In coming weeks, I will provide the transcript of each episode, so check back or subscribe here. In the meantime, reach out directly if you’d like to learn more about how to generate patents and IP that move the needle on the value of your business.
]]>Companies looking for valuable patents should reconsider whether technical credentials are the best way to select a lawyer. Patents should be viewed as business documents first if the goal is to protect valuable innovation investment. When you engage a patent professional based on technical skills, you may end up with what I call the “mind-meld” that follows from two teams that share the same expertise. While the lawyer will bring legal skills that the client’s technical team does not possess, it can be said that the overlap of skills not only makes one of the persons redundant, the commonality of interests often silos the effort in the technical aspects of the effort.
Notably, customers select a product because it solves their problems, not because it’s cool technology. This means that patents covering valuable innovation may fail to adequately protect the what the customer is buying if the focus of the patent is on the technology itself, as opposed to the functional value that the customer is buying—that is, those aspects of the innovation that solves their problems.
This detailed article discusses how companies that seek to generate patent value can do a better job by reassessing how they staff their patent matters. In short, when you focus on IP Strategy, a lack of deep technical experience in the subject matter of the innovation, may be a “feature, not a bug.”
]]>One-hundred % of patents make money for their lawyers, but very few–some estimates say 5% or fewer–make money for their owners. This disconnect is striking when you say it out loud, but few seem to recognize that it exists. Perhaps this is because it works very well for the “Patent Industrial Complex.”
To this end, every intellectual property law firm has bills to pay, appearances to maintain, and risks to mitigate. This can certainly be tough to see when one is working to grow a successful legal practice, as I did in an earlier part of my career, but the thought did arise from time to time. A well-known IP lawyer I worked used to say to clients seeking advice–in a now-apparent non-admission-admission sort of way–“this is a fox guarding the hen house situation.” Of course, one might hope that the fox makes the right decision, the nature of the fox cannot be ignored when the client sets up expectations for outcomes.
My perspective on lawyer incentives changed when I left the law firm environment to join an in-house legal team. From this vantage-point where I managed my prior peers, I saw that it is necessary for someone with expertise to act as “referee” to make sure the client’s interests are properly managed and protected. Or, as a friend of mine who does IP valuation says, “if you need an expert, sometimes you may need two.” Of course, most companies do not have the need budget for a full time legal team, but this does not eliminate the need to have someone tasked to make sure that the best interests of the client are being served by those hired to serve the company.
In this detailed article, I provide insights about the status quo of patent acquisition today, and give guidance to how those seeking to create business value can better align their intellectual property strategy efforts to obtain their desired outcomes.
]]>This topic is on my mind because I had to, once again, give bad news to someone who was expecting to monetize his patent rights that he believed protected an innovative consumer product. In hearing him explain the concept I thought (and you likely would think, too) “wow, why didn’t I think of that?” and “I can’t wait to buy that!” The product clearly solves a long unmet need, and the world may, in fact, beat a path to the door of whomever successfully gets this product to market. But therein lies the rub: who and under what circumstances will this product get to the consumer?
To this end, the potential client, let’s call him “Bob,” has been a working professional in a particular building-related area for many years. His experience gives him unique insight into problems that exist for consumers in this space and, just as importantly, how to meet longstanding needs with functional product solutions. However, Bob has no desire to be in the product business. This means that in order to get the product to market, he must find someone who is willing to do the hard work of both developing the product and creating a market (i.e., finding customers) for the product.
In my experience, the latter is often the hardest aspect of successful product introduction, but both of these efforts require substantial risks to be taken, often with long-odds. If the product folks, let’s call them “Acme,” are successful in developing a strong customer base for an innovative product—which is the whole point of the risk-taking exercise of getting a product to market—invariably, competitors will want a piece of the action. Notably, these competitors would be required to take fewer risks, which means less investment to achieve as good, or even better, financial returns on their investment, if only because these competitors were effectively given a roadmap for success by Acme. The overall negative effects for Acme may even be worse because it may now be competing in a price eroding market, with these lower prices creating fewer profits. If Acme had realized at the start that its expected profit margins would not be achievable, it is possible that its management would not have even entered the market with Bob’s innovation.
Which now brings us back to Bob, his patent, and whether he can extract any value out of his efforts to date, given his lack of desire to be in the product business. We can use an analogy here that aligns with the understandable world of real estate.
Consider a house that is for sale that exhibits considerable flaws: it has a cracked foundation, the kitchen and bathrooms are outdated, and the roof leaks. If the house is in a desirable neighborhood, those problems may be irrelevant to a buyer because the neighborhood will drive a buyer’s decision. But, if the house is in a less desirable location, other factors will drive a buyer’s decision, for example, whether the flawed house can be renovated for a reasonable price to allow the house to drive a next purchaser’s buying decision or whether the neighborhood will be up and coming in the future such that it might make sense to buy the house and hold it for a market upturn. In either of these situations, the buyer’s tolerance for risk is different from that of the person buying in the desirable neighborhood. All things being the same, the latter will likely be willing to pay much more even for a house with significant flaws.
Much in the same way, a buyer of a patent is either “buying because of the neighborhood,” or “buying in anticipation of something good happening in the neighborhood.” In other words, if there is already value in the patent because there is an existing product with customers, the risk of buying that patent (and the attendant business) is markedly less than if there was only a patent that is not aligned with a business today. Moreover, if there is no product in the market to drive value, the “condition” of the patent (e.g., claim scope, attorney competence etc.) will be of more significance because that is what will drive the price paid today for that asset.
For Bob’s innovation, I could see that his concept was potentially a big deal for the relevant consumer but that the patent covered only a small aspect of the value brought to consumers by his concept. Also, unfortunately, the work done by the attorney to protect that aspect was not very competent. Thus, Bob’s patent was both too narrow and too flawed to drive value in a patent licensing or sale context at least because the risks for someone bringing a product to market that was aligned with that patent would be high, which would mean that a price for that patent would be set very low by a potential buyer. In short, I had to tell Bob that it made no sense to attempt to bring the patent to market.
This was tough information to give, but I am happy to say that Bob accepted my assessment with grace and with a learning attitude. The good news is that Bob’s innovative insights can still be leveraged to generate patent protection that is meaningful. This is possible because his patent did not disclose these innovative concepts. Ironically, this means that the weaknesses of Bob’s patent create business strength that can, in turn, be leveraged to generate valuable patent protection that aligns with that business strength.
After our call, Bob is no longer a “potential client,”–he is an actual client. We plan to generate a series of patent filings that allows him to protect the value obtainable from his innovative thinking. The focus of our patenting efforts will be on the unmet customer needs solved by his insights, as opposed to products that can be defined. Moreover, we will endeavor to hire competent patent people to execute on our patent strategy to make it more likely that Bob will obtain patent protection that will survive patent due diligence with value intact.
Bob and his team now understand that the goal is not to get a patent, but to get a patent that covers customer solutions that are embodied in functional products. This means that he and his team will also be working on generating customers for his innovative product concepts while the patents are being obtained on an accelerated basis. I look forward to reporting to you in a year or so that Bob has not only obtained broad patent protection, but that he is also in conversations with a licensee or buyer for his innovative and well-protected product(s) to which customers are flocking.
]]>Introduction
As someone who works with a wide variety of startups and small companies as the in-house expert interfacing between outside patent lawyers, I have found it helpful to compare and contrast the various legal practice styles encountered, at least because I strive to continuously improve the IP strategy consulting services that I provide my clients. Recently, I have noted that there often appears to be a profound lack of alignment between the desired outcomes that my clients seek from their patent efforts and the business models of many of the lawyers we encounter. These lawyers seek to engage clients like mine, but often they are not able to provide the value we are seeking. Since I have been thinking a lot about this topic lately, I decided to write about my experiences because others may appreciate the context that I can bring to the selection and management of outside IP counsel.
A word of warning: this is a long article that reflects considerable thought about this topic, and it is likely best read while having a cup of coffee or over lunch.
Readers should consider this to be a working paper articulating various aspects of IP practice models that I have observed in the past couple of years. I have formatted this article into six actual scenarios that I have made anonymous as to the client and outside counsel, while still maintaining the basic outlines of each story. While I highlight practice models that I find fault with in the first five scenarios, the sixth scenario illustrates a practice model that successfully meets the needs of my clients.
Note that my goal is not to criticize the IP legal profession. To the contrary, if a specific business model works for an IP lawyer and his partners, by all means they should keep on doing what they’re doing. I have found, however, that the startups and small companies that hire me to develop and manage their IP strategies require different perspectives on IP protection than that which are provided by lawyers who may operate according to status quo law firm practice models. To this end, I have been searching for lawyers whose practice styles are more aligned with those of my clients specifically, as opposed those that are better suited to serve the needs of large companies, academic institutions, or even solo inventors. Only by first identifying the “pain” that my clients experience with IP counsel can I improve how I vet and engage lawyers for my clients. The identification of this “pain” is premise of this article.
Scenario 1: The “I’m In Business for My Business” Lawyer
A client, let’s call him “Pete,” recently said to me:
“I didn’t know my lawyer thought his job was to make his business flow, not to make my business grow.”
Pete, for whose company I have been part in-house IP counsel for a bit over 2 years, was commenting on how his former patent counsel of 20+ years, in retrospect, was not only expensive, but also highly ineffective. Pete continued by wondering aloud why he had not realized that he was not being well-served until after his company had spent (literally) millions of dollars generating patents and litigating patents to obtain outcomes that did virtually nothing to improve the revenues of his small medical device company.
The good news is that Pete has learned from this experience and now is ready to move on, but he clearly regrets not realizing that his attorneys weren’t focused on his success in any manner before he expended all the money, time, and emotional capital with them. He also feels the financial pain today when I have to let him know that his patents that his former patent counsel said were a “sure thing for licensing” really are not. Licensing of patents is the exception, rather than the rule, and Pete has learned this the hard way.
I am now in the process of identifying value in Pete’s extensive (and expensive) patent portfolio. We have dropped dozens of issued patents and pending applications that did nothing but line the pockets of Pete’s outside counsel. Indeed, in our several “roll up the sleeves” conferences about these patent matters, Pete frequently said something along the lines of “why did they file that?” or “that is not related to a product that would even function.” His lawyers would likely say that it is Pete’s fault for not paying more attention to his patent matters over the years–in fact, that was their excuse when I confronted them at his request. As a busy small businessman without the IP knowledge needed to properly manage his patent lawyers, Pete trusted his outside counsel to generate strong IP to help his business grow. However, in the end, it turned out that they were actually looking out for their business by generating IP that did little for Pete’s business.
Scenario 2: The “Patent Assembly Line” Lawyer
In another situation, I worked with the longstanding law firm of “StartupCo’s” founder to generate a foundational patent application on a disruptive technology. Since the founder was already a client of a law firm, I didn’t want to rock the boat by suggesting that we change law firms, even though this patent application involved a different company and subject matter. I checked the credentials of the attorney assigned to Startup Co, and she appeared to check out technically. Moreover, since she had in-house experience, I thought she might have a better perspective on what we needed to accomplish than a lawyer who had not been embedded with a corporate business team.
Notably, although they are just starting out, StartupCo is in licensing discussions with one of the world’s largest companies. This early stage interest by an established company is indicative of the fact that StartupCo’s technology genuinely could change the nature of the industry and, if this is the case, BigCo wants a piece of that action before its competitors find out. Nonetheless, having been on the other side of BigCo many years ago with a former client, I realized that this company would likely much rather use my client’s innovation without having to pay, and that its in-house lawyers are incentivized to figure out how to make this happen. This means that the patent application we were preparing for StartupCo was “bet the company,” in that if we don’t gain adequately broad protection, BigCo would be able to leverage our innovative insights to create their own version of our products. Moreover, as an established company, BigCo could use its existing resources (e.g., R&D, marketing, sales, distribution channels, customers, etc.) to get the product to market quickly and efficiently, with StartupCo possibly being left with only a patent that may not even be infringed. Even if the patent was infringed, BigCo’s deep pockets to fund litigation could make litigation an insurmountable challenge. In short, we have one chance to get our patent coverage right, or else StartupCo will likely be left with nothing to show for its effort and expense.
I explained all of this to the outside counsel, who was tasked with “dotting the I’s and crossing the t’s” on the application draft I sent to her. Disappointingly, the counsel’s first two drafts back to me were wholly devoid of the substantive additions that I expressly requested that she include. I soon realized that I would have to carry this application across the finish line myself because this outside counsel obviously had not internalized the importance of this application to StartupCo, even though I had explained this to her on multiple occasions. We were able to generate an excellent application by the due date, but I had a few short nights in getting there. What I had expected would be a collaborative project with a skilled outside counsel instead turned out to be a solo project.
In conducting an “after action” breakdown for the client, it dawned on me that the counsel assigned to us actually had not been the right person for this patenting job because, as a former large company patent person—indeed, she worked for years at a company not that much different from BigCo—she may not have had the professional capacity to understand the relative importance of this patent matter to her client. This is because rarely, if ever, does a large company have a patent matter that is critical to the ability of the company to succeed. In other words, patents appeared to be treated by our assigned outside counsel as if they were on an assembly line. It seemed as if she likely expended the same caliber of effort for each matter. Certainly, clients should expect that each of the patents that move along her “patent assembly line” are created in a quality manner, but in her mind there may be no reason to deviate from the standard model when assembling each one because “if it ain’t broke, why fix it?”
Scenario 3: The “I’m Not Comfortable Poking the Bear There” Lawyer
In another situation, I was asked to provide a second opinion of whether litigation counsel’s legal strategy was aligned with the client’s stated business objectives. MetalCo tasked its counsel with bringing a claim against a competitor that appeared to have misappropriated valuable trade secrets. The client had asked the counsel to deploy a legal strategy that would get the other side to sit up and take notice in order to force a quick resolution. Notwithstanding this clear client dictate, the litigation team brought a lawsuit that is destined to languish in court for years at considerable expense before a resolution is likely to happen. In short, outside counsel’s litigation strategy is seriously misaligned with the client’s goals for the litigation for at least these two reasons.
MetalCo’s management team was confused as to why there was a fundamental disagreement between legal counsel and me regarding the litigation strategy. This is not surprising because they are business people, not attorneys. I let the client know that while they had effectively asked their counsel to “poke the bear” so as to push the competitor to obtain a desired business result but, in reviewing the litigation strategy, it is apparent to me that outside counsel was not willing to “poke the bear there,” perhaps because it would take out of them out of their professional comfort zone. Or, maybe, they are afraid of losing. Either way, it is apparent that these lawyers are too risk averse to be able to effect the business goals of their client.
The client continues to let this litigation go along for the short term, however, current counsel is not out of the woods. The client knows that that they are not being well-served by their attorneys, and I expect they will ask me to help make a change soon. I have already identified a patent litigator who is willing to bring any legal claim available, including finding a basis to accelerate the action in court. This patent litigator is willing to bring claims that are not necessarily winnable on the facts as known today–which appears to be the prerequisite for current counsel to bring a claim. Of course, there is nothing wrong with bringing a lawsuit where the facts are not currently known; indeed, this is how most lawsuits start out, but current counsel seems willing to bring only a low risk lawsuit. Inexplicably, this is the opposite of what MetalCo has asked them to do. Although it can cost more upfront and generate more legal risk, such aggressive action may improve the chances that the opposing party will see the need to begin negotiating with MetalCo. Put another way, the lawyer I have identified is willing to “poke the bear there,” if that’s what the client needs to achieve his desired business outcome.
Scenario 4: The “I’m Just Not That into You” Law Firm
Many clients believe that hiring a “name brand” law firm will necessarily generate quality that is commensurate with the reputation of the law firm. Indeed, there is a saying among us old timer lawyers in Atlanta that “no one ever got fired for hiring [famous ‘White Shoe’ law firm].” Unfortunately, I have seen many patents coming from these prestigious firms that do not meet the minimal standards for competency required to create value for clients. The reason for this is twofold.
First, when a first year associate with little or no experience in the practical aspects of patent drafting often has an hourly rate of $350 or more, a patent application can quickly become expensive. When this rate is combined with that of a supervising attorney who is needed to make sure that the associate is doing adequate technical work so as to avoid malpractice liability for the firm, one is looking at $15K or more for even the most basic patent filings. To keep the bills down, the quality of a patent application can be expected to suffer.
Second, and there’s no way to sugarcoat this, small companies or inexperienced patent filers can be challenging to represent. Typically, these clients need the type of care that cannot be properly provided in large law firm environments at least because they may need more substantive guidance than more sophisticated clients. This means that a partner may need to spend time in “care and feeding” of these clients, even while they do not generate much revenue for that partner. Senior lawyers at prestigious firms are then often dis-incentivized from taking on such clients, even when they may otherwise want to represent them on a personal level. In this regard, I have a dear friend—perhaps one of the most talented patent lawyers I know—who has recently dropped several of her smaller clients because she cannot adequately represent them at her $900 hourly rate. She has recommended that they seek representation at smaller firms, instead of being serviced at her firm by younger associates with lower hourly rates.
Unfortunately, there are not enough lawyers like my friend. Many senior lawyers at prestigious law firms are loath to give up a new client opportunity, even when that client cannot be served profitably by their law firm’s business model, at least because, candidly, many lawyers are not great business people. These partners also need to provide training to their young associates, and the best way to train someone is to provide them with substantive work. While there’s nothing wrong with training someone when they are adequately supervised—heck, that’s how I got good at what I do 20 or so years ago—in today’s legal environment, it is doubtful that the budget will justify the several additional partner hours that are often needed to develop the basis for good patent work product. As a result, an inexperienced and minimally supervised young attorney will often be the lead person responsible for generating patent protection for the client.
Larger law firms are coming to terms with the fact that patent practice is only profitable under certain business models. Many firms today consider their patent groups to be “loss leaders” for other aspects of their practices, such as litigation, corporate, and M & A. I expect that we will begin to see lawyers at firms like that one which my friend is at start to be more particular about the clients they take on, but until then, clients engaging these firms need to appreciate that they just might not be that into you.
Scenario 5: The “I’m Not Taking Instructions from Someone Else” Lawyer
The smaller firms that are configured to provide better value to startups and smaller companies nonetheless may come with lawyers who are not used to dealing with in-house IP counsel who serves as the interface between him and the client. These lawyers are used to running the show, and telling the client what needs to be done even though they likely have little idea how and why what they are doing affects (or not) the business goals of the client. Indeed, that is why the client brings me in to assist in the first place!
For example, an experienced lawyer at a small IP firm came highly recommended by a serial entrepreneur who is a friend of mine. While this lawyer could no doubt look up my resume and see that I had been practicing IP law longer than him, he not only ignored my instructions–which were based on my deep understanding of the business goals of our mutual startup client–he repeatedly sought to explain basic patent law concepts to me. He was clearly a competent patent lawyer, but there was no way I could continue to work with someone who not only did not listen to me, but who obviously did not respect me. I fired this attorney, and moved on.
My serial entrepreneur friend continues to work with this lawyer, and that makes sense. He is someone who needs someone who understands patent law first and foremost. Clients who work with me don’t want to, or need, to understand patent law. That’s what I do for them. I serve as the person who can bridge the client’s business goals to the arcane patent world when the clients neither have the time nor, in some cases, interest to interface with their outside patent counsel. To properly leverage the expertise that they hire me for, we need outside counsel who “plays well with others” and who recognizes that having another experienced lawyer on a case does not mean that you are being second guessed. Rather, our outside counsel partners must realize that, first and foremost, when you need an expert, sometimes you need two.
Scenario 6: The “Your Business is My Business” Lawyer
Lest the reader think that my experience with outside patent counsel is always bad, here’s a story about an attorney who consistently hits it out of the park for my clients.
“Bob” is a partner at a mid-size patent boutique firm here in Atlanta. I have referred a dozen or more clients to him in the last couple of years, including Pete, the client from Scenario 1 above. Indeed, it is Bob’s legal effectiveness at a fair price that solidified Pete’s opinion that his former IP counsel was not in business to advance Pete’s business.
So what does Bob do that is so different from the other IP lawyers (anonymously) profiled in this post? In short, I would say that he believes that the client’s business is his business and, as such, aligns his legal efforts with the clients’ desired outcome.
Notably, my clients are different from many of Bob’s other clients. For the companies I work with, the goal is always to identify opportunities to increase business value by leveraging IP protection aligned with revenue generation or exit. This is my specific practice model “sweet spot,” and I expect that any lawyer who works with me on behalf of my clients understands this and acts accordingly.
For such clients, the goal is to generate broad patent coverage that will allow them to scale into a new or emerging product category. A product may not always exist prior to preparing a patent application, but there will nonetheless be a solid understanding of what a suite of products associated with an innovative idea may look like in the future. Thus, my clients’ patent filings must be forward-looking with an eye toward the possible products and markets. This requires creativity and foresight that can provide broad protection that preserves future options.
However, Bob also represents academic and research institutions that have a desired outcome of obtaining solid protection of early stage technologies that are not yet associated with products, nor can products probably be visualized. In other words, there is no revenue or exit value to be leveraged for these academic clients in the short term; instead, the mission is to set down a marker of protection at the lowest possible cost in the event that another entity will see value in building a business model around that well-protected, yet unproven in the market, technology. This requires detailed protection of early stage technical insights, as opposed to a detailed description of marketable products, and Bob is able to provide this type of protection to them.
Still other of Bob’s clients are established companies that seek to generate patent protection for products that will be brought to market in the near future, with the goal to be able to keep their competitors at bay by having the ability to assert patent rights against them. Patents covering such inventions will typically be detailed as to existing products, as that is what the company sells to its existing customers and markets. As a result, work that Bob does for these clients will incorporate product features that actually exist, or that will exist in the near future.
A further notable exception between Bob’s efforts and those of other attorneys with whom I have worked is that he understands that, for his practice to thrive over the long term, he must work hand-in-hand with the client to make sure they are seeing value from his patenting efforts. If not–and I know this from my experience as a law firm partner–a lawyer will be spending unbillable time chasing the next client because the first client’s business is not sustainable. So it is actually in his best interest to make sure his clients’ business is his business.
Lastly, I find Bob refreshingly receptive to collaboration and constructive criticism. To this end, experienced lawyers who get paid for their expertise often bristle at being challenged by another person, even an expert like myself. Indeed, I can say this is truly an occupational hazard, at least because I had this problem in my prior life as a fancy law firm lawyer: clients came to me for my expertise, so I’m going to give them what they’re paying for, right? Only when I entered the collaborative environment of a corporate innovation team, did I learn to appreciate that my own expertise was only part of the pool of total expertise that was needed to achieve the goals of the business. Additionally, Bob is not afraid to correct me if needed, nor does he relish in doing so, as do some expert lawyers. In short, neither one of us desires to be “right” in a particular situation; rather, the goal is only to align our activities to achieve the desired outcomes for the client.
Unfortunately, Bob’s subject matter expertise does not coincide with the full range of technology needs of my clients. Also, he may sometimes be conflicted out of representing my clients at a law firm level, as happened recently. I am continually looking for lawyers like Bob who “get” what I do, and what my clients are trying to accomplish.
Conclusion
I hope that anyone who made it to the end of this long post has found my experiences illuminating as to these several legal practice models with which I have interfaced recently. Certainly, the fact even someone as forward-looking as myself still experiences difficulties in identifying the right outside counsel for my clients means that there is much for everyone to learn before progress can be made in the IP profession. Improvements will not come until we unabashedly shine a light on flaws that we observe in practice models, at least in relation to the types of representation that fail to serve startup and small company clients seeking patents that will allow them to reach their revenue and exit goals. I look forward to collaborating with others who share the desire to develop client service models that can better serve startup and small company clients.
]]>As an IP Strategist, my client intake process is focused on collecting information about how patents are expected to relevant to the potential client’s business goals. For me, it’s important for clients to be able to articulate why they have determined that patent protection is intended to create value for their companies. I will not take on a new client unless we can agree that a patent will create value for both her business and mine. Unfortunately, today most patent lawyers focus on the mere generation of a patent itself, with no consideration of any business relevance of the task itself. If the lawyer to whom the referral is being made is not versed in why her patent efforts are relevant to the client’s business goals, the client should consider seeking another referral.
Learn how non-specialists can make better patent referrals, understand the process better, and save client’s time and money by reading my Better Patent Referrals: Tips for Non-Specialists blog post.
]]>As an initial aspect of this discussion, it should be stressed that not all patents are equal in value. Some patents–and, in my view, this is the vast majority of patents—do not really matter much to the fortunes of their owner. For example, a patent obtained by an established organization likely won’t make or break the company. Sure, it will be disappointing if the company introduces a product that a competitor can knock off without incurring legal liability, but this likely means only that the expected revenues will not be achieved that motivated the expense and effort to introduce that product to the market. While profits may decline, the company will not typically go out of business. Moreover, in my 20 plus years as a patent professional, I have never seen anyone officially blame a failure to achieve revenue projections on the company’s obtaining of inadequate patent protection (even though I can see this occur frequently in my practice). It can therefore be said that most patents do not need to be (or appear to be) “unbreakable.”
In contrast, a startup has likely “bet the company” on developing a technology for a specific market or customer. For those few ventures that are successful in matching a product to customers in a scalable market, it can usually be expected that other companies will want a piece of the action. Those companies will then be faced with a Build vs. Buy decision: if it makes more sense to go it alone to acquire the customer they will invariably do so, especially if they are legally free to go this route. Strong patents—that is, patent coverage that protects the customer value proposition, as opposed to merely only protecting a specific product provided to the customer—therefore becomes a critical aspect of the incumbent’s Build vs. Buy decision for an early stage company seeking to gain the attention of the established company.
To this end, two of my clients have recently gone through due diligence with established companies that sought access to each of their innovative technologies, even though neither had yet generated many customers. My clients’ respective values to these incumbents was primarily their technology solutions, which we had endeavored to protect broadly with patent filings. Each of these incumbents saw value in being able to sell to the potential customers who were served by my clients, even though the customers are today only hypothetical. The incumbents saw future revenue streams from these customers as desirable, but first they needed to determine whether these would be sustainable in a way that justified the investment in my respective clients. A significant component of the sustainability question was embodied in the content and scope of the patent filings. If the patents could be “broken,” then the sustainability of the revenue streams would be in question.
In each of these client due diligence situations, the incumbents’ patent experts “stress tested” my clients’ patent filings. The crux of the evaluation looked at the content and scope of the filings to establish whether they would create a sustainable competitive advantage for them if they ended up owning the patents. The experts inquired as to the scope of our prior art reviews (extensive) and the strategy for generating claims that protected not only the “how” (e.g., the product), but also the “why” (e.g., the customer value). They also evaluated the skill with which we navigated the application through the Patent Office. Each of these elements can be crucial to the “breakability” of a patent in the future.
Notably, the frame of reference of patent value for these incumbent companies was different for those of my early stage clients. Most startups like my clients have (and should have) no interest in suing another company for patent infringement. Indeed, I tell my early stage clients “if you’re thinking about litigation, you’re planning to fail in your business strategy.” This should make sense—my clients are in the business of developing technology that solves meaningful unmet customer needs that can generate sustainable and scaleable revenue. Their business models do not have room to spend oodles of money on lawsuits. (Don’t believe me? See how fast an investor runs when you tell her that you want to use her investment on litigation!) It follows that strong patent protection generated by an early stage company could have a valuation that should be measured only from the value that a potential licensor or acquirer places on the patent.
In this regard, incumbent companies with products, customers, markets, and distribution channels already possess business models. Presumably, parts of these established business models incorporate an understanding of their competitors, and how patent protection may or may not affect the behavior of others in their markets. These incumbents have much deeper pockets and, likely, existing budget allocations for legal expenses such as litigation. When doing due diligence on the patent portfolio of an early stage company that has developed interesting technology, these established companies will be interested in whether the patents held by the company could be easily “broken” (or at least appear to be “breakable”) by a competitor that was intent on competing for those same customers. An “unbreakable” patent—or even one that would be hard (i.e., expensive) to break–will often be a significant driver value for an early stage company because the licensor or acquirer will appreciate that a competitor may be locked out of a market by virtue of strong patent protection. In other words, the overall objective of due diligence in licensing or acquisition is to determine whether my clients’ patent portfolios would “make it cheaper to go through them than around them” with respect to their competitors?
This begs the question of how entrepreneurs who believe that patents are a critical aspect of their business value can better select their patent professionals. This is a hard question to answer in the abstract, but I can provide a general perspective based on my own experience. I was recently asked by a client that is in the patent drafting stage how I work to make sure that we are generating patent protection that will make the multi-billion dollar companies to which this company seeks to license its technology view our patents as “unbreakable” such that they would go through us rather than around us. I answered, “when you break things, you know how they work.” I look at patent protection strategy like this because, early in my legal career, I was an IP litigator. In this role, I spent a whole lot of time “breaking” other company’s patents (and trying to keep my clients’ patents from being “broken” by the lawyers of my clients’ competitors). Applying this experience to my work as a patent prosecutor in my next job made me very conscious of how the actions I was taking during the patenting process would potentially have on the “breakability” of that patent in relation to any subsequent activity in which that patent may be relevant, be it licensing, litigation, or otherwise. Further, I can confirm that other patent professionals that I know and work with now and in the past who have both substantive litigation and patent prosecution experience tend to look at patents from a similar framework.
Unfortunately, structural issues that underlay the legal profession do not incentivize either lawyers or law firms to allow someone to gain substantive training in both patent litigation and patent prosecution during the training phase of their careers. To make the economics work, a young lawyer must typically choose a practice focus early. This was certainly the case for me when I started practice as an IP litigator. However, I was lucky enough to be able to switch gears after a few years to retrain as a patent prosecutor. While not a common career trajectory, it is possible to find experienced folks who made the switch. Indeed, I have several colleagues with whom I collaborate who have this varied skill set.
In closing, I’ll restate what I say to most of my startup clients on a regular basis: patents rarely matter, but when they matter, they matter a lot. If your business strategy is premised on how your patents can make it desirable for another company to license or acquire your company’s technology, your patents matter a lot. Patents in this category must not appear “breakable” in due diligence. Rather, such patents must appear to be solidly crafted when subjected to a review by an expert who is motivated to find flaws in the drafting or prosecution. Accordingly, if you are a decision maker in an early stage venture that needs patents that can stand up to such stress testing, you would be well-served by looking more broadly for patent expertise than you do for matters that are of lesser importance to the success of your company. While it may not be easy to find someone with the expertise to make a patent look “unbreakable” to a third party, the fortunes of your company may depend on your going the extra mile to find the right expert.
]]>While I cannot (and would not) guarantee positive results for my clients, time and again I have seen that by taking an approach focused on generating client business results can lead to patents that hold more broad and commercial relevance, and that are generated at a lower overall cost more quickly. Case in point are successful patent outcomes that indisputably resulted in increased business valuations for my clients.
Learn more about how I obtained positive results for clients on my LinkedIn post.
]]>This disconnect was clearly on display as I spoke with a new client recently. The CEO of this company expressed frustration about an assessment by a patent lawyer that the company’s medical device innovation was not patentable. If successful, the company’s innovation would eliminate an expensive daily pill used to treat a chronic disease suffered by millions of people throughout the world. The elimination of medication has been a long-felt need, and the future of his company looked promising, at least until he heard the bad news that the medical device did not appear to be patentable. He asked: “How can this be? The users didn’t want to give the product back after the testing period was over! The doctors were shocked at the results. Everyone wanted the device to be available yesterday, and they were disappointed when I told them it would be a while before the device was available for sale. How can a product that could be life-transforming for so many people not be protectable!?”
In view of this highly enthusiastic response from testing of this medical device, it was surprising to the client when his previous patent attorney told him that a patent on the device was not possible because prior art devices ostensibly exhibited the same features and operating parameters. Notably, the attorney did not consider the clinical results to be pertinent to an assessment of whether and to what extent the device could be patented. The device looked and operated like other products in the market, so the conclusion was that no patent protection could be obtained.
Since investment in a new medical device company is largely dependent on whether broad patent protection is available, this advice could have been the death knell for this company. Even worse, patients who could benefit from this non-pharmaceutical treatment would be denied this improvement because there would be no assurance that a company bringing this medical device to the market would be able to recoup its investment. Fortunately, the CEO of this company did not accept this patent lawyer’s advice as definitive because, quite simply, it did not make sense, and he sought a second opinion from me. After few minutes discussing the medical device innovation and the clinical results, I was able to tell him that his product was not only patentable, but that it was possible that we could be able to obtain broad US patent rights for his company in a year or less, using the TrackOne process in conjunction with a robust patent development effort. Needless to say, the CEO was thrilled with this information, and we are now moving forward with defining a strategy for drafting comprehensive protection for the medical device.
Readers are probably wondering why my patentability assessment was so markedly different from that of a patent attorney peer. For the past 12 years I have worked almost exclusively with innovators. And, this makes a difference to the advice I provide to those seeking patent protection. In my world, the way the patentability of an invention and that of an innovation are addressed are different because an invention is different from an innovation: an invention comprises a new and non-nobvious improvement over other products and technology that have solved the same identified consumer need, whereas an innovation is a product or technology that solves a previously unmet consumer need, irrespective of the newness of the product or technology. Said another way, an invention solves a previously met need in a new way, and an innovation solves a previously unmet need.
As an example of this difference, consider a new tire design. In one instance, the new tire design performs as a tire is intended to do, that is, in conjunction with other tires, participates in the movement of a vehicle from one place to another. In this case, the new tire design is an “invention.” On the other hand, a design for a new tire that will allow the car to be driven for 100 miles after the tire is punctured by a nail is an “innovation” because, in this context, this defined consumer need has not been met previously. (Yes, I know this is an already a solved problem.) The tire invention is an improvement on the existing performance of the tire; the latter tire innovation transforms the performance expectations of the tire. When considering the patentability of the tire innovation, the designs of prior art tires are irrelevant because they cannot provide the same function. Instead, prior art tire products (if any) that a allow a tire to run flat after nail puncture are the relevant prior art to be considered in an assessment of patentability. When looked at from this vantage point, it is doubtful that there will be much prior art that needs to be reviewed because the problem has not been solved before!
The invention/innovation distinction also matters when defining the claim scope. If one aligns an innovation against the irrelevant prior art, claims that define the innovation against that prior art will erroneously narrow the starting point for protection. That is, setting the boundaries for protection of the innovation in relation to prior art necessarily locates the former within an existing playing field—here the products and technology that do not meet the customer’s need–even when the innovation should be set in a different playing field, that that is defined by the customer’s solved need. Indeed, my clients frequently are able to avoid complex prior art rejections during prosecution because the the claims are defined as being outside the bounds of previously disclosed products or technology.
Applying this concept to the tire example, if the run-flat tire’s claims are defined against the framework of prior art tires that fail immediately when punctured by a nail, claims drafted around the tire innovation will be necessarily constrained by tire designs that have no bearing on the ability to generate run-flat tire performance. To prevent this from happening, the unique nature of the innovation must serve as the focal point of the patent protection strategy. By approaching claim drafting from this direction, the innovative performance of our tires drives the claim drafting and resulting claim scope. If there is no prior art with comparable performance, we are entitled to broad claims from the patent examiner.
I should note that it took me many years to be able to articulate how prior art review should be modified to better serve the needs of innovators, so I get why it might be hard for my patent peers to immediately understand the point that I am making. Most patent attorneys work only rarely with innovators, if they would know that their client was an innovator in the first place. As to this latter point, when engaging with a patent attorney on a professional basis, most clients would not self-identify as either an “inventor” or an “innovator,” as there is no officially recognized distinction in the profession between these two categories of those who might seek patents, even while the company is likely to self-identify as an innovator to customers, investors, etc. So, we come full circle: there is no difference between how inventors and innovators are serviced by the patent profession because there is no recognized difference in the services that are offered by patent professionals.
To solve this dilemma, innovators, and those patent professionals servicing them, need to recognize that if you’re not innovating how you generate patent protection, you’re likely not able to effectively capture the full patent value of the innovations. In my practice, I am the one who identifies whether a potential new client is trying to protect an “invention” or an “innovation.” If the former, I refer them to a trusted colleague that will do a good job patenting their invention at a fair price. If the latter, we will engage to generate broad protection for the innovations that they are bringing to their customers. The good news is that most of my new clients these days are innovators who find themselves reading my posts and deciding this approach is the right one for them. I would love to hear from more of you who recognize and value the difference between protecting innovations and inventions.
]]>An example of how strategic IP-thinking differs from that of traditional patent attorney processes is that I believe the unique nature of an innovative product or technology itself should serve as the focal point of any patent protection strategy. Presumably, the identification of an unmet need in the market by an innovator means that the innovator’s product or technology is new, and that the prior art is, by definition, different. This approach is quite different at least because traditional patent attorneys are trained to review the prior art as the focal point of patentability inquiries. In other words, instead of saying “how is this innovation different from the prior art?” as is conducted in status quo patentability inquires, for innovators, we should start with the understanding that the subject innovation is, in fact, different. We then work to articulate the differences in a way that enables the client to generate protection for the full scope of the difference for the innovation, and not merely the differences in relation to the prior art. When you start at a different place, you are entitled to end up in a different place, with that being broader, more comprehensive protection for innovative new products and technology when generating patents for innovators.
My blog post, Better Patent Services for Innovators: Patentability Reviews, provides examples and solutions to do a better job providing patentability review, or “opinion,” services for innovators.
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