Compare the power of patents in technology versus in mature industries

Patents are a form of intellectual property. When an innovator or inventor obtains a
patent they get a legal to prevent other persons or organizations from producing, using or
selling the innovation or invention for twenty years without their explicit authorization (Ernst
et al., 2016). Therefore, the power of patents is that they make their owners mini
‘monopolies’ for some time. This power varies from one industry to another. While in others,
patents are a great source of power, in others they are almost worthless.
Comparing technology and mature industries, patents are most powerful in the
former. In this context, power means competitive advantage that an innovation or invention
gives a business organization. For mature markets, the market is characterised by slow
evolution of customer needs, low competitive intensity due to consolidation of players, and
slow change in market shares (Ernst et al., 2016). More importantly, it is brand and price
rather than product or process innovation that creates most value for the organization. For
instance, in the fast food industry most of the competition is on brand and effectiveness of
service delivery rather than innovation. This is unlike in technology industries where product
innovation can give a firm a big competitive advantage over its rivals. Thus, for technology
firms the having patents gives them a great source of market power.
Are patents more likely to be an effective tool in technology (electronics and
pharmaceuticals) or mature industries?
Patents are not the only way that a firm can protect its invention. It can also decide to
keep the innovation or invention as a trade secret. An example is Coca Cola which has
chosen to keep its recipe as a trade secret rather than patent it. In deciding whether to patent
an innovation or keep it as a trade secret, a firm has to look at the relative effectiveness of

both tools as a means of protecting their intangible assets. Just like power, the effectiveness
of patents depends on the industry that a firm is in.
In technology industries such as pharmaceuticals and electronics, innovation is the
main means through which a firm can achieve competitive advantage. Thus, firms in these
industries invest large sums of money researching and developing new products. To recoup
their investments, they need their innovations to be protected long enough to allow them
recoup their investment (Price & Nicholson, 2016). While trade secrets are an inexpensive
way of protecting one’s innovation, they don’t offer a strong legal protection that patents do
(Price & Nicholson, 2016). So for technology firms patents are a more effective means of
protecting their innovations and allowing them to enjoy their commercial returns than trade
secrets. One characteristic of technology innovations is that they are mainly product
innovations which can easily be reverse engineered. With a patent, the firm can protect its
innovation from such reverse engineering better than with a trade secret.
For firms in mature industries, innovation plays a less prominent role as means of
achieving competitive advantage. Given the high cost of filing and maintaining a patent, they
would rather keep their innovations and inventions as trade secrets. Additionally, unlike
patents which often offer protection for just around twenty years, protection offered by trade
secrets is usually indefinite. Thus, generally patents are more effective tools of protecting
innovations in technology industries than mature industries.
References

Ernst, H., Conley, J., & Omland, N. (2016). How to create commercial value from patents:
the role of patent management. R&D Management, 46(S2), 677-690.
Price, W., & Nicholson, I. I. (2016). Expired Patents, Trade Secrets, and Stymied
Competition. Notre Dame L. Rev., 92, 1611.