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.

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

Strategic Patenting Part 2: It’s Not Your Patent Attorney’s Job to Get it Right

not my jobFrom the last post, we see that it is very rare for patents to create value for their owners.  Moreover, if the “big guys” with pockets deep enough to hire the best lawyers can get it right only 5% of the time, there should be no doubt that smaller companies and individuals should re-examine the advice they are getting from their IP counsel.  This is not to say that smaller companies and individuals cannot be successful in creating market-defining patent protection.  To the contrary, it is my strong belief that small companies can create solid patent protection at a reasonable cost, but to do so will likely require patentees to recognize that their IP counsel likely has no clue how to do what you need done.  And, even if she does, it is not her job to make you money from your patents.  Instead, her only job is to get you a patent.  Period.  End of story.

Smaller organizations or individuals should not assume that that your attorney does not have your best interests in mind when doing patent work on your behalf.  Certainly, the vast majority of patent attorneys are ethical and have their client’s best interests at heart.  But, as noted, their job is to get patents on behalf of their client, not to get valuable patents.

We get a picture into this reality in a recent appellate case in which a disappointed patentee tried to sue his patent attorney for malpractice.  In this case, the patentee asserted that his attorneys, who worked at a prestigious patent law firm, acted negligently when prosecuting his patent for a weed trimmer guard by including unnecessary language that limited the patent’s scope.  He claimed that addition of this language resulted in his losing an infringement suit against Stanley Black & Decker.  In order to demonstrate that his attorneys’ negligence resulted in his loss and to recover damages for legal malpractice, he was required to prove “the case within the case.”  This essentially means that the patentee must show that the errors or missteps in the patent prosecution process by the attorney led to his inability to recover against Stanley Black & Decker in the patent infringement case.  It should be apparent that the likelihood of proving that a decision made by the attorney during the patenting process–and only during the patenting process–could be blamed for the client’s inability to recover is an exceedingly tough thing to show. Continue reading

Strategic Patenting Part 1: Why So Few Patents Create Real Value

value_introMany business people are surprised to find out that all patents are not created equal.  A recent study of Fortune 500 companies reported in Suzanne Harrison’s Edison in the Boardroom Revisited indicates that only a very small number of patents–namely, 5%– obtained by these top patent filers created strategic value for their owners.  If only 5% of the most sophisticated companies, all of which have veritable armies of patent professionals on their teams, can get patent protection right, it must follow that less resource-rich companies have an even lower probability of gaining strategically valuable patent protection.  This and the next few blog posts will aim to help improve the odds for business people seeking to learn how to generate more valuable patents.

The first issue to clear up is what “strategic patenting” means.  Those of us in the IP Strategy business define a “strategic patent” as one that is “market making.”  In other words, a “strategic patent” is one that effectively prevents a competitor not only from making the same product, but also from playing in the same market space.  When a company holds a strategic patent, the competitor must expend efforts to innovate around the incumbent patent owner, which is, at a minimum, more expensive.  In other cases, to avoid infringement, the competitor must make a product that does not hold the comparable consumer acceptance. Continue reading

Do Startups Need Patents? Rigorous Study Presents Real Data on Startup Company Patenting Behavior

beautiful dataAs an IP Strategy advisor, I am often asked by the leadership of startup companies what the return on investment is from patenting.  While I can confidently provide recommendations as an expert, my opinions are anecdotal based on my almost 20 years experience as an IP professional.  Certainly, I have advised a number of startup companies over the years for which comprehensive patent coverage was critical to financial and market success.  On the other hand, I have advised a much larger number of startup companies over the years where patenting made little difference to their fortunes.

The subjective nature of IP advice holds for other patent professionals.  Our respective years of experience results in tacit knowledge that becomes “expertise.”   This expertise guides clients to us for advice and allows them to trust in our counsel.   Missing from my knowledge base–as well as that of my IP attorney peers–have been data-driven assessments of whether, when and to what extent patents really matter to start up success.

Similarly, startup companies are typically inundated with the advice of peers, mentors and investors about whether patenting is recommended in a particular business situation.  Such non-specialist expertise is even more fraught with subjectivity because the advice will be based on a smaller number of anecdotes.  I frequently encounter startup company advisors who are absolutely certain in their opinions about the value of patents to startups that do not involve any context or analysis of the company’s business model but are instead grounded in unchangeable beliefs based on the advisor’s personal experience.  Unfortunately, startup companies seeking the counsel of these peers, mentors and investors often do not possess the ability to gauge the subjective nature of the advice and end up incorporating the same erroneous belief systems about patenting to not only the detriment of their companies, but also the rest of the startup community as the errors become embedded in the local ecosystem.

The subjective nature of patenting advice for startups has long bothered me, but without actual data a solution has been elusive. I continue to provide guidance to startups based on my extensive professional experience, albeit also with letting my clients know that their results may vary from those of my previous clients.  While this honesty is appreciated, many have expressed disappointment that given the financial and time investment required to obtain strong patent protection, the return on investment remains uncertain.

I am glad to say that I have now identified a detailed and data-driven study of how patenting influences start up companies in the marketplace, with competitors and in obtaining outside investment.

While a few years old, I recently discovered this article from lead author Stuart Graham, a Georgia Tech Business School professor who from 2010-2013 served as Chief Economist of the US Patent Office.  Entitled “High Technology Entrepreneurs and the Patent System of the 2008 Berkeley Patent Survey” (published in the Berkeley Technology Law Journal and available in this link) this piece is clearly relevant reading for start up company leadership teams seeking to gain understandings of why and how patent protection might be relevant to their success in obtaining investment and in the marketplace.  IP experts and other startup advisors should also be interested in reviewing the data and conclusions in this rigorous study to gain confidence that the advice they give is, in fact, backed up by data from other startup companies.

Admittedly, the data used in this article is a several years old and much transformation in the start up and financial communities has occurred since the article was published in 2009.  Nonetheless, I find this data to provide at least strongly directional data-driven insights into the patenting activities of start ups.  Since the number of patents issued annually continues to increase markedly year over year, we can assume that the number of patents obtained by startups has at least stayed constant in recent years.  I plan on using this data to advise my startup clients on the relevance of patents to their business strategies.

Here are some highlights of the article that I found interesting:

  • Patents were found to be highly relevant to obtaining venture-backed funding at biotechnology and IT hardware-based startup companies.  It may also be surprising that this study also demonstrated that patent protection was also found to be relevant to software-based startups gaining venture-backing.
  • Patents were also found to be more relevant to obtaining Angel and “friends and family” funding than previously thought.
  • A large share of early-stage companies, especially in the software industry,
    avoid the patent system altogether. At the same time, the study found startups
    hold more patents and patent applications than previously
    reported.
  • Usefulness of patents to startup entrepreneurs is driven by industry characteristics. Patents help many startups compete in the market with their technology, but this is much more pronounced among biotechnology and hardware companies (including both medical hardware, such as surgical devices, and IT hardware, such as computers and semiconductors). Conversely, patents are much less important as a means by which most software firms—the majority of which hold no patents –capture competitive advantage from their innovations.
  • When electing to patent, startup executives tend to be most influenced by a desire to prevent knock-offs and than by “reputational” and financial motives, including a successful exit event such as being acquired or going public.
  • Surprisingly (at least to me) startup innovators do not appear to reference the patent literature during the pre-development or development processes.  They do look at the patent literature after launching their products or when considering patenting themselves.
  • Licensing of others’ patents also happens, and while startups are generally receiving information or know-how in the transaction, they are also commonly trying to settle a controversy—and in some cases they take patent licenses solely to avoid a lawsuit.
  • Startups tend to spend considerably more on obtaining each patent than what was previously reported.  Specifically, the 2009-reported patent spending for start ups was $38,000 for each patent, which exceeded the $10,000 to $30,000 range for other patent recipients.  One startup CEO posited that the extra cost could be due to a number of factors including the relative importance of a start up’s patent matters to the business, the likelihood that a startup would use outside counsel vs. internal legal resources and the lesser ability of a startup business team to appropriately manage the work of outside counsel.

There are many more interesting conclusions in this article that will no doubt enhance the knowledge of startup business teams of the value of patents to the success of their companies.  In short, the data set out in this article make it clear that “your mileage may vary” when it comes to patenting, but there are real reasons to patent and to not patent that can be gleaned from the information presented.

Presentation: IP and Patent Strategy for Business Value Creation–The Good, The Bad and The Ugly

While postings have not been frequent in 2013, I have nonetheless been very busy with my IP Strategy counseling and speaking engagements.  In 2014, I will commit to being much more diligent in updating my blog with relevant content for those seeking to use IP and intangible asset strategy to create and maximize business value.  In the meantime, here is the deck from IP Strategy Overview I presented at a conference of innovators at Georgia Tech’s College of Architecture in October 2013.  The summary is below the presentation.  (To view the Slideshare presentation you view the full post in IP Asset Maximizer Blog.)

This deck includes the basic overview of IP (patents, copyrights, trademarks, trade secrets).  However, this presentation goes beyond the usual lawyer-generated content to highlight not only the positive business aspects of IP, but also to give a reality check as to the likely ROI of investment in protection.  Additionally, commonly overlooked forms of intangible asset business value are highlighted.  A case study of a poorly designed and executed IP protection strategy where a significant (and arguably disruptive) innovation is highlighted. Recommendations for business relevant IP and patent protection strategies to create and maximize business value are also included.

Free and Low Cost Patent Search and Analysis Tools: Who Needs Expensive Name Brand Products?

(NOTE:  At the end of this post is a detailed spreadsheet that lists the free and low cost tools that I use regularly in my IP strategy practice.  At the request of a group of IP strategy professionals with whom I network, I will be giving a presentation on these tools at a local event.  I thought that readers of this blog would also appreciate learning about how these tools can add high value at a low to minimal cost.)

no name brandIn private conversations, some of my corporate peers inform me that they pay $1000’s per year (or even per quarter for larger companies) for access to “name brand” patent search tools that nonetheless  do not contain accurate and up to date information.  For example, a client tells me that one of these expensive tools fails to update USPTO records on a portfolio her company is monitoring and that the PAIR data is more than 1 year out of date.  This limits the effectiveness of the expensive database by requiring her IP support staff to check each individual record on a regular basis to update the data.  Of course, this limitation defeats the purpose of spending the big bucks to engage with a “name brand” search tool.

Certainly, one need not have sympathy for corporate IP professionals who manage large department budgets–if they spend needlessly on “name brand” tools and staff to manage the quality of such tools, so be it.  But most companies with IP strategy needs do not have money and staff to purchase such tools, let alone to fix the errors in the datasets obtained from them.  Others might wish not to waste their department budgets on worthless tools.  To this end, over the last 5 years, I have used a number of free and low cost tools in my IP strategy practice.  I use all of these tools on a regular basis and have personally validated the quality and validity of each one for my practice.

Notably, this list was generated from actual landscaping and portfolio management projects performed by me for both large and small corporate clients.  I have used other tools in the past that did not meet my high standards of quality, ease of use and data integrity–if a tool is not on this list and I have previously recommended it elsewhere on this blog, you should assume that I have experienced some degree of problem with the product and no longer use it or it has disappeared from the list of free or low cost tools. Continue reading

IAM Top 300 IP Strategists for 2013 Released this Week: I am on the list for the 5th year in a row!

pat-on-back

A drawing included in a patent protecting patting of oneself on the back.

Please indulge me as I pat myself on the back–

Largely as a result of the efforts that I have put into this blog over the last 5 + years and of the resulting recognition of my expertise by my peers, I have again been named to the Intellectual Asset Magazine Strategy 300.   This award acknowledges my expertise in IP Strategy and Intellectual Asset Management and is given only to those people who actively practice in areas related to capturing and leveraging business value from IP and intangible assets.

Although I have been included on the list in each of the previous years of the award’s existence, inclusion on the list is particularly satisfying this year.  Specifically, the 2013 list was compiled from scratch as the result of substantive original research from the staff at IAM.  I did not pay to be included.  (More on the methodology here.)  Recognition like this makes all the hard work of keeping an active blog worth it.  I hope you will stay with me as I continue to share my strong opinions with you about IP and value creation throughout the next year.

Why the IP Law Firm Business Model is Broken And What I Am Doing About It

Business model innovation in IP legal services is only just beginning.

Business model innovation in IP legal services is only just beginning.

As a former IP law firm shareholder and senior corporate lawyer, I know all too well the expense required to start and maintain an IP law practice.  Not only are IP lawyers of all levels of experience paid handsomely, but so are the highly skilled paralegals, docket clerks and administrative professionals traditionally required create the infrastructure needed to handle the myriad of details involved in an IP law practice.  Of course, this expensive infrastructure must be sustaining, so while a lawyer serves today’s clients, her eye must also be on finding the next client because payroll and rent obligations don’t take a holiday when clients do.

This “feed the beast” nature of the IP law practice model was a primary reason that I decided several years ago that I would not again work in the traditional practice of law.  How could I?  The standard legal service framework required me to build and maintain a business model where the product offered is obtaining patents for clients.  However, over the years I discovered that often the client does not need the very product that sustains the IP law firm business model.  What I perceived as an inherent conflict between my business interests and those of my clients made it impossible for me to continue practicing as I had for many years in the traditional model.  Instead, I moved in a different direction in becoming an IP Strategist where, for the last 5 years, I successfully built a business model where I could focus on building and maximizing IP value for my clients independent of any need to build and maintain the expensive “bells and whistles” of a functioning IP law practice.  In other words, I have figured out how to get paid for saying “no you don’t need a patent.”

Certainly, clients appreciate the ability to provide IP advice given independently of any need by me to generate legal fees from patent drafting.  Nonetheless, many clients have expressed disappointment when I cannot provide them with additional patent services beyond that of IP strategy consulting when we do determine that a patent is the right course of action.  Even though I choose my referrals very carefully, when I have to bring lawyers with more traditional legal services models in to service my clients’ patent drafting needs, I have found that the normal pressures of maintaining an IP legal services business appear.  As a result, costs to my client start inching up even though I worked to avoid this at the front end of the engagement.   I strongly believe that the cost of obtaining IP legal services is too darn high, even at law firms that portray themselves as being willing to use “alternative billing” structures.  Put simply, the IP legal services model is broken and tweaking of billing structures and the like can only amount to the proverbial “rearranging deck chairs on the Titanic.” Continue reading