questions will then be answered:

1. Is it important enough to be able to refill the Mentadent base, that competitors will be dissuaded from entering the market until the patent on a refillable version expires (there are two such patents, for different refillable versions). 

2. The really interesting question will only be answered (in the next few years) if the answer to the first question is "no." And that is, will there be a "tragedy of the commons" which kills Mentadent style toothpaste? It seems possible that if there are new market entrants upon patent expiration, that this could create a situation in which all the profits of Mentadent style toothpaste are eaten up by competition, and there is no profitable market left. This would seem a strange result, but I would maintain that for a niche product like Mentadent, which depends on advertising to educate consumers, that a negative cycle could be started by competition that would end up destroying the niche. We will see eventually, with the time frame depending on how important it is to have a resusable base. 

This type of patent question does seem remarkably similar to wildlife biology, with the competing creatures lunging for the consumer. The bout begins April 16 (or shortly thereafter).