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.

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

Software Patent Apocalypse?

end-is-near-apocalypseThe data coming out of the district courts and the USPTO make it fairly apparent that the “Software Patent Apocalypse” may be here, at least for the foreseeable future. This result has been widely predicted since the US Supreme Court decided Alice Corp. Pty. Ltd. v. CLS Bank International earlier in 2014, but facts now are coming out to demonstrate that the next few years will be tough for those who seek to obtain patent protection for inventions that fall into the realm of software.

We saw initial data from the district courts a couple of months ago when Timothy Lee of Vox.com presented data showing that a number of software patents had been found invalid as failing to claim patentable subject matter (a “Section 101 rejection” to us patent types) under the Alice rationale in the few months after the decision. Lee’s take:

[T]he courts are sending a pretty clear message: you can’t take a commonplace human activity, do it with a computer, and call that a patentable invention.

Traditionally, patents making it to district court have not usually been open to attack on subject matter grounds. It was therefore somewhat surprising that after all the time and effort spent by the parties to get to court, these district court judges basically said “never mind, this isn’t really a patentable invention.” At a minimum, these decisions signaled that those seeking to enforce patents that looked like they might comprise content found unpatentable under the Alice rationale might wish to rethink their litigation strategies to focus more on settlement before trial. Nonetheless, the fact that the patents found invalid in the respective court decisions had to be decided on a case-by-case basis still would require the defendants to manage the risk and cost of litigation through trial, meaning that patentees still retained leverage to generate settlements from defendants. In other words, litigation opportunities for software patents were “bent but not yet bowed.” But, I no longer think this is the case for wide classes of software-related patents given data published about activities in the USPTO.

In other data reported by Lee, we saw that rejections of pending applications (i.e., during the examination process when rejections are de rigueur) subject matter grounds in art units relating to business methods in July was 78%, when in January the rejection rate was only 24%. There was no change in subject matter rejections during that same period for art units that did not pertain to business methods. Clearly, patent examiners are now poised to reject such applications on subject matter grounds, in addition to the typical rejections on novelty, obviousness and technical form.

Recently, the PatentlyO Law Journal published an article analyzing data for withdrawn notices of allowance, where the USPTO reviewed these previously allowed applications subsequent to the Alice decision. Notably, these applications had successfully made it through the arduous examination process and stood ready to issue, but were nonetheless found not to be patentable under the Alice rationale. Not surprisingly, the article’s authors found that the applications most susceptible to being withdrawn were those covering business methods falling into class 705. However, the authors also determined that the withdrawals were not only a function of assigned classification but, rather, appear to be based on an expansive reading by the USPTO of the concept of “abstract ideas” as discussed in Alice.

So, what does this mean for software patents in general? The news is not good. Certainly, any issued patent falling into class 705 is highly suspect, of which I found more than 56K patents issued in a quick search. I would go so far as placing a presumption that any patents falling into this classification are now invalid, with the burden now placed on the patentee to demonstrate that the claimed subject matter remains patentable today. This will require the patent owners to request re-examination, an expensive and time-consuming process that will only be conducted for patents deemed to hold enough value to make it worthwhile to do so.

For patents in other classes, I think the news is still bad. At worst, we can surmise that any patent that contains claims including the term “general purpose computer” or any non-specific device or hardware that serves as an analogue to this term will carry a high likelihood of invalidity. At best, uncertainty exists as to a huge swath of patents that will affect their value in the marketplace.

The effects of Alice are certainly being felt in the patent monetization marketplace. In conversations with brokers, I am finding that any patent directly claiming a business method has an effective value of zero in the market. Moreover, patents that could possibly be found to incorporate an abstract concept have been flagged as problematic. As one example, I am working with a portfolio that was subjected to re-examination post-Biliski (i.e., the previous Supreme Court case dealing with “abstract ideas”) and, even though the subject matter was found to comprise patentable subject matter during that proceeding, the uncertainties generated fromAlice have slowed monetization of this otherwise-valuable portfolio markedly. Ultimately, I believe this portfolio will be found to be strong, but the market seems to assume that the balance of power has shifted to the “anti-patent” side, after many years of “pro-patent” activity in the US and it will take a bit of time for this to shake out.

What about future patents on inventions relating to software? The subject matter that is disallowable as falling into the category of abstract ideas (e.g., now-suspect classifications like class 705 and “general purpose computer”-type claims) should be fairly evident. The types of subject matter that will still be patentable are less clear, however. At a minimum, I believe that a premium must be placed on software patent drafting. As I will write about in a subsequent post, I think that many of the issues facing software patents today could have been avoided if basic drafting rules existing in patent law for 100+ years would have been followed by attorneys over the last 15 or so years. These rules exist for a reason, and patent attorneys seeking to obtain valid and valuable patents for their clients would be well-served by applying them in view of the Alice decision.

On a broader level, we should not expect the imminent demise of software-related patents. There will certainly be significant push back from large companies like IBM, Microsoft etc., that regularly generate patents with software-like features as an element of their business strategies. Indeed, the largest number of notice of allowance withdrawals found in the PatentlyO Law Journal were IBM, Ebay and Microsoft. The loss of corporate value resulting from the Alice decision will dramatically influence the bottom lines of these and other companies, and we should not expect them to give up their software patents easily. Moreover, the many patent professionals who earn their livings obtaining and enforcing patents in the software space also will not readily accept what will become greatly diminished value for their very lucrative professional services if software patents fall by the wayside. As a result, the “powers that be” will probably be successful in keeping software patents viable over the long-term.

The current uncertainty will nonetheless greatly affect smaller companies that would have previously sought patents to shore up their business strategies. For these companies, the currently unsettled nature of software-type patent validity could result in considerable risk that money and time expended today for patent protection that will likely fail to create realizable business value over the short term. More significantly, the back and forth regarding the appropriateness and viability of software-type patents between corporate America, their lawyers and the 3 branches of the US government will likely not be resolved for many years. Because most smaller companies do not have the resources to wait out this battle, their leadership must instead focus on strategies that are more likely than patents to allow them to create and maximize business value.

So, I guess it’s fair to say that while the software patent apocalypse may not truely be upon us, it will nonetheless be quite a few years in the desert for those who seek to play the software patent game.

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Strategic Patenting 4: A Case Study of Success

Strategic patenting allows companies to maximize value from innovation.

The Takeaway:  In the 4th post in this Strategic Patenting Series, a case study is presented of a company that created durable market-making patent protection for a successful consumer product innovation using a disciplined patenting strategy. The strategic patenting efforts of Procter & Gamble undertook with its market-leading Swiffer Wet Jet® floor cleaning system allowed the company to create strong protection of the function of the basic product. This, in turn, resulted in protection of the underlying consumer benefits provided by this innovative floor cleaning system, a fact that allowed the company to prevent functional aspects of its system from being included in knock-off products.  Moveover, P&G leveraged its ongoing consumer insights to continue to grow its patent portfolio.  In short, the company’s successful strategic patenting efforts have “made it cheaper to go through them than around them,” thus contributing to its market leadership for this innovation for the past 15 years.

The Long Story:  In a previous blog post in this multi-part Strategic Patenting Series, I explained how the vast majority of innovators fail to maximize the full scope of the value proposition of their innovations in the marketplace.  In short, the missing piece in most patenting efforts is that that most patentees (and their patent attorneys) focus on the features of an invention, when the real value of innovative new product to a lies in the benefits that are provided to the consumer by the product’s innovation.  By not capturing this broader value in the form of patent protection, the innovator leaves herself open to competitors who can leverage her hard work to provide consumers with a product that solves the same consumer need with the same functionality but that does not infringe the innovator’s patent rights.  Notably, this competitive product is likely available at a lower cost, thus putting the innovator in an even worse position because, although it is now participating in a price eroded marketplace.

After identifying the reason why so many patents fail to provide the expected competitive protection to their owners, we can now talk about the solution by examining how one company, Procter & Gamble, got it right with a major product innovation: the Swiffer Wet Jet® mopping system.  As we will see from this example, successful strategic patenting will allow an innovator—in this case, the company that created a wholly new market that re-defined how a large segment of consumers mopped their floors—can “make it cheaper for someone to go through them than around them.” Continue reading

Strategic Patenting Part 3: Why (Almost) Every Innovator Fails to Maximize Patent Value

The Take Away:  Those seeking to generate market-making patent coverage for new innovations must recognize that patent coverage should focus not on how the problem is solved but instead on the benefits provided to the customer.  Most patent coverage is directed to a specific solution to a customer need that is characterized in the form of an invention.  Patents that cover only one solution to a broad customer need will permit competitors to solve the same customer need with a non-infringing substitute product, thus leaving the patent holder with no legal recourse against their competitor.  On the other hand, market-making patent coverage focuses on the benefits provided to the customer, which means that competitors cannot sell the same benefit.  Accordingly, patent coverage that emphasizes benefits over features will make it more difficult for competitors to provide the same solution to the customer.  Innovators must heed this warning or they will end up being one of the many examples of companies that innovated to successfully solve a consumer need but that did not successfully prevent others from competing in the same market.

The Long Story:  As I discussed in a previous post in this multi-part series on Strategic Patenting, those of us in the IP Strategy business view a “strategic patent” as one that is “market-making.”  Put simply, a strategic patent is one that makes it cheaper for someone to come through you (such as by buying your product or taking a license to your patent) than around you (such as by leveraging your innovation and insight to knock off your product).  With the data showing that only about 5% of patents can be considered “market-making,” it is certain that when a business needs strategic patents to allow them to capture the value of the business model, most patents widely miss the mark. Continue reading