From product competition to technology competition
- Businesses will have to look afresh at how they manage patents in the fourth industrial revolution
- Competition will shift from products to technology
- Industries such as automotive and pharmaceuticals will have to rethink their IP strategies
Technology development over the next decade will be dominated by the fourth industrial revolution (4IR). A report published by the EPO and the Handelsblatt Research Institute in December 2017 found that European patent applications relating to smart connected objects grew by 54% in three years (compared to overall growth in patent applications of 7.65%) and this growth will surely increase, not just at the EPO but across the world. In the next few years, many of these patent applications will be granted and will be the basis of new products, licensing programmes or technical standards.
One consequence of the 4IR is that businesses in many sectors will have to look afresh at how they manage and license patents and other IP assets. The automotive industry is already confronting this challenge: faced with arsenals of wireless patents, automobile manufacturers and their suppliers have to consider whether to license-in technology (particularly as it affects standards), develop their own patent portfolios or fight the patent owners in court. It is a very different proposition to the cosy coexistence that has characterised intellectual property in the automotive sector until now.
The auto industry may therefore soon experience the same kind of confrontations that have dominated the development of the smartphone industry – and it won’t be the only one. The Internet of Things will bring us smart meters, automated retailing, wearable technology, home medical monitoring and much more. All of these industries will need to develop, acquire or license-in technology; the companies that own or control that technology will determine how the markets develop – particularly if that technology can be applied in different sectors.
One former in-house counsel, citing the auto industry as an example, says: “There’s going to be a relative shift from product competition to technology competition. Sensors, data transfer and data storage technologies are reasonably the same across industries. Previously you were competing only on the product market but now you are competing on technology, so there is a shift to building positions around key technologies.”
However, another big consequence of the 4IR is that industries that already have established IP models will be shaken up. For example, the development of personalised medicine will change the way the pharmaceutical industry thinks about patents: when you have a drug that is optimised for a tiny population, is a patent the best means to protect that? And when the key to making a drug effective is accurate diagnosis and changing the dosage, how do you protect those aspects of innovation? Adding in the challenges that the pharma industry is already facing with regard to monetising second and subsequent uses of drugs, and biosimilars, leads some observers to predict that IP strategies in the pharma industry will become very different in the next few years. Instead of blockbuster patents, we may see more platform technologies which are widely licensed, with less valuable implementation patents on top. “The pharma industry could become more like telecoms, where you have portfolio licensing of patents,” contends one IP lawyer. If this happens, will it be achieved by agreement, by the use of standards-setting bodies or through compulsory licensing?
Meanwhile, the geography of innovation is changing rapidly. Growth in patenting in China shows no sign of slowing: in 2016 there were 1.4 million applications, more than in the USPTO, Japan Patent Office (JPO), Korean Intellectual Property Office and EPO combined, while Patent Cooperation Treaty (PCT) applications from China have grown by at least 10% a year every year since 2003. Some observers believe that these numbers are cosmetic and reflect low-quality innovation and government-influenced research. That may be true to some extent. But, as the writer and AI expert Kai-Fu Lee argues in his latest book AI Superpowers: China, Silicon Valley and the New World Order, China is set to become the world leader in AI thanks to the size of its population and the ability to compile huge amounts of data. In this, as in other technologies, it cannot be ignored.