Author Archives: Jackie Hutter, IP Strategist

About Jackie Hutter, IP Strategist

Jackie Hutter, named one of the Top Global IP Strategists by IAM Magazine in each year since 2009, has almost 20 years experience advising innovation-driven corporations, investors and universities on how to maximize intangible asset value. As an IP Strategist, Jackie does not just "get" IP, she makes sure her clients only get IP that makes them money. Jackie has established this blog to provide forward-thinking business and legal professionals with strategic information to enable them to identify, capture, protect and exploit their organization's intangible asset value. As the CEO of a startup technology company, Jackie also understands the IP and legal needs of small and emerging companies and works frequently in an in-house counsel role for such clients. Jackie lives in Decatur, Georgia, in a groovy Mid-Century modern house with her husband, 2 daughters and far too many pets.

Why Business Fails to Generate Patenting Strategies that Protect Innovation Value & How to Make It Easier

easy pictureBusiness leaders often find the decision of whether to obtain patent protection for their company’s innovations to be difficult. Of course, conventional wisdom, not to mention legions of patent attorneys, assert that patents are “important” to “protect” one’s business. In my experience, however, few business people can clearly articulate specifically why and to what extent patents can and will create real financial value for their business. This means that, in many companies, the decision to obtain (or not obtain) patent protection in a particular situation comes down to evaluation of anecdotal information from which a “business judgment” is formulated. In my view, when based only on anecdotes, as opposed to real data, such “business judgment” effectively amounts to nothing more than a “belief system” in which patents are viewed as relevant or irrelevant to the business over time.

As an example of the prevalence of patent-related anecdotes that bombard business people, of course, we can point to the many patent attorneys that you and I know who are in the business of getting patents for clients. So, are patents important? Of course–for their businesses! Less facetiously, each of us likely meets business people who have strong opinions about patents and who will provide their advice to whomever seeks their advice. A successful Atlanta area entrepreneur who makes video hardware expertly asserts frequently to other entrepreneurs that “patents are not important for startups.” And, that’s true–for his business because of a number of reasons that keep competitors away from his business, including a limited number of customers for his unique product offering and his company’s focus on specialized sales and technical service teams that competitors have yet to mirror. Other entrepreneurs I meet are just as adamant about how patents are imperative–for their own businesses. Many of these business people have expended large sums to acquire seemingly robust patent portfolios. Nonetheless, when I ask them to specify how and why their portfolios are necessary for them to meet their business goals, almost never can they align their patenting efforts with a business case of how patents bolstered their company’s success.

Interestingly, as I wrote about in this post about how $100’s of millions were destroyed from lack of IP strategy, rarely is there accountability for business failures that, in retrospect, can be directly attributed to management errors in patent decisions. It follows that the decisions made by business leaders to obtain or not obtain a patent may be right one or wrong, but, unlike other areas of business management, it is doubtful that anyone can learn from past patenting mistakes because no one is collecting usable data that can be used to improve future patenting decisions.

Surely, this can’t be an acceptable proposition: the first axiom of business is that “if it can’t be measured, it can’t be managed.” So, if no one is measuring the results of patenting decisions in the aggregate, we can clearly see why patenting decisions are often not based on data but, rather, on anecdotes.

Along these lines, in a must-read recent article in IAM Magazine, Dr. Chris Donegan posits that the reason that IP is frequently ignored in financial analysis is because it is difficult for non-specialists to understand. While Dr. Donegan is talking about IP broadly in the context of corporate value drivers, I think his mention of “difficulty bias” applies specifically to patent decision-making, also. Put simply, the complexities of patents make it easy for busy business folks to ignore what they do not understand. Certainly, if information about patenting decisions is not collected, no data can be generated for later use by either financial analysts or, for that matter, by businesses in general.

In addition to these failure on the business side to capture relevant data on patenting decisions after the fact, I would add that we patent attorneys are often not skilled in framing patents in the context of business relevance; instead, we often wholly ignore the interplay of our clients’ business issues and patents to focus on the legal aspects of our efforts. This could be either because, as “merely” patent experts, we are not given access to our clients’ business information or, perhaps, for some of my IP colleagues, business is not in our wheelhouse of expertise. In either case, our clients’ business interests likely bear the brunt of the downsides of not understanding how patent decisions could make or break their company’s financial projections. That is, as with business, patent experts are almost never held accountable for failing to generate broad patent rights for their clients.

Of course, the answer is for business leaders to not, in Dr. Donegan’s terms, “put their head in the sand” and ignore substantive analysis when considering whether and to what extent patents are relevant to their company’s respective business fortunes. But, frankly, it needs to be easier for non-patent experts to gather the information they need short of their going to sitting for the Patent Bar Exam.

In the interest of starting a conversation with the goal of making patenting decisions more accessible to business leaders, I submit that there is a somewhat “easy” way to frame patenting decisions in a business context so as to enable businesses to develop and execute on patent strategies that can protect innovation investment. To this end, I think that a simple, yet potentially robust, set of questions can be used by business people when analyzing patent issues in their decision-making.

Before we get to the “easy” framework from which to create patent value, let’s lay down a few ground rules, each of which should be the subject of its own blog post. First, unless you are a patent attorney, we need to all agree that patents do not have value just because they exist. We also need to also agree that just about any company that sells a product that is the result of real innovation may at some time be able to generate more corporate value and reduce downside risk by creating an IP strategy that includes one or more patents. Importantly, however, this innovative company must generate patents that effectively carve out a legally enforceable (or monetizable) competitive advantage that is durable. Lastly, patenting decisions must be made part of ongoing business processes, as opposed to being an event. This means that while it may not make business sense to obtain a patent today, you nonetheless need to incorporate patenting decisions into your overall business strategy on an ongoing basis.

Now that we are the same page with these ground rules, the easy question that business leaders need to ask is:  “Are there customers for the product(s) emanating from my company’s innovation investment and, if so, is there a real risk that my competitors will be able to take these customers from me?”

If the answer to the above queries is “yes,” a real risk exists that your company will not obtain the projected ROI on innovation unless there is a way to legally prevent your customers from being pinched. This means that business leaders responsible for ensure that revenue projections from innovation investment are obtained must evaluate whether these customers can be protected by generating patent protection for the products emanating from innovation activity. But, the inquiry doesn’t stop here: real protection of those customers and revenue streams means that patents have to cover more than the product being sold. Rather, to the extent possible, patents must cover the reason customers buy the product in the first place.

Patents can be a primary driver of risk reduction (and value capture) if, and only if, you can obtain patents with sufficient scope to effectively prevent your competitors from providing the same value to your customers. This means that patents covering the value proposition, and not just your product, are the “gold standard” to obtain. Business must then seek to obtain patents that broadly address the functional benefits of the product resulting from innovation investment. I describe this in a previous post discussing P&G’s Swiffer(R) product line. P&G’s patenting strategy so successfully protected the value provide to customers that P&G has effectively “owned” the market for more than 15 years. In other words, P&G’s patents were “market making” for the company.

This is where the “easy” formula ends, however, and the real work begins. Such “market making” patent portfolios are not only expensive to procure, they can be difficult to obtain, if only because many patent attorneys are not skilled in developing patents of this type. In short, patent attorneys are trained to obtain the details of what an invention is and how it works, which means their primary point of contact in drafting patent protection is the company’s technical staff.  In contrast, the type of patents that I am talking about here require customer-level details that are usually out of reach of the folks who are tasked with obtaining patents at the company. This means that in order to execute on the “easy” patent value formula, business leaders must be prepared to reformulate roles and responsibilities within their organizations as related to patenting decisions.

Of course, in many organizations, changing reporting structures as required here nowhere near “easy” which means that creating real patent value may not be possible without support from the highest levels of the organization. For smaller or more nimble organizations, creating real patent value, while still not “easy,” can be a more attainable solution in the short-term.

I will be writing more posts in the coming months on reducing business risk through implementation of robust IP and patent strategies using strategies and concepts that are easy for business leaders to apply. In the meantime, please feel free to reach out to me directly if you have any questions or comments.

 

 

Companies Create Risk by Leaving IP Strategy Out of Innovation

missing personI recently had to give bad news to a new client, the CEO of a successful global electronic hardware company. This CEO hired me earlier this year to help ensure that his company’s upcoming innovations, which were the product of a several year turnaround program, were protected from competitive knock-offs. I have completed a couple of projects for the company to date, and he now wanted to discuss IP protection for a new product for the European market that would serve as a platform for later product spin-offs both there and in the US. This new product incorporated a number of highly innovative features and almost certainly could generate broad patent protection. Unfortunately, however, I had to inform my client that his company’s important innovation could not be patented in Europe because the product launch date occurred several months ago.

While many reading this will immediately know that there is no “grace period” for filing for patent protection in Europe, no one on the CEO’s innovation or R&D team knew of this hard and fast rule. Moreover, the company’s relationship with their outside patent counsel was one where the lawyer only interacted with his client when someone at the company thought to call him. Of course,if someone had thought to call him, the first or second question the outside counsel would likely ask when called is “when are you putting a product on sale?,” but there was no possibility of that occurring with the counsel’s “hands-off” relationship. The absence of expertise and accountability for IP inside or outside of the company meant that IP issues were destined to be given short shrift, with the inevitable result that a major mistake would be made one day. And, this was the time for the mistake to happen.

The fact that is, like many companies, his team had always viewed IP protection as an event, as opposed to being part of the innovation process itself. While the company has obtained several patents over the years, IP protection had been addressed, if at all, only as an output of the product development processes. Certainly, merely being reactive to IP issues did not cause problems when the company was not bringing any real innovations to market because its competitors had little motivation to knock them off when customers were not really wowed by their product offerings. However, with the company’s new focus on innovation, competitors now possess increased incentive to copy those features of my client’s products that drive customer demand. These innovations were intended to generate premium profits for the company, and the increased revenues expected were part of the cash flow projections the CEO presented to his investors. However, since my client is now precluded from obtaining IP protection for these innovative product features in its major market of Europe, competitors can freely copy my client’s products.

Many leaders might look to ascribing blame for this error, but my CEO client took a different tack. Since other innovation leaders might benefit from his approach, he gave me permission to relate this story here, albeit anonymously.

First, without missing a beat, he let me know that he would now reassess the risk profile of future revenue and cash flow predictions recently made to investors for this new product innovation. That is, my client immediately recognized that missing the opportunity to patent an important new product for the European market elevated his investors’ risk, and it was his obligation as CEO to inform them of this fact.  Second, he knew that the company must prevent this situation from occurring in the future, especially given that the company had several more product innovations in the pipeline. He asked me to provide him with an action plan regarding his company’s IP strategy.

I let my client know that the only viable option to prevent this error from happening again required that IP strategy be integrated existing innovation processes. Such a proactive stance would enable decisions about IP protection to be addressed as part of the company’s innovation management processes, instead of being merely a box to be checked at the end of the product development process, as had been done in the past.

A solution that many companies select when seeking to be more proactive is to put someone in the company in charge of IP protection. For large companies or those where patents form a large part of overall company value, it often makes sense to hire business-focused IP counsel. This inside resource will have visibility to the company’s ongoing innovation activities and will be accountable for generating strong IP protection. However, this is not a viable option here for both budget and work load reasons. Another potential in-house alternative for my client is for one of the company’s managers to receive training in IP and to make that person accountable for generating IP protection aligned with innovation strategy and revenue goals. This is certainly a viable plan over the long term, but my client’s need for IP strategy is immediate given the innovative new products now making their way down the company’s pipeline.

Of course, some of my outside IP counsel friends–in “fox guarding the hen house fashion”–will suggest that they be given the role of meeting with company management on a regular basis to do “invention mining” so that they can develop patent applications on a more regular basis. This is not the answer, however: periodic meetings to discuss what the company has already done will do nothing more than create more opportunities to be reactive, with the primary benefit likely be more business development for the attorney. In short, more meetings to discuss IP does not an IP strategy make.

The only real solution for a company with the characteristics of my client is to incorporate an IP Strategist like myself as a bona-fide member of the innovation team on a part-time basis. While the uninitiated may find it difficult to visualize how this would be done, in practice, this is a fairly straightforward endeavor to execute. As a first step, I will be given access to the company’s innovation roadmap and related product development information. This advance visibility to products in the pipeline is an obvious, but often overlooked, aspect of a company’s creation of an IP strategy plan. A second step is to include me in the company’s regular innovation team management updates and, in no case, should more than a quarter be allowed to pass without a substantive team meeting where IP issues are discussed.

Lack of Focus on IP Strategy Destroys $100 Millions in Value

invalid patentAs an IP Strategist, I am fascinated by stories from which declining business fortunes can be traced directly to failed patent strategies. Often, the failures can be traced to patent attorney errors that limit the effectiveness of a company’s patent to prevent competitive knock-offs, but, often, the problems can be traced to the lack of accountability for IP strategy within an organization. For those companies where IP is a primary driver of competitive advantage, the absence of someone who “owns” the job of making sure IP is properly captured and protected can result in unrecoverable errors that opens the innovator to unwelcome competition. In this regard, the recent loss of patent protection to a popular drug product should serve as a useful case study on why the C-suites of innovative companies should consider strategic in-house IP counseling to be a mandatory aspect of their business strategy.

In July 2015, the Federal Circuit effectively eviscerated the revenue prospects for a successful pharmaceutical company when the court found the two patents covering the popular blood clotting treatment Angiomax(R) invalid.Angiomax, which had U.S. sales of $599.5 million for The Medicines Company in 2014, is the brand name of a drug called “bivalirudin” that is used to treat blood clots in people with severe chest pain or who are undergoing angioplasty to open blocked arteries. While the company has other drugs in the market, Angiomax is the lead product for the company, accounting for 80% of the company’s sales in 2013. Angiomax has been a blockbuster drug for the company and, prior to this month’s court decision, the company was expected to hold patent exclusivity for several more years. The Federal Circuit decision opened the way for generic equivalents to enter the market almost immediately after the decision, and it can be expected that The Medicines Company’s revenues from Angiomax will decline precipitously in the near future.

Those reviewing the court’s decision will likely be quickly lost in the weeds as to why the Angiomax patents were found invalid. Briefly, the issue addressed by the court was whether the facts showed that the methods and compositions claimed in the patents were “on sale” more than one year prior to the November 2008 filing date. The issue arose because The Medicines Company paid a contract manufacturer to prepare several batches of product as early as October 2006. Notably, the batches prepared by the contract manufacturer included a newly identified efficient mixing procedure that not only provided an improved manufacturing process, but which also generated a new composition. Both this method and the composition obtained from the method–a more pure form of the active ingredient of Angiomax–became the subject of the November 2008 patent applications. While the first patents for Angiomax were set to expire in June 2015, the later-filed patents covering the improvements to the method of making and the more pure product would extend patent exclusivity to The Medicines Company for several more years. However, in reviewing the circumstances of The Medicine Company’s commercial interplay with its contract manufacturer, the Federal Circuit found that the method and compounds claimed in the two patents had, indeed, been on sale prior to the “critical date.”

The Angiomax case gives rise to facts that patent lawyers find fascinating to relate to clients: there will no doubt be many “Urgent Practice Updates” from outside counsel cautioning their clients about the potential perils of dealing with contract manufacturers when patent filing is a possibility. However, this inevitable focus on legal issues misses the crux of the business issues that gave rise to the invalidity decision in the first place. Indeed, if a client and her outside counsel are parsing the details of whether she can file a patent by evaluating the activities conducted on more than one year prior to the patent application filing date, a mistake was already made because the patent filing issues were not kept visible while business was being conducted at the company. We can see this by further examining the facts of the Angiomax case.

In reviewing the trial court decision and various pleadings in addition to the Federal Circuit decision, it appears that The Medicines Company’s patent woes can be traced directly to the fact that it appears that no one in the company held responsibility for ensuring that IP protection followed along with other activities. Namely, when the manufacturing team needed to find out the reasons for batch failures in 2006, which were solved by bringing in a consultant, no mechanism existed for bringing the discovery of the improved process and composition to the attention of IP counsel who could then evaluate whether patent applications should be filed to protect these improvement. It was not until two or so years after this discovery did anyone at the company appear to realize the significance of the process improvement efforts to potentially extending the patent exclusivity for Angiomax. In short, it appears that everyone was focused on doing their respective jobs of getting salable product out the door in the face of critical manufacturing problems, but it was nobody’s job to review whether these efforts should be patented to enhance The Medicines Company’s patent exclusivity for its blockbuster product.

Notably, it likely would not have been enough for outside counsel to sit down with management on a regular basis to say something along the lines of “have you invented anything new?” because, at the time of the manufacturing process improvements, the focus was on meeting the supply demands for Angiomax.  In short, because no one “owned” the role of IP strategy within the company, it was the epitome of “out of sight, out of mind.” While I am, of course, speculating on what happened, I have seen this situation enough times to expect that only when The Medicines Company’s management realized that the 2006 improvement efforts could extend its patent exclusivity for Angiomax did they seek to obtain a patent as a reaction to a shortening patent term. And, as the Federal Circuit ruled, they waited too long to do so. If the team had included someone whose job it was to proactively address IP strategy on an ongoing basis, I contend that person would have either held the legal knowledge to recognize that patent protection was available or it would have been incumbent on her to raise the issue with outside counsel. In either circumstance, it is more probable that The Medicines Company would have filed for patent protection in a timely manner and the Angiomax patents would remain valid today.

It should be noted that this does not appear to be a situation where outside counsel failed to obtain adequate patent protection. To the contrary, once The Medicines Company decided to file for patent protection in late 2008, “the damage done been did,” and all outside counsel could do was “damage control” to try to convince the courts that its client was entitled to an “exception” to the rule that one has to file for patent protection within one year of the claimed invention being “on sale.” The Medicines Company hired excellent (and expensive) outside counsel to save it from its bad decisions, to no avail. (As an aside, the trial record indicates that The Medicines Company’s patent counsel did not disclose the sale activity to the Patent Office during prosecution of the Angiomax patents. Thus, I would expect that the company’s outside counsel did not know about the invalidating activity until litigation ensued.”) Even if the Angiomax patents had been upheld, at a minimum, it can be said that the vast expense and business uncertainty resulting from several years of patent litigation could have been avoided if The Medicines Company had prioritized IP strategy within the organization in 2006.

Again, while I am speculating, I expect that management of The Medicines Company did not think that the size of its patent portfolio justified hiring of a full-time in-house patent counsel, and they were probably correct.  However, the fact that the primary source of the company’s revenue could be directly attributed to that patent portfolio, mandated that an in-house resource be assigned to manage and be accountable for IP strategy, at least on a part-time basis.

Fortunately for small- and mid-sized companies, there are now innovative practice models where experienced in-house counsel can provide business-focused IP counsel on an as-needed basis. I represent several innovative companies that require strategic IP advice on an ongoing basis. Patent GC is another of these practice models. While this is certainly “the fox guarding the hen house” advice, I strongly recommend that management of companies where revenue is directly attributable to obtaining adequate patent protection investigate engagement of strategic in-house counsel advice like us to better ensure that their IP strategies are sufficient to create durable competitive advantage for their businesses. At a minimum, C-suite executives at small to mid-sized companies should look to the declining fortunes of The Medicines Company to develop actionable approaches to elevating the importance of IP strategy within their businesses.

(Note: This case is not the only problem that The Medicines Company has faced with Angiomax’s patent protection. While management now seeks to blame its previous counsel for its patent woes, certainly the lack of in-house IP strategy influenced these other situations, also.)

Failure to Generate REAL Patent Protection: Keurig’s Story (Part 2)

In Part 1 of this “Failure to Create REAL Patent Value: Keurig’s Story,” I asserted that the company’s current business woes can be directly attributable to a flawed patent strategy. To summarize, as a result of the Keurig Green Mountain’s failure to obtain durable patent rights on its coffee pods, there has been a proliferation of lower cost generic pods. Because these generic pods sell for about 40% less than the branded “K-Cup” pods, Keurig Green Mountain has and will continue to lose substantial revenue due to this increased competition, even while its coffee maker innovation remains wildly popular with consumers. The question then becomes how did the company fail to fully capitalize on the value its disruptive innovation created in the marketplace?

One can see what went wrong with Keurig Green Mountain’s patent strategy by starting with the litigation record in which the lack of infringement by the generic brewing pod manufacturers was confirmed by the Federal Circuit. Significantly, in the patents asserted by Keurig Green Mountain against a generic coffee pod manufacturer, only method claims were at issue. These claims were found to not be infringed due to the “Patent Exhaustion Doctrine.” Without going into the legal weeds, this doctrine generally states that when a consumer buys a patented product, the patent owner’s right to tell her how to she can use the product is “exhausted” by the sale. Here, the court basically ruled that consumers had every right to use generic pods in the Keurig Green Mountain coffee makers that they bought and paid for and, as a result, companies that made generic pods could continue selling their products without incurring infringement liability. This decision opened the door for the generic coffee pods that are now inundating the market. Continue reading

Failure to Generate REAL Patent Protection: Keurig’s Story (Part 1)

Innovators–be they individuals or corporations–frequently view patent protection as the key to capturing value from the time and money invested in creating a successful product. Indeed, conventional wisdom dictates that a patent covering a true innovation will make it difficult, if not virtually impossible, for a competitor to legally provide a knock-off product to the same customer. Time and again, however, a successful product introduction will be followed by appearance in the market of a substitute product that provides the same consumer benefit but that also does not infringe the innovator’s patent rights. In such a case, the innovator is not only faced with competition, it must now play in an increasingly price-eroded market, where such price erosion is likely more painful for the innovator because it made an investment that the knock-off company did not make.

A familiar example of a product where the innovator’s patents failed to protect a successful product from knock-off products is illustrated by the popular Keurig K-Cups(R). The proliferation today of increasingly lower cost coffee “pods” even in view of an aggressive patenting program by Keurig should indicate that the company (now Keurig Green Mountain) failed to properly protect that aspect of the pod innovation that customers value when they use a Keurig Brewing System.

While those of us who use the product would probably articulate what they like about the pods slightly differently, generally, the value provided can be characterized as a “dummy proof” good cup of coffee (or other hot beverage) by the cup as desired. Keurig Green Mountain was the innovator that brought this value to consumers originally Today, however, this value can be provided by both the K-Cup branded pods of coffee varieties such as “Columbian Supremo” that sell for $9-10 a dozen or by the generic version that I can buy at Aldi or Costco for about $5 for the same number. As long as I like “Columbian Supremo” (which I do), I get the same value from the generic product for a lot less money. While there are some people will pay extra for a brand name and the perception of quality provided by the K-Cup brand, there are a whole lot of other people (like me) who desire the value provided by the Keurig Brewing System innovation overall, but who don’t think it’s worth an extra $4-5 per dozen (or about 40 cents per cup) added to an already expensive cup of coffee. Continue reading

How Startup Patent Filing is Different

The prevailing view of patent experts who advise innovators–be they individuals or companies–it that patent filings should occur as early as possible. This advice, which is even more prevalent now that the US has moved to a “first to file” system, exacerbates the significant problem of worthless patents that I have written about previously. To summarize, by “worthless,” I mean that the innovator’s patents will not cover anything that consumers desire to buy. Logic thus dictates that patents will be irrelevant to the startup, as well as expensive wastes of time, unless protection aligns with a validated customer demand for the innovator’s product or technology.

This is where a key difference falls out between the patent filing strategies for established companies and startups where each is developing innovative products or technology. The former already have products in the market and customers that they (should) understand, as well as the means to get new products to market through existing distribution channels. In short, established companies possess one or more existing validated business models. Startups have none of these which, as Lean Startup teaches, means that they are still on a quest to validate a sustainable business model. An established company thus has a substantial leg up on the startup when matching patent protection to customer demand because a higher probability exists that it has, in fact, identified a real unmet need in the marketplace and has generated a product or technology innovation that will address the needs of its customers. In contrast, the startup with an idea for a product or technology innovation must first test the hypothesis that customers exist for the innovation idea, where the testing process often reveals the need for multiple pivots that require the product or technology concept to be modified from its original conception. In short, for an established company, an early patent filing will more likely be grounded on the existence of real customers that can be served with an innovative product or technology, whereas the opposite is true for the startup. Continue reading

The Medical Device Patent Strategy Problem-Case Study

An IP Strategist like myself spends considerable time “Monday Morning Quarterbacking” patent strategy for medical devices and other inventions for the purposes of valuation, commercialization and otherwise. In this regard, I am frequently asked to review medical device patents to provide my opinion regarding claim coverage in relation to commercialization potential. Most of these reviews indicate that the medical device patent fails to create a scope of protection sufficient to justify the investment needed to fully realize the value of a new market opportunity. Alternatively, I will provide a “freedom to operate” opinion to a competitor that wishes to enter the market with a non-infringing alternative but which nonetheless leverages the key insights that formed the basis of the patented medical device innovation.

To this end, a medical device investor recently engaged me to conduct a preliminary review of a patent for a device invented by a medical specialist–for the purposes of this post, for let’s say she’s an ENT who is a recognized expert on sinus surgery. Like many experienced practitioners, this doctor was frustrated with the tools available to her and, after performing her umpteenth procedure, she experienced a key insight about improving a particularly tricky aspect of treating a condition of the sinuses. This “ah hah” moment made her realize that patient outcomes could be significantly improved if the design of an instrument was tweaked to allow better contact with a part of the sinus cavity that was hard to reach in a significant subset of patients. She saw herself as licensing her patented invention to an instrument company to augment the increasingly uncertain revenue stream in her medical practice. With these outcomes in mind, our ENT sought referrals from her friends and colleagues for a good patent attorney. She selected someone with a stellar reputation, and an hourly fee that matched that reputation.

The patent attorney drafted a very strong patent application that broadly covered the instrument that our ENT envisioned as the appropriate implementation of her surgical insight. Notably, the pre-filing search appears to have encompassed only the ENT-related prior art, which is not surprising given the “stove piped” nature of most medical practices. Because of this limited search, a highly relevant piece of prior art in an adjacent area–let’s say the gynecological instrumentation space–was properly cited by the patent examiner against our ENT’s patent application, which necessitated a narrowing amendment that substantially limited the claim scope. The patent was allowed after this amendment and, after spending $25K, she now has a patent covering the instrument design that resulted from her original surgical insight. Continue reading

Patent Early? Maybe Not

Ask the right business questions to succeed from a position of lesser bargaining power

Patent lawyers almost always instruct inventors to file for patent protection at the earliest possible date, but maybe this is not the best advice for many startups. To the contrary, I think this conventional advice is flawed–at least when it applies to inventions involving unproven products with no known customer base. Put simply, unless customers show that they care about the product that will be covered by the patent such that they are willing to pay more than it costs to make the product in volumes that will lead to sustainable profits, the patent will provide value only for the attorney who files it. Indeed, the absence of customers who wanted to buy the product is why very few of the patents that I have obtained for clients over my almost 20 years in the IP world have made money for their inventors.

In my current role as an IP Strategist, I frequently counsel entrepreneurs that, prior to writing a $8-25K check to a patent attorney, they should instead first undertake customer discovery to determine whether anyone even cares about the awesome new product for which their attorney recommends they obtain patent protection. It’s one thing for me to counsel entrepreneurs on why it is far better to find customers before embarking on obtaining a patent and building a company around the patented product, but examples speak much more saliently than I ever could. In this regard, I suggest that folks who are thinking about starting a company based on a product innovation listen to this piece that appeared on NPR’s Morning Edition a while back. This story, which is an ongoing piece following a pair of entrepreneurs, should serve as an object lesson for people faced with the decision of whether to file for patent protection at an early date or to spend their money on other tasks more likely to create value for them in the long run.

MD Brush, the startup product company featured in the NPR story, was started 7 years ago based on the premise that customers would clamber for a toothbrush with an innovative handle design that improved brushing technique and overall gum health. The company was founded by first-time entrepreneurs, one a dental hygienist and the other a dentist. As with many startup stories, the deep expertise of the founders made them absolutely certain that they–and only they–knew how to solve the problem of getting people to brush their teeth correctly. The piece details the many issues faced by the MD Brush co-founders while bringing their toothbrush to market, much of which involved twists and turns in dealings with Asian plastics manufacturers. The founders filed a patent application at the start of their product development process; to date two US patents on their toothbrush design have issued.

These entrepreneurs spent $500,000 over the 7 years they have been laboring to bring their toothbrush to market. At the end of the piece, we see that the entrepreneurs were pleased that a box of their toothbrushes had finally made it to them in the US:

“It was a heck of a feeling . . . .To go through all that and finally see the vision that we had, right there in a completed form was a great thing.”

It certainly must have been exciting to see their hard work and financial sacrifice come to fruition. Oddly, however, the entrepreneur implies that his vision was to see the toothbrush actually made, not to actually sell the product. Notably absent from their multi-year effort is any consumer testing of the product. It appears that, even after all the trials they experienced in the last 7 years, the MD Brush entrepreneurs still believe the old adage “build a better mousetrap and the world will beat a path to your door.” The NPR reporter signals that the end of his story is really the beginning of more hard work for the MD Brush entrepreneurs:

“There is, of course, that final hurdle: whether anybody will pay $10 for a toothbrush.”

Those familiar Lean Startup and customer discovery will recognize that what the reporter says is the “final hurdle” should really have been the MD Brush entrepreneurs’ first step. And, only when they validated that enough customers would pay $10 for their toothbrush, should they have undertaken the hard and expensive work of bringing their product to market. Most certainly, they should not have gone through the effort and cost of obtaining two patents on a product for which they did not first confirm that a market existed.

Of course, patent attorneys relying on conventional wisdom would find customer discovery prior to patent filing to be a risky proposition. From their perspective, finding out whether customers would be interested in buying the product before filing for a patent could operate as a public disclosure that could eliminate the opportunity to file for patent protection. I will address this topic in detail in a future post, but, if done competently, customer discovery should not affect the ability to file patent applications on a product being validated in such efforts. In short, if an entrepreneur is disclosing the patentable features of a product during customer discovery, she is doing it wrong.

After listening to the NPR piece, one hopes the entrepreneurs will be successful in finding customers for their toothbrush, which will mean that their two patents will help make it possible for them to keep other companies from leveraging their many years of hard work and expense. However, the lack of a validated customer for their new product design leads me to believe that their patents will end up being worthless because not many people will care enough to buy their $10 toothbrush. Other would-be product entrepreneurs should learn from their story and, at a minimum, be inclined to resist the conventional advice to patent first and validate the market later.

Who Needs a Patent?

questionMy response to the question posed in the title of this post is typically: “the only person who needs a patent is a patent attorney.” Indeed, if a patent attorney fails to convince clients like you that they need to obtain a patent, she will quickly lose her livelihood. You should therefore be skeptical if a patent attorney recommends that you move forward with a patent without also advising you to first fully evaluate your business model, your go-to-market strategy and the competitive landscape and determining along with you how the available patent protection may allow you to realize your company’s revenue and exit goals.

This is not to say that patents are never the right thing or even often the right thing for entrepreneurs. To the contrary, examples abound for companies where patents served as a primary means of value creation. Studies nonetheless show that only a small percentage of patents become valuable business assets, even when the filers are sophisticated companies with large patent portfolios that retain expert internal staffs to manage their IP strategies. This reveals that most companies miss the mark when it comes to protecting their innovations using patents. Moreover, early stage companies pay 3 times or more for patents than do their larger corporate counterparts, meaning that the low return on investment from patents is often exacerbated for smaller businesses.

In order really know whether they need a patent to capture the value of their validated business model, entrepreneurs require a better understanding of how patents and patent information can be integrated as part of one’s overall business strategy. Of course, this means that these entrepreneurs must expend the time and effort to learn the basics of the somewhat arcane and opaque world of patents. In other words, you don’t become fit just by hiring a personal trainer, just as you don’t create patent value by hiring an attorney to obtain a patent for you. You have to do the work to create and realize the value to get the results that matter to you. Certainly, it would be more helpful if experts like myself were better able to explain patents in ways that didn’t make most entrepreneurs immediately want to fall fast asleep. But the use of seemingly unintelligible language by patent attorneys is no excuse for entrepreneurs failing to step up and understand whether and to what extent patents will (or will not) make it “cheaper for competitors to go through you than around you.”

So, be forewarned–asking a patent attorney if a patent is the right thing to do is a bit like “having the fox guard the hen house.” The mere posing of the question often starts entrepreneurs down a path of patent action that is difficult to undo, especially in the face of expert opinion validating such action. At a minimum, the failure to hold enough knowledge to assess the appropriateness of patents in your situation will lead to second guessing and confusion that wastes your entrepreneurial resources. It is therefore incumbent on entrepreneurs like yourself to better understand in general how patents and IP can be leveraged to create (or not) business value. Only when you are armed with this basic knowledge can you be sure that a patent is the right thing for both your attorney and your company.

I will continue to write about IP and patent strategies in future posts here at my IP Asset Maximizer Blog where I have been writing about creating winning IP strategies since 2008. For those interested in topics specific to startups, you can visit my author page at Hypepotamus.com.

Strategic Patenting: How To Get it Right (Guest Post)

Magnifying+glassThis article, by Francis Hagel, first appeared in Intellectual Property Magazine. It provides strong guidance, in checklist form, for those seeking to beat the odds that the patents they obtain will actually generate strategic value. Mr. Hagel is an IP strategy advisor from France. The article is reproduced with permission.

“Suggestions for strategic drafting of patent applications”

In the drafting of a patent application, a practitioner starts from a blank page[i]. He/she enjoys the greatest freedom for shaping its content on the basis of the information at hand concerning the invention, its context and the prior art of interest, within the constraints set forth by patent law in the country of filing, keeping in mind the specifics of patent law in the major markets for the invention. This freedom applies to all parts of the application : definition of the technical field, description of the prior art, statement of purposes, description of embodiments and results, claims.

There are thus myriad decisions to be made.  Based on the understanding of the applicant’s objectives,  the practitioner can  ensure such decisions are in tune with these objectives. This is what can be called a strategic approach to the drafting of a patent application. Continue reading