Saturday, April 3, 2010

Patents - What do they mean to you?

If you are interested in this subject you probably fit one of the following classes:

  1. You are an expert angel investor with IP due diligence experience - your comments would be most welcome.

  2. You are a potential or new angel investor (bless you for helping to grow our country).  In this case you might be interested in a practical view of what protection a patent rally gives you.

  3. You are an entrepreneur that could use some financial help to get your invention (IP) to market (bless you for helping to grow our country). In this case you should know what questions to expect from your angel investor and have good answers.

This post attempts to share, for the benefit of the last two groups, my experiences over twenty five years as an inventor, patent holder, investor in technology ventures, acquirer of intellectual property (IP), licensor of IP, entrepreneur commercializing my own or someone else's IP. If you want legal opinions or legal advice on this, call your attorneys.  If they are IP specialists they'll have legal details and perspective far more reliable than mine.  However, beware; just because they are so familiar wit he domain, IP attorneys will often presume that you understand the nuances of IP legal protection principles and legal practice, not necessarily the practical aspects of it, which is what I am focusing on here.  Mine is a "business" view of patents, not a "legal" view and therefre focuses on what is practical not only what is legally rightful.

What does a US patent give the inventor?

In simple terms, the RECOGNITION by the US government that he/she is PRESUMABLY the inventor of a certain concept, product or process and therefore has the EXCLUSIVE RIGHT to practice the invention for a certain period of time (e.g. 17 years) without competition.  Note that contrary to public perception it does not give the inventor any real protection (with one exception) unless he take steps to enforce that right.  The exception is that the Customs Office will do their best to stop an infringing product from entering the US if they are provided with a suitable request, documentation and proof of patent infringement.  Otherwise, the inventor is solely responsible to enforce his patent rights, which implies taking legal action against an infringer.

Against the above background then a number of questions arise:

Can one afford to sue the infringer?

Practically speaking, only if the practice of the invention has a cash flow worth protecting in an amount that covers the expenses, distraction, aggravation, etc. associated with a litigation. Winning the case may not produce cash flow or a significant pay off;  it may produce only an injunction against the infringer, which by the way does not preclude another one from coming along.

What if in the course of litigation one discovers that other aspects of the product infringe on patents held by the infringer?

This is very common in the electronics industry where frequently patents have great value to counter-sue and eventually settle by reciprocal licensing.  Much of this jousting is now going on and reported in the press involving Apple and their iPad against various competitors among which only one (the smallest and weakest) was sued for infringement.  In these cases there may only be legal expenses and the benefit of upsetting a competitor's product development roadmap.

If one has a validly issued patent, how much protection does it provide?

Better than none to be sure, but hardly a guarantee.  The case of RIM (Research In Motion), makers of the Blackberry, is very instructive (details): It started in 2000 when RIM was a startup with strong beliefs that their issued patents covered their products well.  After a surprising chain of events, by 2006 they settled for $650 million with NTP (plaintiff) after a court injunction forced the Blackberry network dark for one day (a $2 billion business at that time).  Since 2006 and continuing to this date "patent reexamination" action by RIM has sought to void NTP's prior art claims; NTP is responding in kind.  One can hardly imagine the costs involved (at $500 or more per hour).  Needless to say RIM investors had been confident of their IP position.  Conclusion: even ISSUED patents are no guarantee since prior art can be submitted at any time and reexamination requested.

Is a patent much ado about nothing?

Definitely not. A Provisional Patent filing, if properly written and searched, tells potential investors that there may be more than just an idea.  It says that the company and the inventor understand the IP aspect of their business and have invested time and money to protect their innovation.  If a patent is issued, it tells investors that a stake is in the ground that proves innovation, at least from a theoretical and PTO standpoint.  If potential competitors exist, they are not easy to find and may be behind the current inventor and therefore not innovators in the PTO sense.  Of course they could still come out later with proof of "prior art" and open the RIM type can of worms.

It should be noted that claiming infringement while holding an issued patent has a risk.  The "infringer" may turn up to have prior art and that may invalidate the patent.  To wit, I had occasion of working with a small manufacturer who was an outstanding and recognized innovator but never filed a patent. He explained that, not being interested in having investors or selling the company, patents to him were a cost and of no value.  His strategy was to practice whatever innovative process he devised without fear.  If anyone came to try and stop him he depended on his meticulously documented prior art files to trump the action.   Furthermore he had no interest in licensing his own inventions and felt that since issued patents files are open to the public, they are more risky than helpful unless one deals with fundamental inventions.  By those strategies, his company never grew to dominate his markets, but he as happy with that; my lesson was to beware that prior art occasionally may come out only when one "kicks the beehive".
 Why uncertainty cannot be eliminated?

In the US the PTO operates on the doctrine of "first to invent".  This means that anyone can come and claim to be THE inventor of anything if he can show prior art precedent to that of any patent filed.  If a patent had been issued, reexamination is the cure.  Documentary proof of prior art can be from most kind of documents, preferably lab books (numbered non-removable pages), dated and witnessed affidavits, etc.  Elsewhere in the world the "first to file" rule is followed therefor it is imperative to not delay a viable filing and one can depend on the value of an issued patent to a greater degree.


From a business viewpoint, the value of a patent is not an absolute one.  It depends on the circumstances of the business, the market, the product, the objectives of the inventor, the objectives of investors and many other factors. Deciding to file a patent (the inventor) or to assign a value to a patent (the investor) is a problem without an optimal solution.  Clear understanding of options, implications and trade offs is the best one can achieve in reaching an entirely subjective decision.  The "Should I get a patent" Roadmap may help with that analysis.  Read more about my Roadmaps