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NEWS - PLANNING
Patent profits often missed
2/26/2002
Small to medium-size enterprises are at risk of missing the latest wave of change sweeping through the corporate sector - the boom in the number of organisations that are patenting their methods of doing business.
While the number of patent applications covering business methods has exploded, the federal government agency responsible for this area says small business seems only vaguely aware of the advantages of having an enforceable legal right over their business methods and even their trade marks.
The Director General of IP Australia, Dr Ian Heath, said that SMEs made a major contribution to Australia's inventions and market innovation but they did not focus on intellectual property.
This comes at a time when the rest of the business community is showing intense interest in following a trend that has been apparent in the United States, where large numbers of companies are using patents over business methods as a tool in setting business strategy.
In the seven years to 2000, IP Australia has seen the number of applications for patents covering business methods grow from just 26 in 1994 to 1,373 in 2000.
While the absolute numbers are still modest, the explosive rate of growth suggests that Australian business is intent on following the US example.
So why are small to medium enterprises ignoring the trend?
One factor could be cost. Including the costs of patent attorneys, an Australian patent can cost $8,000 to $12,000. And the process can take two to four years to complete.
For some SMEs, that might be just a little too long.
According to IP Australia's Dr Heath: "The issues of IP often come to them too late in the cycle, usually when it has become a problem, often when they are trying to promote their product on the market, but they are blocked because it infringes someone else's rights."
But for those businesses that know how to extract value from their IP, patents offer significant advantages.
Dr Heath said licensing a patented invention was a strategy that many companies were now using to build their businesses, rather than manufacturing and marketing a product themselves.
He used the example of Orbital Engine Corp, which does not manufacture orbital engines but instead has licensed the technology to a large US company that makes outboard motors.
While applications to patent business methods are booming, IP Australia is also experiencing explosive growth in the applications for patents over more traditional areas.
The number of applications in telecommunications rose from 885 in 1991 to 6,631 in 2000; in information technology it rose from 526 in 1991 to 6,144 in 2000; and in biotechnology from 884 to 4,055.
Lodging a patent application is no guarantee of successfully gaining a legal right over a particular process but there are plenty of rewards for those that succeed.
The Bishop Group in Sydney, which is known for its steering technology, has more than 500 patents and patent applications from which it earns more than $7 million each year in royalties.
And 90 per cent of that comes from licensees in other countries.
In the US, some of biggest rewards flow to those businesses that succeed in patenting their methods.
Computer giant Dell was among the first to patent its fundamental way of doing business - its direct sales model where online buyers order a built-to-order PC.
In 1999, Dell did a $US16 billion cross-licensing deal with IBM that gave Dell access to IBM's patented PC components.
In return, Dell gave IBM access to its patented method of running a built-to-order computer business.
A lawyer and patent specialist with Sydney law firm Gilbert & Tobin, Mr John Lee, said that when a patent was granted for a technology or product, it was the equivalent of winning a 20-year monopoly.
"There has been a sharp increase in patent activity because businesses and their investors are far more aware of the system and its potential value," he said.
"The patent system was designed to protect mechanical or engineering inventions.
More recently, people have recognised that the patent system can also be used to protect newer technologies. Mr Lees said these technologies included methods of receiving raw marketing information and analysing and producing specific target figures.
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