Monthly Archives: October 2009

For Inventor of 21 Patents, Patent Troll Litigation Not Very Lucrative

 

Patent litigation is likely not a viable business model for inventors

Patent litigation is likely not a viable business model for inventors

Recently, I wrote a post on why I think that patent litigation is not a viable business model for inventors.  Given a realistic deconstruction of the costs and possible damage awards, I concluded that, in most situations, it is not realistic for an inventor to presume that she will “hit the jackpot” by suing infringers and extracting settlement or damage awards.  I obtained some pushback from this post, mostly from patent litigation lawyers, who contend that I am wrong in my view that patent litigation does not pay for inventors.  Of course, everyone is entitled to their opinion, and I respect the views of others, however, no one who objects to my (somewhat) negative view of patent litigation as a business model, has provided me with numbers to discount my economic analysis of patent litigation. 

This recent post from The Prior Art blog entitled “Revealed! How Much Money a “Patent Troll” Makes” provides some insight into usually confidential inventor returns when dealing with a patent licensing program.  The underlying patents related to GPS technology and were asserted against several prominent technology companies.  The post gives a rare look into the numbers involved obtained in sending “patent licensing letters” to technology companies.  In sum, the inventor, who obtained 21 patents, has garnered $748K from the total $2.17MM settlement with 4 leading technology companies. 

While $748K is certainly nothing to sneeze at, it does not seem like a huge return on an investment when the patents probably cost $10-$20K each to obtain and took several years of effort on the part of the inventor.  Of course, there is likely much more to the story–especially given the fact that the inventor is currently encarcerated in a Federal Prison–but it nonetheless provides a “peek behind the curtain” of the usually highly confidential settlements involved in patent litigation. 

This Prior Art blog post is definitely a fun read for those who wish to know more.  The key takeaway for me, however, is that there are likely better ways to make money than being an inventor involved in patent troll litigation.  Maybe if you were the law firm or aggregator, that would be a different story, but for 21 patents, this does not seem like a lot of money.  As a friend of mine who is a prominent IP valuation expert said:  “It certainly doesn’t seem to generate income commensurate with the investment or risk.”  

If anyone has non-confidential numbers that would confirm or refute my ongoing belief that patent litigation is in all likelihood a bust for most independent inventors.   As it stands now, the absence of information about what an inventor can make by suing infringers makes it impossible for inventors to generate a realistic view of what they can hope to make by bringing suit against companies.  It may be that the numbers are better than it now appears to me.  But, as someone who works with inventors to provide them strategic and pragmatic business advice, I cannot in good faith recommend that they hope that patent litigation can be a viable source of income for them.

The Coming Explosion of the Patent Monetization Market: Brought to You by Open Innovation and What Needs to Happen in Order to Speed Up the Process

Patent owners will see more patents turn into money as Open Innovation becomes a dominant business model.

Patent owners will see more patents turn into money as Open Innovation becomes a dominant business model.

This week, I got a call out of the blue from a very senior business development person at a Fortune 10 technology company “wanting to know more” about patent licensing and monetization.  This was a bit strange:  his company has literally dozens of patent professionals on staff, files 100’s of patents a year and, as I found out, has 35 or so business people working on patent  licensing and monetization efforts for the organization.  So, why would he (let’s call him “Bob”) need to talk to me these topics?  Certainly, there is a veritable army of highly-paid smart people to answer IP and patent questions at his beck and call, and I was interested in finding out what Bob sought to find out from me that he could not get from his own people.

I was not surprised to find out that Bob did not want to learn more about buying and selling technology on behalf of his company.  Rather, Bob’s interest was personal:  he wanted to find out more about patent licensing and monetization because he believes that patent marketplaces are the wave of the future and he wants to participate in what he sees as wide-open business opportunity.  He couldn’t talk about his entrepreneurial plans to the corporate IP types at his Fortune 10 technology company, so he called me for some free advice. 

I told Bob that I agree that patent monetization is the wave of the future, but not for the reasons most people perceive.  That is, in the last few years, a limited market for patents has grown up where patent brokers serve as intermediaries for patent owners who wish to sell patents on behalf of their owners.  Patents in this venue are primarily technology-based and primarily serve as freedom to operate.  In other words, the company seeking to acquire these patents have already designed a product, but there are patents that prevent or restrict their ability to bring the product to the market.  The corporate innovator will then purchase the patent to allow it to sell its product without patent infringement liability.  Alternatively, a non-practicing entity (“NPE”)–pejoratively called a “patent troll”–will buy a patent to extract license fees from a company that is selling a product covered by the patent.  If the company refuses to license, the NPE will bring a lawsuit against the company either to force a license to eliminate the cost and distraction of the lawsuit or to win a damage award from a court.  Continue reading

A Patent Reality Check: Litigation Not a Viable Revenue Source for Most Inventors

Many inventors have a distorted view of how they can profit from patents.

Many inventors have a distorted view of how they can profit from patents.

The ability of an intrepid inventor to strike it rich from a great idea seems to be embedded in the DNA of many Americans.  Perhaps this view emanates from the presence of patents in the US Constitution, which could create a feeling that US citizens have an “inalienable right” to use patent protection to their advantage.  Alternatively, people may perceive the occasional media reports of successful inventors and substantial patent litigation awards as a signal that patents can serve as a path to wealth for those with great ideas (certainly, this is the Hollywood view).  In truth, however, getting rich merely from a patent is a rare occurrence–maybe not as low a probability as winning the lottery, but the odds are incredibly long that any person can make money from a patented idea alone.  Think about it: if all it took was a patent to make someone wealthy, there would be a heck of a lot more rich people in this country given the huge numbers of patents that are granted by the US Patent Office every year.

There are many reasons why the idea getting rich from patenting an idea is overstated, several of which I have discussed before on this blog.  This posting will specifically address why patent litigation as a business model is a non-starter for making most inventors wealthy. 

To this end, I was recently contacted by an inventor with several issued and pending patents covering an innovative solution for homeowners.   The patents and applications were well-written and, unlike many other patents I have reviewed lately, the innovation was well-covered such that it would be difficult for someone to make the same product without infringing my client’s patents.  My client had spent much money over the years on this solid patent coverage, but, due to health issues, he lost his ability to continue working on bringing the product to market.  The client believed that infringement was occurring, and he and his patent attorney were under the impression that they would be able to get an investor to fund patent infringement litigation or have an attorney take the lawsuit on a contingency basis.  Continue reading

Beware of Bogus Patent Analytics: Forward-Citation Analysis Leads to False Conclusions about Significance of Client’s Patent

Patents: more than just data sources.

Patents: more than just data sources.

Patent application filing and issuance data can be a useful tool to extract valuable competitive business information that is “hiding in plain sight.”  For example, in industries where patents are viewed as pertinent for creating and protecting long term value, patent filing data can present a strong signal about where your competitors are investing their time and money in innovation that may result in their future product or technology offerings.  In another example, such data analysis, also known as “patent analytics” or “patent landscaping,” can provide useful information about potential new markets for your company’s technology.  In this regard, for example, a chemical manufacturer can review how others are utilizing their products by reviewing patent filings.  For patent owners, analytics can reveal whether infringement may be occurring or whether it might have a higher value using forward citation analysis, which is a review of how many times a patent is cited in the later record of other patents.

Various flavors of patent analytics are offered by any number of companies today.  As a corporate IP attorney, I purchased such products, which certainly do not come cheap.  In the last couple of years, I have also evaluated a number of these products to see whether they can provide value to my IP Strategy clients.  No product has satisfied my– admittedly high–standards for providing useful information.  My main beef with all “canned” patent analytics products is that each looks at patent documents as data sources first and foremost, with the result that each product effectively ignores the fact that embedded with legal significance.  Moreover, in most cases, the people who create the algorithms forming the basis upon which the data is filtered for analysis do not take into consideration the underlying legal context of the data. Continue reading

“It’s Not You It’s Them” or “They’re Just Not into You”: Why Being an Independent Inventor is Like Dating

Most independent inventors get rejection letters from corporations.

Most independent inventors get rejection letters from corporations.

The view that a good idea will result in a windfall for an independent inventor seems to be embedded in the fabric of US culture–perhaps it’s because the patent system dates from our earliest days.  Indeed, a surprisingly large number of people think that getting a patent will result in a large company paying them huge sums of money for the ability to introduce a product covered by that patent.  This belief serves to motivate countless numbers of inventors to spend $1000’s on patent protection, as well as years of hopeful waiting for their patent to exit the Patent Office.  Few ever see their product make it to the marketplace, however.

As an attorney at a prestigious IP law firm, I really gave little thought to what my clients would do with their idea once I succeeded in obtaining a patent for them.   My job was to help my clients convince the Patent Office that their idea passed the legal requirements for patentability.  Indeed, my clients came to me for legal advice, not business advice, and they likely would have considered it to be inappropriate if I questioned their motives for wanting to get a patent in the first place.  However, after recently spending time with a group of folks who make their livings helping independent inventors get their ideas to market (thanks to to Jim DeBetta and Ron Reardon for including me in this 2009 Innovation Leaders Conference), I have been thinking a lot about why it is so hard for people to get a company to look at their new product idea and have come to the conclusion that being an independent inventor today is alot like trying to find a relationship in the dating scene.   

Yes, really, for independent inventors, the fact that a corporation is not interested in your idea is akin to being turned down by a potential partner.   One may be rejected for an ostensibly good reason or, sometimes, for no visible reason at all.  In other words, if you’re an independent inventor, the corporation may “not be that into you” or the corporation’s actions might be like to the well-known break-up excuse “it’s not you, it’s me.” Continue reading