IP Asset Maximizer Blog

IP and Intangible Asset Strategy: The Easy to Deploy, Not-So-Secret Weapon for Capturing Business Value

2013-04-17T15:25:37Z

Properly deployed, IP and intangible asset strategy is the not so secret weapon for capturing business value

IP and intangible asset strategies are a critical feature of ALL businesses regardless of size, product or customer. But why? Put simply, leaders need to be comfortable that their companies have the mechanisms in place to capture the value that you see possible from the venture. Without foresight and action, other businesses will be able to capitalize on the first/early mover’s advantage.

This happens often when a US company develops a new product, as well as the market for the product, and ex-US companies come in with a lower priced product to take the market away from the first mover. I have also seen customers (that is, big box or other consumer facing retailers) actually instigate the knock-offs: when the first mover demonstrates that a market exists for a product, the retailer will reach out to an Asian manufacturer to create a private label product with the same consumer benefits as that of the innovator’s product. The retailer is motivated to do this because it can gather all of the profit margin associated with a successful product, instead of having to share the proceeds with its supplier. If the innovator does not have some form of legally enforceable protection, such action is not only legal, it makes good business sense for the retailer.

Sometimes (but not as often as people think), patents are the strong way for the innovator to capture value in the long term. Other times, we look at alternate forms of IP and intangible assets like trademarks/branding, contracts, employee incentives etc. In the product example above, effective patent protection that prevented or greatly restricted the retailer from making an non-infringing alternative would have likely done the trick because in a cost benefit analysis, the retailer would see reduced profit margins for the product as preferable to the costs of redesign and/or patent litigation.

However, patents are not the only source of protection for product innovators like those in my example. If the innovator had a supply or other form of contractual agreement in place, it would have been more difficult for the retailer to outsource to an alternative manufacturer even in the absence of strong patent protection for the innovative product. Although not many patent lawyers would admit to this, it is far less costly and complex to litigate a contract claim than a patent. It follows that a strong and enforceable supplier contract may be a preferable form of intangible asset protection if the goal is to capture first mover advantage found in strong product placement in a retail environment.

Of course, each company’s business model will dictate focus on differing key aspects of IP and intangible assets. In fact, companies in exactly the same business space may utilize diametrically opposite protection strategies. For example, one chemical company may patent everything under the sun, whereas its direct competitor may rely primarily on trade secrets to capture its business value. Each strategy may be as viable for the respective company’s business strategies, but the leaders of each company must make the decisions regarding intangible assets for real and discernible business reasons. Indeed, not getting a patent is a viable patent strategy if the decision is part of a well thought out business strategy.

While IP and intangible assets might seem like the proverbial “black box” to business people who are unfamiliar with the concepts, the operational framework for success is really quite simple. One needs only to start asking “where does value exist in my organization, and what would be the ramifications if I lost the ability to capture that value?” When it is clear that the absence of the opportunity to capture value will destroy value for the company, leaders can begin to create strategies to make sure that value capture opportunity is not lost.

The key is for leaders to ask the right questions early enough at the right times to ensure that value in the company can be identified. Unless such value is first identified, it cannot be captured, protected or leveraged to maximize the value of the venture. Just bringing the issues to the surface is a strong first step toward creating a value-enhancing IP and intangible asset strategy. To this end, I have prepared the following presentation to get the conversation started. I hope readers will find it useful. The original presentation can be found here.

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A Branding Lesson for the Lean Startup Entrepreneur

2013-03-27T17:56:09Z

Before you build a brand, startup entrepreneurs have to build a business model.

I recently spoke to 2 different startup entrepreneurs who explained to me that each had “a brand that needed protecting.” To each, this meant that they intended to focus their sales and marketing efforts on customers who fit image they saw as befitting their respective products. While I was intrigued by the products and the amount of work each had done to date, I am afraid to say that if these entrepreneurs stay with their present mindset that only certain customers are desirable, each will fail. Full stop.

For one of these entrepreneurs whose product had already launched, brand protection meant that he was trying to dissuade “undesirable” customers: apparently truck drivers LOVED his product and it was flying off the shelves at C-stores in which the test launch was conducted. This entrepreneur perceived these sales as a huge problem because he saw his product as high end and “above” the truck driver market. Indeed, in its marketing collateral and packaging the product was presented as high quality and upscale. When placed in front of customers, however, it was apparent that the upscale buyer to whom the product was directed showed little interest, but that less affluent consumers—here truck drivers—found the product desirable, likely for its aspirational aspects.

The second entrepreneur had yet to launch her food product—which was a neat twist on a cheap Southern snack food staple–but she was insistent that her customer had to be of a certain demographic. When I explained that scale would be limited by singular focus on this specific customer, this entrepreneur said something along the lines of “It doesn’t matter, I need to stay true to my brand.”

Lean Startup Methodology teaches us that startups are not little versions of big companies. Lean Startup also informs us that unless and until we have recurring revenue that results in satisfactory profit margins, a startup actually does not exist as a company. As these fundamental concepts are applied to the startups discussed in this post, no brand exists for them to protect.

Certainly, it makes sense for big companies to strive diligently to protect their brands because these established ventures possess business models where value capture requires maintenance of the brand. Without such diligent efforts, the value of the brand would decrease along with revenue. However, these established companies did not create their brand equity out of thin air; the brand and its attendant value was established over time and as a result of one or more customer segments finding the product and its presentation desirable.

For startup companies, a brand identity cannot exist until there is a recurring customer having a set of definable—and brandable—characteristics. An entrepreneur cannot wish a brand worthy of protection into existence any more than a large company’s initial brand was created out of thin air. In my story of the first company above, the most likely customer appears to be truck drivers who aspire to products that the intended affluent customer finds “ho hum.” There is a nascent brand identity developing and the CEO should be absolutely thrilled that a group of customers is willing and able to spend money on her product. Their money is as green as everyone else’s. And they’re spending it on his product. This revenue serves to validate the business model and if the entrepreneur rejects them, he is rejecting a validated business model. If he keeps seeking the validation only of customers that he finds desirable, he destined to fail. Even worse: an entrepreneur or company that is not so choosy will swoop in to collect the money from the first entrepreneur’s market validation efforts.

The good news is that the cash provided by the “undesirable” customer could be used for product extensions where the appropriate market research can be conducted to allow capture of additional customer types for different product versions. Such market research is how big companies do it, though. And, they can do this because they have recurring revenue and resources that allow them to do so. That’s what makes them real companies and this is what makes startups different.

For the second entrepreneur mentioned above who also seeks to limit sales to a specific demographic for which there are relatively few members, she needs to be satisfied as CEO of a “lifestyle business.” A lifestyle business is one where reasonable profits over the long term can be obtained, but one in which revenue growth through scale is not generally possible. There’s nothing inherently wrong with maintaining a lifestyle business: millions have been made in such businesses. However, it is unlikely that a lifestyle business will be able to obtain substantial funding beyond that possible through loans and support from those in personal networks. Fortunately for this second entrepreneur, her business can be started effectively using her personal funds and the limited scale possible in the business can be achieved through bootstrapping and investment will not be necessary. While it is likely that she could go down-market and generate sales from a less affluent consumer, she chooses to maintain exclusivity. As a result, she will remain a brand-focused, but limited, food company for the long term.

For startup companies, the takeaway should be that there is no brand until there is a definable customer who validates your business model. As I have written about with regard to patents, protection of this brand will be key to capturing the value of that validated business model. Any attempts to identify and protect that brand in advance of customer support will set the entrepreneur up for failure. In short, entrepreneurs who seek to generate revenue from a branded product cannot do so unless and until they have built a business model.

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Enhancing Innovation ROI by Adding Patents at the Front End: Some Resources

2013-03-15T13:15:36Z

A new client has asked for some information on how consideration patents and IP at the front end of the innovation/product development process can enhance business value. Readers of this blog might find this material informative, also.

This is a published article from Innovation Management article entitled “How to Improve Innovation ROI with Early Stage Patent Expertise.” In this article, I discuss how IP can help orient innovation teams in a direction that can enhance value capture. Practical steps to implement such a program into innovation processes is included in this article.

Here is a YouTube video that explains my process simply. In short, including IP at the front end of a company’s innovation process allows one to enhance their calibration with respect to the IP rights of others to better ensure that they will achieve the desired ROI on innovation investment.

This blog post describes how a large company failed to capture the full value of its deep investment in a new product innovation. These folks (the name has been changed to protect the not-so-innocent) failed to grasp that their innovation was not a product, but a customer solution. This first-to-market Fortune company did not understand that the customer cared not about their cool product, but that their pain was solved. As a result, competitors were able to also fulfill the same customer need without infringing the 20 or so patents on the market originator’s product. Since the post was written, the market originator has undertaken a couple of strategy changes. However, it continues to lose market share to non-infringing competitive products in an increasingly price-eroded market.

There’s a whole lot more in the archives of this blog, and please don’t hesitate to let me know if you’d like more information.

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Hey “Patent Experts”: How Do You Like Groupon’s Patent Now? Crickets

2013-03-01T14:53:22Z

Patent experts: I can’t hear your opinions about Groupon’s patents over all these crickets chirping.

Yesterday’s announcement of the firing of Groupon’s CEO and the hope for a rebirth of the company’s business model brought to mind a post that I wrote a couple of years ago railing against the self-interested opinions of “patent experts” on why Google offered $6 Billion for Groupon in late 2010. Re-reading the post in the rear-view mirror, it is more clear than ever that Google made the offer for the precise reason I set out below in December 2010:

Google, and other acquirers, buy business models, not patents. As we strategy-focused IP people have been saying for years, a patent is worthless unless it covers a viable business model–either yours or one you want to own. Google is interested in Groupon because it offers them an established business model in an area that fits into their long term business strategy. Are the patents nice to have? Of course, but if Groupon didn’t have the patents, Google would still want to own them, and likely for a price in the same neighborhood as it bid. At the end of the day, the Google’s offer for Groupon was a “build vs. buy” decision: Google ran the numbers and believed that it would make more money buying Groupon than by building something from scratch. And, I would expect that Groupon’s refusal to accept the $6 billion means that Google will look around for another company that has a similar business model, and these possible partners may or may not have patents.

Of course, we now know that Google did not buy another Daily Deals company but, instead, started its own version a few months after the acquisition attempt by launching Google Offers. Even with Google’s powerful market share and the growth of the Android platform, this business has failed to thrive. However, at the same time Google Offers is struggling, Groupon has been crashing, which points to the viability of the underlying business model, not the company that is operating under that model.

Further, to those “patent experts” who opined that Google paid $15.5 Billion to acquire Motorola Mobility’s patents–POPPYCOCK!! As Techcrunch indicated at the time of the announcement, and as subsequent events revealed, Google shelled out that cash so that it could lay the foundation for its efforts to shape the future of the hardware products on which its software runs. As a learning organization, Google realized that in order to predict and influence its continued ability to grow revenue, it had to have a say in what products were brought to market. People seem to put a lot of relevance in Google’s decisions to close plants and shed itself of workers as proof the purchase was “all about the patents,” but this is flawed conclusion: Google didn’t buy Motorola Mobility to continue making the lousy phones that wouldn’t sell. So, it makes sense that Google is downsizing the manufacturing side of the acquired company. Motorola has an established and mature hardware infrastructure that Google couldn’t build if it wanted to. Even if Google could build the necessary expertise in house, the time it would take to do so would make that route a dead end given the speed with which the tech sector innovates. With the acquisition, it bought into Motorola Mobility’s expertise and infrastructure and as a bonus, Google got a whole bunch of potentially relevant patents that they needed. Looking at the acquisition from this framework, $16.5 Billion looks like a bargain.

My uncle, a small town lawyer, always told me “when all you have is a hammer, everything looks like a nail” and if the word “patent” is in your job title as an attorney, this is certainly the case. When such siloed perspectives are compounded with lazy journalism, we get the ongoing problem of people still think patents create business value standing alone. The truth is that patents–and other forms of IP and intangible assets–can be critical to allowing one to capture the value of a great business model. Business people need to look at these as tools in the toolbox of value capture, not as a means to an end. Significantly, patents cannot create value where there is none. As Farhood Manjoo said in Slate, Groupon had a “crummy business model” and no patent in the world could help that fundamental flaw. RIP Groupon and its patent(s).

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Is Traction the New IP for Startups? Maybe Not for Yours.

2013-02-15T16:04:22Z

Traction may be the “new IP” for some startups, but is it the right IP for yours?

“Traction is the new IP.” This emerging mantra results in many startup CEOs eschewing the traditional path of patent and other forms of IP protection. While I am aware of no rigorous studies conducted to date, anecdotal information indicates that startup entrepreneurs are increasingly saying no to patents, and likely to other forms of IP. Instead, these entrepreneurs first seek to validate their business models and then follow business plans focused on generating recurring revenue, often avoiding altogether the step of protecting their business idea or product with IP. From my own interactions with startup CEO’s, I can confirm that the pendulum has swung very far to the “IP is worthless” side of things. But, is this emerging conventional wisdom actually correct?

There is no doubt that over the years far too many startup company resources have been spent on patents and other forms of IP protection (many of which were paid to me in my former life as a patent attorney). Moreover, if we were to track the number of patents held by successful startups and those held by failed startups, a poor correlation would certainly exist between successful exits and the presence of IP protection. An adherent to Lean Startup Methodology would then likely conclude that scarce resources should be spent on tasks more often associated with startup success. This could be a huge mistake, however.

First, let me say that I love Lean Startup Methodology. This framework has transformed the way that I think about running the startup company at which I am currently CEO. In short, Lean tells us that we must first identify and validate our company’s business model; any efforts not directed toward these activities are not only wasted, but may actually assist in driving the startup to failure. Validation of a business model necessarily comes when customers buy the product of a startup company like mine on a recurring basis for more money than it costs me to make the product. If I am not successful in selling a product, I must quickly attempt to supply a new product that does entice the customer (i.e., “pivot”) or shut the business down. Data generated from actual conversations with customers must drive this process, the execution of which requires the startup team to move and react quickly, with the focus being only on tasks that have a high probability of creating value for the enterprise. Since IP has traditionally created little value in the startup world, it is no surprise the the move toward Lean is also resulting in a backlash against IP protection.

The almost singular focus of Lean on customer validation is a brilliant insight into startup company success because strong growth in customers provides me not only with revenue that keeps the lights on, but also might reduce the likelihood that other companies will knock off my validated business model. That is, why would another company try to enter a market against a startup that is killing it with customers? Customer traction can set up barriers to entry that keeps competitors away much in the same way as IP does. So, in the framework of Lean it makes much sense to conclude “traction is the new IP” because this is a “lean” way to for startup teams to think about the complicated subject of barriers to entry.

I agree that large and loyal customer base is the brass ring for startups, but more often than not, a validated business model means not only revenue, but also competition. In a world where “traction is the new IP,” the winning company will have to ensure that its customer and revenue acquisition efforts happen at speed and scale required to be first not only but to also stay first in the market. To do this, the startup company’s execution of its customer acquisition and retention efforts must occur at a speed and a rate of growth that likely is akin to a hockey stick. Sure this is possible, but it requires flawless execution and a whole lot of luck. For most startup companies, finding the right product market fit takes a long time and hockey stick growth is rare.

Focus solely on traction to the exclusion of other forms of barriers to entry means that a startup company is placing is huge bet on its ability to gain customers and revenue at a rate that effectively keeps competitors out. Time and again, we see that the second or even third entrant into a new market ends up being the company that wins in the end. The delays resulting from pivots or other adjustments can allow smart competitors to use the first startup’s business model and execution mistakes as a literal roadmap to short cut to success. In these circumstances, a startup CEO sees the “close by no cigar” pathbreaking efforts of the first startup team as a business opportunity. Alternatively, we see an established business with deep resources swoop in and take over the nascent but promising market of a startup. In each of these cases, the startup team that identified the opportunity and expended the time and resources to validate the opportunity ends up with nothing for their efforts because in the absence of the hoped for traction, no barriers to entry existed to keep competitors away.

It is certainly comforting for startup CEOs to have succinct slogans like “traction is the new IP” to reduce the complexity of decision-making. Nonetheless, I believe such simplicity can be very dangerous. Like many things in life, “the devil is in the details.” Rather than shut down a conversation regarding the applicability of IP and other, more traditional barriers to entry to a specific business model, the leaders of and advisers to startup companies following Lean Startup Methodology must work to understand what barrier–or more likely–combination of barriers will allow value capture from the new venture’s validated business model. In other words, what activities will allow the startup to not only be first in a validated and valuable business model, but also to be able to stay first for long enough to capture the value? So instead of saying “traction is the new IP,” Lean Startup CEOs should be saying “is traction the right form of IP for my company?”

Perhaps it is better for entrepreneurs to consider traction as just one of the tools available in the value capture toolbox. Indeed, customer traction may be more than sufficient to allow some startup companies to achieve a strong exit. For other companies, however, traction may happen too slowly or even not be enough to keep competitors at bay. In these cases, startup CEOs must at an early stage evaluate alternative competitive barriers that make more sense for capturing value in their specific business model. These other tools could include patent, trademarks, strategic partnerships, and a whole lot more. In later posts, I will be discussing the various tools available to assist startups to capture value from a validated business model.

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Do Patents Matter? Lean Startups Should Ignore Expert Advice and Let Their Data Drive Patenting Decisions

2013-02-07T18:53:49Z

Many hold strong opinions on the value of patents to business. Both in person and online, there are any number of “experts” who stridently insist that without patent protection, a company’s business goals are doomed. With about 350,000 new patent applications filed in 2012, there is no question that many agree that patents create, and are even critical to, business value. But, as the 2012 US presidential election cycle demonstrated, actual data can illuminate how expensive experts are often flat out wrong. So where’s the “real data” that will allow business people to know whether a patent is the right decision for their company? This information is likely even more critical for startup entrepreneurs, most of whom have no choice but to rely on self-interested expert opinion regarding the value of patents to their business.

Entrepreneurs who follow Lean Startup Methodology understand that decisions must be driven by validated data, not beliefs or opinions. It would be great if a source of data existed that could illuminate whether and in what circumstances patents matter to new business ventures. Unfortunately, little information exists regarding the return on investment businesses of any size typically can observe from investment in patents. There are many reasons for this lack of relevant data upon which to base business decisions, the most pertinent being that data on patent value is highly speculative unless a patent owner itself reports the alignment of patent spend with strategic goals. In my experience, only the most sophisticated patent filers collect this evidence in the first place, and even fewer companies report this information to the public. Which brings us back to the “fox guarding the hen house” problem of patent experts insisting to startup entrepreneurs that patents are important to their business plans.

I have recently come across what I believe to be an objective source of real data that can provide a bit of insight into the ROI of patent filings. An informal study by IP Strategy expert and consultant Suzanne Harrison in her book Edison in the Boardroom Revisited indicates that a group of large corporate patent filers self-reports that only 5 % of patents are considered to be “strategically valuable” to their respective organizations. While the study does not define “strategic value,” we should understand this to mean that such patents provide the company with the ability to execute on corporate strategy, something that likely is associated with significant revenue capture.

Note that this data is self-reported, which to me means it is likely more strongly correlated with actual results: the companies interviewed by Ms. Harrison disclosed their patent filing results for the purpose of sharing best practices with their corporate peers and the confidential nature of the data means that their respective management will not face discipline for their results, or lack thereof. Indeed, the stunningly low 5 % number likely indicates that the companies interviewed by Ms. Harrison were honest about their company’s ROI on patent efforts. In the absence more rigorous data on patent ROI, we can still use this data source as a starting point to discuss the value of patents to startup companies.

If these expert companies interviewed by Ms. Harrison–most of which include IP decisions at the C-level and have significant internal staffing of their patent matters–can claim strategic success from their patent filings only 1 out of 20 times, less resource-rich organizations must certainly wonder how patents can benefit their business strategy. If I was a startup entrepreneur making a decision on whether to spend my scarce resources on patent filings, I would most likely see patents as a losing proposition and spend my money elsewhere. But this could be a big mistake–patents may not be important to most business models, but for some, patents are critical to capturing value. In other words, patents are rarely important, but when patents are important, they are REALLY important.

Large companies can expend the resources needed to file many patent applications which can effectively allow them to hedge their multiple bets on when patents may create strategic value. Indeed, Ms. Harrison characterizes patent filings by the large corporations she interviewed as “options.” Startup companies do not possess the resources necessary place many bets on “just in case” patent filings, however. The low probability of strategic success might make it seem like a good idea for startup entrepreneurs to expend scarce resources on needs that appear to have a higher likely ROI than patent filings. But what if a startup business model is one where patents are central to value capture? Not filing for patent protection based upon what would appear to be a reasonable analysis of data would then have the perverse result of setting the business up for failure! A startup entrepreneur must have a way to make data driven decisions about the value of patent filings specific to their own unique business model.

Fortunately, I think the issue of patents for starups boils down to a simple matter of reframing the question in the correct context. Rather than to assume that a company is one of the large majority that does not need a patent, I think we need to shift the conversation about patents and other IP as it relates to startups. For these new entities, startup entrepreneurs need to think about patents as a tool in the toolbox when it comes to execution their validated business model. By business model, I mean the rationale of how an organization creates, delivers, and captures value.

In this framing, patents do not create value, they allow identified value flowing from a validated business model to be successfully captured. Patents then become an ends to a means, not a means to an end, which necessarily puts the patent filing decision after the validation of the business model. Patent experts will certainly vehemently advocate against delaying patent filing decisions and will have many strong legal reasons to filing early and perhaps often. This viewpoint elevates legal risk mitigation above business risk mitigation, which may make sense for resource-rich organizations, but is nonsensical for startup ventures. Think about it: if your startup company files too early, you stand a very high risk that you will have patent coverage for a business model that generates no income. In other words, you will have a timely filed patent application that is worthless because it covers an invention for which no one will pay. Like I said, this is nonsensical!

As a patent expert who is also a startup entrepreneur (and recent convert to Lean Startup Methodology), I know that the risks of delayed patent filing are wholly manageable if entrepreneurs obtain adequate information upon which to base their decisions. Moreover, for the vast majority of entrepreneurs who can benefit from patents, these risks will not increase as we move to a “first to file” system here in the US. Lean Startup Methodology tells us that startups are different from established organizations and, accordingly, that they use different tools. Delayed patent filing is one of the “different tools” that I believe makes sense for startups. I will be writing about my thoughts on this and other IP-related issues for Lean Startup Entrepreneurs in coming weeks. In the meantime, feel free to reach out to me.

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Lean Startup Methodology: How Patenting Decisions Fit into this New Business Framework

2013-01-15T22:22:04Z

Lean Startup Methodology makes patenting decisions easy enough for a child to understand.

One of the first questions start up entrepreneurs usually ask sounds something like this: “Is it worth the effort and expense to get a patent on this business idea?” In countless conversations with clients in my years as a patent attorney, I could usually articulate multiple reasons why the person seeking to to start a new business venture unequivocally needed to file a patent application as soon as possible. Moreover, I could recite a litany of ills that could follow from failing to follow my advice. Following this conversation, I could typically expect a fat check from the client, whereupon I would dutifully draft strong patent on the subject invention. It was a nice living.

These days, I work as a startup technology company CEO and look at patents much differently than I did in the past: as a consumer of patent services myself, I now examine patenting issues from the vantage point of an entrepreneur, not as a lawyer whose business model centers on patents. My viewpoint has been further honed in the last year as I have become a practitioner of the Lean Startup Methodology, a startup business framework that, in short, states that if an entrepreneur cannot validate her business model with actual, paying customers, she has no business being in business. In this new operational paradigm, when a company is in the startup phase, all efforts not spent on determining whether a profitable revenue model exists with customers should be considered wasteful. It then necessarily follows that obtaining a patent on a product or service that no one will buy is by definition waste in the world of the Lean Startup.

Lean Startup Methodology is just now growing in adoption with entrepreneurs like myself. Few patent attorneys likely participate actively in the thought processes circulating in the startup world–why should they–their business is patents, not building a startup business. It is therefore doubtful that patent advice relevant to Lean Startup has started to permeate the legal advice world. Moreover, advice that entrepreneurs not patent as frequently, which will inherently result when an entrepreneur follows the Lean Startup Model, will necessarily reduce the income streams for patent professionals. I expect that unless patent lawyers quickly generate a new business model that allows them to generate substantial income from clients by recommending NOT patenting, patent lawyers will be slow in incorporating the Lean Startup Model into their advice to entrepreneurs.

In later posts, I will endeavor to provide a reality check to those who wish to get beyond opinions based on anecdotes and self-interested experts regarding the likely return on investment that entrepreneurs can expect from filing for patent protection for their business or product idea. For those entrepreneurs also following the Lean Startup Methodology in their business, these posts will hopefully provide your team with a framework to determine whether patent filing will comprise wasteful effort and expense that can detract from the ability to achieve success.

The initial takeaway for Lean Startup Method entrepreneurs should be that when a patent professional is giving you patent advice, you should apply the Lean framework to his business model. As long you continue to accept his advice and pay him to obtain a patent on your business idea, you are validating his business model. As I said, it’s a great business. It’s up to us Lean Startup entrepreneurs to force them to develop a new model that serves us better as we embrace this new business paradigm.

image Dribble.com

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The Apple vs. Samsung Verdict Actually Demonstrates that Patents Do Promote Product Innovation

2012-08-28T16:05:29Z

Apple’s win over Samsung actually demonstrates a functioning aspect of our dysfunctional patent system.

In the time that the Apple vs. Samsung patent fight has been underway, we have been inundated with an untold number of articles on how Apple is stifling innovation in the SmartPhone world. (Haven’t seen these: just do a Google search for “Apple stif . . .” you don’t have to type any more than this–the search auto-completes itself.)

I often take a contrarian view from that stated by most “expert” commentators–be they members of the press or actual patent professionals, and the Apple v. Samsung verdict is no exception: I think the result actually demonstrates that the patent system is working just fine in this instance, thank you very much. But how can this be when Samsung got hit with more than a BILLION US DOLLAR jury verdict last week?!? Doesn’t the fact that Samsung could not make a product without infringing Apple’s multitude of patents mean that Samsung is effectively prevented from competing with Apple in the Smartphone market?

Not necessarily, as is shown by this great post from The Verge entitled: ”How Android has evolved while steering clear of Apple’s designs”. What is most interesting to me about this article is how we see that while making phones for Google, Samsung was nonetheless capable of creating non-infringing and–yes–innovative designs. The illustrated “evolution” of Google’s Nexus branded products demonstrates to an IP Strategist like myself that Google’s team understood clearly the scope and content of Apple’s patents BEFORE they began the process of designing their products. Their innovation and patent teams apparently worked together to define the available design path available to them and that which was closed off due to Apple’s (and presumably others’). This resulted in their bringing to market products that (at least for now) avoid Apple’s pre-existing patent rights.*

In contrast, the verdict in the Apple vs. Samsung lawsuit indicates that the jury found the testimony that Samsung’s product designers used Apple’s successful iPhone as a design template. It defies logic to think that Samsung’s team did not know about Apple’s patent rights, but for whatever reason their design path dictated creation of a suite of products that willfully infringed 5 Apple patents. Significantly, willful infringement is a legal determination that requires the satisfaction of 2 essential elements: (1) that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” and (2) that the infringer had knowledge (or should have known) of this risk. In other words, the jury effectively found that Samsung’s product designers knew (or should have known) that their efforts were too close to the Apple’s previous designs.

Ignoring the patent issue for a moment, how does copying or almost copying another company’s designs equal innovation unless there is some other benefit associated with Samsung’s actions, like a lower-priced Smartphone? And, therein lies the rub. Those who contend that “patents stifle innovation” in cases like Apple vs. Samsung are effectively railing against the reality that Apple’s patents are a significant (but not the only) reason that Apple’s products seem to be virtually immune from price erosion. Unfortunately for those who cannot or do not wish to shell out the money for an Apple product, innovation doesn’t mean consumers get a really cool product for minimum cost after another company (here Apple) has invested tons of financial and brand capital to create a new market. Without their multitude of patents, Apple would certainly have been locked in a downward price war with Samsung to retain market share. However, Apple’s coupling of being first to market with desirable products with strong patent protection allows the company to extract premium pricing. The rules of this game are clear for sophisticated multi-national companies like these, and I shed no tears for Samsung if they couldn’t play it as well as Apple.

I also find it highly interesting that when directed by Google, Samsung’s team can create a cool product that (at least for now) avoids Apple’s patents, but when its designers are on their own, they can only come up with what a jury found to be an infringing product. ( In this regard, note this testimony that Google demanded that Samsung make design changes to the Nexus phones.) Surely, Samsung is capable of creating innovative products, but it appears that their internal design resources are not up to the task if they do not receive direction from truly innovative teams–here Google’s. Arguably, this signals a problem with Samsung’s strategic direction and management, not the US patent system.

In conclusion, I submit that Google shows us that Apple’s patents, in fact, do not stifle but, rather, successfully promote new product innovation. The US patent system supremely dysfunctional, but the Apple vs. Samsung verdict actually shows that the US patent system is working quite well as originally intended. Hopefully, someone in the press will pick up on this fact.

* In an interesting twist, a few days before the Apple v. Samsung verdict, Google sued Apple contending that the iPhone and other products infringed a number of patents Google acquired from Motorola recently. Who could’ve seen that one coming?–(said with tongue firmly in cheek).

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Google Changes the Game Again–This Time for Patent Owners and Those Who Serve Them

2012-08-16T16:29:42Z

Patrick Anderson of the great Gametime IP blog reported the details of Google’s new prior art searching tool*. This is such important news, I thought it important to repeat it in a separate post. Patrick provides detailed instructions for how to use the Google patent searching tool, and I will not repeat that information here. This post provides commentary on why I think this is a very good development for the patent world. Google’s original announcement on its blog is here. It does not appear coincidental that Google is upgrading its patent searching capabilities: in this press release from June 2010 we are informed of the partnership between Google and the USPTO to increase the amount of US patent information available to the public.

When used correctly, Google’s tool can help “democratize” the patent analysis process by putting more power in the hands of those who are not part of the closed “guild” of patent professionals. For example, before spending money on a search (and the opinion that most patent professionals will insist on writing to put context to the search), an inventor can herself get a feel for not just the patentability of her invention, but also how broad the claims will likely be and how easy or difficult (e.g, expensive) it might be to obtain a patent given the amount of prior art cited by Google.

Of course, the inventor can ask the patent attorney these same questions, but asking someone who makes her living writing patents if it makes sense to file a patent application is a bit like “the fox guarding the henhouse,” n’est-ce pas? I liken this new Google tool to a home improvement show on HGTV–I am never going to build an addition to my house on my own, but having access to professional-grade advice certainly allows me to ask better questions to my contractor and, perhaps, possess a stronger BS detector than I would have without being able to first conduct some self-learning to ground my go-forward actions in the face of “expert” opinion.

While Google ostensibly created this tool to help find prior art (e.g., to invalidate actual or potential patent claims), Patrick correctly notes that this product can also be used to help identify those who might be playing in the same space that is covered by another’s patent. The new Google patent search can provide the owner of an existing patent with insight as to whether another person or company might be building on technology that first appeared in her patent. This could illuminate whether potential licensees and/or infringers exist, an inquiry which to date has typically been one big question mark except for circumstances of obvious marketplace infringement or for entities with sufficient resources to pay a team of patent professionals to conduct the requisite investigation.

A word of caution, however. As detailed in this blog post from 2008, analysis of patent claims is not a trivial process. Before any patent owner acts on a belief that another party is infringing on her patent, it is imperative that an experienced patent lawyer be contacted so as to ensure that one does not end up in a declaratory judgment lawsuit as a defendant. Google’s tool can thus serve only as a signal of potential infringing activity, but I have no doubt that this new product will serve as yet another disruption to the patent profession. And, that is a good thing.

* Yes, Google has had a patent searching tool for sometime, however, I have found it fairly difficult to use–perhaps because it was built without reference to the parts and content of patents. When clients came to me with patent search results from Google, it was ALWAYS the case that a search of “real” patent databases turned up wholly different results. With the emphasis now on patent claims–and the ongoing partnership with the USPTO referenced above, I strongly expect the quality of Google’s patent search to now be improved. The addition of European in a search with US patents will also be a plus (however, I have always liked the search quality of the European Patent Office’s tool for searching ex-US documents).

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Patents–Who Needs Them? Not Most Startup Entrepreneurs.

2012-08-08T17:47:28Z

A recent article in TechCrunch indicates that entrepreneurs are less likely to file patents than in the past. Nonetheless, there remain countless patent lawyers and agents who will argue convincingly that an entrepreneur must obtain a patent in order to succeed and who will take their $5-15K to file a darned good patent application that won’t provide them a bit of business value in the long run. Even worse, the resources expended in the patent process robs the entrepreneur of needed cash that will allow them to gain customers, and of their most valuable asset: time. But when the only tool you have is a hammer, everything looks like a nail–which is why those still in the business of writing patent applications will continue to make their case to entrepreneurs (and investors) who lack the domain expertise to know better.

Now that I no longer make money obtaining patents–instead, I am the CEO of a startup battery charging company–I understand that patents are generally a poor way for a startup company to expend scarce resources. I rarely, if ever, recommend that my startup colleagues file for patent protection for any tech/web-based ventures.

Further, when asked what they should do with their pending patent application, my regular advice is to let it die. Why? Darned near all successful startup companies change their business model not just once, but multiple times prior to achieving success–that is, by the time they find paying customers. As a result, by the time the Patent Office reviews the invention, the patent application filed 18 or more months ago is rarely relevant to the way their business is being conducted today. In other words, their initial business idea may be patentable, but it didn’t surround a business model that anyone cared about after customer discovery efforts were conducted.

For those very few startup companies that hit on a valid business model out of the gate, success will breed copycats. The patent filing gives a road map that likely will be designed around or with the steps performed outside of territorial boundaries so as to avoid infringement liability. The successful startup has thus provided its competitor with a lower cost way to enter the market that it created.

Even if there is ultimately infringement liability that can be pursued, time and again good startup businesses are made lame by getting tied up in patent litigation. I think that Vonage is a great example of this: consumer adoption of VOIP was retarded due to the focus of Vonage’s management on being a defendant in multiple patent litigations. Only when Vonage settled litigation did it have the ability to focus on gaining customers instead of burning cash on legal fees and settlement costs. No reasonable startup should base business success on the ability to prevail against a competitor after spending millions on litigation–especially when adding the opportunity costs and market uncertainty that results from such a business strategy.

This is not to say that SOME startups–such as those in the business of making tangible things that can be cleanly and broadly described (e.g. semi-conductors, chemical compositions and my own startup)–do not crucially need patents, but certainly we are in the minority since most new companies today are based upon developing new business models, not in making products or technology that goes into products.

When startup entrepreneurs come to me for advice about whether they should get a patent, I make sure they understand how having a patent would benefit them in the long run, and usually the consensus is that it will not. For those who are concerned that an investor might want to understand their patent strategy, I let them know that not getting a patent is a patent strategy if you make the decision for clearly articulated business reasons. In other words, a patent is only one of the many tools available to the entrepreneur who is seeking to build a sustainable and valuable business model.

Historically, patents have operated as a “black box” for everyone other than patent professionals. If a patent attorney says “you need a patent,” then the entrepreneur had no way to stress test that recommendation against her peers. As more articles like this one in TechCrunch reach entrepreneurs, I am hopeful that more startup folks will be able to decide for themselves whether patent protection makes sense in the long run.

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The Apple vs. Samsung Verdict Actually Demonstrates that Patents Do Promote Product Innovation

Google Changes the Game Again–This Time for Patent Owners and Those Who Serve Them

Patents–Who Needs Them? Not Most Startup Entrepreneurs.

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