Study Note: This module should take around 1.5 hours to study.

MODULE 1: THE MACROECONOMIC IMPACT OF

THE PATENT SYSTEM

Objectives

After completing the study of this module, you should be able to:

1. Discuss the relationship between the patent system and economic growth;

2. Indicate the main reasons for patenting, if you want to leverage your
inventions; and
3. Discuss role and functions of the patent system based on two case studies.

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 INTRODUCTION

A. THE IMPACT OF THE PATENT SYSTEM AND PATENTS (MACROECONOMICS

VIEWPOINT)

Patents are legal instruments intended to encourage innovation by providing limited

exclusive rights to the inventor (or his/her assignee) in return for the disclosure of the
invention. The underlying assumption being innovation is encouraged because an inventor
(or his/her assignee) can secure his/her rights, and therefore a higher probability of financial
rewards in the marketplace. In return, to get a patent, publication of the invention is
mandatory. Therefore, allowing the ideas to become public and forming breeding grounds
for creation of many more new and useful inventions through dissemination of the
knowledge included in the published patent applications and/or patents.

1. Patents and free and fair market competition

A patent is the territorial right granted by the State to a right holder to exclude others
from commercially exploiting the invention for a limited period, in return for the disclosure
of the invention, so that others may also gain the benefit from it. The disclosure of the
invention is thus an important consideration in any patent granting procedure. This balance
between the interest of the holder of patent right and that of others has recently been
discussed in the context of the competition policy, polices promoting research activities and
public health policy. It is crucial to find the most appropriate balance to attain the maximum
benefit for the public at large, considering all relevant policies and particular circumstances
of each country including the economic, social and legal background.

Because of the above-mentioned nature of the right to exclude others, patents are
frequently referred to as “monopolies.” However, properly balanced, most entrepreneurs,
innovators, and policy and law makers agree that “patents do not necessarily confer
monopoly power on patent rights holders, and most business conduct with respect to patents
do not unreasonably restrain or serve to monopolize markets. “Patent rights are not legal
monopolies in the anti-trust sense of the word….. not every patent confers market power.”1.
In the core, both the patent laws and anti-trust laws/ competition policies share the same
primary objectives - in the US Federal Circuit's 1990 opinion in Atari Games Corp. v.
Nintendo of America, Inc.2, the Federal Circuit stated: "[t]he aims and objectives of patent
and antitrust laws may seem, at first glance, wholly at odds. However, the two bodies of law
are complementary, as both are aimed at encouraging innovation, industry and competition."

A number of countries both in regions of the developed and developing world are
adopting or have adopted market economy systems, which allow free competition between
industrial and commercial enterprises within certain limits defined by law. Free competition
between enterprises is considered as an efficient mean of satisfying supply and demand in

1 To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy (A Report by the Federal Trade
Commission), 2 (October 2003)
2 Atari Games Corp. v. Nintendo of America Inc., 975 F.2d 832 (Fed. Cir. 1992)

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the economy and of serving the interests of consumers and the economy as a whole.
However, where there is competition, acts of unfair competition are liable to occur. In some
scenarios, the intellectual property rights can be improperly deployed to the detriment of
competition and the goal of technological progress. For example, holders of intellectual
property rights may use them improperly to coordinate a cartel and suppress competition in
alternative technologies or associated markets, to raise barriers to entry in other markets, or
to extend, de facto, the period of exclusion beyond either the statutory term or a reasonable
period of time (depending on the nature of the intellectual property right). If intellectual
property owners abuse their property rights, the result may be reduced output, unsanctioned
monopoly profits and stifled innovation. These consequences matter. They have a direct,
detrimental impact on economy and consumer welfare. This phenomenon has been
discernible in all countries and at all times, regardless of prevailing political or social
systems.

Sometimes economic competition has been compared to competition in sport, because

in both the best should win. In economic competition, that should be the enterprise
providing the most useful and effective product or service on the most economical and (to
the consumer) satisfying terms. This result can only be achieved, however, if all participants
play according to a certain set of basic rules. Violations of the basic rules of economic
competition can take various forms, ranging from illegal but not ill-intended acts to
malicious fouls, intended to harm competitors or mislead consumers.

The rules on the prevention of unfair competition and those on the prevention of
restrictive business practices (anti-trust law) are interrelated: both aim at ensuring the
efficient operation of a market economy. They do so in different ways, however: anti-trust
law is concerned with the preservation of the freedom of competition by combating
restraints on trade and abuses of economic power, while unfair competition law is
concerned with ensuring fairness in competition by forcing all participants to play according
to the same rules. Yet both laws are equally important, although in different respects, and
supplement each other.

Fair play in the marketplace cannot be ensured only by the protection of industrial
property rights. A wide range of unfair acts, such as misleading advertisement and false
allegations to discredit competitors, are usually not dealt with by the specific laws on
industrial property. Unfair competition law is therefore necessary either to supplement the
laws on industrial property or to grant a type of protection that no such law can provide. In
order to fulfill this function, unfair competition law must be flexible, and protection
thereunder must be independent of any formality such as registration. In particular, unfair
competition law must be able to adapt to all new forms of market behavior.

For example, to sustain competition in market, anti-trust laws prohibit agreements or

practices that restrict free trading and competition between business entities by repressing
cartels, banning abusive behaviour by a firm dominating a market, or anti-competitive
practices that tend to lead to such a dominant position, and supervising the mergers and
acquisitions of large corporations, including some joint ventures. Therefore, interplay
between IP law and anti-trust law ensures recognition of innovation, open playing field for
different players, allowing them to work on parallel technologies and patenting of new

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products, thereby permitting further innovation, keeping away abuse of monopoly power,
maintaining competition and improving consumer welfare.

2. Patent policies and economic growth

Policy makers have increasingly realized the importance of patents and the need for
formulating patent policies of their own. In the 1990s, policy makers in an increasing
number of countries, particularly in the emerging economic powers, recognized the role of
the IP system (including the patent system) as an important element of the institutional
infrastructure for encouraging private investment in R&D, especially in the industrial and
scientific fields. The WTO Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS) and national debate on how to implement international obligations under the
TRIPS prompted policy discussions on several issues in relation to patents particularly in
developing countries, resulting in the enhancement of the awareness of policy-makers and
the public about patent policies and the economic and social implications.

The overall governing principle in these policies are that patents, as a private good through
limited exclusivity and public good through innovation disclosure, not only prevent
competition based on free-riding but also allow, even support, the spread of innovation-
based competition because it acts as an incentive to invent. Thus, patent systems offers a
proper balance between two extremes of private good (i.e., free competition for unlimited
exclusivity and monopoly) and purely public good (i.e., a situation achieved by complete
abolition of the patent system). Both extremes would most likely lead to a slowdown of
technological progress.

In addition to accelerating innovation pace, patents also help in influencing the direction of
technical change and adoption of patent laws in countries without such laws altering
existing patterns of comparative advantage across countries.3

3. The economic impact of patents

Current knowledge regarding the relationship between the patent system and economic
development is still limited. Visible and demonstrable evidence of economic payoff
attributable to intellectual property (IP) protection (including patent protection) is currently
not sufficiently widespread.4 It is difficult to analyze the role of the patent system in the
economic development process because of complexities in separating or desegregating the
effects of IP protection from other factors that influence developing economies.5 In the
absence of convincing evidence, different theories and arguments exist. Some argue that the
absence or weakness of patent protection encourages technology transfer and technological
learning through copying and imitation, while others argue that the patent system provides a
mechanism, which encourages technology transfer from abroad through direct investment or
licensing, and the indirect effects are effective means of technological learning. Other
experts argue that the role of patents in economic development is likely to be case-specific,

3 Petra Moser, How Do Patent Laws Influence Innovation? Evidence from 19th-Century World's Fairs, American Economic
Review, vol. 95 (4), September 2005, pp. 1215-1236.
4 Keith E. Maskus, Intellectual Property Rights in the Global Economy (Washington, D.C.: Institute for International
Economics, August 2000).
5 Fred Abbott, e-mailed discussion paper (April 28, 1998), Intellectual Property Rights and Economic Development.

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in the context of both variations from industry to industry and variations among countries.6
Others, however, contend that the strength or weakness of the IP situation has a strong effect
on foreign direct investment (FDI)7, and that a low level of IP protection will preclude
certain types of investment in various industries to be made. Although there are many
success stories that attest the importance and contribution of the intellectual property system
and specifically of the patent system to economic growth, there is not just one road to
innovation.

Irrespective of the ideas proposed by different authors, currently available trend data
indicates a growing activity in the patent market place and may partially be construed as an
outcome of increasing role of patents, as indicated by the data in the next section.

4. Innovation, R&D, Patents & Economic Impact

Patent statistics are not sufficient evidence to explain the causal effect of the patent
system with regard to economic growth. However, available recent trends might indicate a
growing impact of patents on global economy and innovation.

Co-relation between patents, R&D expense and GDP: There appears to be a strong
direct correlation between the trend in resident patent applications, level of research and
development (R&D) expenditure, and GDP. As can be observed from both graphs, Asian
countries such as the Republic of Korea, China and Japan, which invest the most in R&D,
are also the ones that file the most patent applications per USD 100 billion GDP.

Resident patent applications per USD billion GDP for the top 10 origins, 2007 and 2017

Source: World Intellectual Property Indicators 2018. Available: https://www.wipo.int/edocs/pubdocs/en/wipo_pub_941_2018.pdf

6 Ibid. Abbott also wrote “…Patent protection may have an impact on the development of a pharmaceutical industry that is
different than its effects on the development of an automobile industry. Patent protection is likely to have a different effect
on the development of a newly-industrialized economy as compared with a least developed economy.”
7 Maskus, Intellectual Property Rights in the Global Economy, table 4.9, 126 (source: Mansfield 1994).

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 Source: National Science Foundation, National Center for Science and Engineering Statistics estimates, August 2017. Available:
https://nsf.gov/statistics/2018/nsb20181/assets/1387/ overview.pdf

Growth in patent applications: There has been consistent growth in the number of
patent applications filed year after year, as shown below.

Trend in patent applications worldwide, 2003-2017

Source: World Intellectual Property Indicators 2018. Available: https://www.wipo.int/edocs/pubdocs/en/wipo_pub_941_2018.pdf 8

Increased economic activities: The role of IP, particularly patents, in market place has
significantly increased over last few decades. Evidence suggests more frequent licensing of
IP rights and the emergence of new technology market intermediaries. The figure below
depicts the growth of cross-border licensing trade in the world economy, showing an
acceleration of such trade since the 1990s. In nominal terms, international royalty and

8 China’s 2017 data are not comparable with its previous years’ data due to the new way in which the IP office of China now
counts its applications data. Prior to 2017, it included all applications received; however, starting in 2017, China’s application
count data include only those applications for which the office has received the necessary application fees. Due to this break
in the data series and to the large number of filings in China, it is not possible to report an accurate 2017 growth rate at world
level (see the data description section). World totals are WIPO estimates using data covering 156 patent offices. These totals
include applications filed directly with national and regional offices and applications entering offices through the Patent
Cooperation Treaty national phase (where applicable).
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licensing fee (RLF) receipts increased from USD 2.8 billion in 1970 to USD 27 billion in
1990, and to approximately USD 300 billion in 2015.

RFL receipts in payments, in USD billlion and as share of trade

Source: Economic Research Working Paper No. 37. Available: https://www.wipo.int/edocs/pubdocs/en/wipo_pub_econstat_wp_37.pdf

New players & economic impact: Newer technology market intermediaries have
emerged, such as IP clearinghouses, exchanges, auctions and brokerages. Furthermore,
another rapidly growing form of intermediation over the last decades has been the
establishment of technology transfer offices (TTOs) at universities and public research
organizations (PROs). Universities and PROs play a key role in national innovation systems
and over some decades have increased their role in the invention generation and technology
transfer, as illustrated in terms of filed PCT applications9 and licensing details in the United
States of America in the graphs depicted below.

Source: World Intellectual Property Report: The changing Face of Innovation, 2011. Available:
https://www.wipo.int/edocs/pubdocs/en/intproperty/944/wipo_pub_944_2011.pdf

9 A patent application filed under Patent Cooperation Treaty.

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Change in Core Measures of Technology Transfer Activity

Source: Vicki Loise and Ashley J. Stevens, The Bayh-Dole Act Turns 30. Available: https://stm.sciencemag.org/content/2/52/52cm27

The changing trend in global economy, driven by both corporate and universities/ PRO
patenting activities, has certainly allowed for more technology transfer and furthered
economic activities (as indicated above), creation of new jobs for example in R&D sector
(representative data for US based MNCs included below), and availability of newer
products in the market.

Source: Research & Development, Innovation, and the Science and Engineering Workforce, 2012. Available:
http://nsf.gov/nsb/publications/2012/nsb1203.pdf
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 Patenting activities have become increasingly international. The ratio of patent
applications filed by foreigners within the total patent application in a country varies
significantly from one country to another, reflecting many factors, including the
technological capacity of the country concerned and attractiveness of the market for foreign
technology holders. In many countries, patent applications made and patents held by their
residents (domestic applications or patents) are limited. Domestic applications accounted
only for a small percentage of total patent applications and the filings are usually dominated
by non-resident applications (shown below).

Patent applications at offices of selected low- and middle-income countries, 2017

Source: World Intellectual Property Indicators 2018. Available: https://www.wipo.int/edocs/pubdocs/en/wipo_pub_941_2018.pdf

Thus, the role of the patent system is less visible to domestic users of the patent
system. A number of grounds, including lack of awareness about the potential benefits of
the patent system by companies, universities and local research institutions, can explain the
reason for the low level of patenting in developing countries by their nationals and
residents10.

10 WIPO Patent Agenda Study by Mr. Getachew Mengistie, Acting Director General of the Ethiopian Intellectual Property
Office, A/39/13 Add.1 available at http://www.wipo.int/meetings/en/doc_details.jsp?doc_id=17555

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 Self-Assessment Question

SAQ 1: Discuss the relation between the patent system and the economic growth of a
country.

Type your answer here:

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B. THE PATENT SYSTEM AND TECHNOLOGICAL DEVELOPMENT: THE CASE
OF ARTIFICIAL INTELLIGENCE AND INTELLECTUAL PROPERTY

The development of new technologies poses challenges to patent laws, which need to
respond to new needs and provide appropriate protection. Over the past few decades, patents
in complex and highly innovative areas such as software, biotechnology, organic chemistry
and business methods have led to debates and discussions among intellectual property
stakeholders. Furthermore, given the complexity of certain issues posed by fast-changing
technological areas, court decisions in those areas might influence the patenting activity in
the future. For example, regarding the patentability of business methods, a matter of great
importance for ecommerce, insignia cases in the United States such as State Street Bank v.
Signature Financial Group, Inc. (47 USPQ 2d 1596 (CAFC 1998)) and later Bilski v.
Kappos (561 U.S. 593 (2010)) significantly impacted business strategy and practices of the
United States Patent and Trademark Office. While the first decision brought awareness to
the fact that business methods were patentable in that country, the second one tightened the
rules for the patentability of these inventions following the 2008 landmark ruling by the
United States Court of Appeals for the Federal Circuit in the case of In Re Bilski (545 F.3d
943, 88 U.S.P.Q.2d 1385 (Fed. Cir. 2008)).

“Artificial intelligence (AI) is The current Artificial Intelligence (AI) boom

increasingly driving important began around 2011, with the possibility of the
developments in technology and compilation and analysis of large volumes of data,
business, from autonomous vehicles
to medical diagnosis to advanced
thanks to an increased availability of data,
manufacturing. As AI moves from the computational power and connectedness. This, in turn,
theoretical realm to the global boosted breakthroughs in the fields of neural networks
marketplace, its growth is fueled by a and deep learning, particularly, by creating new
profusion of digitized data and rapidly opportunities for AI technologies and bringing optimism
advancing computational processing about their potential.
power, with potentially revolutionary
effect: detecting patterns among
billions of seemingly unrelated data The relation of AI technology and Intellectual
points, AI can improve weather Property is currently a hot topic of discussion. While
forecasting, boost crop yields, companies lead the investment and development of AI
enhance detection of cancer, predict technologies, landmark court decisions are extremely
an epidemic and improve industrial
productivity”.
scarce in this field. The global marketplace’s growing
demand for AI technology, spreading throughout many
Source: WIPO, Technology Trends industries, pose new challenges for intellectual property
Report - Artificial Intelligence, 2019. law and policy. The questions that have been raised
include: How AI technologies can be used by the IP
administration? How the traditional IP systems apply to this technical field? Whether
traditional IP concepts such as “author”, “inventor” and even “consumer” will have to be
reevaluated in the future?

What is AI?

Artificial Intelligence is a field of computer science concerned with the intelligence

of machines, understood as the ability to understand and learn, in order to solve problems
and make decisions. The goal of Artificial Intelligence in its broad sense, then, is to make

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machines perform tasks that would require intelligence if they were to be done by humans.
Therefore, the learning element of the definition is essential, and, in its narrow sense, AI
systems are “learning systems; that is, machines that can become better at a task typically
performed by humans with limited or no human interaction”11.

AI Patenting in Numbers

 AI patenting has increased rapidly since the 1950s, when the technology first
emerged. Since then, innovators and researchers have filed 340,000 inventions and
published over 1.6 million scientific inventions.

AI patent families and scientific publications by earliest publication year

Source: WIPO, Technology Trends Report - Artificial Intelligence, 2019, p. 40.

 The growth rate of patent applications and scientific publications relating to AI is fast
and expected to continue that way. Over half of the identified AI inventions have
been published since 2013.

 Machine learning is the dominant AI technique disclosed in patents and is included in

more than one-third of all identified inventions 134,777 patent documents on this
topic. Its growth rate is on an annual average of 28 percent and among machine
learning techniques, deep learning has the highest growth rate with 175 percent from
2013 to 2016. All growth rates for AI-related inventions are noticeably higher than
the growth rate for patents among other areas of technology, which was 10 percent
between 2013 and 2016.

 Among the industries with the largest number of AI-related patents are
telecommunications (15 percent of all AI-related patents), transportation (15
percent), and life and medical sciences (12 percent).

 Countries like Japan, the United States and China are in the top places in AI-related
patent applications. This correlates with the Global Innovation Index (GII) figures,
which show that the US and China have the highest Research & Development (R&D)
expenditure and have the highest number of overall patent applications. As indicated

11 World Intellectual Property Organization, Technology Trends Report - Artificial Intelligence, 2019, p. 19.
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 before, in countries where research resources are allocated, patents can influence
technical changes.

Source: Global Innovation Index 2019. Creating Healthy Lives – The Future of Medical Innovation, p. xl.
Please refer to the WIPO Website for the latest version of the Global Innovation Index.

 Companies dominate patent activity over universities. Out of the top 30 AI patent
applicants, 26 are companies and only four are universities or public research
organizations.

 Of the top 20 companies, 12 are based in Japan, three on the US and two in China.
On the other hand, the four universities/public research organizations in the top 30
patent applicants are the Chinese Academy of Sciences, the Electronics and
Telecommunications Research Institute (ETRI), Xidian University and Zheijang
University.

Top 30 patent applicants by number of patent families

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 Source: WIPO, Technology Trends Report - Artificial Intelligence, 2019, p. 60.

 U.S. federal funding for math and computer science research amounts to less than
half of Google’s own R&D budget. Therefore, it is not surprising the United States-
based company, International Business Machines Corp. (IBM) had the largest
portfolio of AI based patent application with 8,290 inventions by the end of 2016,
followed by Microsoft with 5,930 applications.

Impact of AI on the IP Administration System

The technology trends in patenting can and possibly predict what is to come.
Policymakers have to keep their eyes open in order to develop or adapt strategies, policies,
laws or regulations to maximize the benefits of AI technologies. Issues like ownership,
access, availability, transfer of technology, investment and funding will be key for
stakeholders.

In addition, governments and the international IP community have a growing interest

in the possibilities AI systems may offer for IP administration. In 2018, IP offices gathered
for the first time at WIPO headquarters to discuss what information and communication
technologies (ICT) and artificial intelligence strategies were or could be implemented in the
future, against the backdrop of the increasing complexity and volume of IP applications.
Translation, image recognition and search tools, and classification systems are among the
areas of interest for the application of AI to the IP administration system. Such meetings
among international intellectual property authorities will likely continue in the future, as the
way some of them approach the challenges of IP administration would directly benefit all
countries.

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 You can explore the tools developed by WIPO that use AI applications, such as
WIPO Translate, an instant patent translation tool; the trademark image search tool function
of the Global Brand Database; and the automatic patent classification tool for the
International Patent Classification (IPC) system using neural network technology,
developed in collaboration with the University of Geneva. If you are interested in
understanding further how these WIPO AI products work, we recommend you complete the
reading of this module and click on the link under “Useful Resources”.

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 Self-Assessment Question

SAQ 2: In your view, what can be said about R&D investment and patent applications
in new fields such as AI?

Type your answer here:

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Activity 1
Please find the position of your country in the Global Innovation Index (GII).
https://www.globalinnovationindex.org/Home

Discuss briefly your views or the reasons for your countries ranking.

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C. THE IMPACT OF PATENTS ON BUSINESS AND OUR DAILY LIFE

Innovative and creative ideas are at the heart of most successful businesses. Ideas by
themselves, however, have little value. They need to be developed, turned into innovative
products or services, and commercialized successfully to enable enterprises, particularly
small and medium-sized enterprises (SMEs), to reap the benefits of the innovation and
creativity. Patents can be crucial for turning innovative ideas and inventions into
competitive products that significantly increase profit margins.

Enterprises may also use patents to earn royalty revenue by licensing such patented
inventions to other firms that have the capacity to commercialize them. This may provide
enterprises with a stream of income from the invention or the inventions of employees of
the enterprises, without the need to invest in its commercialization.

The reasons for patenting inventions can be summarized as follows:

 Exclusive rights - patents provide exclusive rights which usually allow the right holder
to prevent others from commercially using and exploiting the invention, without the
consent of the right holder, for twenty years from the date of filing of the patent
application;

 Strong market position - through these exclusive rights, you may be able to establish
yourself in the market as the pre-eminent player;

 Higher returns on investments - having invested a considerable amount of money and

time in developing innovative products, the right holder could, under the umbrella of
these exclusive rights, commercialize the invention, which may enable the right holder
to obtain higher returns on investments;

 Opportunity to license or sell the invention - if you choose not to exploit the patented
invention yourself, you may sell it or license it to another enterprise which may
commercialize a product using your patented invention. This will be a source of income
for the right holder (you);

 Increase in negotiating power - if your enterprise is in the process of acquiring the rights
to use the patents of another enterprise, through a licensing contract, your patent
portfolio will enhance your bargaining power. That is to say, your patents may prove to
be of considerable interest to the enterprise with whom you are negotiating and you
could enter into a cross-licensing arrangement where, simply put, the patent rights could
be exchanged between your enterprise and the other;

 Positive image for your enterprise - business partners, investors and shareholders may
perceive patent portfolios as a demonstration of the high level of expertise, specialization
and technological capacity within your company. This may prove useful for raising
funds, finding business partners and raising your company’s market value;

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 If not patented by yourself, competitors will take advantage of your invention - if the
product is successful, many other competitor firms will be tempted to make the same
product by using your invention but without having to pay for such use. Larger
enterprises may take advantage of scale economies to produce the product more cheaply
and compete at a more favorable market price. This may considerably reduce your
company’s market share for that product. Even small competing enterprises can produce
the same product and often sell it at a lower price as they do not have to recoup research
and development costs incurred by the right holder.

 Finally, as you will see in Module 4, you might consider protecting your invention
through trade secret protection, instead of patenting it. Trade secret protection may have
a number of advantages compared with patent protection. However, one of the
weaknesses of trade secret protection is that somebody else - who may have developed
the same or an equivalent invention later - may get a patent on such invention, and
legitimately exclude your enterprise from the market, limiting its activities to the
continuation of prior use, where the patent legislation provides for such exception, or ask
your enterprise to pay a licensing fee for using the patented invention.

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 Self-Assessment Question

SAQ 3: Discuss the main reasons for patenting, if you want to leverage your
inventions.

Type your answer here:

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Activity 2
Read the following text relating to a company’s approach to protection and
enforcement of their patent portfolio.

All our patents belong to you

Tesla, Inc. is an American motor and energy company that has become famous
mainly for the manufacturing of electric vehicles and his CEO, the entrepreneur Elon
Musk. Named in honor of famous 19th century engineer, Nikola Tesla, the company set
out to find innovative alternative in the electric vehicle industry to address the carbon
crisis, providing sustainable transportation and clean technology.

From its creation in 2003, Tesla has relied on the protection of intellectual property
rights, having filed over 481 patents and growing12 at the United States Patent and
Trademark Office (USPTO) to this date. On the Annual Report for the end of the fiscal
year of 2012, their intellectual property policy was very protectionist of their IP assets,
affirming: “Our success depends, at least in part, on our ability to protect our core
technology and intellectual property. To accomplish this, we rely on a combination of
patents, patent applications, trade secrets, including know-how, employee and third party
nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and
other contractual rights to establish and protect our proprietary rights in our technology.
As of February 3, 2011, we had 35 issued patents and approximately 280 pending patent
applications with the United States Patent and Trademark Office and internationally in a
broad range of areas. Our issued patents start expiring in 2026. We intend to continue to
file additional patent applications with respect to our technology. We do not know
whether any of our pending patent applications will result in the issuance of patents or
whether the examination process will require us to narrow our claims. Even if granted,
there can be no assurance that these pending patent applications will provide us with
protection”.

On 12th June 2014, Elon Musk announced in a blog post that “all our patents
belong to you”, explaining that, in the spirit of the open source movement and for the
advancement of electric vehicle technology, the company had decided to not initiate
patent lawsuits against anyone using their technology in good faith. Before this, the lobby
of the Palo Alto headquarters had a wall with all the Tesla patents and, for this reason, the
blog post starts by announcing that this physical and metaphorical wall of patents had
come down, and while they filed patent applications to stop others from copying their
technology, they believe they can be used to stifle progress. Finally, with such
announcement, the company hoped to encourage the rapid advancement of electric car
technology and to motivate talented engineers to innovate based on their IP. Among
Tesla’s motivation is the drive to build a bigger market for electric cars, as well as to have

12 The link shows this number of entries at the time this course is drafted. It includes both utility and design patents combined for the
search criterium “Applicant Name: Tesla”.

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 company for building an infrastructure for it, such as charging stations and battery
technology.

Therefore, since then and as can be observed in the 2018 end of the fiscal year
Annual Report, they recognize the new approach, stating that: “As part of our business,
we seek to protect our intellectual property rights such as with respect to patents,
trademarks, copyrights, trade secrets, including through employee and third party
nondisclosure agreements, and other contractual arrangements. Additionally, we
previously announced a patent policy in which we irrevocably pledged that we will not
initiate a lawsuit against any party for infringing our patents through activity relating to
electric vehicles or related equipment for so long as such party is acting in good faith. We
made this pledge in order to encourage the advancement of a common, rapidly-evolving
platform for electric vehicles, thereby benefiting ourselves, other companies making
electric vehicles, and the world”.

Open innovation is not mutually exclusive with the patent system, contrary to what is
believed. Any patent holder can use their patent for any purpose, including publicity and
marketing, such as done by Tesla to generate good will. It can be seen the company
believed that the goodwill from its offer not to sue good faith third parties for
infringements of its patents is more beneficial to its business than litigation can ever be.
Among the reasons, it can be to avoid the cost of litigation, but also to invite more
knowledge on the next developments.

SAQ 4: Discuss the role of the patent system in view of this case and the companies’
policy.

Type your answer here:

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Activity 3
Here below you will find some success stories13 where intellectual property, and specifically
the patent system, were key for incentivizing and promoting innovation.

Please read carefully and answer the following questions.

Using IP to Attract Investors

https://www.wipo.int/ipadvantage/en/details.jsp?id=2545

Bio-plastics: Letting the Planet Breathe

https://www.wipo.int/ipadvantage/en/details.jsp?id=2613

SAQ 5: Explain in a few words what the invention is and what problem it solves in
each case.

Type your answer here:

13 Taken from Case Studies on Intellectual Property (IP Advantage). Available at the WIPO website, where you can also find other
cases studies in which Intellectual Property, and particularly patents, have contributed to innovation and economic growth.

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SAQ 6: Discuss what functions of the patent system can be learned in each case.

Type your answer here:

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Activity 4
Poll: Search for an invention which, in your opinion, changed the world or people’s
lives for the better? Share your answer and look for any patents relating to it.

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Useful Resources

(a) Carsten Fink and Keith E. Maskus, Intellectual Property and Development - Lessons from
Recent Economic Research, (a co-publication by the World Bank and the Oxford University Press,
2005), Available at: http://siteresources.worldbank.org/INTRANETTRADE/Resources/Pubs/IPRs-
book.pdf.

(b) Carlos A. Primo Braga, Carsten Fink and Claudia Paz Sepúlveda, Intellectual Property Rights
and Economic Development, (1998), Available at:
http://www.iatp.org/files/Intellectual_Property_Rights_and_Economic_Deve.pdf .

(c) WIPO Translate, Available at: https://www.wipo.int/patentscope/en/wipo-translate/

(d) Global Brand Database, Available at: https://www.wipo.int/branddb/en/

(e) International Patent Classification, Available at:

https://www.wipo.int/classifications/ipc/ipcpub/?notion=scheme&version=20180101&symb
ol=none&menulang=en&lang=en&viewmode=f&fipcpc=no&showdeleted=yes&indexes=n
o&headings=yes&notes=yes&direction=o2n&initial=A&cwid=none&tree=no&searchmode
=advance

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