A patent right has many different aspects: defense, reputation, marketing, product value, asset value, and even attack. Because patents have many “faces,” they can be used in different ways depending on the goal.
Below are major reasons why getting a patent is important.
(1) Protecting Your Product
This is the most basic and traditional use of a patent.
A company develops a product and protects its key features with a patent. By doing this, the company can prevent competitors from making similar products.
If the patent is strong, the company can sell its product exclusively without being threatened by copycats. If the product is attractive, this can lead to large profits.
For example, imagine that Company X analyzes a huge amount of stock price data and discovers the following rule:
“When a stock price enters condition S1, the price is likely to rise sharply within a few days.”
Company X then develops a trading system T that gives a “buy signal” when the stock reaches condition S1. At the same time, Company X obtains Patent P1 covering:
“Notifying a user when a stock enters condition S1.”
Because of Patent P1, other companies cannot legally create similar trading systems that use this same idea. Company X can likely sell its trading system T with a high profit margin.
Without Patent P1, competitors could create similar systems. The original product might even be pushed out of the market.
For companies with weaker sales power or limited capital, patents can sometimes be a lifeline when starting a new business.
(2) Earning Patent Royalties (Patent Licensing)
A patent owner can allow others to use the patent in exchange for royalty payments.
There are different royalty models:
・Initial royalty (a lump-sum payment at the time of contract)
・Running royalty (a payment per product sold)
・Or a combination of both
In this case, the patent owner is like a landowner.
Just as a landowner receives rent for allowing others to use land, a patent owner receives royalty income for allowing others to use patented technology.
The patent owner must decide:
・Should we make money by selling our own product?
・Or should we let others manufacture products and earn royalties?
(3) Selling a Patent
A patent itself can be sold as a product.
There are businesses that specialize in purchasing valuable patents. These companies are sometimes called patent aggregators.
I once spoke with a company from another country. That company bought a large number of patents from a Japanese company. Although they did not tell me the details, it is likely that among the hundreds of patents they purchased, there were some patents they truly wanted—and perhaps some patents they wanted to keep out of circulation.
Patents can therefore function as tradable assets.
(4) Using Patents for Cross-Licensing
A company may allow another company to use its patent in exchange for permission to use the other company’s patent. This is called a cross-license agreement.
This can be seen as:
・A non-aggression pact to maintain “patent peace,” or
・A way to combine technologies and create more attractive products.
A patent pool, where member companies contribute patents and allow each other to use them, is an extension of cross-licensing.
For example, imagine Company Y develops a diagnostic system D that analyzes a user’s investment performance and shows how skilled the user is compared to other investors. Company Y obtains Patent P2 covering:
“Displaying a user’s investment ability as a numerical score (e.g., deviation value) based on performance.”
Company X might want to add the P2 function to its trading system T to make the system more appealing. Company Y might also want to build a trading system that includes the functionality covered by Patent P1.
In such a case, Company X and Company Y could enter into a cross-license agreement. By combining both patented technologies, both companies may benefit. This could create a win-win relationship.
Users would also benefit because they could access both functions in a single system.
However, cross-licensing is not always the best choice. If done too easily, a company may lose its competitive advantage. In some cases, it might be better for each company to stay in its own technical field.
Patents are also tools for gaining negotiation power in the market. This negotiation power comes from the exclusive nature of patent rights.
(5) Encouraging Innovation
Obtaining a patent brings honor to the inventor.
Engineers can list patents on their resumes, which helps increase their market value when changing jobs.
Encouraging patent applications also helps build a company culture that values new ideas. This effect may seem small, but in the long term, it may be the most important benefit of patents.
When filing a patent application, inventors must write and logically organize their ideas. This process turns knowledge into objective form. Once knowledge is organized clearly, it often leads to new ideas.
(6) Marketing and Brand Value
Patents can show a company’s technical strength. In this sense, patents are tools for building a corporate brand.
When a company seeks investment or loans, having patents can improve its evaluation. Investors may see patents as proof that:
・The company has valuable technology, and
・The company understands the importance of protecting its technology legally.
When accepting investment from a potential competitor, patents can also strengthen negotiation power.
(7) A Tool for Attack
Patents can also be used simply to attack competitors.
This may not always be productive, but it is true that patents can function as legal weapons against business rivals.
Conclusion: The Many Uses of Patent Rights
The uses of patents are not limited to the examples above. New strategies and new uses of patent rights will continue to appear.
Understanding why patents are important—and how they can be used strategically—is essential for any company that wants to compete and grow.