Intellectual Property Strategy in the Global Cosmetics Industry A - - PowerPoint PPT Presentation

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intellectual property strategy in the global cosmetics
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Intellectual Property Strategy in the Global Cosmetics Industry A - - PowerPoint PPT Presentation

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Intellectual Property Strategy in the Global Cosmetics Industry A Soap Opera Dietmar Harhoff University of Munich and CEPR Bronwyn H. Hall University of California, Berkeley and NBER Why are we doing this? importance of IP and IP policy

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Intellectual Property Strategy in the Global Cosmetics Industry

Dietmar Harhoff

University of Munich and CEPR

Bronwyn H. Hall

University of California, Berkeley and NBER

A Soap Opera

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CEPR/ IFS Conference Nov 02 2

Why are we doing this?

importance of IP and IP policy for

innovation

increased corporate use of various IP

strategies

litigation, opposition deep purse, cost of FUD (see Lerner, Hall and

Ziedonis)

patent systems make mistakes - how to

fix them at lowest cost?

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CEPR/ IFS Conference Nov 02 3

Why this industry?

mundane industry - branding is important

– average advertising intensity around 10%

R&D intensities – ~ 2% much lower than

in pharmaceuticals and biotechnology, but not trivially small

high patent opposition activity even

though not a high-technology industry – why?

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CEPR/ IFS Conference Nov 02 4

Advertising Intensity Selected Toiletries/Cosmetics Firms

0% 2% 4% 6% 8% 10% 12% 14% 16% 1975 1980 1985 1990 1995 2000 Year Advertising to sales (percent) Colgate P&G Unilever

Advertising and R&D Spending - Large Toiletries Firms

R&D Intensity Selected Toiletries/Cosmetics Firms

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 1975 1980 1985 1990 1995 2000 Year R&D to sales (percent) Colgate P&G Unilever

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CEPR/ IFS Conference Nov 02 5

EPO Patenting in A61K 7

200 400 600 800 1000 1200 1975 1980 1985 1990 1995 2000 Year of Application/Grant Applications Grants

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CEPR/ IFS Conference Nov 02 6

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CEPR/ IFS Conference Nov 02 7

Patent examination at the EPO

Application Formal Examination Publication of the Application and the Search Report (+18 months) Granting of the Version Approved by the Applicant

Yes

Substantial Examination Passed

National Rights

Opposition/ Appeal Rejection of the Patent Application

No

Appeal Rejected

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CEPR/ IFS Conference Nov 02 8

Opposition Proceedings – Some Institutional Detail

centralized proceedings, two instances (opposition and

appeal) at the EPO

modeled on the opposition mechanism in the German Patent

System

cost: 15,000-25,000 Euros subsequent litigation is at the national level (at much higher

cost)

any third party can oppose a patent grant within 9 months

after the grant date

  • nce initiated by the opponent, opposed and opposing

parties cannot settle “out of court”

  • verall rate – 7%
  • ~ 30 times more likeley than US patent re-examination
  • ~ 10 times more likely than US patent litigation
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CEPR/ IFS Conference Nov 02 9

Incidence of opposition

EPO Opposition Rates 1983-1999

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Year Oppositions/grant

Cosmetics Pharma/biotech All technologies

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CEPR/ IFS Conference Nov 02 10

Opposition Proceedings – Some Institutional Detail

Patent Grant Opposition 9 months Presentation

  • f Proof

2 months Hearing of Arguments Response by Patent Holder 4 (+2) months Response by Opponent 4 (+2) months Decision Revocation, Amendment, Rejection Response Patent Holder Response Opponent Final Decision Revocation, Amendment, Rejection Appeal by Patent Holder? Appeal by Opponent? 2 months Appeal Procedure (similar structure)

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CEPR/ IFS Conference Nov 02 11

A Simple Model

When would we expect to see opposition?

Consider two cases

Successful opposition transforms monopoly to

duopoly (entrant opposition)

Successful opposition preserves monopoly

(incumbent opposition)

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CEPR/ IFS Conference Nov 02 12

A Simple Model

When would we expect to see opposition?

threat points

P M P D P P O D O O

c p p T c p T − Π − + Π = − Π = ) 1 (

cooperative solution (settlement)

S CV

S −

Π =

cost advantage

  • f

settlement cooperation effect “optimism” of the opponent competition effect

( ) ( )

( )

D S P O D P O P D M

c c S p p p Π − Π ≥ − − + Π − + − Π − Π 2 ) ( 1 ) 2 (

Opposition will occur if the cooperative surplus is smaller than the sum of the threat points.

D M

Π + = Π ) 2 ( α

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CEPR/ IFS Conference Nov 02 13

A Simple Model

When would we expect to see opposition?

D

Π

p

O D

c p > Π

O

c

S c c C

O P

− + = ∆

( )α

p C

D

− ∆ ≥ Π 1

S increases or c decreases cO decreases

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CEPR/ IFS Conference Nov 02 14

Reduced form implications

… increasing stakes (more valuable patents) …

diverging expectations

…

degree of asymmetric information

…

decreasing cost advantage of settlement vs.

  • pposition proceedings relative to settlement

costs (likely to be low in this case)

The likelihood of opposition increases with ...

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CEPR/ IFS Conference Nov 02 15

Data

8,501 EPO patent applications with A61K

7 as main or auxiliary classification (1978-2001)

  • ur sample: all 3,548 patents granted by
  • Dec. 1995

523, or 14.7% , were opposed multiple oppositions:

68% once 20% twice 12% three or more times

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CEPR/ IFS Conference Nov 02 16

Patenting over time

Patent Application Rates for Selected Firms (Granted Patents) 1978-1995

20 40 60 80 100 120 140 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 Priority Year Number of Granted Patents

Goldwell Henkel Wella Unilever l'Oreal Procter and Gamble

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CEPR/ IFS Conference Nov 02 17

Enter the main players

Opponent Number of Patents Granted Oppositions Filed Own Patents Opposed Ratio HENKEL 221 207 23 9.00 GOLDWELL 33 93 16 5.81 WELLA 110 60 21 2.86 BASF 65 15 8 1.88 MERCK 23 5 4 1.25 COLGATE-PALMOLIVE 43 16 13 1.23 BEIERSDORF 28 9 8 1.13 BRISTOL-MYERS SQUIBB 31 7 7 1.00 PROCTER & GAMBLE 161 41 80 0.51 L'OREAL 538 53 141 0.38 SMITHKLINE BEECHAM 40 6 18 0.33 UNILEVER 274 25 91 0.27 KAO 177 43 0.00 Total for all firms 4205 848 573 1.48

1978-2000 Most Active Patenting Firms in Cosmetics

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CEPR/ IFS Conference Nov 02 18

Empirical results – who is attacking whom?

See Table 8 in the paper Henkel, Goldwell and Wella account for

the lion share of oppositions filed

  • ppositions hit mostly P&G, Unilever and

L’Oreal

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CEPR/ IFS Conference Nov 02 19

Value correlates

Number of designated EPC countries Number of claims Citations:

Number of backward A-cites to patents Number of backward XY-cites to patents Number of backward A-cites to scientific lit. Number of backward XY-cites to scientific lit. Number of forward A-cites Number of forward XY-cites

PCT application Accelerated exam requested Non-corporate applicant; university applicant

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CEPR/ IFS Conference Nov 02 20

Empirical results –

  • pposition probability

Table 9 - descriptive stats on oppositions by firm Table 10 - simple probit for opposition

probability.

  • pposition likelihood increases as value correlates

increase

aggressive opponents (Henkel, Wella, Goldwell) have

lower rates controlling for value correlates

P&G and Unilever face higher rates Specific product classes:

  • cosmetics NEC; soaps; deodorants; sun/ insect lotions,

dental care

  • haircare (+ 12 percent)
  • perfumes, makeup, nailcare (-8 percent)
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CEPR/ IFS Conference Nov 02 21

Opposition outcomes

Table 11 – opposition outcomes compared

to other technologies

Slightly less likely to be rejected, more likely to

result in patent revocation

Table 12 – outcomes by nationality of firm

Outcome

Non-German Patentholder German Patentholder Non-German Opposer German Opposer Henkel is Opposer

All firms Opposition rejected 17.9% 38.5% 28.3% 19.2% 12.4% 14.9% Patent amended 34.0% 29.5% 32.8% 33.0% 26.4% 21.6% Patent revoked 45.7% 32.0% 37.4% 45.8% 58.9% 27.8% Other 2.4% 0.0% 1.5% 2.0% 2.3% 1.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% 65.5%

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CEPR/ IFS Conference Nov 02 22

Conclusions

high opposition rate due mostly to actions

  • f a few players in the hair care industry

more valuable patents are more likely to

be attacked (as theory suggests)

new citation measures do provide

additional information

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CEPR/ IFS Conference Nov 02 23

Questions

Is this legitimate opposition due to

asymmetric information or harassment of large firms by established firms that have experience with the use of opposition?

Is Henkel the Texas Instruments of the

hair care industry?

We don’t really know, although the positive

  • utcomes for German firms do suggest they

are bringing some prior art to bear.

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CEPR/ IFS Conference Nov 02 24

Further research

model interaction between portfolio

  • f opponent i and new patent

are Henkel opposition cases taking

longer?

US data as controls add firm-level data