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A patent draft is most effective when it is written in the context of a business plan.  Your time communicating the business or research plan to your Patent Attorney or Agent before filing can be some of the most cost-effective time you spend on IP.

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Ownership by Design: Why Patent?

A philosophical look at the patent dilemma.

All prospective inventors must confront the challenges of patent ownership.  Legal ownership of intellectual property (IP) is achieved through the patent and trademark system.  But this of kind ownership is burdensome and tenuous for three reasons:

  • a patent term is limited (20 years from filing date),
  • the details of the invention are published even before a patent is granted, and,
  • the cost of enforcement of a patent can be overwhelming. 

Remember, if there is money to be made, a potential infringer can and will simply deduct the costs of litigation from his earnings.  If he still expects to profit, then he can choose to go ahead and infringe.  There are no criminal penalties for patent infringement; the infringer will not go to jail; any personal assets are likely secure, and the infringer can continue to draw a salary throughout litigation and appeal.  By declaring bankruptcy, the infringer can then simply walk away.  The records will probably be sealed.  It is oftimes difficult to pierce the corporate veil so that the personal responsibility of willfully infringing corporate officers can be unmasked.

The discovery process by itself can be tremendously disappointing.  Knowing the truth and proving it are expensive propositions at law.  The winners are most often not clearcut and the inevitable countersuit locks both parties into tough choices.  It is easily possible to win the case and lose the business (for a real-life example, click here).  So before filing for a patent application, it is helpful to consider the pros and cons.

In conformance with International Standards, a patent term is now 20 years from the date of filing.  However, the patent application itself, containing all the secrets, is published 18 months following filing — whereupon others are free to study it for weaknesses or for inspiration.  During the patent application pendancy, the intended patentee or assignee can "threaten" (with future back-damages) prospective infringers who read the application and followed the teachings, but cannot legally stop them.  Therefore, if a patent application is filed, quick allowance of some product-specific claims is the best strategy, but always with a continuation pending.  Vigorous commercialization will help pay for the patent's (or trademark's) upkeep and defense, however costly that might be.  

However, filing a US Patent Application is not the only way to manage IP.  Other ways to manage an advantage based on technical knowledge or other intellectual assets are:

  • Protect the technology as a trade secret, at least for now,
  • Disclose the technology defensively and associate it with a Trademark, or,
  • Temporarily file a Provisional Patent Application, and consider your options. 

Technology that can be kept secret probably should be.  However, there are very many bright people in the world, and inventions often occur independently to several people, clustered within time, as if the time was suddenly ripe for the invention to occur.  In my experience, if an invention has occurred to you, it has or will soon occur to someone else.  So, valuable opportunities can be lost by relying on the ignorance or procrastination of others. There are rare inventions that are unique and irreproducible.  For one, Antony van Leeuwenhoek successfully took the secrets of his proprietary magnifying lenses to his death, and they have not been rediscovered during the following 5 centuries.  Fortunately for astronomers, Galileo was less secretive.  CocaCola remains a secret mixture, but not long ago, Kentucky Fried Chicken, successful for decades at keeping its batter formulation secret, reportedly had to pay for the safe return of its founder's recipe after a private citizen mysteriously received a copy of it in the mail.  Thus, while trade secrets potentially can be held forever, in practice the odds are against it.  Once a product is marketed, it can usually be reverse engineered by a determined competitor.  The  story in Japan of Fusion Systems vs Matsushita Electric is a good example (Spero DM. 1990. Patent Protection or Piracy- A CEO Views Japan. Harvard Business Rev Sept/Oct 1990:58-67 and links 1,2,3).

If secrecy is impossible or imprudent, there may be a defensive strategy for dominating the marketplace by means other than patents.   A comprehensive description of a technology can be instantly published so as to make it impossible for others to patent it henceforth (thus defending against the exclusionary rights of others, and shifting competition from the patent office to the market arena).  This is useful if, for example, the technology is so vast in scope that patenting it all would be impossible or prohibitively expensive, and rather than allow the pie to be cut into wedges, each slice assigned to a separate owner, a dominant marketing organization may choose to place the whole pie in the public domain up front, foreclosing patenting activity by others and forcing competition into the marketplace.  It is well known that the presence of competitive and derivative products validates a new market, and has a multiplier effect on sales.  Cross-licensing of narrow patents between rivals serves the same purpose, but excludes new outside competition.

Obviously, the best of both worlds can be had by patenting the most valuable embodiments and defensively disclosing or filing blocking patents on all the others.  While immediate disclosure poses risks, there is also a potential advantage in the availability of the technology to others.  There may be ways to profit by the initiative of your competitors other than by licenses.  In Microsoft's case, dominance was ensured not by patenting or even by providing the best product, but by locking distributors into exclusive contracts, and relying on developers to patch together useful applications that added value to the prerequisite core operating system needed for all those applications.  Microsoft also copywrited its core code, a form of protection not available to most inventors in non-software fields.  But the lesson remains -- as uses for computers expand, Microsoft continues to incorporate them into the core product, thus assimilating mature markets created by competitor's efforts, all without patent protection!

So Why Patent?

Perhaps the reader now suspects that patents are more trouble than good.

In defense of patents, there are strong and conservative reasons for obtaining them.  For one, most inventors rely on investors to fund development of their inventions.  Venture Capital investors, known for their savvy, will often insist on a patent application.  Practically the only safe way to out-license a technology is to patent or trademark it.  Even having discussions about an invention must be approached with caution.  If business discussions occur in advance of the filing, great care must be taken that the disclosure is diligently protected by a written agreement ensuring confidentiality.   Although a grace period of up to 1 year is afforded in the United States following disclosure or public announcement, no such grace period is allowed outside the United States.  Premature disclosure gives "the green light" to foreign businesses to freely practice your invention — because premature disclosure, written or oral, is a statutory bar to patentability outside the United States.  The patent applicant has no recourse following disclosure.  Careless disregard for absolute secrecy prior to the filing of a US Patent Application or Provisional can be a source of lifelong regret.  Once the US Application is filed, the Paris Convention allows you up to 1 year to file in other countries even if marketing is started.  Many smart inventors present their business plan to potential investors or licensees only after they file their patent application, another reason for filing early, and a good one if you are hoping to pay the Patent Attorney who handles the licensing contracts out of the money you make from your patent.

You may not have the money to patent your invention, but your investors probably will.  If you have taken the necessary steps to begin the process, you have added great value to your invention.

The out-of-pocket for a new business can be greatly reduced by first filing a US Provisional Application:  the filing fee is less than $100.  This provides 1 year of "protection".  Just for example, before the end of the 1 year period, you could file a PCT Application for another $4000.  Further expense is not required for another 29 months, when "National Phase" must be initiated.  Then select the US and other countries where you expect to market the product.  This simple strategy can buy 40 months of near worldwide ownership for a few thousand dollars plus attorney's fees.  Three and a half years is usually ample time to determine whether the invention will catch on commercially.  This strategy eliminates Money as the most common reason for not filing.

During the term of an issued patent, the owner enjoys a "right to exclude others", power that can be used to grow and protect a start-up business or a new product, and to punish interlopers in that market.  The licensees also enjoy this protection and the patent's defense will be a contractual obligation on one of the parties. 

The owner or licensee must be prepared to assert these monopoly rights by filing suit.  As Thomas Edison (owner of more than 1000 US Patents) was reported to have scowled, "A patent is simply an invitation to a lawsuit. ... [One can easily lose] all faith in patents, judges, and everything else related to patents," he said.   Litigation is potentially messy and lengthy, becoming a test of financial backing as much as of right or wrong, especially if the first patent application filed is poorly written.  Assuming the defendant blinks, but doesn't just fold up and disappear, punishment or settlement generally takes the form of monetary damages in lieu of seizure of property (therefore it is in the best tradition of capitalism to allow one's infringer to achieve some success before filing suit).  Obviously, the burdens of a patent's defense and ownership must be compensated by an incentive for profit.   Kodak paid a staggering $873M in damages in 1990 to Polaroid for instant photography after an extended patent infringement lawsuit, [only to see the market deteriorate 10 years later with the onset of digital imaging and CCDs].

A recent report indicates that the median cost of a patent infringement suit (the bill that your attorney will send you) is about $500K.  If the value at stake is higher than $25M, then the attorney's fees rise sharply, to a median of $4M, or about 12%.  Patent infringment is clearly a rich man's game, and the stakes can be very high.

A few recent patent infringement awards and settlements are tabulated below:

PARTIES

A* Date Amount
Smith Intl v Halliburton Energy Services J Aug 2004 $41 M
IGEN Intl v Roche Diagnostics Gmbh J Jan 2002 $505 M
City of Hope Natl Med Cnt v Genetech Inc J Jun 2002 $500 M
Adv Cardiovascular Systems Inc v Medtronic Inc J May 2002 $166 M
Univ Colorado v American Cyanamid J Aug 2002  $57 M
Applied Biosystems & MDS Sciex v Micromass Inc J Mar 2002  $47 M
Boston Scientific Corp v Medtronic Inc S Sep 2002 $300 M
Ediwards Lifesciences Corp v Medtronic Inc S Apr 2002  $20 M
DepoMed Inc v Bristol-Myers Squibb Co S Nov 2002 $18 M
Univ Minnesota v Glaxo S Oct 1999 $300 M
Univ California v Genentech Inc S Nov 1999 $200 M
*Notes:  J - Judgement; S - Settlement                                                   Source: FTI-IPMatters.com

From these dollar numbers, it can be surmised that well written and credible patent applications should be a formidable disincentive to the entry of unlicensed competitors into a market.  Patent infringement can be a risky business, particularly when the violation is willful and self-evident, and there are many stories of infringing companies that were forced to close their doors after a loss in the Court of Appeals for the Federal Circuit.  Willful infringement is punishable by treble damages.  Infringers who fail to demonstrate 'due diligence' after receiving notice of a patent will almost certainly face punitive damages for willful infringement.  The infringer is required to carefully evaluate your patent's validity at the time it is first asserted, and those who wait until suit is filed to obtain legal opinion will pay dearly for the procrastination.  An infringer who continues to infringe after obtaining adverse legal opinion has willfully acted in bad faith.  Therefore, flatly put, the patent that passes the test of professional scrutiny is one to be feared.

The ideal claim is one that reads as 'literal infringement' on your competitor's business model.  A jury is very likely to view literal infringement as willful, no matter the defense.  The Officers of a corporation that willfully infringe really do run a risk of being personally named in a civil action, if not by the Inventor, then by the shareholders.  That is the deterrent of a good patent claim. 

In contrast, poorly written applications, particularly those that fail to anticipate improvements in technology which circumvent the claims, or serve to disclose inventions without properly claiming them, can invite litigation from which no one will profit.  Therefore, it is best to obtain professional advice before filing a patent application oneself.   Current practice focuses on "literal infringement", with limited recourse to the Doctrine of Equivalents.  Care is thus needed to ensure that the invention is fully fleshed out at the time of first formal filing, perhaps including prophetic examples where breadth of written description is lacking.

Because the application will be published in about 18 months, quick approval is an important consideration in asserting the patent against competitors.  Patents can be enforced ― applications cannot!  This consideration should motivate careful crafting of the first submission, with attention to economy of language and focus on the specifics of patentability and the kind of infringement anticipated, perhaps settling for a set of more limited claims, carrying the broader claims forward in a continuation or continuation-in-part.  And most of all, your targeted reader for a patent is any competitor and the Judge, not the customer!  Straying from the legal requirements for patentability to make a sales pitch can lead into a morass of sawgrass.  Patent approval can be accelerated by requesting priority examination [MPEP 708.02] when manufacturing is lined up and investors are waiting. 

A careful Inventor writes the patent application so that "next generation" patent applications are anticipated but not disclosed.  This is an art to itself.  The best way to extend a patent monopoly is to file a second patent application on the same product in some new-but-inventive manifestation, before the first patent term expires.  Sandoz managed a perfect transition from one patented formulation of a drug to another of the same drug, as illustrated by the Cyclosporin formulations Sandimmune® and Neoral®, which will have protected $1.5 B annual sales from generic inroads for more than 40 years.  This was accomplished by allowing for (and hoping for) unexpected developments.  What was not said was key.  Speculation in a patent filing closes opportunities except to CIP, which invariably will be subject to terminal disclaimer (a limitation of term to expiration with the parent filing).

The take home — Do not speculate on key advantages of particular embodiments and selections, or non-obvious aspects of the instant case, that can be the subject of an independent follow-up discovery (unless required to meet "best mode" for the instant invention).  Worst case, the next generation product is inadvertently disclosed but not claimed.   Here the business plan and a farsighted IP counselor are your only guides.

You have an important advantage under 35 USC §103(b)(1)(B).   The patent office can and must reject any competitor's patent applications describing improvements to your invention that are obvious in light of your disclosure.  The original inventor, or current assignee, is not so limited.  You can even copy the competitor's claims into your own patent.   For you, the key problem is extension of patent life by filing for a second patent a few years later without being asked to make a terminal disclaimer.  The patent office will want to limit your second patent to the same expiration date as the first patent.  Novelty decides this.  You cannot patent the same thing twice.  So there must be some new feature to the claimed invention in the second patent.  You can extend the life of your follow-on patents with claims made on improvements, selections, and novel embodiments not anticipated in the first patent.  If you have speculated wildly in the first patent, it will be difficult to show that later reduction to practice is in fact a new invention entitled to its own date of expiry.

These considerations point to the need to carefully limit the scope of the disclosure in a patent application to that which is needed to achieve the immediate business objective, an application in condition for allowance as filed.  Typically, one invites a restriction requirement and files a Divisional or CIP before accepting allowance of relatively narrow composition or method claims that are clearly patentable, carrying broader claims over into extended prosecution so that you can benefit from the search done by the patent office.  These are all matters that patent council will advise you on.

Given the extraordinary burdens patent ownership carries, it is only logical to put your best effort into optimizing rapid commercial returns, not into patents for patent's sake.  An inventor succeeds because of the success of a business plan, not because the invention gets patented.  Having a good patent can be a big stick against competition, but only if you have the resources to swing it.  So start with a business plan before the first patent application is filed, and incorporate an IP strategy into that plan.

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Please address any comments to KLambert@4iPT.com.


Ó  Copyright K K Lambert 2001-2005.  All rights reserved.   For permissions, contact the author.