In recent years, a new challenge for suppliers, and a new use for patents, has developed. Holding a patent can help a supplier recover the cost of developing products in competitive bidding situations.
Let’s look at a hypothetical case of automotive manufacturers and their suppliers of subassemblies. In the past, manufacturers designed and engineered the desired part or subassembly, then ask suppliers for bids on producing the part. The manufacturer did all the engineering, and suppliers only submitted financial information, or how much they would charge the automobile manufacturer to fabricate the part.
But in today’s economy, automobile manufacturing staffs are lean, and engineering departments have been trimmed. It is increasingly common for manufacturers to request that suppliers interested in providing products submit proposed engineering solutions as well as financial terms.
The supplier must take care to protect the competitive bid and the intellectual property represented in the proposed engineering solution. For instance, one supplier may spend $50,000 in engineering fees to solve the problem, then estimate an additional $100,000 of time and resources to manufacture the parts, making the total bid $150,000.
However, instead of bidding the actual cost of the job, the supplier only bids $125,000, expecting to recoup the remaining development costs on the next contract. In another instance, the supplier bids the actual cost of $150,000, but loses to a second supplier who may have spent less money engineering a less effective solution to the problem.
Unfortunately, it’s common practice for automotive manufacturers to take a design created by one supplier and ask another to fabricate it. The motivation is obvious: the manufacturer obtains the best-engineered solution at a cheaper manufacturing cost. It receives a superior engineering solution, yet fails to compensate the supplier for its work.
How can this be avoided? One way is for suppliers to file inexpensive provisional patent applications before providing quotes to manufacturers. The quote should bear the notice “patent pending.”
The automobile manufacturer is then on notice that, should it prefer the engineering solution of a particular supplier, it is not permitted to seek a lesser manufacturing cost and must pay the price quoted.
