By Dominic Elsworth, Hargreaves Elsworth
History is littered with groundbreaking technological advances that have the potential to make great leaps forward, yet fall flat and fail to displace the technology of the day. There are many examples: the MiniDisc, Citroen’s hydro-pneumatic suspension, Polaroid cameras (now having a renaissance).
Many inventions are protected by patents. This is not surprising since patents provide their owners with the right to stop others from doing what is protected by the patent. The quid pro quo is that the invention is put into the public domain, rather than being kept secret, so that when the patent terminates anyone can use the technology. Whilst there are some opponents of patents, most countries believe that the state of humankind is enhanced by offering those who develop products and processes some protection for a limited period of time.
So why does some new technology fail to establish itself in the marketplace? Most consumers are quite conservative and need to be persuaded to change. So how can patents help businesses generate widespread adoption of a new technology when a patent’s function is to allow the owner to stop other people making/selling the thing that is patented?
Whilst a patent does allow an owner to stop others making/selling the patented technology, this is not an obligation. Instead of patents being used to stop competitors from making/ selling a new technology, what if the patent owner allowed competitors to use the patent and compete in return for a royalty payment? Inviting competition may seem to defeat the purpose of obtaining a patent in the first please, however if more participants helps to create a market that would not otherwise exist, such a strategy could be very worthwhile.
This is what the Dutch dairy equipment manufacturer Lely Industries did in the early 1990s when robotic milking machines were a nascent technology (I am old enough to remember robotic milking machines appearing on Tomorrow’s World). Three decades later in many European countries over 30% of dairy farms have moved to robotic milking machines. In the UK, where adoption has been slower, over 30% of new milking parlours are robotic.
Lely Industries holds 70% market share.
As with many aspects of business, a good share of something is much better than 100% of nothing.
Traditionally, advisers think of licensing technology in circumstances where the patent owner doesn’t want to be involved in manufacturing and selling, or as part of an international strategy where local manufacture makes sense. However, Lely Industries has demonstrated that there are scenarios where it makes sense to be both a manufacturer/seller and to license competitors.
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