How can I gain market dominance through patents?
The bane of all business is competition. On a macroeconomic level, competition is critical for social efficiency; it generally drives the conservation of resources, better products, and more effective services. For the individual business – that is, yours and mine – competition has the negative impact of ultimately commoditizing our products and services. When products get commoditized – that is, become commonly available goods produced by multiple suppliers – the only relevant business question is whether you are willing to be the low-cost producer. In a commoditized market, price is the only distinguishing feature among producers; in such a market, unless you are willing to meet or beat the competition on price, your business will quickly become marginalized. The other problem with commoditized markets is that they almost always heavily favor large, established and/or foreign suppliers. Since cost is often driven by efficiency and labor prices, larger companies will often be able to take advantage of economies of scale and foreign labor to undercut pricing.
By patenting product features, you can prevent the commoditization of your product.
For example, imagine that you are a small company in the wheelbarrow business. If ever there was a commodity business, this is probably one. Wheelbarrows have been commonly produced for multiple millennia in every country of the world. Let us say that the leading producer of wheelbarrows in the United States is Acme Industries, and that their products are largely produced in China and imported into the United States. To compete as a wheelbarrow supplier, you will need to either compete on price or provide a set of product features that are not available from Acme. Competing on price will require that your company find a way to buy raw materials at lower price and then operate factories more efficiently and at a lower cost than those operated by Acme. Since Acme has been established in business for many years, however, they have acquired a tremendous institutional knowledge base of cost-efficient business practices and processes relating to the manufacture and distribution of wheelbarrows. Therefore, it does not make rational business sense to try and attack Acme on price alone.
Alternatively, your company could innovate a set of wheelbarrow features that Acme does not have. For example, perhaps your wheelbarrow has a deformable tub. In the wheelbarrow trade, the business end of the wheelbarrow that carries stuff is referred to as the tray, tub or bucket. Your company’s deformable tub is made of synthetic rubber that is shaped to automatically shift the load to the center line of the tub so the wheelbarrow is self-balancing and much easier to maneuver. Furthermore, your design has a durable plastic hatch built into the tub that can be opened to completely drain the wheelbarrow of its contents (gravel, cement, water, etc.) And since the tub is manufactured of synthetic material it will never rust or corrode, even when used with lime, caustic fertilizers and powdered swimming pool chlorine.
If patents can satisfactorily protect these features, then Acme is no longer a competitor. The products that your two companies produce are different and will support different price structures in the marketplace. The price of your wheelbarrow will now be set by the relative value of the additional features that your product provides to consumers, and not simply by how low Acme can or is willing to price its products. Patent protection decommoditizes your products and allows pricing to be driven by the value of the differentiating features.
Contact John Ferrell at JFerrell@carrferrell.com if he can further assist you.
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About the Author
John Ferrell is a founding partner of Carr & Ferrell LLP, one of Silicon Valley's foremost technology law firms, and specializes in patent and intellectual property law matters. He is the Chair of the firm's Intellectual Property Practice Group.