B.Markets for Components

The Rubik’s Cube example is a rare one. Usually, IP rights do not map cleanly onto product markets. Patents typically cover technological components: small pieces of larger technologies. A patent may cover part of a mobile phone antenna, for instance; or a technique for compressing data to be sent over a network; a method for encoding location information on a CD; or any of millions of other small technological components.

For example, consider patents. Patents map onto technologies. The invention in an antenna patent may form part of a mobile phone antenna. The compression algorithm may be used in a software program for transmitting digital content such as music, video, or text. The popup menu may be part of a software program that handles calendaring or interfaces with travel-related websites.

Technologies, in turn, map onto products. The antenna is part of a mobile phone. The compression algorithm is part of a data streaming program used by music streaming companies or video websites. The popup menu may be part of a travel website or a suite of software for a mobile or desktop device.

Finally, products map onto markets. The mobile phone containing the antenna is sold in competition with other mobile devices, including phones, tablets, and watches. The data streaming program is incorporated into the software of one of several music streaming companies, or is used by one video streaming service (Netflix, say) that competes with others (Amazon Prime or YouTube, for example). The popup menu may be part of a desktop operating system such as Microsoft Windows, which competes with free operating systems such as Android for mobile; or it may be incorporated into one travel website (Kayak, for example) that competes with others (e.g., Expedia).

This typically complex, multi-step “mapping” can be summarized in the following simple diagram:

IP Right → Components → Product → Product Markets

Consider a hypothetical example. Shanghai Suliao Plastics, Inc. (SSP) manufactures molded plastic parts for consumer products and the auto industry. It is a major supplier to Roberts Controls, Inc. (RCI), a large U.S. manufacturer of auto parts. RCI manufactures many car parts, from engine parts to electronic sensors to head lights and tail lights, etc. RCI has worked with SSP for many years, with SSP supplying the molded plastic tail light covers which are used in RCI tail lights. RCI sells complete tail lights for many models of U.S. vehicles.

The supply chain looks like this:

SSP protects its unique tail light lenses with several types of IP right. It has a trademark on “SSP” for use with molded plastic parts, as well as a separate trademark on its stylized logo (pictured above, on the left). As part of its supply agreement with RCI, SSP requires that when RCI sells complete tail light assemblies to auto companies, RCI must feature the SSP logo in connection with descriptions of the plastic tail light cover that it part of the RCI tail light. SSP believes that this “branding” helps bring attention to its unique plastic light covers. Raising “brand awareness” with auto companies helps SSP build a reputation for quality and distinctiveness, which in turn translates into the ability to charge a slightly higher price compared to “commodity” (unbranded) light covers.

In addition, SSP has a patent on the machinery it uses to produce its molded light covers. SSP was the first company to develop a molding process that injects liquid plastic into a mold on the inward-facing side of the light cover. This makes for a smoother outside surface, with no uneven places on the plastic cover. In the diagram below (a side view of a tail light cover), the injection point is labeled 252. Notice that it is on the back or inside of the light cover.