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I would like to discuss Indian Pharmaceutical Industry in particular here. Indian pharmaceutical sector has come a long from being one of the small sectors till 1970 to a vital supplier of healthcare products, serving alomost 95% of country’s needs. India is now known for producing high quality generics sold globally. India has seen immense growth in the past decade in the Pharma industry, with a lot of small companies starting generic business. Companies like Cipla and Ranbaxy going global and trying to ply with the international regulations has changed the game.
India is piped to be among Top 10 by 2020 by leading researchers.
Structural demand drivers including – a) rising household income levels, b) increasing prevalence of lifestyle related diseases, c) improving healthcare infrastructure/delivery systems and d) rising penetration in smaller towns and rural areas continue to support long-term growth. [1]
A large number of patent expirations continue to offer strong growth prospects for generic players in the developed markets; In the recent quarters, a peer set of seven leading generic players have reported a fairly strong revenue growth in the US driven by steadily expanding product portfolio and exclusivities.
It is still believed that the growth is going to continue with the pipeline products and niche, limited competition products.
Indian pharma industry currently is regulated by the Indian Patent Act, 1970. The acts purpose was the growth of indigenous Indian industry and provide public with low cost drugs. Since 1970, the act act has seen three amendments. Indian parliament approved India’s patent legislation in 2005, which establishes product patent protection for pharmaceuticals in India.The act allowed only two types of generic drugs in India: off Patent Generic drugs and generic versions of drugs patented before 1995. At present, 97% of the drugs manufactured in India are off patent.
Drugs prices are among the lowest in the world, and so the imports are not allowed. According to a report by the Journal of the International AIDS Society [2]:
-Indian generic manufacturers dominate the ARV market, accounting for more than 80% of 2008 global purchase volume;
-among pediatric ARV and adult nucleoside and non-nucleoside reverse transcriptase inhibitor markets, Indian-produced generics accounted for 91% and 89% of 2008 global purchase volumes, respectively;
-from 2002-2008, the number of Indian generic manufacturers supplying ARVs increased from 14 to 53;
-Ninety-six of 100 countries purchased Indian generic ARVs in 2008, including high HIV-burden Sub-Saharan countries;
-Indian generic producers supply the majority of ARVs to developing countries.
There is nothing in the pending Indian-EU Free Trade Agreement that would affect the FDA’s continuing program to classify more ARVs from Indian producers as true generics. In recent years, some of the most contemporary ARVs under patent continue to be classified by the FDA as generics, a situation that only improves India’s position in global pharmaceutical markets. Without the FDA’s intervention, India would have had to comply with WTO provisions and honor these patents, allowing the right-holders to produce and market these drugs as generics for their own proprietary ROI. [2]
Patent expirations, weak pipeline quality and increasing focus by Governments to reduce healthcare costs continue to exert pressure on innovator companies which supports outsourcing to low-cost nations.
All these changes have affected the Indian Pharma industry and the changes have been only after the Public intervention. India is a growing country and frequent changes in the regulations are seen in various other industries also so that we can deal with the dynamic nature of the market. This is necessary in the market of technology to grow as an economy and grow at a rate as fast as India is growing.
Show lessOnce again, it is very instructive to read about the Indian experience. Thanks.
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As mentioned in the article above, there are major obstacles to a functioning market for technology. Bearing in mind the positive welfare effects that a functioning market may entail, policies conducive to a more dynamic and interactive marketplace seem essential. In what follows, I will analyse some selected challenges separately and elaborate on potential solutions.
A major problem is coordination between potential buyers and sellers. This problem is potentially easily solved and yet problems arise when measures are put into effect. Several attempts to establish virtual markets which process and supply information have fallen short to attract sufficient agents, in order to create a functioning diverse and heterogenous market. Hagui and Yoffie elaborate a very comprehensive description of Yet2.com and Tynax and argue, that the latter haven’t been able to solve the chicken and egg problem. Meaning that neither group what truly unfold in a virtual environment, if the other didn’t. In many cases, neither made the first step. So the problem of coordination isn’t solved buy merely creating a platform for interaction. However, the problem may be solved if a structure with this ambition was erected in an environment that both groups already interact in, namely a state organised one with close links to national patent offices. Such an establishment could, in blatant opposition to other intermediaries, pursue not only a private but the social aim. A different approach is taken by the Startup America initiative, which seeks to facilitate interaction by assigning innovators (especially small ones with limited expertise and resources) business mentors to guide them through the marketing process. The mentor idea is particularly interesting, because it deviates from what you think a government may do. For example, Mexico established a separate entity, the CONACYT (Consejo Nacional de Ciencia y Tecnología) to facilitate interaction between researchers, innovators and business. It’s always surprising how little was actually done. Some officials are just to far away from what happens in business. Business Mentors may not be.
Another related problem, is not only the location of potential sellers, but also their realistic consideration as a business partner. Hagui and Yoffie formalise this by considering portfolio effects, which undermine individual patents due to its frangibility in competition and potentially litigation. Patents pertaining to portfolios, on the other hand, can be defended by legal measures more easily. Given this unbalance, it is logical that “patent trolls” are capable of exploiting the situation. However, the perceivably high mark-up on their services rather mirrors the unbalance than it does do away with it. An alternative approach may again be a state funded initiative with the same mission, but lower fees. An alternative approach may be a private coalition of operating companies investing in defensive patent aggregators. Though this could entail potentially harmful competition effects, it would still do away with arbitrage by Patent Brokers, and inefficiencies resulting from too little innovation. Whether this works is arguable. Intellectual Ventures may be a feasible example. However I believe smaller, industry specific, undertakings, could be more effective in assembling patent portfolios and granting licenses to subscribers.
Another problem, of overwhelming magnitude, are the costs incurred by negotiation and contract drafting. This problem was recently taken on by the Obama administration with its patent reform. Cutting the time it takes to process a patent to 12 months, as aspired by the Enhanced Examination Timing Control Initiative could substantially lower the costs for all parties involved, especially innovators. Furthermore, the mentoring program provides business and legal expertise to innovators, which is crucial in assuring comprehensive and impartial negotiations. However, I believe the problems of negotiation costs and contract costs are apparent in all markets with high turnovers. And inequalities will persist as long as asymmetric information plays a role and humans have time constraints. Perfecting the process and reducing the costs to a minimum by supplying information through different channels is the best policy makers can do to mitigate this.
One last problem I would like to involve is uncertainty about the values of an innovation. Because patents are unique by definition, it is hard to find comparables and thereby determine their value. Initially the economic value can only be estimated roughly, perhaps not even that. Furthermore, Hagui and Yoffie argue that often a patent is determined by your desire to fight for it, in other words, your opportunity cost of going to court. This is further exacerbated by the fact that your personal value is lower when you consider Shapiro and Lemley (2005) argument about probabilistic patents. The insecurity does not really escalate your will to go to court over it. However, the value problem could be solved auctions. Though this has so far only been practiced (as far as I know) by Ocean Tomo, and it turned out to be a failure due to the same reasons online IP platforms encountered, it would solve the inherent problem of determining a patents value, as the value would reflect the perceived or estimated economic gain of every agent. This is still better than the alternative. Since having an auction for every single patent appears to be very costly, a plausible solution could be to have patent aggregators assemble the right to sell the patents, without buying the patents, moulding them into reasonable portfolios, and then auctioning licensing fees. Afterwards, the earnings could be transferred back to the innovator, our the patent acquired at a fair price.
The Market for Technology has many flaws. It seems to be very young and obstacles are yet to be overcome, though there is room for both private and public ambition, to pioneer different methods to increase efficiency in the future.
Sources:
http://judiciary.house.gov/issues/issues_patentreformact2011.html
http://studentorgs.law.smu.edu/getattachment/International-Law-Review-Association/Resources/LBRA-Archive/16-4/8-Shadlen.pdf.aspx
http://www.whitehouse.gov/innovation/strategy/executive-summary
http://www.conacyt.gob.mx/Paginas/InicioNueva.aspx
Hagiu, A., Yoffie, D., 2011, Intermediaries for the IP market, Working Paper, Harvard Business School
Arora, A., Fosfuri, A., 2003, Licensing the market for technology, Journal of Economic Behaviour & Organisation, Vol. 52: 277–295
Nice summary of the main problems.
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Markets for technologies: big hopes and big difficulties.
It is an appropriated title in the sense we have access to all the sources that we need to develop efficient markets for technology but at same time we do not know how to deal with them.
The IP law enables to create different types of rights that may improve the development of markets for technology. Firms might be able to use those rights of the technology of others with benefits for both. The firm which innovated receives revenue from the lent rights and the firm which has used the rights reduces its costs in innovation.
This is a basic explanation about what should happen but the fact is that is not such easy. There are some difficulties in this procedure as it is said in the article in the exchange of patents. The problem of finding a point where sellers and buyers come to an agreement or the high costs that they may have.
These difficulties can only be beaten by certain interventions, which allows the improvement of these markets for technology in terms of patents.
Some potential interventions in patents might be e.g. increasing the proper technological sources or increasing the speed of the processing of patents due to the huge accumulation that exists in some countries (like Japan) in which they have thousand of patents pending of being processed. I think this happens due to the lack of human resources who analyses in detail all those patents so it is something that also should be covered.
Concerning with the topic of pharmaceutical industry which you have chosen to talk about the case of K.U Leuven, I’ve found some data about pharmaceutical patents and Intellectual Property problems in Latin America.
They have the challenge of finding a equilibrium between patents, industrial policies and the sanity.
Through the creation of new patents they have got access to new methods in the fabrication of medicaments, but it can lead to the reduction of competence and the access to less number of medicaments than previously.
Nowadays, Latin American countries demand more time to evaluate the national and international legal framework in terms of Intellectual Property. This means that they analyze the laws to acquire a better purchasing power against the firms.
In relation with EU and the USA, these countries have new obligations in Intellectual Property and have improved the production within the pharmaceutical development of the national industry. Nevertheless, the participation of Public Sanity has been almost inexistent in these negotiations within countries.
Personally, I think that the best intervention by governments would be encourage legal measures to ensure the good functioning of markets for technology in which firms cooperate through the use of rights and patents to benefit themselves.
Reference: http://www.ipd-farma.org.br
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I wrote my first comment on this blog about the European Regional Developpement Funds (ERDF), let me show you now a good practice made by one project benefiting from those funds.
It’s called Globaltech Rioja and was implemented in Spain, La Rioja. It aims at creating a regional economy base on knowledge and technical innovation. It’s a good example of a public intervention that improved the functioning of the innovations markets. The region wanted to reach the 3% R&D&I investment/GPD ratio by 2010.
The first step was the creation of a network of innovation managers and 273 businesses. Then, a catalogue with all technologies applied in competitor countries outside EU that could be exported in la Rioja was published. The project has involved the collaboration of experts in innovation, research and technological development. They created new knowledge poles in order to better links research centers with industry and public sector.
Besides, the experts visited some businesses in order to conduct diagnoses and to see the needs they had. Many actions have been taken to promote innovation in business, increase regional competitiveness and improve the availability of technology.
The network published Good Practice Guides to help and guide business in getting innovation technologies and support. Moreover, it participated actively to platforms in order to exchange their practices and experiences, such as the Network for the Sustainable Development of Innovative Actions, and the Network of Innovative Regions (IRE Network)
The results are inter alia: technological benchmarking, cooperation agreements, cluster developments. They made for example collaboration agreements between technological centers in China and La Rioja.
More information and other innovation transfer projects: http://ec.europa.eu/regional_policy/projects/stories/details_new.cfm?pay=ES&the=45&sto=1784&lan=7®ion=ALL&obj=ALL&per=2&defL=EN
http://www.innova-europe.eu/node/6
Very instructive example.
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I would present the example of the steps Australian government have taken to improve the collaboration between the researchers and commercialising firms. One such case is Enterprise Connect that offers comprehensive, confidential advice and support to eligible Australian small and medium businesses to help them transform and reach their full potential. Their services include Researchers in Business grant that allows having a researcher from a university or public research agency within the business to help develop and implement new commercial ideas.
Commercialisation Australia which is an initiative of the Australian government to facilitate the process for Australian companies, entrepreneurs, researchers and inventors looking to commercialise innovative intellectual property. It is a competitive, merit-based assistance program offering funding and resources to accelerate the business building process. It offers a range of funding options as well as multi-layered networking opportunities to help achieve business success. Hence this reduces the cost of negotiating and writing licensing contracts which is mentioned in this blog. Furthermore this helps the buyer and seller to find each other. Each participant is assigned a Case Manager for the duration of their time with Commercialisation Australia. The Case Managers draw on their extensive experience in commercialisation to guide participants through the commercialisation process, and facilitate participants’ access to experienced Volunteer Business Mentors. Volunteer Business Mentors have a mix of skills and experience – these include extensive experience in building successful businesses and/or knowledge across a range of speciality fields – and so are well placed to offer insights into the commercialisation process.
As at 2 November 2012 Commercialisation Australia had announced support for 322 Participants with grants valued at more than $126.5 million.
[1] http://www.enterpriseconnect.gov.au/ecservices/Pages/default.aspx
[2] http://www.commercialisationaustralia.gov.au/Pages/Home.aspx
Very useful for my own research 😉
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Patent market is a huge potential source of revenue for any enterprise practicing any form of R&D, Universities included: “in 1996 alone, US universities patented 5,100 new technologies and licensed 2,142 of them. They earned $274 million from the new licenses.” said the Association of University Technology Managers [1]. By enhancing and facilitating the patent market, governments can help solving one of the biggest problem of education in many countries, which is finance. In this commercial philosophy, Japan is to be noticed.
A recent survey by the Japan Patent Office [2] demonstrated that roughly one third of all the 650 000 japanese patents were exploited and used. The 400 000 remaining are said to be “sleeping patents”. Moreover, half of them have a commercial potential and 90% of japanese universities and companies would like to increase their licensing deals.
After having discussed with the US trade officials, Japan comes up with a plan to foster sleeping patents awaking as a cure to the actual crisis. This plan goes in three major steps:
Firstly Universities and companies have to set up departments focussing on international licensing and securing deals.
Afterwards, thanks to those departments, universities and companies will need to certificate their technologies within the US patent system in order to make them marketable.
Finally, is it possible to start the commercialization step including market analysis, competitors, market trends… [3]
An example of this policy is The Innovation Network Corporation of Japan [4] , capitalized at 92 billion yen. With the Japanese government providing 82 billion yen and 19 private corporations providing 10 billion yen. [5] One of this organization’s purpose is to “buy unused patents at universities and public research institutes, group them together as packages, and give the licenses to use them to domestic and foreign companies, so they can develop new medicines and treatments. Presently universities are the main target, because they use only an estimated 20 percent of their own patents. In many cases, the universities have not acquired related patents needed to deepen their research, resulting in wasted potential. The fund plans to buy over the next three years as many of the estimated 2,000 unused but promising patents kept at universities.” [6]
This a relevant example of the causes and consequences of a governmental policy about patent market.
[1]: http://www.autm.net/Home.htm
[2]: http://www.jpo.go.jp
[3]: http://www.wired.com/politics/law/news/1997/03/2506
[4]: http://www.incj.co.jp/english/
[5]: http://www.innovationexcellence.com/blog/2012/02/14/exploring-the-innovation-network-corporation-of-japan-incj/
[6]: http://sibylleito.wordpress.com/2010/08/09/review-sleeping-patents-as-the-cure/
Very instructive, thanks.
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In the following I would like to give some aspects about the meaning and functioning of markets for technologies/ markets for patents.
Patents do play a key role in the developement and functioning of a market for technology. The reason for focusing on these markets is that they greatly reduce the transaction costs involved in buying and selling technology. (Arora and Fosfuri (2000))
Especially the past two decades have shown a change in the innovative activities. Today, firms are forming joint ventures, R&D alliances, licensing deals, and some other outsourcing arrangements (e.g. with universities and technology-based start-ups). These arrangements offer the advantage of reducing transaction costs (contractual and cognitive). In many industries, a division of innovative labor is emerging, with a substantial increase in the licensing of existing technologies. In short, technology and knowledge have become definable and tradable commodities.
The economic literatures have touched upon some aspects of the nature of these markets, but a deeply understanding of how markets for technology work is still lacking.
Because of this, these markets for technologies bring new challenges to the firms. Markets for technology change the traditional mindset in which the only available option for a company which is wishing to introduce an innovation is to develop the technology in-house. Or for a company developing the technology to own the downstream assets needed to manufacture and commercialize the goods. This affects the role of companies as technology users (they can buy technologies) and as technology suppliers (they can sell technologies). At the industry level, markets for technology may lower barriers to entry and increase competition. Though, the existence and efficacy of markets for technology can also influence the creation and spreading of new knowledge, and hence, economic growth of countries and the competitive position of companies. The competition affects the incentives of incumbent firms that hold proprietary technology to license it. Further, the presence of rival sources of technology, particularly from specialized firms, is a powerful spur for technology being licensed and sold by licensing.
But there are also disadvatages: One is that technology can be under-utilized. Technology, once produced for high costs, can be transferred at only a fraction of the original costs. Since there are limits to how large a firm can grow, a firm that develops a technology can potentially gain by selling it to other firms, including firms in other industries and countries. But selling technology is difficult – i.e., when the market for technology is underdeveloped and inefficient. Then the gains from trade cannot be realized.
Interventions and rules made by public authorities or the already existing patent brokers (e.g. IPOferrings) should help organising and controlling these markets, so that they cannot be misused.
Just to give an example for the power of patens for technologies (see full article: http://www.nytimes.com/2012/10/08/technology/patent-wars-among-tech-giants-can-stifle-competition.html?pagewanted=all ):
„When Apple announced that all future iPhones would come with a voice-activated assistant named Siri (capable of answering spoken questions) Michael Phillips’s heart sank. For three decades, Mr. Phillips had focused on writing software to allow computers to understand human speech. But in 2008, Mr. Phillips’s company (Vlingo), had been contacted by a much larger voice recognition firm called Nuance (Mr. Ricci): “I have patents that can prevent you from practicing in this market.” Nuance issued an ultimatum: Mr. Phillips could sell his firm to Mr. Ricci or be sued for patent infringements. When Mr. Phillips refused to sell, Mr. Ricci’s company filed the first of six lawsuits. Soon after, Apple and Google stopped returning phone calls. The company behind Siri switched its partnership from Mr. Phillips to Mr. Ricci’s firm. And the millions of dollars Mr. Phillips had set aside for research and development were redirected to lawyers and court fees. A jury ruled that Mr. Phillips had not infringed on a broad voice recognition patent owned by Mr. Ricci’s company. But it was too late. The suit had cost $3 million, and the financial damage was done. In December, Mr. Phillips agreed to sell his company to Mr. Ricci. “We were on the brink of changing the world before we got stuck in this legal muck,” Mr. Phillips said.
Mr. Phillips and Vlingo are among the thousands of executives and companies caught in a software patent system that federal judges, economists, policy makers and technology executives say is so flawed that it often stymies innovation. Patents are vitally important to protecting intellectual property. Plenty of creativity occurs within the technology industry, and without patents, executives say they could never justify spending fortunes on new products. And academics say that some aspects of the patent system, like protections for pharmaceuticals, often function smoothly.
However, many people argue that the nation’s patent rules, intended for a mechanical world, are inadequate in today’s digital marketplace.“
Sources:
– „Uncertainty and the Market for Patents“ (Irene Troy and Raymund Werle, 2008)
– „Markets for Technology – Why do we see them, why don’t we see more of them, and why we should care“ (Arora/ Fosfuri/ Garnbardella, 1999)
– http://www.nytimes.com
– http://www.ipofferings.com
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Nowadays, in many countries, there is an increase in the division of necessary labor to develop an innovation. Indeed, this is possible by the licensing of a patent for existing knowledge. Thanks to the cooperation between the firms, technologies and inventions are becoming trade assets. However, to develop an exchange of some discoveries we need a suitable market. This is why markets for technology are particularly important these days. This achievement is now possible by the means of licenses but it is undoubtedly feasible to improve even more.
First of all, we can take into account that the division of labor has a lot of impacts on the economic growth and the industry structure. The boundaries of the firms are changing with the market for technology. Moreover, the globalization broads even more these frontiers. Given that, I think that the authorities should clarify the boundaries because the laws are not the same everywhere. So, firms must be able to adapt their processes according to the country.
At the time of globalization, technology licensing and technology transfer are important factors for some strategic alliances and for the development of international joint ventures if you want to maintain a competitive advantage in a market economy. That is why we tend to facilitate them by creating a climate which is favourable to the investment and the economic development at an international level.
Besides, with the current crisis, it is very risky to invest in new technologies or to spend lots of money in R&D. As a result, the firms are hesitant about investing in R&D. This can create a lack of innovation. Fortunately, many governments tend to promote entrepreneurship and venture capital investment. But, in my opinion, the bigger economic problem is not really the lack of incentive to innovate but the exclusivity of patents which freezes the competition. In fact, the exclusivity prevents the spreading of knowledge although this propagation can improve the social welfare level. As you has argued in your post: “From an economic point of view, transferability is as important as exclusivity. Why? Because transferability makes sure that assets are used by the agent with the highest valuation and, thereby, lays the ground for the creation of a market for technology.” Indeed, if the technology is used by the most efficient supplier, there is no reason to transfer this expertise to another company. The advantage is that it is not necessary to set up a market for technology but how know if the select agent is the only one with the highest valuation without considering all the possibilities? In my opinion, it is almost impossible to be sure that the producer is the one who has the highest valuation; especially in the present fluctuating context. The greatest solution is not the best ever. I feel that to assess the more efficient supplier we need competitive markets. This means establishing market for technology in order to exchange the knowledge between the potential competitors. So that, each company is able to test the opportunities of a new technology.
Therefore, diffusion and transfer of technology are essential to support the patent system. The holder of a patent grants a license to a third party and gives him the permission to use the patented invention, while remaining the owner. Licensing not only creates a source of income for the holder of a patent, it also permits the transfer of knowledge between several scientists and engineers who can bring their own contribution for the improvement of this technology. By the way, technology licensing plays a crucial role in the economic development. So, it is important to establish a legal framework for the allowing of intellectual property. The continuous progress of science and technology has eliminated the traditional boundaries between fields of technology. These days, there is a fusion of technologies in many areas. What requires increasing research and a great collaboration.
Apart from that, the commercial sector plays a major role in R&D, but many of the core technologies that have a significant impact on the everyday life are derived from research funded by public funds. According this view, a great improvement would be made. A best collaboration between the private and public sector research is needed. For example, Universities and public research organizations could develop a joint intellectual property policy in order to manage their intellectual property rights relating to their search results.
As a final point, given that each patented technology is unique, each license reflects the specific needs and expectations of the inventor. However, before concluding such an agreement, we must determine the value of the patented technology. This task is obviously more difficult for a technology than for a tangible asset. Although there are already existed processes, several methods could be designed to facilitate this assessment…
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The major problems mentioned in the article concerning the trade of IP rights are bringing buyers and sellers together, drawing up contracts, high costs of negotiation and uncertainty about the subject’s characteristics. To solve these problems, various approaches have been undertaken. However, none of them has proven to be the best solution yet. One way of trading technology is to create a strategic portfolio of patents and license them, while other companies seek to sell their patents, e.g. via online marketplaces. Trading platforms are provided by public and private institutions, whereas the private ones seem to possess a higher user acceptance than public alternatives. This might be attributed to enhanced user friendliness or the presence of global players among the users of commercial platforms, although commercial platforms charge fees. But with respect to the size of IP rights exchange platforms, the trade of IP rights is still no common transaction for the majority of companies, which are aware of the risks such trades involve. Therefore most firms currently still prefer to use patents in a defensive way instead of trying to earn trading profits.
Public IP rights services can be found in nearly every country. In Europe, the “Community Research and Development Information Service” (CORDIS), created by the EU, provides R&D related information and matchmaking service free of charge. SIGNO (former INSTI), which comprises private and public regional institutions, is a German matchmaking platform. The German Patent and Trade Mark Office (DPMA) also offers an online database containing patent information, as well as the Intellectual Property Office in the United Kingdom (IPO) in the UK. In Japan for example, the “National Center for Industrial Property Information and Training” (INPIT) assists companies which want to license patents. Users can browse an online database and gather information about patents, e.g. the patent’s owner or the patent grant number. In addition to that, INPIT also runs matchmaking services. According to a report of the OECD in 2009, the amount of licensing transactions via INPIT accounts to more than 12,000 since 1997.
The Expert Group of the EU, already mentioned by a fellow student, classifies an IP rights exchange platform at European level as “not necessary”. Instead, the Patent Register of the European Patent Office (EPO), which is seen as a “key instrument to provide companies with an easy access to patent information”, should be upgraded by an extended database and a more user-friendly interface.
Most commercial platforms still are in their initial phase and only platforms including an user-friendly interface and a large user group will continue to exist. An upgraded EPO could also accelerate the proceedings of vanishing platforms with an insufficient number of users or missing features. A technically up-to-date platform with more users could furthermore deliver better results at matchmaking than existing commercial ones. Authorities should therefore consider improving transparency of IP rights trades and develop few, but well-engineered public platforms with a high standard of security and user friendliness. On top of that it is important to set up standards which help users to receive information from the database in a convenient and more efficient way. In that case public platforms might be able to attract many companies, including global players, from what companies and society could benefit. One worldwide public exchange platform would be ideally for reasons of efficiency, but certainly hard to implement.
Sources:
– OECD: “The emerging patent marketplace” (2009)
http://www.oecd.org/dataoecd/62/55/44335523.pdf
– EU: “Options for an EU instrument for patent valorisation” (2012)
http://ec.europa.eu/enterprise/policies/innovation/files/options-eu-instrument-patent-valorisation_en.pdf
– INPIT: http://www.inpit.go.jp/english/about/index.html
– CORDIS: http://cordis.europa.eu/home_en.html
– DPMA: http://www.dpma.de/english/index.html
– IPO: http://www.ipo.gov.uk/
Show lessVery useful comment, thanks.
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I’d like to share some results of an interesting study published this year: “Options for an EU instrument for patent valorisation”. Realized by the Expert Group at the European Union’s request, its aim is to provide recommendations of policy measures to improve the valorization of patents in Europe, one of the main problems of the market for technologies.
The Expert Group defined the patent valorization as “the action of creating value from patents by capturing and extracting their latent economic potential through developing and commercializing the underlying technology.” And this is where the issue lays. Around 8% to 24% of European Patents are still unexploited because of the difficulties to turn them into marketable products and services and especially not insignificant transaction costs.
According to empirical studies, the Expert Group show that this amount of unexploited patents could decrease if European institutions develop a better patent valorization with policy measures that reduce transactions costs.
In their studies, the experts considered thus several policy options relative to three kinds of instruments – Intellectual property rights (IPR) exchange platforms, Ad hoc services for SMEs, Patent funds – and they have given recommendations for each instrument.
IPR exchange platforms:
The goal of these platforms is to help the patent buyers and sellers find each other and so ease the transaction between them reducing the screening costs, usually the largest transaction costs. However, they are still too undeveloped and there already exist commercial platforms that are more effective in the process of transaction and offer more services along. Nevertheless, these ones benefit large companies more than SMEs because the latter often don’t have sufficient information and resources to have access to them.
Regarding this, the Expert Group concludes that the implementation of a European IPR exchange platform is unnecessary and that actions must be taken to help SMEs efficiently using the existing platforms with expert consultants.
Services to enhance patent valorization:
In order to reduce transaction costs and so enhancing patent valorization, public institutions already offer SMEs standardized tools and advises. Yet, these tools are not enough to provide them the necessary skills and expertise they need to make their patented technology into a business. In addition to that, SMEs regularly meet with problems of funding to develop their technology.
Therefore the Expert Group exhorts the EU to take policy measures that would not only financially backed SMEs up but also provide consultants skilled in legal and management issues. Eventually, these services should be set up by Member States so that they can be more adapted to local requirements.
Patent funds:
As the Expert Group defined, the business model of patent funds is to “acquire titles to patents from third parties” before making a profit by “monetizing these patents through their sale, licensing or litigation”. Their advantages are that they can reduce transaction costs thanks to specialization and economies of scales and they are able to bear the cost of technology development and the risks of commercialization.
There are roughly two kinds of patent funds. The first one valorizes patents by short-term application of patent rights and is more likely to harm the innovation. The second one aims long-term technology development and commercialization. Its main problem is that to find customers for such a fund can be so difficult that it risks coming back to short-term patent enforcement.
As a result, the Expert Group recommends that “the patent acquisition process should be driven by market experts based on the demand-side of the market.”
For more information: http://ec.europa.eu/enterprise/policies/innovation/files/options-eu-instrument-patent-valorisation_en.pdf
Show lessThanks for the reference. The report you mention has been written by our excellent colleague Yann Ménière, who is a regular contributor to this blog.
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I will talk about the Enterprise Europe Network. This is a key instrument that helps small business to develop their business in new market, to have access to EU finance and EU funding. But it also helps to source or license new technologies. The aim of this program is to boost growth and jobs by helping the development of SME’s. There is collaboration between chambers of commerce and industry, technology centres, research institutes and development agencies. Most of them have been supporting local businesses for a long time. The EEN is a powerful matching database that gives access to thousand of companies. It links 600 organisations in 52 countries. All of these companies are looking for research, technical or commercial partner.
About the intellectual property rights, when firms want to commercialize a new idea, product, service or process, protection is important and especially for SMEs. Thanks to the EEN, they can have contacts with the right organisation and discuss with IP experts. It reduces the searching cost and permits firm to save time and money.
The enterprise European network has a local dimension. There always is a local contact point close enough to each SME, in all country and all regions. For example, in Belgium, there are 14 contact points.
The site of the EEN offers some “success” story. On of them is a partnership between Germany and Spain:
« Researchers at the Karlsruhe Institute of Technology in Germany are developing a knowledge-based system to improve energy efficiency in public buildings. Now with €3.2 million in EU funding, they are working to adapt it to complex buildings like offices in cities across Europe.
The team of researchers from the Karlsruhe Institute of Technology was looking to apply to the European Commission’s FP7’s, the funding instrument for research. The project is about energy efficiency through intelligent energy management, but the institute was missing an essential partner to complete the application: a company with demonstration buildings to track progress.
The team had already worked regularly with their local Enterprise Europe Network branch based in Steinbeis-Europa-Zentrum. “We know their expertise and interests pretty well,’ says Network expert Heike Fischer, “and we are good at tailoring our services to their needs.” Fischer is one of 3 000 Network experts that help companies and research centres increase their chances of submitting a successful funding application.
At a Network brokerage event, the German researchers were introduced to a Spanish company that had complementary expertise. Jaime Duran, from the Andalucian branch of the Network based at the Andalucian Knowledge Agency, was accompanying Elisa Moron from the Spanish tech company Isotrol. The Seville-based company specialises in ICT applied to energy and promptly joined the research project. What’s more, Isotrol boasts two demonstration buildings in Seville, which have turned out to be the perfect testing ground. The project has now been given the go ahead by the European Commission and work in Seville is ongoing. »
In conclusion this kind of platform permits to reduce the costs of searching new partners. It also helps to find buyers and save time. The role of intermediaries is important to make market for technology work better. The efficiency of intermediaries is based, among other things, on the possibility of identifying and matching potential partners. This is one of the goals of the EEN. About the SMEs, a public intervention is a good idea. Because, they don’t really know the market in which they want to commercialize their new product, idea, process or service. They have little experience, and an initiative like the contact local point of the EEN can help to find missing information they need.
Source :
– 2010. German-Spansih partnership to save energy in office buildings, Web. 1st Dec. 2012. Available at :http://portal.enterprise-europe-network.ec.europa.eu/success-stories/german-spanish-partnership-save-energy-office-buildings
-The local contact point of Brussels (1/12/2012): http://www.brusselsnetwork.be/
– Enterprise Europe Network homepage (1/12/2012) : http://portal.enterprise-europe-network.ec.europa.eu/
Excellent example!
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Concerning the subject of public intervention of markets for technology I would like to share some personal experiences. I was working for the research department of the EnBW, the third largest energy supplier in Germany (http://www.enbw.com/content/en/group/portrait/index.jsp) and had to evaluate geothermal energy for power production in the Upper Rhine Valley.
The three existing power plants have problems concerning technology, price and social issues (earthquakes), so that a deep analysis of the potential risks is necessary before starting new research and projects. Subsequently to this first research a big project was supposed to be launched, with a budget of 500.000€ including 2 universities, some engineering consultants, EnBW and Marsh, a global leader in insurance broking and risk management (http://uk.marsh.com/AboutUs/AboutMarsh.aspx).
A motion was filed at the energy department to finance 50% of the project. Two months later there was a positive feedback from the government, the project was ranked a high priority but another 3 months later financial aid was not granted. This was due to the fact that one engineering consultant was handing in the same research several times in order to maximize its profits. So a new motion was filed for the next deadline half a year later.
All in all the start of the project was delayed for more than one year knowing that the two big companies will launch this project no matter if it is supported or not, indicates the insufficient mechanisms of public intervention on markets for this case.
The difference of this project to the researches presented in the earlier blog consists of the non-patentable knowledge. Depending on the industry there are research departments whose results aim to collect data, reduce costs and enable optimization instead of granting patents.
Especially for renewable energies in Germany, high amounts of public support is available and the development of technology is pushed enormously, keeping in mind that solar power was subsidized by paying 4-times the price of conventional power.
Another problem of public intervention is a standard of asymmetrical information between company and government, since the people granting funds cannot be experts on all fields of research they deal with. Therefore the personal motivation and real cost structure of the project can easily be hidden, increasing the overall costs of research and social welfare at the same time.
Furthermore the connection of policy and research can be regarded critically; as a consequence some topics are easier fundable than others, because they have a stronger public support and interest. As a possible consequence, knowledge is accumulated without regard to needs of industries, which might never be used for practical implications.
Above all, I am convinced that public intervention for technology is necessary to support especially new markets and technologies, to create the basis for further research by the industry. Administrative burdens have to be reduced to a minimum. This example showed that if big companies have a serious interest in a project, they will find means and ways to finance it.
Markets for Technologies (MfT) facilitate the transfer of technologies to firms better positioned to profit from them. By specializing either on knowledge creation or commercialization firms can get additional profits.
Patens are the tradable assets for technology, therefore transactions on MfT can easily be measured in patent licenses and sales. As a consequence of intangible assets and IP rights, there is a separation between an asset (knowledge) and the property right attached to it, which leads to the separation of two markets; Market for Technology and Market for Patent (T. Fischer & J.Henkel (2012):Patent trolls on Markets for Technology; research policy 41).
Positive results of MfT are diffusion of innovation, there recombination and reduction of costs, but at the same time increasing market domination and hypes. One the one hand we have inefficiencies of MfP, when patents are granted too easily, so that a company succeeds in inventing the same without knowing the patent. On the other hand there is inefficiency of MfT for a patent only transaction, which can be seen when an inventor unknowingly reinvent the patented invention instead of finding the patent and license it. These inefficiencies are made visible and exploited by patent trolls, but if they are responsible for that I dare not to answer.
Show lessVery instructive case study.
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As Troy and Werle (2008) point out there are many patents that are left unused. This means that there is a lot of research done in the end for “nothing”. A study estimated the value of the unused patents in Germany add up to 8 billion €.
Low value of some patents is certainly a reason why they are never used but this is not the only reason. Some companies that have introduced the patent might not be able to use it, as it does not fit with the strategy of the firm, the barriers to commercialization may be too high or the necessary funds are not available.
The absence of a transparent market for innovation, where a company offers (for licensing or for sale) the innovation/patent it has developed to other companies certainly contributed to the high number of unused patents and some efforts need to be done from public authorities in this area.
The European Commission seems to have recognized this issue, as we can see with his Europe 2020 initiative the “Innovation Union”. Looking at the Commitment fiche 22, “Develop a European Knowledge Market for Patents and Licensing”, the commission explains the problem like this:
“The Intellectual Property (IP) market is currently a very illiquid asset class with a very inefficient marketplace. Barriers concerning the uptake of the IP market are numerous…”.
As examples we can cite, the inability of companies to find a market for IP rights that is transparent and which provides a fair value estimation, the difficulties to set up contract standardization and thus the complexity and inefficiency of licensing or selling of IP rights, the absence of a secondary market for IP licenses.
By now the Commission is studying the possibilities on how to achieve and create this market, the results will indeed be worth to be followed.
REFERENCES:
Troy, Irene, and Raymund Werle. Uncertainty and the Market for Patents. No. 08/2. MPIfG working paper, 2008.
Innovation Union homepage: http://ec.europa.eu/research/innovation-union/index_en.cfm?pg=key
Commitment 22 homepage: http://i3s.ec.europa.eu/commitment/28.html
I agree, the results will be worth to be followed!
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In the following lines, I comment my opinion referring to public interventions in markets for technology. The first thing I thought about this matter concerns the automotive industry which is confronted by statutory regulations to reduce greenhouse gas emissions. Because of this fact the automotive industry have to think about new and cleaner technologies. One result is the expanding development of different propulsion technologies like efficient conventional engines, electric engines or plug-in hybrid electric vehicles. I think public interventions of the government play an important role there. At least, such interventions could be responsible for the functioning of market technology.
In a research of the EU automotive industry from 2008, Wiesenthal et al. (2010) describe the effects as follows: The EU-based automotive industry directs a significant part of its R&D investments towards the improvement of conventional engine technologies and the development of the electric powertrain. Corporate R&D investments are significantly lower for long-term options such as fuel cell vehicles […] Long term binding targets and regulation can steer innovation in the desired direction […] For companies to better adjust the direction of their strategic long-term research efforts and to bring it in line with EU climate policy, clear and reliable targets beyond 2020 are desirable.
In addition, Wiesenthal’s report indicates the transferability of patents between different engineering disciplines and gives an example from the German automotive industry. Regarding the patent applications of the automotive sector, the German automotive industry applies for ten patents daily, a good half of which are in the field of environmental engineering (see German Association of the Automotive Industry (VDA), quoted in Wiesenthal et al., 2010).
This fact is pointed out in another paper. Lane (2012) gives an example from the US how license agreements with large automobile manufacturers can help startups get their products commercialized in this branch. Nanostellar, a California-based company which designs catalysts for reducing motor vehicle tailpipe emissions shifted its business model from making and supplying chemicals to licensing its intellectual property to others, including large chemical manufacturers.
The company believed this change in strategy was necessary to enter the automotive market. As mentioned above, automotive industry need large quantities of materials and long-lasting supply contracts and the fact that Nanostellar saw a big uncertainty in its own chemical manufacturing and the catalyst supply chain, they made the shift to licensing its technology. Their protected portfolio covers the company’s proprietary catalyst synthesis methods as well as certain automotive catalyst products created by those processes. Since making the shift to licensing its technology, at least one large automobile manufacturer has signed a contract to buy catalysts made by a Nanostellar licensee (see Lane, 2012).
To sum up, public R&D investments can also influence the direction of research in one sector to some extent, even though its role is limited in the automotive sector as a whole. As the example in the US shows that the market of technology regulates itself. But I think public interventions give the necessary step to develop and diffuse specific innovation.
Sources:
Lane, E. (2012): Building the global green patent highway: A proposal for international harmonization of green technology fast track programs; Berkeley Technology Journal 27; p.1119 – 1170; Online at http://btlj.org/data/articles/27_2/1119_1170_Lane_WEB_110612.pdf .
Wiesenthal, T.; Leduc, G.; Köhler, J.; Schade, B.; Schade, W. (2010): Research of the EU automotive industry into low-carbon vehicles and the role of public intervention; JRC Technical Notes; Publications Office of the European Union; Luxembourg; 2010; Online at http://ftp.jrc.es/EURdoc/JRC58727_TN.pdf .
Show lessVery interesting, thanks.
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A technology transfer is an application of information in to use (Gibson and Rogers, 1994). Nowadays it is seen as one of the main engine for development and growth; it’s the linkage between R&D and commercialization. This is why it’s necessary solving some lacks in its implementation.
Dealing with technology transfer and technology innovation means considering knowledge in an economic perspective, so that as a possible causes of market failures, arising from: appropriability problems, spillovers, asymmetry of information, market power, etc . So, the boost for the implementation of this new source in market of technology has to come from public intervention, in order to increase the willingness, reducing costs, to adopt technology transfer.
The action of public intervention, linked to these issues, has been started both at international and national level; a general provision has been provided by the Article 66.2 of TRIPs (Trade-Related Aspects of Intellectual Property Rights), which states that: ”Developed country Members shall provide incentives to enterprises and institutions […] for […] promoting and encouraging technology transfer to least-developed country Members in order to create a […] technological base.” This first step has been moved in order to link the use of technology transfer for helping the sustainable development of poorer countries. Some limits can be recognized in this provision: at first the fact that the TRIPs Article just gives a suggestion on what could be the right behavior without imposing any measures to be adopted, and secondly it doesn’t give a specific definition of the countries which is referring. Moreover, a United Nation agency, WIPO, has been created for supporting and facilitating the transfer of patent system at international level.
Focusing on Public intervention at European level, firstly Member States have acknowledged the Article 66.2, that impose to them to prepare annual reports and give information of technological transfer cooperation activities. A further step on public activity in transfer technology implementation, moved by the EU Commission, is a creation of a regulation, the TTBER one – nowadays in revision – that provides indications on fulfillment of transfer agreements (based on EU competition law), aimed to facilitate the transmission of knowledge and intellectual property.
Several are the ways that can be recognized as channel of transfer of technology; in the last years the scholar and government’s focus has been put on how the University researches play a key role in technology transfer, as shown by the Bayh-Dole Act (1980), through which the responsibility for the transfer of technology has been given to the universities, done even with the creation of university offices of technology licensing. Concerning with this, EU has the goal to find networks and to increase cooperation between industries and universities to transfer knowledge. They are going to do it “ […]examining existing models and identifying which model contract provisions would facilitate public entities in negotiating technology transfer deals with business, [doing it consulting] key stakeholders.” EU has even the intention to create a group of experts that will be able to identify possible market failures, in order to react to them, and to revise the competition policies that could restrict competition.
In my opinion, the technology transfer is made easier when there are no asymmetries of information. An increasing level of information between the researches computed by Universities and what industries are looking for, made possible by public money incentives given to the research and through the creation of commitment between universities and industries, could lower information barriers and be a first step to convert academic results into economic outcomes, in order to speed economic transfers. The public sector, through transparency of its action, increase the level of transfer even at international level. It can also provide, through founds, to lower the distance between its technological environment and the foreign one, in order to avoid the foreigners fears to be copied (i.e. Japan and Corea moved from being crude imitators to knowledge-intensive innovators).
Sources:
http://www.wipo.int/patent-law/en/developments/licensing.html
http://www.ott.nih.gov/policy/phslic_policy.aspx
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2004:101:0002:0042:EN:PDF
“REMINDER TO THE NOTIFICATIONS ON THE IMPLEMENTATION OFARTICLES 66.2 AND 67 (TRIPS) : TECHNICAL COOPERATION AND TRANSFER OF TECHNOLOGY” EUROPEAN COMMISSION Directorate-General for Trade Brussels, 12/09/2007
“Is the US outperforming Europe in University Technology Licensing? A new Perspective on European paradox”AnnaMaria Conti, Patrick Gualè, Danish Research Unit for Industrial Dynamics, January, 2010
“Speech on EU Policies towards research innovation and technology transfer”, TTO circle, Rome, 26-27 April 2012
“Encouraging International Technology Transfer” K.Maskus, University of Colorado, issue paper No 7, ICTSD- International Center for trade and Sutainable Development
“Lessons learned about technology transfer” Everett M. Rogers, Shiro Takegami , Jing Yin, Department of Communication and Journalism, University of New Mexico, Technovation 21 (2001) pages 253–261
Very good, thanks.
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Troy and Werle [1] offer interesting insights into the market of patents. According to them, patent markets lack the fundamental traits of neoclassical markets like transparency, homogeneity of goods and complete information. There are risks and uncertainties involved in acquiring a patent, since the value of a patent is often very difficult to estimate at the time it is filed or put on sale. There is always the possibility, that a patent cannot be developed into a product. And even if a company manages to develop a product, there is always the risk that a commercialization may not succeed. Putting all this together, a market for patents is likely to fail. This makes state intervention not only reasonable, but maybe even necessary.
There already exist companies that are either specialized in or have special divisions for trading patents. Prominent examples include ICAP [2] and IPOfferings [3]. They work as intermediary between interested parties in exchanging technology. These companies, however, are solely focused on buying and selling intellectual property. This means that the market they take part in, merely deals with the trade of patents, but not with technology exchange in general. A potential seller already needs to be in possession of a patent, whereas research is costly, time-consuming and risky. A buyer on the other side has to choose from a preexisting pool of patents, limiting his choice and providing him not necessarily with the specific technology she seeks.
There should be platforms available, on which buyers and sellers may propose rather abstract technology offerings. A seller, a company specified in a particular research field for example, may post its profile and offer his services to licensing parties. A contractor may ask this company to find a solution to a specific issue, it is currently working on. A buyer, on the other hand, may post an offering himself for finding a solution to a problem, she is working on. Negotiating research contracts usually provides a myriad of pitfalls, since contracting parties have to deal with information asymmetry and moral hazard. Therefore, auctions could be applied, requiring bidders to submit a compulsory offer, for example for a research contract, among which the auctioneer can choose. In order to decrease moral hazard and negotiation costs, the platform could offer templates for contracts between interested parties. These templates should guarantee a fair distribution of risks and commercialization profits.
All in all, exchanging research should go beyond the simple notion of trading patents. Possibilities are vast for platforms providing research as a service.
References:
[1] Troy, Irene, and Raymund Werle. Uncertainty and the Market for Patents. No. 08/2. MPIfG working paper, 2008.
[2] ICAP company homepage – retrieved 26.11.2012 – http://icappatentbrokerage.com/auction
[3] IPOfferings company homepage – retrieved 26.11.2012 – http://www.ipofferings.com/patent-auction.html
Show lessYou’re right: Intermediary platforms exist on the market for patents. It would be interesting to investigate how well they do (How many patents do they trade? What is the average value of the transactions? etc).
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Patent troll is a negative term used for a company or person who own the patent but have no intention to produce the invention, instead they conducts patent litigations against the violators in an opportunistic manner.
Show lessAfter reading the article about Innovative Ventures, one gets the feeling that such companies exist specifically to make the gains out of the loopholes of the patent system. The patent system has a lot of problems and especially more so in the software industry.
A lot of patents are granted for the technologies that already exist or are just slightly different from the existing ones. The difference may or may not be exactly beneficial or economically viable to implement. However, the companies are spending billions of dollars for acquiring the patents, not for using them in inventions but to protect them against litigations that might arise because of Patent Trolls. This practice is in no way encouraging innovation and huge amount of money and time is being wasted not on research and innovation but rather on useless litigations.
Recently Apple was sued for wireless headphones, while Microsoft was sued for its tile based interface by companies that own a lot of patents but don’t have a product in their name. In recent times, more and more start ups and not big firms are being targeted by these “Patent Trolls”. These start ups usually don’t have the resources to fight against the companies that are actually specializing in such litigations and have to end up paying huge amounts in settlements. This has led to the development of an industry itself that specializes in making money by compensation and litigations through patents. Patents are supposed to encourage innovation; however, in this manner they are stifling it. Many companies have stopped investing money in new technologies because they fear that they might be sued for the same. They instead rely on open source softwares or operate in the markets where the patent laws are slightly relaxed.
A number of comments made above emphasize the point that trolls are not bad and that they are actually stimulating the economy by helping the innovators. It’s analogous to saying that since selling arms is a very profitable business, it is helping the economy. It might be useful for a handful of players, but the overall social welfare is drastically impacted because of this.
The patent system has a lot of loopholes which need to be plugged. All the more in the software industry where according to the article shared, the innovators themselves feel that the many patents cannot be justified. Also, there is a need for global laws regarding patents. The main beneficiaries of the system that is being created are not the scientists or innovators, but the lawyers and profiteers. For innovation to sustain, the structure of patent system needs to be revised.
Sources & References:
1. http://www.techdirt.com/articles/20120915/01425620391/patent-trolls-causing-serious-problems-startups.shtml
2. http://arstechnica.com/tech-policy/2012/10/patent-troll-claims-it-invented-the-windows-8-and-windows-phone-tiles/
3. http://blogs.scientificamerican.com/guest-blog/2012/12/05/the-meteoric-ascent-of-the-patent-troll-and-the-devastating-consequences-for-innovation/
4. http://gigaom.com/apple/patent-troll-hits-apple-for-using-headphones/
5. http://www.businessinsider.com/biggest-patent-holding-companies-2012-11?op=1
Making an analogy between patent trolls and weapon dealers is a bit excessive, don’t you find? But I can see you point.