IP Asset Maximizer Blog

Reminder: IP Asset Maximizer Blog Has Moved

noreply@blogger.com (Jackie Hutter) — Sat, 05 Sep 2009 18:14:00 +0000

Please note the IP Asset Maxmizer Blog has moved to a new and improved Wordpress Platform. www.ipAssetMaximizerBlog.com. We are sure you will like the new format. Please join us there.

WE'VE MOVED!!! Please update your links

noreply@blogger.com (Jackie Hutter) — Sun, 02 Aug 2009 16:39:00 +0000

The new location of the IP Asset Maximizer Blog is here. Please join us there for a greatly new and improved blogging platform. If you have any questions or comments, please contact me at JackieHutter@gmail.com.

Corporate IP Managers: There are Bargains Galore Available at Some of the Most Prestigious Law Firms

noreply@blogger.com (Jackie Hutter) — Tue, 21 Jul 2009 21:36:00 +0000

With corporate legal budgets being cut more than 10% in 2009 it might seem like challenging times to manage a corporate IP department. To add to the difficulties, such reductions are occurring even while many corporations are increasing the focus placed on creation of value using strategic IP management. Corporate IP managers must therefore obtain more valuable IP with smaller budgets.

Fortunately for corporate IP managers, the current economic climate has forced many prestigious law firms to, perhaps for the first time, to develop innovative billing and practice models. This has not only resulted in the effective billable rates of these law firms effectively dropping more than 10%, but many law firms have or are developing more efficient ways to deliver legal services to their clients. Smart law firms will pass these cost savings on to their clients to build loyalty.

It should first be noted that there will always be some law firms and lawyers who think they are "above" bargaining. Such legal service providers may agree to shave a few percent off their billable rates, but corporate clients may not obtain additional concessions. In addition, some prestigious law firms may possess management structures that do not allow partners to cut rates and fees to individual clients in order to "chase business." For example, I recently heard of a prestigious Atlanta law firm where partners have not been paid since early 2009 in large part because individual attorneys have not been permitted to pursue or maintain clients by lowering hourly rates.

If your longstanding IP legal service provider is one of these that will not or cannot significantly modify their rate or practice structure, then your company will not be able to capitalize on the new legal service environment. Also, even if your lawyer or law firm does offer deep discounts, it is likely that they will not call you up and say "We would like to significantly reduce your legal fees." And, why should they--if you have not complained, why should your legal service provider believe that you might leave after all of these years? As a result, in order to benefit from the new climate of cost reductions from prestigious lawyer and law firms, corporate IP managers must undertake the effort to present their company's work out for bid to multiple law firms and to recognize that they may need to ultimately change IP legal service providers.

That being said, I am pleased to report that I have seen a number of well-known and high quality law firms respond to their client's concerns about IP legal costs, and a sampling is reproduced below. The response of each of these law firms to the current legal services environment is different, but each is innovative and client-focused in its own regard. Readers who manage corporate IP departments would be well-served to discuss these models with their existing lawyers or law firms. At a minimum, such discussions can be used to start a non-confrontational dialogue that could result in significant cost reductions. If your law firm or lawyer is not willing or able to bargain, then you need to know that also, and act accordingly. There are many reasons why your company may not wish to leave a long-standing IP law firm, but you certainly want to know whether you can get the same service for significantly lower cost.

Top 5 US IP Law Firm Reduces Client Costs by Developing Efficiencies in Delivering Services
Fish & Richardson PC (Nationwide)

Tina McKeon is one of my oldest friends in the IP business--we have also been law firm partners and I have been her client while a corporate IP lawyer, which allows me to speak frankly with her about the IP legal business. Tina's hourly rate is well above $500 an hour, which puts her out of the reach of many potential clients. However, Tina has worked to reduce the need for clients to actually need her services and, as such, the need for them to pay her rate on a regular basis. Instead, she has assembled an efficient team of professionals with rates from about $175 an hour and up. At the low end of the rate scale, Tina's team includes patent engineers (i.e., people with science degrees effectively working as "super patent paralegals") and technical specialists (i.e., typically Ph.D. graduates tasked with working on the scientific details of an invention. Each member of her team provides clients services at the level of her ability and the project is passed up to a someone with a higher level of skills as appropriate. This approach results in the blended hourly rate for Tina's team being $310 an hour, which is the hourly fee of a 2nd or 3rd year associate at other prestigious IP law firms.

What Tina has realized is that she can provide better client service by applying basic business concepts to her legal practice. As related by Tina:

I tell my clients: "My rate is my rate--I can't do much about that." What I can do is modify the standard way IP legal services are provided to clients to provide as much value to them as possible. By treating my legal practice like a business, I can provide better value to my clients so they can afford to bring their IP issues to me and my team even while their budgets are being drastically cut.

Small IP Boutique Drops Rates Across the Board (Without Being Asked!)
Gardner, Groff, Greenwald and Villanueva PC (Marietta, GA)

I asked my long-time acquaintance Brad Groff of Gardner, Groff how his IP boutique law firm has responded to his clients' budgeting concerns. My thought was that his firm might be feeling the pinch of client cuts because they are smaller and likely have smaller IP portfolios where cuts would be more apparent. I was surprised to see that they have actually gained business this year. Here is what Brad had to say:

We listened to our clients last fall, and heard loud and clear that their budgets would not tolerate "business as usual" annual rate increases from their outside counsel. It's standard practice for lawyers' rates to increase every year because a firm's overall rate structure inflates, and because each lawyer moves up another rung on the years-in-practice ladder of that rate structure. So clients effectively get hit with a double-whammy.

We took a close look at the numbers and decided to implement a complete freeze on hourly rates for 2009 (no change to the 2008 rate structure, and no moving up the ladder). But what really got people's attention was that we actually reduced many of the charges on our flat fee schedule--some by as much as 12% compared to 2008. Since a lot of the work we do is billed on a fixed-fee basis, this allowed our clients to avoid cutting back on their patent and trademark filings even if their IP budgets had been reduced.

The strategy seems to have worked. We're busier than we've ever been, and we have added two lawyers and a patent engineer in a time when other firms have been laying people off.

Century-old IP Law Firm Stays Viable by Changing with the Times
Merchant & Gould (Nationwide)

Kent Stier, a partner at Merchant & Gould's Atlanta office, serves as Chair of the GSU Corporate IP Roundtable (on which I am co-Chair). In developing topics to discuss with our Atlanta IP colleagues, we have discussed the changing nature of IP law firm practice. In this regard, I have discovered that Kent understands that the old-way of billing and servicing clients will not suffice today. As Kent states:

We have been in the intellectual property business for well over 100 years and we fully intend to continue to be a key provider of high quality intellectual property legal service. In order to do this we know we must continue to evolve along side our clients and potential clients. We know that this evolution must include creative cost solutions including, for example, blended fee work, fixed or capped fee work, and levelized annual billing arrangements to name a few. Notwithstanding, we are open to any arrangement that creates a win-win partnership with our clients and potential clients.

UK Law Firm Promotes Innovative Litigation Funding Model (Where "1 Size Doesn't Fit All)
Addleshaw Goddard (UK)

Via Jeremy Phillips, proprietor of the great IPKat blog, we find out that innovative legal service models are being tried outside of the US. This website of Addleshaw Goodard provides an overview of this UK law firm's novel solutions for funding litigation.

What I find interesting about this law firm's solutions is understanding that it can be highly desirable to share or shift the risk of litigation. Specifically, Addleshaw Goddard purports to reduce the financial risk of litigation:

through sharing or transferring some of the risk to Addleshaw Goddard, to insurers, or to specialist third party litigation funders with no connection to the claim or its management. Our litigation funding package offers an integrated solution that will help you to retain control of litigation costs and reduce the financial exposure you face.

While the risk issues are certainly heightened in the "loser pays" UK system, such innovative risk shifting idea could no doubt be useful to address the high costs of IP litigation. With the average cost of patent litigation per side often amounting to several million dollars through trial, I think that US law firms would be well-served to investigate how they might help their clients identify innovative ways to fund such costs. Those law firms that develop partnerships with their clients instead of viewing them as litigation "cash cows" will be better able to convince their clients that litigation is an appropriate business risk.

Improve Your Chances of Obtaining a Patent at a Reasonable Cost and Time by Demonstrating the "Wow Factor" in the Application

noreply@blogger.com (Jackie Hutter) — Mon, 13 Jul 2009 19:46:00 +0000

A strong majority of people seeking patent protection to protect their products or technology leave the details the drafting process to their patent attorneys. That is, given the specialized (and, frankly, arcane) nature of the patenting process, even highly accomplished business professionals believe that a patent specialist (i.e., attorney or agent) is better equipped to understand how to best describe their invention to the US Patent Office (“USPTO”). This can be an ineffective way to handle the front end of the patenting process because it can result in the process being more contentious. Such contentiousness can result in narrower claims than desired and can make the patent take longer to issue and make the process considerably more expensive.

In determining whether a client’s invention meets the legal requirements for patentability, a patent specialist thinks about how to legally distinguish the invention from those that have come before. Specifically, the patent specialist must demonstrate to the USPTO—as represented In the person of a patent examiner—how the invention is new and not obvious in view of what others have done previously. The patent specialist must also determine how to describe the invention in a way that satisfies the precise technical and legal requirements. While working in this “legal silo,” a patent specialist quite possibly does not have any knowledge about the commercial benefits the invention provides because the client's business team typically is not involved in the patent drafting process. This means that when drafting the application, the patent attorney presents the invention in relation to the “check boxes” that the invention must satisfy in order to meet the legal requirements of patentability.

Moreover, even if such business information is available to the patent specialist, they rarely possess specific expertise in marketing or business. Without such training, a client cannot reasonably expect their patent specialist to present the invention in a way that effectively convinces the patent examiner that the invention “the best thing since sliced bread.” Most patent attorneys thus will wholly ignore what I call the “Wow Factor” associated with an invention.

This “Wow Factor” sounds quite a bit like marketing, doesn’t it? Exactly! And, given the fact that business professionals best understand the benefits their products and technology provide over others that have come before, a critical factor in a successful patenting effort is to not only demonstrate to the patent examiner that the claimed invention is legally patentable, but also that the invention is SUBJECTIVELY deserving of a US patent. It is this subjective aspect that is best handled by those who understand the benefits that a product or technology brings to the relevant consumer—that is, the marketing team charged with building a business case for the product or technology associated with the invention. While often absent from the patent drafting process, I believe that this marketing story serves as a critical factor any successful patenting process.

I will note that many patent specialists have disputed my contention that a significant aspect of a successful patenting process should involve developing a marketing story. These discussions typically center on the contention that “if an invention is patentable, the patent examiner is legally obligated to allow the patent application.” This is no doubt true, but often an invention that is legally patentable enters into a contentious examination process when the examiner develops a point of view (albeit one that is legally wrong). When this happens, the examiner will often “dig in her heels” and refuse to allow the patent application based upon her misperception of the legal merits of the invention. Such a contentious examination process will, at a minimum, add considerable cost and time to the patent application process, but is also likely to result in undesirable amendments that will result in the final patent being insufficient to protect the commercial product or technology from competition.

In drafting a patent application covering a client’s invention, many patent specialists fail to recognize that there is a person on the receiving end of each patent application. This person—the patent examiner—spends her day reviewing patent applications in a fairly narrow technological area. Moreover, the patent examiner labors under a quota system that requires her to complete her examination of each application in a fairly short period of time. One can picture this examiner working on, say, light bulb patent applications. Each patent applicant (and his attorney) likely believes that his invention is unique and a “game changer.” However, for the patent examiner who spends her work time examining light bulb inventions day after day, each application likely seems like a slight variation (if that) on what she has seen over and over again.
One can therefore picture the patent examiner effectively yawning at most patent applications that come across her desk. Add to this the short time the examiner has to gauge whether the invention meets the requirements for patentability and it should be clear why many worthy patent applications are subjected to contentious and expensive patenting process prior to issuance.

Further to these issues that are personal to the patent examiner’s job, on a broader scale, one must also remember that the patent examiner’s decision is imbibed with public policy considerations. That is, if the patent examiner allows a patent to issue covering the claimed invention, no one else will be able to legally do what the patent covers. The issued patent will thus effectively restrict the public’s freedom of action in the area of the issued patent. To justify this, a patent application should demonstrate to the patent examiner why the public should be prevented from doing what it would otherwise legally be able to do—to practice the product or technology covered by the patent claims.

By remembering during the patent drafting process that there is a person who stands between the patent application and an issued patent much cost, time and effort can be eliminated from the patenting process. Put simply, in addition to presenting a legal basis of why an invention is patentable, a patent application should also present a MARKETING STORY the invention to the patent examiner. The key is to include in the patent application a “hook” or “theme” that is directed to building a story for the patent examiner why the invention is not only legally sufficient for patenting but also that the invention bears a business reason for existing. A critical part of this effort centers on demonstrating to the patent examiner why the invention merits allowance, especially given the fact that the patent will prevent others from freely acting. To do this, a patent search should be conducted and analyzed, as the patent literature will likely serve as the primary source of rejections posed by the patent examiner.

To build this strong marketing story, the patent specialist should collaborate with one or more persons on the business team responsible for building a business case for the product or technology underlying the invention set forth in the patent application. This will allow the patent specialist to craft the underlying patentability story—or “Wow Factor”—that can result in the patent examiner picking up the application and thinking “this is not the same old light bulb invention that I see day after day.” While the patent examiner will likely not allow the patent application on a first review, I contend that the subsequent examination process can be rendered less contentious by developing a marketing story to support the patentability story.

It should be noted that many patent specialists will not be amenable to this strategy because it is a deviation from the traditional methods of patent drafting. Specifically, many patent specialists have been trained to discuss only the invention in the application and to ignore the prior art unless it is brought up by the examiner. This strategy was certainly a viable one before the explosion of patent filings in the last 10 or so years, but now there is so much prior art available in most technology areas that a patent applicant must realize that the prior art cannot and should not be ignored. I believe that by facing the prior art head on and preparing a patentability strategy and a marketing strategy the patenting process will likely be less contentious.

Lastly, some patent specialists might look at my recommendations as a reason to rail against the USPTO and patent examiners. While there are many problems that need to be fixed, the truth is the system is what it is today. One can wish for legal purity in the patent system, or one can be pragmatic about what it takes to successfully obtain a patent under the conditions existing today where the patent has suitably broad claims to protect the underlying product or technology from competitive knock-offs, where this patent was obtained at an acceptable cost in a reasonable time frame. At the end of the day, most clients would prefer the latter.

Start-up Entrepreneurs & CEO's: If Your Goal is Investment or Acquisition, You are Probably Patenting the Wrong Things

noreply@blogger.com (Jackie Hutter) — Fri, 03 Jul 2009 14:01:00 +0000

(Ed. Note: Due to the July 4 holiday weekend, I am posting this from the archives of the IP Asset Maximizer--it was first posted in August, 2008.)

Do you treat your patents as a fence or a tollbooth? If you wish for your start-up technology company to obtain investment from or acquisition by a bigger player, you had better understand the difference.

Most start-up technology company entrepreneurs and CEO's understand that patents can be key to establishing the value of a new business idea. Typically, entrepreneurs and CEO's such as yourself will engage patent attorneys to build an IP portfolio that protects the start-up's technology and products to the fullest extent possible. The motivation for this effort and expense is, of course, to to protect your start-up's idea from use by others. As management of a start-up you may be seeking to build an ongoing business around the patented technology, but often the goal of building a solid patent portfolio is to make your business an attractive target for investment or acquisition by a larger company.

I believe that such an inwardly focused patenting strategy is a misguided approach for companies that wish to obtain investment from or be acquired by larger companies. Why do I think this? Let me use a simple analogy.

Let's say you have worked diligently for several months of weekends to get your yard perfect--and it is perfect. When you finish the yard, you realize that if someone walks on your lawn, perfection will be lost. So you put an expensive fence around your lawn--and it is the best expensive fence you can buy: a virtual masterpiece. But what good is the fence if no one wants to walk on your lawn anyway? You wasted all that money on the fence.

The great majority of patent seekers (including those at otherwise sophisticated large companies) believe that patents are best used to keep others off their "technology lawns". As such, patents are generally focused inwardly--that is, on the patentee's own technology or products. This is known as "defensive patenting". Defensive patenting is a tried and true patent strategy, but it can be a poor choice for companies that wish to obtain investment from or be acquired by bigger players. Like the example above, if these bigger players have no interest in walking across your technology lawn, your defensive patent fence is a wasted expense.

So how does a technology start-up company such as yours get the attention of these big players? It is quite simple--by putting a patent fence around the big company's technology lawn. When properly formulated and executed, this strategy (which is not surprisingly called "offensive patenting") makes technology or products patented by your company an attractive target for a bigger player. Your company's patent(s) will reduce or prevent the bigger player's free movement in its desired business space. Such a savvy offensive patenting strategy effectively requires the bigger player to ask your start-up company for permission to play on its own technology lawn. Your start-up company can provide that permission in the form of a licensing of the patent(s) at issue or by sale of your company to the bigger player. Either way, the your start-up company is benefiting financially from this smart offensive patenting strategy.

Of course, if offensive patenting was easy, smart entrepreneurs and CEO's such as yourself would already be executing on it in droves. In truth, however, offensive patenting can only be effective against big players through use of expert competitive patent and business intelligence. Such techniques have unfortunately not been readily accessible outside of the large corporate and investor environments.

This is changing, however, as more intellectual property professionals with corporate business experience are focusing more on strategic business issues relating to IP. As an example of such a strategic business approach, I have worked with a startup client using patent filing data analysis to identify where a large company was likely going to be focusing its technology or product efforts in 3-5 years. Together, the client and I will brainstorm a "next generation" improvement to that technology or product. We then will work with the client's patent attorney to draft, file and prosecute patent applications that are directed toward reducing or preventing the large company's future ability to freely compete in that business or technology space. The objective is to end up with the client owning patent(s) that would be infringed by the large company's future business plans. Rather than change its business plans, the large company will pay a patent "toll" in the form of a license or acquisition of the client.

Admittedly, offensive patenting is a bit like looking into a business crystal ball. However, the information needed to successfully execute on this patent strategy is out there and, when collected and analyzed by the right person, it is actually hiding in plain sight. Experts nonetheless believe that those who collect and act on available data are more likely to be successful in today's data-driven economy. I believe that smart entrepreneurs and CEO's of startup companies can achieve the investment or acquisition they want for their companies by collecting and analyzing patent filing data to make it necessary for big companies to pay for permission to play in their desired business spaces.

So stop thinking about patents as a fence, but instead as a toll booth. One can usually walk around a fence, but if the toll booth blocks the only road to a big company's business destination, the toll is likely to be paid.

IP Business Congress: Blog Summaries for Those Who Couldn't Attend

noreply@blogger.com (Jackie Hutter) — Sat, 27 Jun 2009 11:02:00 +0000

The IP Business Congress ("IPBC") was held on June 21-23 in Chicago. This meeting, established by IAM Magazine, brought IP business experts, both lawyers and non-lawyers, from around the world to discuss issues relevant to IP. If, like me, you were unable to attend, you will appreciate the blog authors who have thoughtfully posted their summaries and thoughts about the Congress. (If anyone comes across any more, please let me know and I will add them.)

Joff Wild: IAM Magazine Blog

Michael Martin: Broken Symetry Blog

Duncan Bucknell: IP ThinkTank Blog

Peter Zura: 271 Blog (Great overview of the NPE break-out session)

IP.com: Securing Innovation (Interviews with IP Hall of Fame Inductees)

Everything's Negotiable: How Corporations Can Drastically Reduce Their IP Legal Costs without Sacrificing IP Quality

noreply@blogger.com (Jackie Hutter) — Fri, 26 Jun 2009 12:30:00 +0000

Corporate legal managers and the business teams they support complain seemingly constantly about outside counsel expense, and intellectual property ("IP") is no exception. And, why wouldn't they complain when every dollar spent on legal representation is money that is effectively removed from the company's P&L statement? This sets up an ongoing tension between corporations and law firms to reduce legal costs even while lawyers' incomes have sky-rocketed in recent years.

For most corporate buyers of legal services, however, the ability to obtain substantive cost reduction has been somewhat limited due to the lack of transparent information available about legal fees. It may be even more difficult for corporate legal services buyers to gain meaningful reductions in IP costs because of the highly specialized nature of this area of law practice which, arguably, makes IP more of a "Black Box" than most areas. Moreover, regardless of the type of law involved, clients just don't talk about what they pay for lawyers because of the confidential nature of the details underlying such information. In any event, even if they could share such information with their peers, the highly subjective nature of legal representation--IP or otherwise--would make cost comparisons between clients not particularly meaningful.

IP law firms have benefited markedly from the lack of pricing transparency. This effectively allows IP lawyers to set the baseline for negotiation on legal fees. If a lawyer thinks the market rate for her services are $500 an hour (and that's what her peers are charging), any discounts or reductions take place from this starting point. In this context, a 10% discount would seem like a "win" for the client, irrespective of the actual business value of the work being done by the lawyer. In fact, value rarely comes enters the conversation between a lawyer and her client.

One must wonder why IP law firms have managed to exercise such pricing power in a world where "everything is negotiable." My opinion is that lawyers have been able to perennially convince clients that price equates with value obtained. And, to validate this ostensible value, a client could look at the opulent downtown offices occupied by his lawyers, as no "cheap" lawyers would reside in such an expensive location. Corporate clients have also seemingly relied on a "wisdom of crowds" theory of IP lawyer value. That is, a law firm wouldn't have so many prestigious clients unless they were good, right?

It is my belief that corporate legal buyers have not pushed IP law firms hard on pricing because it has been too hard to have a conversation about value conferred in the "Black Box" world of IP legal representation. In the business world, if you can't measure it, you can't manage it and IP legal service buyers can neither objectively measure price nor value aspects of their IP legal representation. As a result, corporate IP legal service buyers have failed to develop methods to effectively manage legal costs while still maintaining IP quality, a fact which has been to the great advantage of IP lawyers and law firms.

This is starting to change, however. The current economic environment has made it increasingly untenable for corporations to continue business as usual in regard to how they deal with their IP lawyers. Indeed, a friend of mine who is Chief IP Counsel at a multi-national technology company puts it this way:

I don't care about marble and mahogany. My IP lawyers are welcome to have it, but I won't pay for it. Moreover, I am drastically cutting now in my department but still expected to maximize the value of my company's IP, and I expect my IP lawyers to do the same. Yes, it will hurt our law firms to get less money from my company, but those law firms that walk through this dark valley with me will get my company's enduring loyalty when things ultimately improve. But, if my lawyers don't sacrifice with me, I will drop them, and I will do so no matter how long they have been doing my company's legal work.

Another friend of mine, who recently took a job as Chief IP Counsel at a mid-sized chemical company, just put out her company's patent work for competitive bid. She said that never before in her 15 years of corporate legal practice had she seen IP firms more willing to negotiate on price and she was surprised at some of the concessions that were made on price without her asking. Moreover, once she obtained the first round of bids, she went back and asked them to cut again, pitting these law firms against each other on price. Notably, the law firms seeking her work did not push back, presumably because they were willing to do almost anything to get her company's work. At the end of the process, my friend stated that she gave the work to those law firms that she had previous relationships with while at another company, but she was nonetheless able to obtain these same lawyers at a deep discount over what she had paid just last year.

I will note that the firms who got my friend's work are known to be the best and brightest IP law firms in the Southeastern US. These firms were competitors of mine when I was a law firm partner and I purchased their services when I was a senior in-house IP counsel at a major US corporation. These firms did not offer such discounts in the past and, if someone dared to asked for such a deep reduction in costs, no doubt would they likely politely "be shown the door." Times have certainly changed.

Interestingly, however, my Chief IP Counsel friend indicated that her "legacy" firms (that is, those firms that had done her company's work for many years prior to her joining the chemical company) did not come to her and offer her discounts in order to keep the business. Her belief is that they enjoyed "milking" her company for fees and saw no reason to proactively reduce the fees they charged her company, even when they found out she was bidding out the work. This comports with what I saw as an in-house IP lawyer: several prestigious firms apparently historically saw my company as a "cash cow" and charged outrageous fees for legal work of dubious quality as long as no one complained.

These anecdotes should demonstrate to corporate buyers of IP legal services that your current law firms are likely not going to proactively offer your company a discount, even when it would be the right thing to do to help you address the budget pressures you are feeling even while your business teams are placing increasing focus on IP as a corporate asset. And, why should they--does your business proactively lower the costs of products when there is no competitive reason to do so? But, as my Chief IP Counsel friend's competitive bidding experience indicates, and as I can confirm from my in-house experience, most corporate IP legal service buyers should assume that they can save considerable outside IP counsel expense by sending their work out for competitive bid.

Unfortunately, corporate legal managers must themselves be proactive in order to get "the right price" for IP legal counsel, where the right price is what the law firm is willing to charge other corporations for similar legal services that presumably also provide comparable overall business value. (This sort of makes IP legal service pricing seem a bit like air travel--the guy next to you may have paid $100's less than you to fly to the same place.) Moreover, one should not feel reticent about "firing" a long-standing IP law firm if the law firm is not willing to sacrifice some of its income to, as my other Chief IP Counsel friend says "to walk with [you] through this dark valley." Loyalty should be a two-way street.

Law firms should acknowledge that their clients can no longer justify paying for IP legal services without also understanding and justifying the business value obtained. As such, law firms must decide whether they can stand to lose a long term client's business forever if they do not move proactively today to demonstrate the specific value they bring to their clients. Law firms must also be willing to modify their pricing structures to provide measurable relief in this time of economic uncertainty. Moreover, law firms must recognize that their competitors are actively seeking their clients and even the most prestigious firms are willing to provide innovative pricing and practice models to gain business (more on this in a subsequent blog post). It is also worth adding that once a client leaves a law firm because of price, chances are that the client will never come back. A bit of proactive "sacrifice" today may provide immeasurable long term benefit by demonstrating to corporate clients that their loyalty is well-deserved.

Is There an Emerging Business Model for IP Lawyers' Owning So-Called "Patent Trolls"? Only Until Their Corporate Clients Find Out.

noreply@blogger.com (Jackie Hutter) — Thu, 11 Jun 2009 15:21:00 +0000

Dennis Crouch of The PatentlyO blog recently posted an intriguing tidbit about well-known IP attorneys Carl Moore (Of counsel at Marshall Gerstein); Timothy Vezeau (patent attorney at Katten Muchin); and Nate Scarpelli (who used to and still appears to be associated with Marshall Gerstein). These prominent members of the Chicago IP community appear to be "moon-lighting" from their respective law practices to act as managing partners at a patent holding company called "Virtual Photo Store LLC" ("VPS"). As reported in PatentlyO, VPS is currently involved as defendant in a Declaratory Judgment action. Here is a copy of the DJ Complaint, also posted at PatentlyO. (Interestingly, the Complaint lists VPS' address as that of the Marshall, Gerstein law firm.)

The Complaint alleges that VPS is a non-practicing entity ("NPE") owner of several patents that appear to be related to digital image processing. Mssrs. Moore, Vezeau and Scarpelli allegedly own a company that operates under a business model directed toward enforcement of patent rights alone. In other words, VPS is company in that does not actually make, use or sell a product covered by the claims of the patent, which gives rise to the "NPE" moniker. (Of course, NPEs are more pejoratively referred to as “Patent Trolls.") It then follows that Mssrs. Moore, Vezeau and Scarpelli are managing VPS in its operations as an NPE, even while they are certainly concurrently representing large corporations that are the "victims" of NPE lawsuits.

Admittedly, these prominent Chicago IP lawyers are being innovative in seeking alternative business models to create value from their IP legal expertise and they are to be commended for doing so in this time of decreasing law firm revenues. One must also expect that their respective law firm partners have signed onto this business model and are, perhaps, looking to obtain some aspect of royalties that VPS might obtain from its endeavors to license its patents. However, I also wonder how happy their respective firms' clients would be at learning this turn of events?

Specifically, in a recent conversation with a friend of mine, who is Chief IP Counsel at a Fortune 10 technology company, the issue of his company’s NPE litigation came up. My friend informed me that of 25 patent lawsuits in which his company is currently engaged, they are a defendant in 21. Moreover, each of the plaintiffs in these 21 cases is, as my friend unabashedly states, a "Patent Troll." My friend went on to say that his company spends millions of dollars every year responding to and defending against litigation brought by NPEs. His company’s business and technology leadership must also participate in these litigation activities, which takes them away from what they need to do to keep the business running. Perhaps more significant than the time and money associated with defending these cases is the fact that this NPE litigation introduces risk and uncertainty into the company’s mid- and long-term business plans. Put simply, "Patent Troll" litigation is more than a distraction, it is a serious problem for his company's ability to do business.

My Chief IP Counsel friend indicated to me that his company realizes that the long-standing strategy of fighting these lawsuits one-by-one effectively was the equivalent of "Whack-A-Mole" because, regardless of any affirmative steps his company takes, the NPE lawsuits just keep coming. He and his company's leaders have therefore decided that they need a new strategy to address these increasingly numerous and costly NPE lawsuits. They have decided to hit at the pocketbooks of those they see as facilitators of these onerous litigation events--that is, the IP lawyers who represent the NPEs.

Accordingly, this Fortune 10 technology company’s new tack is to go after the law firms that represent NPEs by pulling lucrative corporate legal work from their law firms if they can determine that these law firms are involved in any way with NPEs. This means that the law firms involved in NPE litigation will not only be rejected as providers of IP legal services, but also will lose the opportunity to obtain wholly unrelated lucrative corporate and litigation work. As indicated by my friend, his company, which spends tens of millions of dollars per year on outside counsel for non-IP matters, will no longer “reward bad behavior” by sending its legal spend to lawyers and law firms that represent NPEs.

The obvious goal of firing law firms that represent NPEs is to limit the ability of these entities to obtain quality legal representation. By refusing to send work to law firms that represent NPEs my friend’s company seeks to ensure that NPEs do not obtain access to the best patent litigation resources. As a result, NPEs will at least have to commit greater resources to locating lawyers who are willing to represent them. In the best case scenario, at least according to my Chief IP Counsel friend, NPEs will effectively be cut off from the country's best patent litigation counsel, thus leaving them with a significant disadvantage when going up against large corporations which, of course, will have access to the best and brightest patent litigators.

Moreover, my friend's Fortune 10 technology company is not the only one taking this strategy to address NPE litigation. In a recent webinar that I attended, Dan McCurdy of Allied Security Trust indicated that members of the AST consortium report to the group what law firms represent NPEs in lawsuits brought against them so that other members can assess whether continued business with law firms that support NPEs is appropriate. It is thus apparent that many corporations that are repeatedly subject to lawsuits brought by NPEs are “mad as hell and not going to take it anymore.”

So, bringing the conversation back to the lawyer-owned NPE VPS, I must wonder what their respective law firm partners’ reaction will be when my friend's company pulls seemingly unrelated legal work from their law firms as a result of Mssrs. Vezeau, Moore and Scarpelli’s managing ownership interest in a “Patent Troll.” Undoubtedly, it is bad enough for a law firm to merely represent an NPE, so how must it look like to clients when their law firms are effectively in the NPE business. I am sure that my Fortune 10 Chief IP Counsel friend, as well as his savvy corporate IP counsel peers, would accept no explanation for such activity and that he would remove all work from as soon as practicable from any law firm that counted among its partnership ranks lawyers that managed an NPE.

The question arises of why sophisticated and venerable law firms such as Marshall Gerstein and Katten Muchin would allow their partners to engage in activities that could result in significant corporate legal work being pulled from their respective firms. It could be as simple as that they believe no one will find out or, if they do, no one will care because it has not been an issue previously. Indeed, in days past, information such as which law firms and what lawyers were doing and who they represented was generally available, but it was nonetheless difficult to collect and analyze efficiently. Clients thus could not really see into the client rosters of their law firms to see whom else the lawyers represented. To the contrary, it was up to lawyers to decline representation only if there was a direct or potential ethical conflict. In my years of practice at a law firm, neither I nor my fellow partners declined work because a lucrative existing client did not like the business model of a potential new client. While I am sure that some lawyers can point to examples of a new client being sent away due to a potential dislike, I expect that these situations are fairly few and far between.

This is no doubt will be changing as a result of my Chief IP Counsel friend's actions, as well as those of his peers. Law firms need to be prepared for this to happen on a more frequent basis in the future. As online resources, such as the great PatentlyO blog, continue to collect and present valuable insider information, I predict information such as whether a law firm represents or its lawyers actually own an NPE will not just become more available, but also more actionable. As a result, I believe that lawyers who try to play both sides of the fence (e.g. such as by generating significant revenue from both corporations and NPEs or, as with Mssrs. Moore, Vezeau and Scarpelli, actually owning a NPE) will not be able to hide this fact from those who are looking to act on such information.

It will be interesting to see how corporations exert their buying power to limit the ability of NPEs to obtain quality legal representation in the future. Time will tell if corporations can effectively reduce the amount of NPE litigation by hitting corporate lawyers where it hurts--in their pocketbooks. And, I would love to be the proverbial "fly on the wall" when a senior partner at Katten Muchin or Marshall Gerstein loses a major client because of his partner's ownership in VPS.

News Items: IAM 250, IP Metrics Benchmarking Study and New Innovation Blog for Innovation Entrepreneurs

noreply@blogger.com (Jackie Hutter) — Tue, 09 Jun 2009 23:17:00 +0000

Regular readers of the IP Asset Maximizer blog will note that my postings have been a bit sparse lately. I have been taking some time off with my family, and will be continuing to do so until later in June 2009. I appreciate your patience. I have some timely news items to share in the interim, however.

IAM 250 Awards

I am proud to announce that I have been named one of the IAM 250 for 2009. This award is given by IAM Magazine to those non-corporate IP Strategists judged by their peers as the leaders in IP Strategy. With Duncan Bucknell, Suzanne Harrison, Kevin Rivette, Andrew Watson and many others whom I respect greatly on the list, it is a great honor to appear on this inaugural list of the world's leaders in IP Strategy.

IP Metrics Survey

Kate Shore of IPCapital Group let me know that her company has developed a benchmarking survey to assess how companies are using metrics and key performance indicators in relation to their IP portfolios and processes. Details are found in the IPCapital Group blog. The survey closes on June 17.

New Blog for Innovators

Over the past several months, the folks at Slingshot Product Development Group have referred to me a number of entrepreneurs who are seeking to introduce their new product ideas into the market. Slingshot works with corporations and entrepreneurs in all facets of product development, that is, from early stage ideation to manufacturing services. My services in this regard have effectively been in the realm of "IP Business Coaching." Some of these entrepreneurs held viable ideas, but others I had to tell that their product idea could not be protected so as to make it likely that they would have success in the market. To a client, however, each of these persons obtained valuable insight into the overall market potential of their ideas as a result of my working with them to deconstruct their product idea into an analysis of the innovation they were seeking to address, as opposed to merely looking at their idea for its inventive aspects.

In the time that I have gotten to know the Slingshot folks, I have been impressed with their "out of the box" thinking about innovation, particularly how IP should fit into the process at the earliest stages. Put simply, Slingshot "gets" that patents don't matter unless the product will sell, which is a depth of understanding about the patent process that other innovation professionals do not yet broadly process. Moreover, Slingshot understands that IP information can significantly enhance the product ideation process to result in greater overall ROI on innovation investment.

Given my positive experience with Slingshot, I gladly accepted their offer to cross-post relevant content to their new innovation blog, which will go live shortly. Readers of the IP Asset Maximizer blog will recognize the content at the Slingshot blog because it will also appear here. I am nonetheless pleased to have a new forum to spread the word about IP Strategy to those who do not normally interact with the world of IP. Those of us who are leading the way in spreading the word on IP Strategy understand that a significant impediment to broader implementation of asset-directed IP processes (as opposed to the traditional rights-based IP processes) is communication to those who need to know, that is, business professionals. I am looking forward to this new opportunity for dialogue with those who have the most to gain from implementation of robust IP Strategies within their respective organizations.

Patent Attorneys Can Create Value-Added Services for Their Clients by Assisting with Open Innovation Efforts

noreply@blogger.com (Jackie Hutter) — Fri, 29 May 2009 12:49:00 +0000

As someone who assists corporations and entrepreneurs in monetizing their patents, I am continuously on the lookout for potential technology buyers. To this end, I subscribe to a number of services that provide "wish-lists" of technology that others are seeking to acquire. The most notable of these are Innocentive.com and Yet2.com. Recently, I have seen a number of technologies on each of these websites that are possibly relevant to patents that I have obtained for clients over the last several years. While this could be a coincidence, I also think it could be a signal that more companies are dipping their toes into the Open Innovation space, as opposed to relying solely on internally developed products or technologies.

Patent attorneys seeking to improve the value they provide to clients would be well-served regularly reviewing the listings on these databases and spreading the word to their firm colleagues. Imagine the delight that clients would experience when their patent attorney brought them opportunity to make money on a technology that they no longer need, but have nonetheless spent considerable resources on over the years.

A word of advice, however. If the technology solution was readily apparent, the company listing the need would likely not have gone to the effort and expense to list it on Innocentive.com or Yet2.com. To be acceptable the solution will probably not just be "out of the box" but "out of the truck the box came in." An example of such a solution is found in the Magic Eraser(R) story.

For those who do not use Magic Erasers (or the numerous store-branded equivalents), the story is detailed in this Harvard Business Review reprint. (This product is a must have for anyone with children and/or white kitchens!) The synopsis is that Magic Erasers comprise a BASF insulating melamine that was sold in China as a cleaner. A "technology scout" saw the product in Japan and brought it to P & G for testing. P & G introduced the BASF foam directly into the US as a cleaning product, in addition to entering into an ongoing collaborative R & D venture with BASF to improve the cleaning properties of the melamine foam. The Magic Eraser brand has become a powerhouse for P &G and has extended to products beyond the BASF melamine foam. BASF has also benefited substantially from this endeavor in increased sales of its melamine foam, as well as in developing a strong collaborative supplier relationship with P & G.

The point of relating this story is that although BASF sold its insulating foam product into Japan for cleaning purposes, its business teams did not recognize that these same properties would be game-changing in the US market. Similarly, although P & G has one of the best cleaning R &D operations in the world, its scientific and business teams were unable to identify the BASF foam as a potential fit for its product offerings. It took someone who was charged with scouting technology--that is, working outside of the usual internal corporate R & D silos--to make the connection between the BASF foam and the huge US cleaning market.

I think that patent attorneys can serve as a type of technology scout for their clients. In preparing and drafting patent applications and in conducting opinion work for their clients, patent attorneys develop a comprehensive understanding of the properties and functionalities of their clients' products and technologies. A patent attorney who reads the technology wish-lists posted on Innocentive.com and Yet2.com may be better able to make the connection between the desired properties of a technology and his clients' patented technology that could solve that technology needs. As illustrated by the Magic Eraser story, a client who works in the polymeric insulation space may not be "wired" to recognize opportunities in the household cleaning space, nor will a cleaning expert likely be familiar with the auxiliary properties of an insulating foam. A patent attorney can serve as the bridge to connect such disparate disciplines because they talk to clients across varied technology and business silos everyday.

Of course, most clients will not wish to pay their attorney's hourly rate to serve as a technology scout. Such a service certainly would operate as a value-add for most clients. Nonetheless, as clients demand more from their patent attorneys and patent practice becomes increasingly commoditized, I believe that those attorneys who show their clients that they seek to create actual value for their clients will generate more client loyalty and will face fewer push-back on cost.

Looking for Inside Info on the Automotive Bailout and Other Business Issues? It May Be Hiding in Plain Sight in US Patent Assignment Database

noreply@blogger.com (Jackie Hutter) — Tue, 26 May 2009 11:52:00 +0000

One of the under-utilized aspects of available US patent data is the business information effectively "hiding in plain sight" in the U.S. Patent Office Assignment database. While it used to take weeks or months for assignments to be recorded, in recent years, the USPTO has implemented a very efficient electronic filing functionality that results in assignments being available for review almost immediately after being presented for recording. (This is arguably the most efficient process today in the USPTO.) Because most patent owners appear to avail themselves of electronic filing option when recording their assignments, one can find a wealth of information in the USPTO Assignment Branch.

To this end, I recently uncovered an intriguing tidbit of information related to the Automobile Bailout when performing a wholly unrelated patent monetization marketability study for a client. In confirming that a patent was still owned by General Motors, I cross-referenced the patent number in the USPTO assignment database. I found that in December 2001, the U.S. Department of the Treasury recorded a security interest in U.S. Patent Number 7,079,016. In April 2009, a further security interest was recorded in the same patent by Citicorp, "as agent for Hedge Priority Secured Parties."

Digging a bit deeper, we find that the U.S. Department of the Treasury has recorded security interests in several hundred (perhaps a thousand or more) GM patents, thus establishing the U.S. Government as a significant player in the patent world. Still more digging indicates that these security interests were re-recorded apparently in total in the name of the Hedge Priority Secured Interests, thus indicating that this hedge fund is now also a significant patent owner, at least until GM declares bankruptcy or pays off its loans (more likely the former given recent reports).

(Interestingly, the U.S. government's security interest was not released prior to recording of the Hedge Fund's interest. While I don't even know enough secured lending law to remotely competent to provide an opinion in this regard, it appears that others have identified problems with the way Treasury structured the GM and Chrysler loans last Fall.)

While this information may or may not be interesting to those who are monitoring the status and progress of the Automotive Bailout, the larger point here is that such business information is readily available to those who know where to look. To this end, last year I wrote about how one can follow the investment of companies into alternative energy using patent assignment and filing data. Similarly, one can tell what companies may be leveraging heavily leveraging their IP assets to generate cash by looking into this same information.

A word of caution about using patent assignment data, however. Although creditors are typically very efficient in recording their interests in patents, the companies that own the patents often are not. Moreover, the USPTO will record just about anything that is send to them. As such, the USPTO assignment database is often rife with errors. Because state law regulates the legal effect of patent assignments, one must examine the underlying legal rights as set forth in contracts that may not be readily available in order to understand the true ownership interests related to patents. However, I believe that when properly used, the Assignment database can provide highly valuable directional business intelligence to those who understand how to extract and evaluate such information.

Chief Circuit Judge Michel Agrees with Me: NPE's (aka "Patent Trolls") are Not Necessarily "Illegitimate"

noreply@blogger.com (Jackie Hutter) — Sat, 16 May 2009 16:08:00 +0000

On his great 271 Blog, Peter Zura posted excerpts of the Chief Circuit Judge Michel's keynote address at the FTC hearings on "The Evolving IP Marketplace" last December where Judge Michel addressed the state of patent law and patent reform. Anyone interested in patents, the USPTO and patent reform should take a look. I posted a comment on this post, and am reposting it here (with additions) along with Judge Michel's comments about NPE's as presented on the 271 blog.

Specifically, I was intrigued by Chief Circuit Judge Michel's view that NPE's ("non-practicing entities" also known by the pejorative term "patent trolls") should not be viewed as somehow "illegitimate." He apparently believes that by allowing those who are on the receiving end of NPE lawsuits to control the argument by "naming and framing" (my phrase) the problem as "trolls" is not helpful. Here is the excerpt of this part of his speech (again, thanks to Peter Zura of the 271 Blog for posting this--Peter's emphasis removed):

Then the argument keeps shifting. Well, it's not so much the number of infringement suits filed every year, it's who's filing. Well, why should we assume that a non-manufacturing patent owner shouldn't be allowed to enforce its patent? What is wrong with a university owning patents based on research of its faculty scientists or research institutes or small inventors or small innovative companies that either can or don't want to try to manufacture products themselves but license their inventions so others can make them?

Well, are these patentees really illegitimate somehow? I mean, after all, at least up until now a patent has given its owner the right to exclude, not the obligation to make. Then some say, well, it's not so much the non-practicing entities, it's certain companies that don't invent at all, but merely acquire and enforce patents, and of course calling them ‘trolls’ just confuses the analysis because obviously a troll is a bad thing.

It's a pejorative label. (Some people who used to complain about trolls allegedly have become trolls). But I don't think that it's helpful -- it's a slogan. It's a label. It's an excuse to not think carefully about the problem, as far as I'm concerned. It's like talking about ‘questionable patents.’ It's an excuse to not think carefully about the problem as far as I'm concerned. It's like talking about questionable patents. It's not helpful if we're going to try to diagnose the real illness and prescribe a useful medicine.

Besides, patents, like any other form of property, the essential element of property is it is alienable. You can sell it. You can sell it to anybody you want to for whatever price you want to sell it. Why should that be prohibited? Why should I be prohibited from buying patents if that's what I want to do, whether I invented them or not, whether I am going to practice them or not, whether I'm a research institution or a university or not? There might be some reasons. Maybe some of them are good, but it's not self-evident, at least not to me.

Then there's certainly the debate about motives. Well, they just want to acquire patents so they can squeeze royalties out of infringers. Well, yeah. Hey, this is commerce. This is about money. This is not an altruistic system. The whole constitutional idea was that the incentive of monetary gains would motivate innovation at a greater rate and to better ends than if the lure of money wasn't there, so I'm a little dismayed when I see it even creep into footnotes of Supreme Court opinions, that certain patentees were just trying to squeeze money out of the accused infringer. Well, all kinds of patentees are trying to squeeze money out of the accused infringer. That's what the lawsuit is all about, so come on. Let's be a little more adult about it than to worry about the greedy motive of the patentee. Of course the patentee is greedy.

Judge Michel is right on the money about the NPE argument! As Judge Michel properly asserts, there are many patentees, such as universities, that never intend (nor do they have the wherewith all) to ever make a product covered by the patent claims. Rather, their objective from patenting is to sell or license their rights. If another entity chooses not to buy or license their rights, that entity is effectively "stealing" from the university etc. and should be sued.

The view that NPE's are a burden on society is one promoted by those companies that must react to lawsuits (or threat of lawsuits) on a regular basis. And, clearly, this is an expensive proposition for these entities. As a result, in recent years, these manufacturers have banded together to develop a framework for making Congress, as well as the public, aware of the negative effects that NPE's allegedly have on the business community.

To this end, I sat in a Gathering 2.0 webinar this week where Dan McCurdy of Allied Security Trust ("AST") made the argument that only those companies that actually make a product should be able to sue for damages. This effectively means that only his colleagues (that is, those large technology companies who fund AST) and those other companies in roll of "manufacturers" should be allowed to sue for patent infringement. This is an viewpoint that is in opposition to the public policy with which the patent system is imbibed.

I think what is almost always lost in the "patent troll" argument is the fact that patents exist to disseminate information and promote innovation through public disclosure. People will not do so unless their self-interest is served by giving them exclusive rights to that innovation for a limited term in return for this disclosure. Corporations, along with their lawyers, have long considered patents first and foremost be a legal right to protect their products from competition. In short, corporations appear to believe that the Constitution provides them with a right if they make something that benefits society. This is a perspective of a monopoly right (that is, an affirmative right to sell something) as opposed to a broader exclusionary right.

In other words, public policy is agnostic to the fact that the patentee actually makes something, as long as the patentee meets the disclosure requirements of the patent laws. It is the exclusionary aspect of patents that allows the public policy of innovation promotion through patents to succeed, but it is this exclusionary aspect that provides universities and other NPE's to sue corporations when they do not actually make the product covered by their patent rights.

In my opinion, the battle against NPE's is at its core a battle against the public policy that serves as the foundational basis of our patent system--disclosures of innovations that "promote the progress of science and the useful arts." Those of us who believe that NPE's meet the objective and, as such, are not inherently "evil" must begin to reframe the argument and communicate the societal benefits of patent publication to those who set public policy. Of course, it will be difficult for the diverse interests of NPE's to come together in a uniform manner to present the arguments against corporations that today control the public argument. I hope that cooler heads will prevail as we move forward with patent reform in the current Congress.

Want to Obtain Patents to Protect You from Competitors Knocking Off Your Innovative Products or Technology? It's Easy-Don't Be "Selfish"

noreply@blogger.com (Jackie Hutter) — Wed, 13 May 2009 22:00:00 +0000

Recently the CEO of a start-up asked me for the most important advice I could give before she filed a patent application directed toward protecting her company's core technology. In response, I said "don't be a selfish patent applicant." Few patent applicants obtain such counsel from their advisers and it shows: the vast majority of patents are written from a selfish perspective.
(Note that I am using "selfish," in the context that the term is used in marketing i.e., thinking that others see the same things in your product or technology as you do. When one selfishly markets her product or technology, she assumes that others will buy it for the benefits she sees, not for the reasons upon which consumers will base their purchasing decisions. So when I say that most patents are written "selfishly," I mean that applicants (both individual and corporate inventors alike) approach the patenting process with a focus on what they think are the important aspects of the product or technology, as opposed to what others will find innovative.)

A focus on the invention itself while drafting a patent application often means that the innovation is not adequately covered to prevent knock-offs by competitors. By "innovation," I mean the technological or consumer problem that is solved by the invention which is why someone actually buys the product or technology embodied by the invention in the first place. When such an innovative product or technology becomes successful in the marketplace, a competitor will certainly seek to copy those features that make it "innovative." But if the patent fails to properly cover the innovation, a competitor can mirror the successful product or technology with little fear of liability because the same problem can be solved using different design features than those set forth in the patent.

The key to preventing knock-offs of innovative products or ideas is for those responsible for drafting patent applications to look outside the perceived inventive aspects of a new product or technology to examine how others would view the problem addressed by the new product or technology. Put simply, the patent application drafting process must include an "unselfish" analysis of how others might try to solve the same problem to which the innovative product is addressed.

A good illustration of my premise here is the touchless towel dispensers that are now ubiquitous in public restrooms. These dispensers provide a towel to a user without her having to touch the dispenser. This enables a more hygienic experience for the user and also significantly reduces the amount of towel material used. The number of touchless dispensers in use today means that this product solved a significant market need. However, if one examines these products closely, she will notice that there are now several different manufacturers of these products in addition to the original innovator Georgia-Pacific ("G-P"), which introduced its EnMotion(R) dispenser several years ago. (Full disclosure: I was employed in the patent department of G-P, but I was not involved or knowledgeable of any business or legal decisions regarding the EnMotion towel dispenser product.)

A Google search for "touchless towel dispensers" indicates that there are at least 6 different manufacturers of these products for use in commercial restrooms. Each of the non-G-P dispensers appear to work using slightly different design features than the EnMotion branded dispenser. For example, one non-G-P touchless dispenser presents a towel to the next user upon tearing of a towel. This feature apparently gets around the G-P product's function to dispense a towel to the user when waving her hand in front of a sensor. Another competitive version requires the user to put her hand below the dispenser to activate a sensor instead of in front to obtain the towel for use. Presumably, the consumer does not care how she gets her towel dispensed from a touchless dispenser--that is, each of these 6 manufacturers of touchless dispenser provides the same consumer innovation, albeit using slightly different designs.

The question is why G-P's patent filing efforts relating to its touchless towel dispenser product (which were extensive) do not appear adequate to prevent these multiple competitors from copying its innovation. My answer to this is that it is likely that those responsible for identifying the inventive aspects of the G-P touchless dispenser prepared the patent filings from the context of what they invented, not what problem the product solved for the user. In other words, G-P's representatives selfishly patented the towel dispenser.

This is not to say that G-P's representatives did a bad job covering the touchless towel dispenser invention. Those responsible for G-P's patenting efforts competently drafted the applications with an eye toward how others would copy their invention--that is, what aspects of their fully-formed product could be knocked-off by others for inclusion in a competitive product. Certainly, the G-P patents cover the G-P invention very well, which can be inferred from the fact that none of the competitive products appear to mirror the specific operational features of the G-P touchless towel dispenser. Because of this patent coverage, the competitive towel dispensers must accomplish the same innovation i.e., hygienic dispensing and waste-reduction of paper towels usage in public restrooms using designs that were presumably not considered to be part of the G-P inventive design.

How could G-P have reduced the amount of competition in touchless dispensers? The simple answer is by seeking to patent the innovation, not just the specific G-P touchless dispenser invention. The innovation of touchless dispensing is what the consumer cared about and this is what G-P's representatives should have endeavored to patent. This could have been accomplished by addressing the hygienic nature of the dispensing e.g., fewer germs after a number of uses or by identifying a reduction in the amount of paper used in a certain number of uses. In other words, to protect the G-P touchless dispenser innovation, G-P's representatives should have identified the functional benefits provided by the product because these functional features necessarily exist in knock-off products that solve the same consumer problem.

Of course, obtaining patent coverage that is broad enough to protect an innovation such as the G-P touchless dispenser is easier said than done. However, by drafting patent applications with an eye toward how others would attempt to copy the functional features of a new product or technology can put a patentee in the position of owning the innovation, instead of just one or more ways to address a technology or consumer problem. By approaching the patent drafting process from a "non-selfish" perspective, others will be less likely to knock-off the functionality that serves to solve the innovative problem.

Why Does Your Company Fail to Treat IP Asset a Corporate Asset? A New Article Proposes Organizational Behavior as the Problem

noreply@blogger.com (Jackie Hutter) — Fri, 08 May 2009 12:56:00 +0000

While we can argue about the exact amount, without question, intangible assets form the majority of corporate value today. Matters involving IP are therefore predominately business issues, as opposed to legal issues or technical issues. For example, IP in the form of patents or trademarks (or both) frequently serves as a basis of the premium pricing that can be obtained from a differentiated product line. Also, IP directed toward a competitor's technology can legally limit the ability of a competitor to expand its offerings, thus decreasing its ability to compete. There are many other examples of the business value of IP, all which when strategically obtained and managed can greatly increase the overall financial position of the corporation using IP as a business tool.

Notwithstanding the substantial dollars associated with corporate IP decisions, most organizations leave questions of IP in the hands of their legal and technical teams. Of course, many corporate IP professionals realize that this is an outdated view of IP management and that corporate asset value cannot be properly maximized by maintaining IP issues in the traditional legal/technical silo. These IP managers nonetheless often face considerable difficulty getting their business teams to pay attention to IP issues as they would other issues imbibed with significant financial ramifications.

The question is why an otherwise sophisticated professionals would cede management of a substantial corporate asset to a lawyer or scientist, when they would not do the same for other business decisions. That is, would these same business professionals put lawyers or scientists in charge of product development or pricing decisions? Of course not. Clearly, there needs to be a way to get business managers to "get" IP.

My friend Jordan Hatcher and his senior colleague Andrew Watson at the IP Strategy consultancy IP Value Added have written a great article that addresses the structural impediments in an organization that can prevent the business team from understanding and managing IP as an asset. Significantly, Jordan and Andrew have placed impediments to an asset-based approach to IP management in the context of Insights Discovery (based on Jung's work in behavioral psychology), which is used to analyze organizational behavior and corporate culture.

The article is very interesting, and I think that those seeking to understand why their business team does not "get" IP will find Jordan and Andrew's analysis illuminating. The article does a great job describing the traditional (rights-based) approach to IP management and the more modern (asset creation focus) view.

Traditional--IP is a legal issue:

IP is a handled elsewhere (down the corridor, second on the left, through the door marked “Legal”)
Lacks board visibility and will struggle in competition with every other business initiative to gain attention
Too caught up in the process behind acquiring and maintaining rights without focusing on taking risk and getting results for the business out of its IP
Analytical, objective, controlled, planned, balanced, deliberate, questioning and formal.

Modern--IP is managed as a corporate asset:

What is the end result of acquiring IP within our business (WHY are we getting IP and WHAT are our competitors doing with IP?)
Asset creation requires risk taking, so what risks are we taking with our IP assets?
Are we being dynamic, creative and innovative around how IP can be used as a part of the business strategy?

Of course, it is one thing to identify the need for organizational change, but it is wholly another to actually be able to effect the change needed to treat IP as an important corporate asset. In this regard, I agree with Jordan and Andrew that an organization's CEO will not "get" IP unless someone who commands their attention and respect talks to them about the substance and importance of IP to the value of their business.

To this end (and I can report from experience that this is true), corporate IP managers--who are normally far down the organizational chart from from the CEO--are not likely to be able to have the credibility and forum to effect the degree of re-structuring needed in most companies. Jordan and Andrew indicate that the following persons are best equipped to get the attention of the CEO and others who need to understand and embrace the value of IP to their organization in order to make the necessary change happen:

chairmen
non-executive directors
advisory boards
investors (funding sources and debt providers)
analysts
his or her direct reports – the C-level management group

Jordan and Andrew also propose IP structures that can result in successful IP value creation through proper management processes. I agree that the actual corporate structure is less important than the person who is put in charge of IP business assets. That is, the person can be a lawyer with a strong business sense or it can be a business person who has been deeply involved in IP matters such that they have obtained a substantial working knowledge of IP issues. What matters more is that the reporting structure and incentives are directed toward maximizing IP as a corporate asset, not merely to keep the costs of IP procurement and management low (as is typically the case in the traditional corporate IP structure).

Corporate IP managers who are experiencing difficulty in convincing their business teams that IP should be at the fore of their business considerations would be well-served by considering Jordan and Andrew's perspective on organizational impediments that prevent a company from treating IP as a business asset. They are to be commended for this thoughtful article and I look forward to additional substantive analysis of IP management issues from the IP Value Added team.

A Response to PWC's "Starry-Eyed" View of the Value of Litigation as Effective Way to Monetize Patents

noreply@blogger.com (Jackie Hutter) — Wed, 29 Apr 2009 17:45:00 +0000

I recently became aware of this patent litigation analysis prepared by PriceWaterhouseCoopers (“PWC”) (hat tip: Marcus Malek of the Intangitopia blog). The report appears to be rigorously prepared from data obtained from a large number of reported patent litigation cases dating from 1995. I read this report with interest and think that anyone who is interested in the ROI of patent enforcement should read it also. The data provide a wealth of information for anyone even thinking about bringing a patent case or who is involved in defending against claims of patent infringement.

Although the data in the PWC provides informational value, I nonetheless have a big problem with the following assertion that is prominently presented on page 18 under the title “What This Means for Your Business”:

"In light of the findings in this study, patent litigation appears to continue to be an effective protection and monetization path for patent holders." (emphasis added)

This unqualified statement gets a big “WHAT?!” from me.

The PWC data indicates that patent holders prevail only 37 % of the time, with the breakdown of wins being 19 % at summary judgment and 57 % at trial. (page 8) The median damage award for patent holders is $3.8MM, measured over 7 years from 2001 to 2007 (page 2). Notably, the median damage award varies substantially among technology areas, with some areas such as pharmaceuticals, consumer goods and automotive resulting in damage awards significantly lower than the median value. (p 3) The values are further skewed because the award figures include the $1.5 B award against Microsoft that was later markedly reduced (but was current as of the time of the PWC report).

While the $3.8MM figure might initially seem somewhat impressive to many patent owners, notably missing from PWC’s assertion that patent litigation is an “effective [] monetization path” is the cost to the patent holder to obtain that median damage award of $3.8 MM. At best, this assertion presents a "starry eyed" view of how patent owners can extract value from their patent assets. At worst, the assertion is misleading. (But, in any event, it is not necessarily surprising because PWC derives significant revenue from patent litigation.)

With regard to these costs, recent estimates of the cost of fairly non-complex patent litigation through trial is about $5 MM for each party. This means that a prevailing plaintiff will likely spend significantly more to obtain its award than it will ever receive. Moreover, the PWC report does not appear to indicate that a patent owner that loses at trial is likely to obtain a higher damage award, even after undertaking the additional substantial expense of appealing an adverse decision.

And, it is not just actual cost that the prevailing plaintiff owner will incur in the process of winning its patent lawsuit. The median time to trial, as measured from 1995 to 2007, is stated to be just slightly over 2 years. (page 11) This delay means that during the pendency of the lawsuit, a patent plaintiff’s business, technical and legal staff will be diverted from tasks that are likely to bring substantially more concrete revenue into the company today and in the future than that which might be obtained by a litigation win. The opportunity costs of the patent owner's favoring of litigation over more reality-based revenue generation opportunities can thus be substantial and should not be overlooked.

Taken as a whole, I do not see how the PWC data show that patent litigation is an “effective [] monetization” strategy as contended by this report, especially when chances are that a patent owner will spend more on the litigation--both in actual dollars spent and in opportunity costs--than it will likely obtain in a damages award.

This is not to say that I am totally against patent litigation in the proper circumstances. Countless situations certainly exist where it makes sense for a patent owner to enforce its rights in a court of law. There are also many good examples of where patent owners have won substantial damage awards against an infringer. However, the PWC data show that the median damage award is actually fairly modest in most industries, especially given the high cost generally involved in conducting patent litigation.

So, unlike PWC, I do not believe that patent litigation is a good bet for patent owners to monetize their patents. Rather, it seems more like a crap shoot to me. But I do not make my living from patent litigation anymore, which may "cloud" my perspective that litigation should be perceived as a source of revenue generation. In summary, I think there much better ways for a patent holder to view the value provided by patents.

UPDATE: After posting, I realized that a clarification was needed in regards to patent monetization as a business model. Of course, for non-practicing entities (aka "patent trolls"), patent litigation may not only be a viable strategy, it might be the only strategy. Nonetheless, NPEs certainly do not form the core of PWC's client base. I therefore concluded that PWC's report is directed toward leaders of the corporations that it counsels, not NPEs. For corporate-type patent owners, patent litigation is not a viable patent monetization strategy for the reasons set forth in this post.

50% of Venture Capital Investment is Lost: How Your Clients Can Improve These Odds by Using the Right Patent Analytics

noreply@blogger.com (Jackie Hutter) — Thu, 23 Apr 2009 15:39:00 +0000

THE SKINNY ON THE QUALITY OF VENTURE CAPITAL-RELATED INVESTMENT DECISIONS

If you are a counselor of venture capital firms or entrepreneurs who owning start-up companies that are targets of venture capitalists, you might already be familiar with the high rate of failure associated with such investments. Nonetheless, you may be surprised to find out that 50% of all money invested in venture capital is a loss. This figure, which is based upon separate research projects by a Chicago Graduate School of Business (“GSB”) professor and a former Chief Economist at the Securities and Exchange Commission, indicates that the actual return on venture capital investment is not much different from the average annualized returns on the smallest NASDAQ stocks. In particular, the return on venture capital investment from 1987 to 2001 in these smallest stocks was 62% as compared to the 59% mean return of venture capital funds.

This 59% figure certainly does not reflect the investing public's general perception that venture capital return on investment markedly outweighs what one can obtain on the stock market. And, it is this apparently erroneous assumption of perceived higher return that presumably justifies the higher risks your venture capital and entrepreneurial clients associate with venture capital. Investor perception certainly does not match investment reality for your clients who play in the venture capital space.

Why this disconnect between perception and reality on venture capital returns? Professor Cochrane, the Chicago GSB professor, posits that, in effect, traditional methods of measuring venture capital return do not take into account the fact that ventures that are a total loss disappear and are not measured. Because these losing ventures are not around to be measured for calculation of rate of returns, Professor Cochrane states that this survivor bias significantly skews the rates of return on venture capital. His simple explanation of the effect of these missing numbers is telling (quoting from the Jacobius article): "They collect the returns for everybody that is around," he said. "It is like collecting data from everyone still in the casino: They're not asking the people on the bus … who are on their way home.”

HOW YOUR CLIENTS CAN IMPROVE THE QUALITY OF THEIR BUSINESS DECISIONS

From the Jacobius article, it appears that there is much room for improvement in your venture capital clients’ investment decision-making, as well as the quality of entrepreneur's decisions regarding their start-up companies. As an IP Business Strategist and Consultant, I am a strong advocate of using knowledge and information to reduce risk and improve the rate of return on investment. I firmly believe that venture capitalists, and entrepreneurs who are seeking venture capital investment, can improve the quality of their business and investment decisions by collecting and analyzing business information available in published patent data.

When one knows how to extract and analyze the right data in patents, significant business insights are effectively "hiding in plain sight." In short, valuable business information is available for the taking by smart entrepreneur and investors. And, why wouldn't your client seek to gain knowledge that could reduce the strategic uncertainty of her investment decisions to better manage decision-making risk?

In particular, before your venture capital firm client invests in a new business idea for a new venture, why wouldn't she want to know whether the business idea is ownable in the long term or whether she will possess the opportunity to innovate freely in relation to that business idea? Or, why wouldn't she want to know whether another firm has invested $100K or more in patent rights alone in the new business idea that she is investigating for investment? This, and other, valuable business insights and information are embedded in published patent filings.

For your start-up entrepreneur client, patent filing information can also provide valuable insights to provide enhanced long term business value and raise the value of her start-up company to venture capital investors. For example, patent filing information can reveal where the entrepreneur should focus her patenting efforts beyond the parameters of her specific inventive concept. By undertaking a competitive review of what others have sought to protect in her relevant product or technology area, your client can better understand the full breadth of patent rights obtainable. This can allow your client to gain enhanced patent claim scope that can serve to prevent competitive knock-offs of her product or technology concept. As a result, her start-up company’s value to venture capital investors can be significantly increased.

YOUR CLIENTS DON’T JUST NEED PATENT ANALYTICS, THEY NEED PATENT ANALYTICS THAT PROVIDE THE RIGHT BUSINESS INSIGHTS

However, it is not enough for your clients to collect and graph published patent data to obtain insights that will improve the odds of making the right investment decisions. Rather, specific business-focused data collection and analysis methodology is necessary for successful use of patent data for use by your clients. This is easier said than done.

In my experience as an actual purchaser of patent analytics costing upwards of $20K per single business question, I found that the vendors that collecting and analyzed the patent data generally had no basic understanding of the business questions that my company required answering. As such, these patent analytics vendors’ products were effectively useless to answer our business team's investment and innovation questions. Put simply, these vendors’ products did not provide my team with actionable business insights. I thus learned an expensive lesson about patent analytics: the data collection must be based upon the right foundation for the results to have any value. In other words, with patent analytics it is "garbage in, garbage out."

As one example of patent analytics “garbage,” one vendor, who offered a patent analytics product for $25-30K for a single business question, presented example data to us in his sales pitch regarding complex patent portfolio where the business conclusions were based upon published patent assignment information. The analytics vendor affirmatively stated that because the primary inventor named on this portfolio’s moved from Tennessee to Arizona, we should be concerned because he likely had gone to work for a major competitor of ours. He further stated that our company should be concerned that our major competitor was entering a new technology area in which the inventor was a renowned expert.

These conclusions seemed reasonable because they were supported by Patent Office assignment data, as well as other signals informally observed by our marketing team. We therefore considered investigating this competitive threat more thoroughly and addressed making preliminary steps toward evaluating a new product introduction in our competitor’s apparent new technology area. Before doing so, however, one of our team members contacted a former colleague of his who had worked in the same department as the inventor who now worked for our competitor.

Our team member found out that the inventor moved to Arizona not to work for our competitor, but to tend to his ailing mother. This intelligence revealed that the inventor was working in a wholly different product area at our competitor than he had worked at while being a prolific inventor at the Tennessee company. The technology area did not pose a competitive threat to our company. Fortunately, we found out this was the case before investing significant time and effort into the patent analytic vendors’ conclusions from patent assignment data.

Interestingly, the patent analytics vendor did not consider any alternative reasons for the inventor’s change of residence, other than that he presented. In his view, if the data revealed by his analysis said it, it must be true. But, it wasn't the data that was the problem, it was the conclusions he presented to us. If we would have been more credulous about his conclusions, we would have wasted considerable corporate resources chasing his erroneous assumption about our major competitor’s activities.

HOW YOUR CLIENT CAN SELECT THE RIGHT PATENT ANALYTICS
In the world of start-up company management and attendant venture capital investment, information is undoubtedly power that can fuel your clients’ decision-making processes. But before your client spends good money on patent analytics to improve the payback from her business decisions, she must ensure that the data and insights she obtains are based upon methodology that extracts actionable business insights from patent filings. As shown above, selection of the wrong analysis methodology could be worse than her not conducting patent analytics at all because her investment decisions could be influenced by information that provides the wrong business conclusions. Only those methodologies that are founded on methodology that extracts the business purpose from patent filings can provide your client with investment-grade insights from patent filings.

Methodologies I recommend to my venture capital and entrepreneurial clients use a combination of data and legal analysis to extract the business information from patent filing data. Importantly, the business question must be well defined prior to starting the analysis. A broad business question will lead to comparably, and likely non-insightful, answers. Anyone seeking business answers from patent information should therefore spend considerable time up-front clearly defining the business or investment question they seek to obtain an answer to, and also in communicating this to the patent analyst.

I also believe that the best patent analytics vendor is not the one who demonstrates that its data analysis techniques are the most efficient in analyzing 1000’s of patent documents to provide attractive and succinct pictures of the data in landscape form. Indeed, rarely would a well-defined business question lead to more than several hundred relevant patent documents at most. This number of patents typically can be reviewed at a high level by a trained patent analyst. As such, when selecting a patent analytics vendor, your client should move past the charting and picturing aspects of the sales pitch, to better understand how the vendor will work with your client to define and answer the specific business question.

Furthermore, I strongly recommend that your client seeks a patent analytics vendor whose methodology centers on reviewing the patent filing documents not for what they say, but for what they claim. The claims provide the relevant business information because that is what your client’s competitors seek to prevent them from doing. In other words, this exclusionary aspect is what matters because it defines what your client can and cannot do (or patent). In my experience few patent analytic vendors truly understand that this aspects of patents, a fact which significantly lowers the value of most product offerings.

Only after the patent analytics vendor analyzes the claims for relevance to the specific business question does your client care about who might own the patent filing or what they might wish to accomplish with it. This means that the vendor should present your client not with graphs, pictures and analysis of 1000’s of patents, but rather, with substantive analysis of a fraction of this number of patent documents that are directly or substantially directly related to your client’s business question. In my experience, better analysis of a more precisely generated library of patent filing documents provides clients with more readily actionable business insights from patent information.

CONCLUSION
Given that more than 50% of venture capital investment is lost, there is certainly room for improving the quality of the decision-making processes involved. I believe that patent analytics can serve a critical need in this regard. At a minimum, those entrepreneurs and venture capital investors who use such information are obtaining an additional piece of information that is not commonly used to make investment decisions today. The critical factor for those seeking to use patent analytics to improve their investment decisions is to make sure the vendor they choose for such information is providing them with the right information in accordance with the methodologies set out in this article.

Innovative Methods for Corporate Legal Managers to Reduce IP Counsel Costs

noreply@blogger.com (Jackie Hutter) — Mon, 20 Apr 2009 17:14:00 +0000

The Slideshare presentation that follows is an excerpt from a class that I am teaching to in-house legal managers about innovations in IP management. The topic of the presentation is innovative methods to reduce IP legal procurement and management costs. The goal of my presentation is not to get corporate IP types not to think outside the box but, rather, to think outside the truck the box came in. As such, many people may think these ideas are "way out," but if you start with small ideas, you end up with small improvements.

Innovative Methods for Corporate Legal Managers to Reduce IP Counsel Costs

View more presentations from Jackie Hutter.

The "Dirty Little Secret of Patents" is that Most are Worthless to Their Owners. Here is Why.

noreply@blogger.com (Jackie Hutter) — Fri, 17 Apr 2009 10:49:00 +0000

Notwithstanding the vast corporate and entrepreneurial resources expended each year to file, prosecute, manage and maintain patents, a significant majority end up having little or no business value to their owners. Patents can end up being worthless for any number of reasons, most of which center on the fact that the claims do not cover a product or technology either currently or in the future being made, used or sold by either the owner or a third party. And, when a patent does not cover a current or future product or technology, one might argue its only residual value is as the attractive government document on the right.

No doubt exceptions exist to my bold assertion that most patents end up as worthless to their owners. That is why I used the qualifier "most" in my statement. (And, if the reader is a patent owner, I certainly am not referring to your patents because, like the children of Lake Wobegon, all of your patents are above average.) Whether or not you agree with my opinion, or whether you think that only "many" or even "some" patents are worthless, with the resources committed to obtaining patent rights and the expectations placed in them by their owners, the question must then become "why do any patents end up not having any value?"

Most patent owners, both corporations and entrepreneurs alike, place responsibility for obtaining and managing their patent rights in the hands of patent professionals. The path to value goes astray at this point because it is not the patent professionals' job to obtain a patent that has business value, rather, it is their job to get the patent.

Specifically, the Patent Office grants patents to inventions that meet the legal requirements for patentability. A patent professional's job therefore centers on assisting inventors in identifying what subject matter might meet these government requirements and to successfully convince the patent examiner that the invention is "good enough" to justify others being prevented from freely practicing the subject matter claimed in the application.

Except for very limited circumstances, the Patent Office does not care a bit whether the invention claimed in a patent application is commercially successful. This means that the patent procurement process takes place almost exclusively in the legal realm. Even if a patent application was initially drafted and filed with clear business objectives in mind, legal arguments and the legal process itself typically begin to overshadow the business aspects of the invention soon after filing. In other words, the patenting process is fought in the legal trenches where success is measured by successfully arguing for allowance of the application.

It is therefore not surprising that a patent professional's incentives are typically aligned with the legal process itself, not the business value obtained from the patent rights she obtains for her clients. Think about it: law firm patent attorneys are paid by the hour or by the project and in-house patent attorneys are paid to manage these outside attorneys or to obtain patent rights themselves. The efforts of few, if any, patent professionals are evaluated in relation to the business value that they create for their clients. Patent professionals are measured, and therefore incentivized, by their ability to obtain patents on inventions, while still keeping patenting costs at a manageable level.

Moreover, patent law is highly specialized and can often seem arcane to those not trained in the area. Even sophisticated business people often express reticence about venturing into the weeds of the patenting process, instead preferring that their patent specialists handle the details. This effectively cedes decision rights for patents and resulting determinations of value obtained to those incentivized for patent legal successes, not business successes.

With the incentives of those responsible for obtaining patents aligned primarily with successful management of the underlying legal process, it follows that the business aspects of a patent can often become a secondary factor. In my opinion, this is a primary reason why most patents end up providing little or no business value to their owners.

Of course, the way to fix the problem of worthless patents is to realign the incentives of those involved in the process of obtaining and managing them. The scope of such a project would require restructuring of the patenting efforts and expectations of many, if not most, participants in the patenting processes. While I have strong opinions about how to accomplish this, my ideas are beyond the scope of this article. At a minimum, however, bringing measurement of business value obtained from patenting efforts will require business managers to exercise more interest and control over the process than they have in the past.

Scott Garrison Guest Posting: A True Story of Wasted IP Assets & Why a Chief IP Officer Could Have Stopped the Loss

noreply@blogger.com (Jackie Hutter) — Thu, 09 Apr 2009 13:25:00 +0000

NOTE TO READERS: Since I am on vacation this week (well, sort of), I have asked my friend Scott Garrison to pen a piece about IP Strategy for me. He has been so gracious to do so, and the post follows. At bit about Scott: Scott Garrison is Chief IP Counsel and Assistant General Counsel for Scientific Games which, among other things, makes scratch off lottery tickets. Prior to joining SciGames, Scott was a senior IP attorney at Kimberly Clark and, prior to that, was a law firm patent attorney. Scott Garrison is a true IP Strategist and I am pleased to present him a forum to express his views on this blog.

Scott's blog post:

A short while ago I had an interesting conversation with an out of town acquaintance named "Mike" who works at a large international B2B ("business to business") corporation. I was interested to find out that his opinion was that patent protection was useless in the B2B field. It seems that since his consumer base is much smaller than a B2C ("business to consumer") business he believes the nature of the business requires deals to be cut and IP is often a nuisance to be worked around.

As we continued to talk I learned that he was the lead inventor on a couple of critical and groundbreaking patents in his field. In fact, it seems that a few years earlier he had been a major shareholder in a relatively small corporation when he received the patent grants. At that time he believed they held great value to his company. As he tells it, his present employer acquired his former company predominantly in order to procure these very same patent rights.

I at first assumed that his opinion was driven by feelings real or imaginary of being slighted by his present employer with respect to these patents for any number of potential reasons. However as we continued our discussion I was shocked to learn what had actually happened. It seems that the company which had bought the patents for the purpose of building value for itself and carving out a niche it could wield against its biggest competitor in fact had inadvertently destroyed the value of the patent family. As we discussed the details the following story unfolded--

In the B2B category where Mike and these companies exist, it was quickly recognized that the patents were a revolutionary and innovative gem. Mike's current employer, Big Co. did successfully acquire his former company and hence the patents for a sum in the high 7 to low 8 figures. At once Big Co's patent attorney added them to the company's patent portfolio and the business leaders began to push the technology onto their customers.

For Big Co to reap the most benefit from this technology it needed to license the patents to a number of distributors who would in turn sell to the end consumers. However these distributors were represented by Big Co's actual customer, a single overarching B2B entity, and Big Co had to work through this entity. Big Co's business leaders were able to create the necessary interest with the B2B entity and negotiations began. Over the course of those negotiations Big Co's patent attorney created a very complex license arrangement to license the patented technology.

The arrangement consisted of a single agreement providing a license directly to the B2B entity for a specific sum to be collected from each sublicensee interested in the technology. The sublicensees consisted of each distributor that was willing to enter the agreement under the terms negotiated with the B2B entity. Each distributor in turn had to acknowledge this arrangement by entering a written agreement acknowledging the arrangements between each party. These sublicenses were in turn signed by Big Co and the B2B entity to tie up all loose ends. Due to the nature of this business it was contemplated that some of the products would have the patented feature whereas some would not. A complex and detailed structure was specified to address this, including sliding royalty scales, most favored nations clauses, etc. Although one could certainly argue the complexity of this arrangement was unnecessary, as Mike said it seemed to work for those sublicensees who signed.

Meanwhile Big Co's competitor was not sleeping. Due to the nature of the industry, the competitor had access to the same distributors and learned that those who did not enter the above license arrangement were interested in working with the competitor. After some time, Big Co filed a lawsuit against this competitor for patent infringement. This lawsuit was handled by a major patent litigation firm, which in turn was overseen by the litigation department at Big Co, and after many months and much money, just prior to trial, a settlement between the parties was signed.

The settlement provided the competitor with a world wide license for the patents. Past infringement was forgiven for a settlement amount and future royalties were dependent upon product lines, upon which type of technology was used, upon which claims in which patents were impacted, etc. Again the terms of this settlement, like the license, were very complicated and required one to undertake a great deal of analysis to determine whether a product was covered by the settlement and what royalty if any was due. Moreover, after a period of about three to five years from the settlement date the license would convert to a royalty free license.

Somewhere during this entire time, one of Big Co's business units not connected to any of the above matters was attempting to work out a deal with another major account. In order to coax this account into entering this deal which would prove very lucrative for that business unit, it was decided that a royalty free license would be given to these patents to sweeten the deal. With that, the deal was signed and the final nail was hammered into the coffin of this IP.

After hearing this story I was stunned. How could a company of Big Co's size and with its leadership position that so obviously placed a high value on these patents when purchasing them a few years previously just lose control over them? The answer is quite obvious. There was no central oversight, no overriding strategy on how best to monetize the patents, no single person who knew what was going on. In this case they had the patent attorney structure the license, the litigation team handle the lawsuit, and the business unit work with an in house general attorney to hammer out the business deal since other than a single license clause there was nothing more on IP. The result was that no one talked to anyone else nor did any of them fully appreciate that other agreements were being penned, each of which could and in this case did impact terms with previously licensed parties. From what Mike told me, certain of these distributors learned of others having royalty free licenses. In short order Big Co was forced into giving all parties royalty free licenses.

Mike and I discussed how this could have been averted. My answer was to create some form of central oversight. This oversight should not be a function of the legal department but should be a high level business function. Many people, including myself, suggest the creation of a Chief Intellectual Property Officer who would ensure that the overall business objectives and strategy are being followed and that the appropriate IP protection is put into place to maximize market position and value. Such a function could readily be handled by a business person who wears a legal hat, but I do not believe that a legal person wearing a business hat would suffice.

Although I did make some headway with Mike in explaining that his patents could have reaped profits in a manner consistent with his original beliefs, I think it may take a few more dinners and some good examples to completely convince him.

Entrepreneurs: Ask 2 Simple Questions to Determine Whether IP Strategy is Critical to Your New Business Venture

noreply@blogger.com (Jackie Hutter) — Thu, 02 Apr 2009 12:00:00 +0000

Intellectual property ("IP") is often a subject that is "out of sight, out of mind" for entrepreneurs who are launching new business ventures. And, why shouldn't it be: business schools rarely teach much about law in general, let alone about the highly specialized world of IP law. Since non-business school trained entrepreneurs generally take their cues from the methods of their colleagues, it follows that a significant majority of entrepreneurs likely do not consider IP to comprise a necessary step when they are formulating their business plans. My conversations with entrepreneurs from all backgrounds over the years bears this out.

When IP does form a fundamental basis of an entrepreneur's new venture, it is likely because scientific or technical subject matter forms the basis of the business. In this context, it makes sense that the scientific or technical core of the business model must be protected by seeking patent coverage. While patents are significant in this context, in my opinion, this is a far too narrow view of when a new entrepreneurial concept requires IP protection, however.

Put simply, proper formulation of IP strategy requires an entrepreneur to determine whether she should obtain one or more patents. Rather, prior to launching her new business venture, an entrepreneur must identify whether her business plan requires one or more forms of IP protection in order to allow her to meet her goals.

While IP can seem somewhat arcane and impenetrable to people who have not been trained in this specialized legal area, fortunately, formulation of an IP strategy requires an entrepreneur to ask just two simple questions:

What aspects of my business model differentiate me from my competitors?
Would I find it difficult to meet my goal and obtain my desired payback if someone copied the differentiated aspects of my business model?

With regard to the first question, most entrepreneurs should find it easy to define the differentiated aspects of their business model. Indeed, the large majority of business models will be based upon one or more perceived needs in a particular market that are not being met by competitors. These one or more differentiators thus serve as the competitive advantage provided by the entrepreneur's model and forms the reason that she seeks to develop the business in the first place.

As for the second question, most entrepreneurs will agree that it would be difficult for them to succeed in their goals if a competitor were able to copy the differentiated aspects of their business model. In answering "yes" to each of these questions, the entrepreneur should understand that an executable IP strategy should form an essential aspect of their business plan preparation.

It is important to clarify here exactly what I mean by "IP strategy." Significantly, IP strategy does not necessarily mean that the entrepreneur's end goal is to obtain enforceable IP rights, whether a patent or otherwise. Rather, an IP strategy centers on understanding whether and how protection of the differentiated aspects of the business model will enhance the enterpreneur's ability to achieve her goals.

With regard to patents, the IP strategy may indicate that it may not be cost effective to obtain a patent, but that filing of an application may nonetheless provide significant competitive protection. For example, because it takes many years and significant expense to see a patent through to the end in most technologies, it would not make sense for an entrepreneur to seek rights when the business model is expected to significantly evolve over time. In this instance, by the time the patent issues, it likely will not actually cover the products, technology or services of the company. Even so, the IP strategy formulation may indicate that it would nonetheless be valuable for the entrepreneur to provide her competitors with the perception that she is seeking to obtain a patent on some aspect of the business model.

To this end, the entrepreneur might wish to file an application with the full expectation that it may not issue as a patent. Such a filing will allow the entrepreneur to advertise that her business involves "patent pending" technology. I have found that in some industries the use of "patent pending" can assist in keeping competition at bay and can substantially assist in a company's marketing efforts. This "patent pending" IP strategy can be accomplished fairly cheaply if undertaken by a strategically focused IP attorney. The end goal with such an IP strategy is not to obtain an enforceable rights at the end but, rather, to leverage the "patent pending" to potentially reduce competition or give a product or service greater marketplace cache.

Moreover, by applying an under-utilized provision of US patent law, the entrepreneur can request that the application remain unpublished, a technique that will effectively keep her competitor in the dark about what she may be seeking protection on and whether she is likely to prevail. The uncertainty afforded by the unpublished application may be enough to keep potential competition away from the entrepreneur's growing business. Thus, the end goal of this IP strategy effectively serves as a shield against competition, rather than a sword to sue others for infringement.

Another way for an entrepreneur to use IP strategy to protect the differentiated aspects of her business model is to include brand equity development in the earliest stages of the launch of the venture. This brand equity must be associated with strategic trademark and service mark filings. As the business becomes more successful, consumers will increasingly associate the strong brand with the entrepreneur's product, technology or service. Successful strategic protection of a brand will hopefully result in the entrepreneur's solution being the go-to brand.

One example of an entrepreneur's establishing immeasurable value from developing brand equity is the LifeLock identity theft prevention product. This company was not the first to offer a product of this type; rather, it was the first to offer a $1MM guarantee that a purchaser would not experience identity theft as long as she paid $10 a month to LifeLock. Interestingly, LifeLock provides identity theft protection services in ways analogous to those of its competitors, both those coming before and after. This guarantee served as the basis of LifeLock's competitive differentiation.

Notably, the LifeLock guarantee could not be protected by a patent. Instead, LifeLock's owner (Todd Davis) decided to advertise the guarantee and build his company's brand equity around it. To this end, Mr. Davis flooded the airwaves with commercials in which he recited his social security number as proof that his company's product was foolproof--so foolproof, in fact, that he was willing to give the $1MM guarantee. Today, it is likely hard for many potential purchasers of identity theft protection products to think of going anywhere else than the company "where the owner tells us his social security number." The entrepreneurs responsible for the successful launch of LifeLock realized that the guarantee made them different from their competitors and made sure that the company's marketing strategy was focused toward ensuring that the public associated that guarantee only with LifeLock.

There are many other ways for an entrepreneur to protect the differentiated aspects of her business model from competition using IP strategy. Further illustrative examples include strategic agreements and first mover advantage. Indeed, there are likely as many ways to protect a business model from competition as there are business models. The key is for entrepreneurs to fully engage with the need to include IP strategy in their business plans and to ensure that they execute on that IP strategy. Put simply, IP strategy is not about getting IP as an ultimate end goal. Rather, IP strategy can ensure that the entrepreneur's business model not only provides a competitive advantage but that it is also sustainable.

An Introduction to Patent Monetization Resources for Corporations and Entrepreneurs

noreply@blogger.com (Jackie Hutter) — Fri, 20 Mar 2009 18:11:00 +0000

For corporations and entrepreneurs seeking to monetize their un- or under-utilized patent rights for the first time, it can be difficult to know where to begin. The patent monetization market is not yet mature and, as with other emerging marketplaces, no established methodologies and few experts exist to guide patent owners through the process. Today, there are as many as 17 different business models used to monetize patent rights. More will likely spring up as the market continues to evolve, even while some of the current models will certainly fall away. With such a range of options, it is not surprising that those seeking to sell their patent rights may be confused about what path to take.

This blog post is intended to provide an overview of ways that a corporate and individual patent owners can most effectively monetize their patent rights in today's market. The models discussed in this article were chosen because they are currently the most common. Significantly, due to the great variability in patents and the individual needs of patent owners, the best model for a particular patent owner might actually one that is not discussed here. Nonetheless, it is hoped that after reading this, a corporation or entrepreneur seeking to sell their patent rights for the first time will be better able to understand and execute on the opportunities and challenges present today in the patent monetization market.

Thinking of Selling a Patent Directly to a Corporation Without an Intermediary? Forget About It
Most patent owners assume that it is possible to sell a patent directly to a company that might play or seek to play in the product or technology space covered by the patent. This is rarely the case, however.

When I was employed as a senior IP attorney in a consumer products company, it was corporate policy to reject all unsolicited offers to purchase or license patents that came into the organization. Thus, a patent owner did not stand a chance to get their patent sold to my company.

This absolute prohibition on unsolicited ideas is not the policy at all companies, but, in truth, few companies today actively seek to acquire products and technology from outside sources (although this is starting to change with the drive toward open innovation at many companies). Thus, even if a patent is a perfect fit for a company's product or technology offerings, most organizations will nonetheless prefer to pass on an opportunity to purchase the patent because external technology acquisition is not part of their technology development model. It is therefore doubtful that most patent owners can hope to successfully sell their patent rights directly to a corporation because the latter is not in the business of buying patents generally, and specifically not from individual patent owners.

Patent Aggregators: Buyers of Patents if a Patent Owner Can Get a Foot in Their Door
In recent years, companies have emerged that hold business models centered on the buying of patents held by others. Well known patent aggregators today include Intellectual Ventures, RPX and Allied Security Trust. Each of these companies has a different reason that it seeks to acquire patents, but each can serve as a great resource for patent owners seeking to sell their patent rights in certain technology areas. Nonetheless, there are many more patent owners seeking to sell their rights than exist patent aggregator buying opportunities. As a result, if a patent owners obtains a "no" answer, how does he know it is because his patent is worth nothing to the aggregator or whether it's because he did not know the right person to get his patent in front of at the patent aggregator company? For most patent owners, especially those participating in the patent monetization market for the first time, patent aggregators will not serve as a likely direct purchaser of their patent rights.

Patent Brokers: Facilitors of Patent Sales, For a Price
Brokers such as IP Investments Group, IPotential and IP Transactions Group can assist patent owners in presenting their patent to a likely buyer, the most likely of which are patent aggregators, non-practicing entities ("NPE's) and, sometimes, corporations. By leveraging their relationships and reputations, patent brokers effectively serve as "filters" for potential patent buyers to streamline and improve the quality of patent buying opportunities. Put simply, patent buyers trust their patent brokers to "separate the wheat from the chaff" to make it easier for them to identify and act on good patent buying opportunities. A patent broker trusted by a patent buyer can thus present the latter with a buying opportunity that the buyer would not have given a second glance to if the same patent had been offered to them outside of the broker-buyer relationship.

There is a substantial cost to hiring a patent broker, however--usually about 25 % of the typical sale price. Patent brokers also require exclusivity. Thus, when a patent owner selects a particular patent broker to represent him in the patent sale, he must trust that the broker will find the best deal. I nonetheless believe that the knowledge and expertise available with a good patent broker can allow a patent owner to obtain a final purchase price for his patent that more than justifies the broker fee.

In particular, the best patent brokers maintain a large network of potential purchasers of patents, including patent aggregators, NPE's and, in some cases, corporations that have expressed an interest in buying patent rights. I believe such broad networks serve a critical function in improving the efficiency of the patent monetization market by possibly raising the final purchase price of patents. When a patent is offered through a quality patent broker, he will ensure that each party participating in the process also knows whom else is being offered the patent.

Such transparency could also result in an increase in the final purchase price when one potential purchaser seeks to ensure that another potential purchaser not acquire that same patent. For example, a corporation might increase its offer to prevent an NPE from obtaining that patent for the purpose of bringing suit against the corporation. This scenario means that those most interested in acquiring the patent will bring their best offer to the table, a fact which should improve the final price paid for a patent.

A further benefit of selling a patent through a good patent broker is that they will typically conduct market analysis of the patent rights to set a rationally-based entry level price. Specifically, the patent broker will set the price based upon what comparable patents have been sold for in the past. These figures normally are not public, so a patent broker with several sales under his belt will likely set a more accurate initial sale price by virtue of the fact that he is privy to information that allows him to do so. Notably, even an experienced patent broker might incorrectly estimate the likely floor price, but when the patent is offered to many likely buyers, the market will typically act to reset the price to one more acceptable to potential buyers.

Beware of Finders Who Say They are Brokers
A significant problem with many people who hold themselves out as patent brokers is that some are not "brokers" at all. Rather, they are "finders" for patent aggregators or other buyers of patents such as NPE's (but likely not corporations). Like regular patent brokers, these finders maintain relationships with likely patent buyers. When accepting a patent for sale to a potential buyer, the finder likely already knows whether a patent will be purchased by its contact. In this scenario, the finder actually does little to earn his 25% fee other than maintain a relationship with the ultimate purchaser of the patent.

Moreover, many of these brokers actually "double dip" because they obtain a fee from the purchaser for bringing the patent to them, as opposed to another potential buyer. The finder thus might hold divided loyalties: should they try to maximize the price obtained for his client's patent when they might never see an opportunity from that seller again, or should they keep the price reasonable so they don't ruin their relationship with their patent buyer to whom they might bring several patent buying opportunities to each year?

Clearly, this scenario is rife with questionable ethics, but the reality of the current patent monetization market is that no licensing is required for someone to call himself a "patent broker," and the rule is definitely "buyer beware." As things stand in today's unregulated patent broker market, the best way to find a quality patent broker is to seek referrals from someone who understands the market and/or who has successfully sold patents through a broker in the past to ensure that someone calling himself a "patent broker" actually serves to broker a patent sale as opposed to handing it over to an old friend who is now a patent buyer.

Patent Auctions: Selling in the Open to the Highest Bidder
The final common vehicle for selling patent rights is the public auction setting. Today, the most prevalent patent auction is conducted by Ocean Tomo, which currently holds 2 auctions each year. Ocean Tomo is very selective about what patents it takes into each auction, a fact that limits the ability of many patent owners to participate in this model. Ocean Tomo obtains a fee from the seller and the buyer, and it is my understanding that the net fee amounts to approximately 25 % paid to the auction house.

While I have not personally been involved in a patent auction, I have heard mixed things from people who have participated as both buyers and sellers in these auctions. My sense is that an auction allows one to sell his patent in a transparent setting where the price is set by competitive bidding. This can be good when a patent is desired by multiple parties who are influenceable by the "heat" of a public auction process to increase their bids to result in a higher price for the seller.

In my view, one downside of the open auction process is that all participants know the price being being offered, a fact that can lead to a lower final sale price if a patent does not garner excitement from the participants. In contrast, in a private auction--such as that effectively set up when a quality patent broker sells a patent into a large network of potential buyers--the lack of transparency can result in a higher final price because the participants know who has been offered the patent but not the amount offered. A further possible downside to a public auction is that one can only sell his patent to someone who shows up at the auction. With a broker-conducted private auction, however, someone who may not actively be seeking to buy a patent at that time will be presented with the opportunity to buy the patent. Thus, the number of potential buyers can be expanded with the use of a patent broker.

It's as Clear as Mud Now, Right?
As noted at the outset of this article, the patent monetization market is only just now emerging as a viable way to obtain value from un- or under-utilized patent assets. In view of this, most patent owners just starting into will be confused about how to proceed in a manner that maximizes the price obtained from one's patent. If one owns patent rights and seeks to sell them today, it is my recommendation that he learn as much as possible about the process. And, as with many business situations, checking references and seeking recommendations from those with experience as patent sellers and counselors to patent owners will be critical to success in patent monetization. Personally, I am looking forward to the day when more openness exists in the patent marketplace so that patent owners can better gauge the quality and qualifications of those participants in the process. I think we are getting there, and I will provide more information on this in a subsequent blog post.

How a Patent Strategy Focused Only on Obtaining the Lowest Cost Patents May Reveal a Company's Future Inability to Remain Viable

noreply@blogger.com (Jackie Hutter) — Thu, 12 Mar 2009 14:12:00 +0000

Commentators like me frequently rail against what we view as the often unnecessarily high cost of obtaining patent protection. In truth, many patents are overpriced and provide questionable business value to their clients. Over-priced patents do not form the basis of this article, however. Instead, this is about the opposite phenomenon, i.e., under-priced patents. Specifically, in this article, I describe a company's desire to obtain low cost patents and what such a patent strategy may reveal about its long term viability.

I was recently contacted by a large printer manufacturer ("PrinterCo" for the purposes of this discussion) to see whether I was interested in preparing patent applications for the price of $1300 each. This price seemed somewhat ridiculous to me because even the most "bargain basement" patent preparation prices that pop up on my Google sidebar advertising do not seem to dip beneath a threshold level of $2800. And, as a high level chemical patent prosecution attorney, I routinely drafted patent applications that cost $15K or more in 2005. PrinterCo's desire to obtain patent applications for $1300 thus both surprised and intrigued me, and I wanted to learn more about what type of patent application its management sought for this price.

That PrinterCo was seeking to obtain patent drafting services at a lower price than I would expect might be explainable because many IP strategy savvy companies seek to maximize their freedom to operate by filing patent applications that they never intend to see through to issuance. This "publish and abandon" approach can effectively prevent others from obtaining patent rights that can block a company like PrinterCo from freely developing products in a particular technology area. However, because these patent applications are not drafted with the intent to issue, the filing company will not end up with enforceable rights. Nonetheless, "freedom to operate" afforded by publishing and abandoning applications addressing a relevant technology can serve as a valuable right in itself. It thus made sense to me that PrinterCo might seek to file a large number of patent applications to strategically prevent other companies from patenting in its technology space.

A "freedom to operate" patent application can certainly be prepared in about 8-10 hours by someone with a few years of experience. Therefore, $1300 would not result in a terribly low hourly rate for someone working out of his home with little or no overhead. "Freedom to operate" is all that can reasonably be expected in this time, however, because even the most experienced person requires time to understand the invention to be claimed and to properly draft claims that will avoid the prior art. Indeed, because it takes time to read prior art references, one cannot understand the relevant prior art in a total of 8-10 hours, especially in crowded areas such as printer, ink and cartridge technology relevant to PrinterCo's business.

Fully expecting the $1300 to apply to such a freedom to operate strategy, I was quite honestly shocked to find out that PrinterCo fully intended to see patent applications drafted for this price through to issuance. Furthermore, PrinterCo's managing patent attorney stated that he expected to obtain patents from this process that could be the subject of future litigation. After hearing this strategy, I politely declined PrinterCo's proposal and wished the attorney farewell, as I saw no way I could ethically meet PrinterCo's objectives.

Frankly, even if PrinterCo had wanted me to prepare "freedom to operate" patent applications for $1300, I likely would not have done so. I was actually more interested in learning about this company's patent strategy in view of this ridiculously low price. And, now that I know, it appears clear that PrinterCo is pursuing a short-term cost reduction strategy directed toward allowing it current management to meet cost cutting goals, at the expense of the long term asset value of the company. Let me explain what I mean by this. . . .

For the last several years, printer companies have engaged in aggressive patenting strategies that effectively require printer users to purchase ink refills exclusively from them. Companies such as PrinterCo likely lose money on printers, scanners, etc., but make huge profits on patented ink cartridge refills that work only in their proprietary equipment. (In 2008, it was estimated that printer ink costs from $3K to $5K per gallon.) Moreover, these companies have undertaken expensive patent litigation directed to preventing third parties from selling "generic" printer ink refills.

Critically, such a business strategy requires any patents covering the ink and cartridge refills be skillfully drafted such that the claimed invention cannot easily be designed around without the copier also incurring of patent infringement liability. Moreover, the profit margins involved in printer ink cartridge refill sales are such that third parties will clamour to knock-off refills for any top selling printer or scanner if the underlying patent protection is weak. If PrinterCo or its competitors now abandon their aggressive patenting strategies, competitors will certainly see an opportunity to introduce knock-off ink and cartridge refills, and erosion of their profit margins will invariably occur.

Other than making PrinterCo's current legal management look effective in cutting legal budgets in today's economic climate, I cannot fathom why this company is trying to lower its patent application costs to the ridiculously low price of $1300. PrinterCo's ability to maintain its profit margins depends on its obtaining strong patent rights. A substantial aspect of PrinterCo's corporate asset value lies in its ability to prevent others from knocking off its printer catridge ink refills. In other words, PrinterCo's patent strategy serves as the foundation for the company's ability to execute on its business strategy. It is thus nothing short of idiotic for PrinterCo to allow its legal managers to treat its patent application drafting processes as vehicles for cost control, where the motivation for the reduction in patent costs is certainly the legal staff's meeting of their cost cutting objectives.

Put simply, PrinterCo's corporate asset value is jeopardized by its legal managers self-serving objective to lower the company's patent costs. If PrinterCo continues to pursue this low cost patent application strategy, I predict that its cartridge ink refill business will quickly become commoditized as a result of low cost, non-infringing competitive knock offs. And, since the public expects PrinterCo's printers, scanners etc. to be low priced, there will be little ability for the company to obtain premium margins on its product lines. In short, PrinterCo quite likely might find it difficult to remain viable in the coming years due to its current short-sighted patent strategy. Hopefully, PrinterCo's management, both legal and otherwise, are still around when shareholders realize that the company's patent strategy has resulted in the company no longer being a viable specialty products company. I would love to see them held accountable for such mis-management.

Confessions of a Reluctant Convert to Electronic Patent File Management Systems & Why I Am Now a True Believer

noreply@blogger.com (Jackie Hutter) — Tue, 03 Mar 2009 01:25:00 +0000

For many years, vendors of office automation systems expended considerable effort trying to convince corporate and law firm patent attorneys to adopt paperless file management systems by touting the time and money savings associated with electronic files over the traditional patent file system. However, relatively few patent attorneys have done so, instead, remaining loyal to the traditional three-sided manila patent file folder. Until recently I was one of those patent attorneys. Now that I have discovered the vast efficiencies and improvements possible with these electronic systems, the question is why I remained true to this clearly outdated system of maintaining client patent prosecution records.

Given the remarkable efficiency and knowledge management improvements possible with electronic patent file management systems, there can be no viable excuse for either corporate or law firm patent attorneys not to adopt such systems.In retrospect, I think I found that the heft and history represented by the partially filled patent file folder provided a feeling of ongoing accomplishment, even while I was contesting yet another trivial rejection from a patent examiner. The need for a tangible sign of my efforts prevailed over the backaches that I incurred from carrying multiple patent files to work on outside of the office. However, after being faced head-on with the administrative inefficiencies of the traditional paper-based patent file management systems, I am now a convert to the undeniable benefits of electronic patent file systems.

Put simply, given the remarkable efficiency and knowledge management improvements possible with electronic patent file management systems, there can be no viable excuse for either corporate or law firm patent attorneys not to adopt such systems. When viewed in the best light, patent attorneys who decline to adopt an electronic system are doing their clients and themselves a disservice. Viewed in the harshest light, these attorneys are unintentionally cheating their clients out of innovative methods that improve the quality of patent legal service while reducing its cost.

My Awakening
My awakening to the value of electronic patent file management systems occurred recently while leading a team of patent prosecution experts for an Intellectual Asset Management (IAM) enterprise software vendor. For this project, my team conducted a detailed time comparison between a fully electronic patent file management system and a traditional paper-based system. By assigning times to each of the administrative steps involved in eleven common patent prosecution tasks, we discovered that use of an electronic patent file management system markedly reduced the amount of administrative time involved. Specifically, the amount of administrative time (as opposed to substantive legal effort) required for each task was reduced from roughly 60 percent to as much as 85 percent, depending on the prosecution matter. These administrative tasks represented functions such as pulling and moving files from office to office, uploading, retrieving and saving documents into department computer databases and inefficient communication between in-house personnel and outside counsel.

Adoption of an electronic patent file management system can save anywhere from $150K to $220K per year.Our analysis demonstrated that for a fully staffed corporate patent department (e.g., docket clerk, paralegal and attorneys) that files about fifty patent applications and engages outside counsel for patent preparation and prosecution, adoption of an electronic patent file management system can save anywhere from $150K to $220K per year (see the Appendix). For a fully staffed corporate patent department filing a similar number of patents but which handles patent prosecution matters primarily in-house, the cost savings range from $50 to $75K per year. Because the tasks eliminated by an electronic patent file management system are repetitive and routine, these savings are fully scalable to organizations with higher or lower filing levels.

Further cost savings will also follow from a corporate patent department’s adoption of an electronic patent file management system because having the appropriate documents readily at hand in electronic form greatly increases communication efficiency between patent staff and internal business clients regarding their patent matters.

For example, while employed as a senior IP attorney at a multinational corporation, I conducted periodic patent committee meetings with my business and R&D teams. To collect and present the information necessary for the teams to make informed decisions, the paralegal and administrative staff were required to spend considerable effort copying, sorting and binding relevant patent documentation. Moreover, because the information in the thick binders stayed static, while the relevant patent matters did not, these binders became obsolete as soon as the periodic meetings ended. The binders therefore needed to be re-created from scratch for every meeting. Multiply this effort over multiple businesses, each with frequently changing patent filings, and one can see how much work was required to keep my business and R&D teams up to date about their patent portfolios.

Had the management of my corporate IP legal department invested in an electronic patent file management system, countless paralegal hours (and reams of paper) would have been saved by providing the same information to my organization’s business team for review on their laptop computers. With an electronic system, our department’s staff could have avoided the repeated pulling of patent files to copy relevant documents and prepare binders. The time-intensive nature of patent committee preparation alone would have justified the adoption of an electronic filing system.

Information to the Right People at the Right Time
A further, perhaps immeasurable, benefit of electronic patent file management results from the greatly improved access to valuable corporate patent asset information.
With traditional, paper-based patent file management systems, patent staff necessarily controls access to patent information. Those with important business interests in a corporation’s patent matters—that is, business and R&D teams--must first ask their patent staff for permission to access such information. For organizations where patents are recognized as valuable corporate assets, the requirement is like needing to ask your banker for your bank balance. For those responsible for managing corporate assets, such limited access to information is unacceptable.

No More Gatekeepers
When a corporation views its patents as assets, those responsible for managing corporate assets must be able to readily access relevant information.An electronic patent file management system is a critical component for those managers seeking to better capture and protect their intellectual property. When a corporation views its patents as assets (as opposed to legal instruments); those responsible for managing those assets must have ready access to relevant information. Under traditional paper-based patent filing systems, patent staff serves as gatekeepers of the information for the entire corporation. With an electronic patent file management system, those with a need-to-know can be granted access to the patent information on an as-needed basis. This reduces the workload of the patent staff and improves the engagement of others in the organization with the patent process.

Managing the Cost of Transition
Given the large cost savings, increased efficiencies, and greatly improved corporate knowledge management possible with adoption of an electronic patent file management system, there would seem to be little reason for corporate patent departments to retain the traditional method of managing patent documentation. Of course, the task of scanning active patent files into electronic form may seem daunting. But there are ways to minimize the entry-level cost.

First, technology makes it easier to go paperless than ever before. Most organizations already file patent applications and other patent documents electronically. This means that most patent documents are present in electronic form and do not need to be separately scanned into an electronic file. In the next several months, the US Patent Office will be introducing electronic Office Action reporting, to be followed later by electronic reporting for other official documents.
The effective elimination of paper from communications to and from the US Patent Office today will make it easier for forward-thinking organizations to eliminate paper-based patent file management systems. When combined with modern document management systems typically in place at corporate and law firm settings, most organizations will be able to convert to electronic patent file management systems today for a reasonable price and with minimal effort

To further reduce the entry-level cost, legal managers can select only currently pending applications for entry into a new electronic patent file management system. Of course, newly docketed matters should also be made fully electronic from their inception. Issued cases can later be added to the system if time and resources allow. By taking a measured approach to the adoption of an electronic patent file management system, the cost of moving from a paper-based file management system to an all-electronic patent management system can be minimized.

The Role of Outside Counsel
Outside counsel saves money by electronically communicating with clients, and it is inexcusable for them not to pass such savings on to their clients.Corporate patent managers should expect their outside counsel to be willing to provide them with electronic patent-related communications on a low- or no-cost basis. Corporate patent managers should also be prepared to discuss with their outside counsel where inefficiencies can be removed from law firm operations and communications to reduce overall patent procurement costs. If an outside counsel wants to charge a client additional fees for electronic communications, the client should seriously consider vetting new patent counsel who is more willing to adopt innovative solutions. Outside counsel saves money by communicating electronically with clients, and it is inexcusable for them not to pass such savings onto their clients.

It's Time for All IP Departments to Adopt an Electronic IP Management System
Although we represent technology savvy companies, patent attorneys often are somewhat resistant to change. This conservative nature could explain why, to date, conversion to electronic patent file management systems has been slow. With the remarkable efficiencies and improvements over traditional paper-based patent file management systems more and more evident, however, there is no reason for patent attorneys not to adopt electronic patent file management systems today.

Announcing a Great Event for Those Interested in IP Strategy in Europe

noreply@blogger.com (Jackie Hutter) — Fri, 20 Feb 2009 03:16:00 +0000

This week, I am using the IP Maximizer Blog to let readers know about an exciting upcoming IP Strategy event. My fellow IP Strategist, Jordan Hatcher, and his team at ipVA and colleagues at ExponentIP are working with Managing IP to provide a free webinar on IP Strategy in Europe on February 26, 2009 at 9 am EST. (I understand it is also going to be recorded.) I am very excited about this program because, as someone who advises on worldwide IP strategy, I am sure the insights provided in this webinar will elevate my knowledge and allow me to provide enhanced advice to my clients regarding IP protection in Europe.

Some might wonder why I am so looking forward to learning more about strategic IP outside of the US, so I will give some background.

By counting a number of many multi-national companies as clients in the course of my years as a patent prosecutor, I was fortunate to gain substantive experience in patent law in many foreign jurisdictions. (This is not necessarily common for US patent attorneys who tend to focus primarily on US clients or foreign clients needing US patent services to support their US operations.) Notwithstanding this experience, it always seemed difficult to know whether the non-US focused strategy I was recommending for my clients was indeed the right one because most foreign associates with whom I interacted clearly did not understand my clients' business objectives. In truth, these foreign associates typically acted as conduits to the respective national patent offices in which they practiced. I did not expect substantive business advice from my foreign associates, nor did they expect to be asked--their job was to take my instructions and file the papers as instructed by me or my client.

On rare occasions the foreign associates did get to show their mettle by addressing a legal issue that was unique to their national laws. But, typically, they retyped my instructions into the local language, and charged me and my clients handsomely to do so. The value-add on our end to hire expensive non-US patent practitioners was that they could potentially spot the unique issues that occasionally arose to provide a further measure of legal protection for our clients. I have no doubt, however, that my clients wasted immense sums of money by not fully understanding the type of protection available in the foreign countries in which we were filing and prosecuting expensive patent applications that did not support their business objectives in that jurisdiction.

As someone who believes there is a profound need for improvements in the way that IP and patent services are provided in the US, it is affirming for me to find out that there are others outside of the US, like Jordan and his colleagues, who are also working to effect change in other countries. I look forward to collaborating with Jordan to continue to bring the model of IP Strategy to forward-thinking companies and entrepreneurs throughout the world. And, as I am sure Jordan will agree, we welcome others who wish to join us in our endeavor to reshape how people look at IP.

A Consumer Product Company's Costly Patent Lesson: It's Not Enough to Protect the Invention, the Innovation Must Also be Patented

noreply@blogger.com (Jackie Hutter) — Fri, 13 Feb 2009 12:46:00 +0000

A SVP at a large consumer products company recently expressed frustration that he cannot bring a patent infringement lawsuit even when his company holds 18 US patents (and many other foreign patents) on a product that closely resembles a competitor's product. His annoyance is compounded because his company spent several years developing the product and technology covered by the patents. His company also spent several $MM introducing the product, which turned out to be a failure. The company removed the product from the market after several months, but the many patents remain in the portfolio today, and are still being maintained at considerable expense. I estimate that the patent protection for this failed product cost as much as $500K for patent coverage worldwide.

Significantly, the product did not fail due to quality or performance issues. Rather, it failed because it was over-engineered and used many expensive ingredients, a fact which made the plastic product too costly for the target consumer market. The competitor's knock-off product has been successful because they have removed much of the cost from the product by using less expensive ingredients, while still being able to maintain its desirable performance aspects. Of course, the SVP's company provided the competitor with a road map for product development: consumers desired the product but just not at the higher cost. With much of the cost removed from the product due to reformulation of the plastic composition, consumers have clamored for the product. The competitor's path to success was thus both less expensive and less risky, which significantly improves the ROI of their product development process.

So why can't the SVP go after the competitor by suing on one or more of the 18 US patents for which his company paid so dearly? Quite simply, the patents cover the INVENTION not the INNOVATION. The difference is subtle, but critical. The invention centered on the plastic composition of the product, that is, how much of each ingredient was present and how that composition manifested in the finished product. In contrast, the innovation centered on the performance of the product, irrespective of the plastic composition. The product was innovative (and desirable to the consumer) because it performed in a way no other product ever had before. When the competitor was able to extract the same performance from a much lower priced composition, the product not surprisingly experienced market acceptance.

Unfortunately for the SVP's company, its 18 US patents failed to address these superior performance attributes, which the competitor's product mirrors exactly. The innovator of the product i.e., the SVP's company, thus has no legal recourse against the company that is now profiting from the innovation. Compounding the problem is the fact that significant expense was incurred to protect obtain patents that were ultimately worthless to protect the SVP company's market.

The reason for this situation is clear: the 18 US patents were prepared in a R & D/patent attorney "silo" where the "cool factor" was considered to be the attributes of the plastic composition, not the attributes of the final product. In such a science-focused world, the composition was viewed as the important feature on which to focus the patent coverage. (And, clearly, the R & D and patent silo found the composition innovative enough to obtain 18 US patents covering each and every possible aspect of the composition.) But, as far as the consumer was concerned, the composition did not matter one bit. So the competitor can now copy the performance because the patents do not address what is in fact the critical commercial feature of the product.

Sadly, the patents could have covered the performance of the product. This product was truly innovative. However, the people working on the performance of the product and its value to the consumer were divorced from the patenting process. As a result, the SVP's company spent several $MM of now-sunk costs on a failed product launch. His company is now also losing market share in adjacent products because the competitor's product is gaining in popularity, a fact which compounds the pain caused by the product's failure.

After hearing my explanation for his frustration, the SVP wondered aloud how to learn from this costly patent lesson. I told him that the answer was easy: he must dismantle the patenting silo where his patent attorneys work only with his R & D team. Instead, his business team must drive the patenting process at his company by holding primary decision rights on what patent applications his company files and what those applications cover. No patent applications should be filed unless the commercially relevant features of the product can also be protected. In addition, prior to filing the applications, the business team should perform design-around exercises in which they ask "if this product becomes successful in the market, how will our competitors try to knock us off?" The answers to this question will likely stretch the view of the invention, which may allow broader protection to be obtained. Such broader protection will invariably make it harder for a competitor to knock off their products without also incurring patent infringement liability.

Of course, not all new products possess truly innovative performance attributes that can serve as the basis of broad patent protection. But if one does not approach the patenting process with the commercial features of the product as a focus for protection, it can be virtually guaranteed that the resulting patent coverage could be too narrow to prevent competitive knock-offs. And, as my SVP friend found out, once the patents are filed, the "damage done been did." If his company had possessed a business-focused patenting process, as opposed to an R & D-focused patenting process, maybe they could have prevented the competitor from taking some of their business today by using the marketing road map laid out by his company's failed product launch.