By Marco Morbidini and James Nurton
In industries as diverse as automotive, medical equipment and mobile phones, today’s products are technologically complex – and are often covered by hundreds or thousands of patents. Patents are essential not only in protecting these products, but for protecting the role of suppliers in the related supply chains.
Now that the world has witnessed supply chains becoming disrupted, it is perhaps the right time to focus on the vital role that patents can play in creating, securing and ultimately stabilising new or existing supply chains. And the importance of this aspect of patentable innovation is likely to increase, as supply chains become ever more valuable.
The role of patents in supply chains
Many of today’s most important and successful industries have very long and articulated supply chains, reflecting the diversity, complexity and the multi-disciplinary nature of commercialised technology. The automotive sector, for example, has the so-called original equipment manufacturers (or OEMs), which we all know, and a plethora of tier 1, tier 2, etc. suppliers, that tend to be less well known to the wider public. It is not uncommon to have many suppliers well down the tier numbers. These relationships are becoming even more complicated as vehicles now require new technology related to communication, entertainment and, in a not too distant future, autonomous driving.
At the root of almost any supply chain is a commodity – such as a plant, a mineral, water or air – that cannot be protected. But value is added at each point as competitors apply their creativity and know-how to transform those commodities and ultimately deliver competitive products and services. IP rights can be used to protect the value that is added at each stage.
Take the smartphone industry. While the amount of material in a mobile device is small (and can weigh almost nothing), the value of the innovation embedded in each telephone is enormous: it has been estimated that a modern smartphone may include more than 100,000 separate inventions. And patents can be used to control how the value in that innovation is realised and then distributed along the supply chain.
For example, a patent owner can use their IP to shape and control a supply chain – through broad licensing, or by attempting to make the innovation part of an industry standard. Alternatively, the IP can be used to gain market share, by protecting product features or manufacturing processes, or by licensing it in a very limited way, to maximise remuneration. IP rights can alternatively be used to block competitors from launching competing products that infringe, thus potentially creating lucrative ‘bottlenecks’ in the supply chains.
In other words, IP rights have the ability to provide businesses that are involved in complex products and services with choice: do they control, dominate or disrupt the supply chain?
Supply chains interrupted
Unfortunately, the past few years have shown the problems that may arise when complex supply chains are disrupted. The lockdowns and travel restrictions arising from the pandemic, followed by the interruption of supplies of commodities such as gas, oil and wheat following the Russian invasion of Ukraine, have throttled commercial lines, reduced choice and increased costs. This unprecedented combination of events has affected industries from food to medicines and semiconductors.
In these circumstances, patents can become even more powerful: they can create further obstacles, thereby holding up commercialisation, or they could be used to enable the development of new products and services. Used positively in this way, patents can help companies win contracts, build businesses and create new markets – in fast-changing economies.
This positive role of patents in managing risk, and building opportunities, in an unpredictable world is evident in fast-growing and rapidly adapting industries as diverse as space exploration, renewable energy and automotive.
Patents in action
The automotive industry has been at the forefront of debates about patents and supply chains, and in particular the issue of whether the patent owner can decide whom to license in a complex supply chain has been closely scrutinized. In litigation between Nokia and Daimler in Germany, a question was referred to the Court of Justice of the European Union (CJEU) and Daimler also filed a complaint to the European Commission (EC). However, in June last year the parties settled the matter and signed a patent licensing agreement in which Nokia licensed its mobile telecoms technology in return for a payment, leading to all proceedings being closed.
That is just one of many agreements between car makers and telecoms companies that aim to facilitate the smooth rollout of connected vehicles through patent licensing. Many of these have been achieved through the Avanci marketplace, which offers licences to patents owned by a range of telecoms companies; in recent months, Ford, General Motors and Volkswagen have either signed or extended licensing agreements through the platform.
The fast-developing space industry is another one where IP rights add value in complex supply chains. Many of these IP owners are small or start-up companies specialising in a particular aspect of the industry: patents enable them to ensure that they reap the benefits when their research is commercialised. Examples of such innovative companies include D-Orbit, which is based in Italy and develops space logistics technology and transportation solutions to help companies maximise opportunities in space, and LeoStella, a Seattle-based company that is reinventing satellite constellation development and manufacturing to fuel new products and services.
Another area where patents have an important role to play is renewable energy. The Guardian recently reported that solar and wind power generation have been impacted by supply chain problems – contributing to the rise in energy prices. But, as the recent EPO/IEA report Patents and the Energy Transition highlighted, innovation is vital for the energy sector to reach net-zero emissions: “Technologies still currently at the prototype or demonstration phase represent around 35% of the cumulative CO2 emissions reductions needed to shift to a sustainable path consistent with net-zero emissions by 2070.” Patents will help to build new supply chains to get these technologies off the ground commercially, in a similar way to the successful examples of LEDs and lithium-ion batteries.
Find your role
In a world of complex technologies and respective supply chains, it is increasingly the case that many different patented solutions will have a role to play in delivering market-ready products and services. Fundamental questions that every innovative business should therefore ask are:
Where does my technology fit into the supply chain?
What value does my technology add?
Is that value captured, and if so how, by patents or other IP rights?
How can my patents ensure that my business plays a positive role in controlling or securing the supply chain?
One of the benefits of patents is that they ensure the commercial benefits of new products are not limited solely to the ‘downstream’ businesses, i.e. those closest to the ultimate sale of patented products and services to end-consumers, such as car OEMs or other manufacturers or suppliers, but are distributed down the line to everyone whose innovation has contributed to the final product. At Kilburn & Strode, we prioritise helping innovative companies to identify where in that chain they are collocated, how they add value, and how they can obtain the maximum benefit from their IP to deliver economic progress and commercial rewards.
If you'd like to discuss this further, please contact Marco Morbidini or your usual Kilburn & Strode advisor.