The "Dirty Little Secret of Patents" is that Most are Worthless to Their Owners. Here is Why.

Notwithstanding the vast corporate and entrepreneurial resources expended each year to file, prosecute, manage and maintain patents, a significant majority end up having little or no business value to their owners. Patents can end up being worthless for any number of reasons, most of which center on the fact that the claims do not cover a product or technology either currently or in the future being made, used or sold by either the owner or a third party. And, when a patent does not cover a current or future product or technology, one might argue its only residual value is as the attractive government document on the right.

No doubt exceptions exist to my bold assertion that most patents end up as worthless to their owners. That is why I used the qualifier “most” in my statement. (And, if the reader is a patent owner, I certainly am not referring to your patents because, like the children of Lake Wobegon, all of your patents are above average.) Whether or not you agree with my opinion, or whether you think that only “many” or even “some” patents are worthless, with the resources committed to obtaining patent rights and the expectations placed in them by their owners, the question must then become “why do any patents end up not having any value?

Most patent owners, both corporations and entrepreneurs alike, place responsibility for obtaining and managing their patent rights in the hands of patent professionals. The path to value goes astray at this point because it is not the patent professionals’ job to obtain a patent that has business value, rather, it is their job to get the patent.

Specifically, the Patent Office grants patents to inventions that meet the legal requirements for patentability. A patent professional’s job therefore centers on assisting inventors in identifying what subject matter might meet these government requirements and to successfully convince the patent examiner that the invention is “good enough” to justify others being prevented from freely practicing the subject matter claimed in the application.

Except for very limited circumstances, the Patent Office does not care a bit whether the invention claimed in a patent application is commercially successful. This means that the patent procurement process takes place almost exclusively in the legal realm. Even if a patent application was initially drafted and filed with clear business objectives in mind, legal arguments and the legal process itself typically begin to overshadow the business aspects of the invention soon after filing. In other words, the patenting process is fought in the legal trenches where success is measured by successfully arguing for allowance of the application.

It is therefore not surprising that a patent professional’s incentives are typically aligned with the legal process itself, not the business value obtained from the patent rights she obtains for her clients. Think about it: law firm patent attorneys are paid by the hour or by the project and in-house patent attorneys are paid to manage these outside attorneys or to obtain patent rights themselves. The efforts of few, if any, patent professionals are evaluated in relation to the business value that they create for their clients. Patent professionals are measured, and therefore incentivized, by their ability to obtain patents on inventions, while still keeping patenting costs at a manageable level.

Moreover, patent law is highly specialized and can often seem arcane to those not trained in the area. Even sophisticated business people often express reticence about venturing into the weeds of the patenting process, instead preferring that their patent specialists handle the details. This effectively cedes decision rights for patents and resulting determinations of value obtained to those incentivized for patent legal successes, not business successes.

With the incentives of those responsible for obtaining patents aligned primarily with successful management of the underlying legal process, it follows that the business aspects of a patent can often become a secondary factor. In my opinion, this is a primary reason why most patents end up providing little or no business value to their owners.

Of course, the way to fix the problem of worthless patents is to realign the incentives of those involved in the process of obtaining and managing them. The scope of such a project would require restructuring of the patenting efforts and expectations of many, if not most, participants in the patenting processes. While I have strong opinions about how to accomplish this, my ideas are beyond the scope of this article. At a minimum, however, bringing measurement of business value obtained from patenting efforts will require business managers to exercise more interest and control over the process than they have in the past.

9 thoughts on “The "Dirty Little Secret of Patents" is that Most are Worthless to Their Owners. Here is Why.

  1. Dan Ballard

    Well said. I think the value that patents add to the vast majority of small businesses is the (1) marketing oomph provided by marking a product with a patent number, and (2) the deterrent effect of that marking on the businesses’ competitors.

    Licensing the patent is beyond many small businesses and actually pulling the trigger on an infringement suit is often unwise because most simply do not have the resources to litigate.

    Good patent attorneys are more that prosecutors — they’re strategists as well. Sometimes it’s a really good strategy to seek patent protection, but sometimes it’s not (even if eligible).

  2. Jay Sandvos

    With all due respect, I think that you’re being unfair and simplistic. A better way to think of many patents is that at the time that the application was prepared, filed and prosecuted, the value of the invention claimed was uncertain. It might end up being something valuable that becomes adopted and used in the field, or it might not. But at the time that the application was prepared, and later during prosecution, the idea seemed promising enough to invest the time and money in the possibility that it might be valuable in the future.

  3. Michael F. Martin

    You’re right on the mark. Patent prosecution is a fun game for patent lawyers and agents and Examiners, but in all too many cases, it has nothing to do with the strategic goals of a business.

    There is a timing issue in that markets for some inventions don’t develop until years later. But in some cases, the patents are for improvements to existing products that are already being sold. And the prosecutors’ interest is to get a patent — not to get the broadest claims that are valid.

    Aligning interests means sharing risk. Lawyers cannot by law share risk with their clients. There’s one thing that needs to change.

  4. Scott B. Garrison

    Jay, I commend your comment and agree that on Day 1 the value of the invention is/was uncertain. I do not know whether you have had the opportunity to work at or for a corporation having an effective patent strategy, but if you have, I believe you are seeing things through the eyes of what should be rather than what is.

    In my experience I can say that far too often the patents that grant may not be worthless but they certainly are worth less than the patentee had originally anticipated. Jay please do not think I am focusing on your comment but I or colleagues of mine have often been approached by business people with a great concept. It is true that often the values of those concepts are uncertain, but far more frequently I find that their concepts are too immature…not yet thought through.
    Marketing is often pushing to disclose a new concept, in order to secure more business. We as attorneys do our best to explain on sale and publication bars to patentability. The result, a half baked concept is hatched and we have a month, if lucky, to protect it before a presentation or offer for sale occurs. To buy more time we suggest confidentiality agreements but that can only stretch us so far. In the end, an application is drafted incorporating the elements known at that time.

    Now both machines have been fed. The patent attorney is incentivized to do the best he can to get a patent granted, to minimize estoppel, etc.; whereas marketing is incentivized to sell a product. Market forces, costs – both hard and soft, and business direction all align to morph the original concept into whatever form the end product takes in the marketplace. However, in the patent world, one is stuck with what was originally disclosed in the application. The patent attorney unlike the marketer must make his or her arguments as persuasive as possible using the spec to overcome the Examiner. As we all know, this really becomes a negotiation to get the broadest claims allowable.

    To otherwise ensure that the patent attorney and inventor remain on the same page from Day 1 to Day 1000 requires diligence on the part of the patent attorney to double-check that as the invention morphs from an idea to a commercial embodiment that it is the ultimate embodiment that is protected, not necessarily the filing date of the original application. This is difficult to do for many reasons, workload being just one. And as a result one distinction between the patent attorney and the patent strategist is that the patent attorney considers it a win if a patent grants from the application filed whereas the patent strategist considers it to be a win only if the commercial embodiment, the innovation, the marketing plan, or the business direction is adequately protected.

    Perhaps a more certain path would be to ensure that the business has analyzed its options, focused its objective, and mapped out its course more precisely before it forces the filing of an application.

  5. Jackie Hutter, Intellectual Property and Patent Business Strategist and "Recovering Patent Lawyer"

    These are wonderful comments and I am flattered at the thoughtfulness. Specifically, I would like to respond to Michsel: BRAVO–you hit the nail on the head about sharing risk. But actually, I do not think that it is not legal to share the risk (see, for example, contingent fee arrangements). Rather, I believe that IP folks (and lawyers generally) are inherently risk adverse and, as such, spend most of their time reducing the risk (to themselves as well as clients). What you and I are asking is that they not only stop trying to reduce their risk, but also EMBRACE risk in a sharing context. This will take a sea change–one that I don’t think will happen until clients push so hard that they cannot refuse.

    Also, clients make risk sharing almost impossible because few companies measure the value of their IP as an asset (as opposed to a cost center). This makes it unrealistic for their lawyers to suggest risk sharing because there is no way to measure/rate successes and failures.

  6. Michael F. Martin

    Thanks for clarification, but I really meant that it’s illegal!

    Contingency fee arrangements are a step in the right direction, but are not true risk sharing. On the downside, the risks to the contingency fee lawyer are not the same as for the client. The misalignment of incentives in contingency fee cases is something any defense lawyer can tell you about.

    For true risk sharing, lawyers and clients must share equity. It is forbidden in most jurisdictions in the U.S. for lawyers and non-lawyers to form limited partnerships. This is a core problem with aligning incentives in this market.

    The closest we come to true risk sharing among lawyers and clients is in verticals where the clients can afford to staff key work in-house at a C corp. This is basically the scenario for many insurance companies, and I find it quite interesting to consider whether a similar model could work for IP litigation insurance. Trouble is, it’s tough to capitalize an insurance company, especially in this market. And beyond that, as you know, IP is so core to business strategy that it’s not simply about reducing risk of infringement so that model doesn’t make sense anyway.

    A middle way might be something like what you see in the pharma arena where some smaller companies and individuals are selling off stakes in patent portfolios to secondaries that bundle them into large portfolios and then sell to big pharma. Transactions costs are still to high to make this work outside those verticals.

  7. moskowitz

    Very timely & on the mark.

    The point that seems to escape my own analysis is time spent on the trade-off of understanding the process being patented versus prosecuting the actual patent. I do agree that inventors and practitioners need better communications on the "inventive concepts" they value.

    Second, to optimize resources, there needs to be a clear understanding of what is a "legal question" and what is a "business question". It informs much decision-making and allows the managers to manage. My patent attorneys were always quite good at carving out the differences.

    That being said, with patent law changing as much as it has since I filed my first patent (in 1993), it is hard to establish in advance just what is important to patent unless there is an ongoing discussion about what makes or informs the uniqueness of the products & services your business "sells".

    Whether that means being more active in reading relevant art or some other exercise, it is certainly worth the effort in determining whether or not to patent something.

    That being said, I view some of my filings as having at least as much value as publication in a journal (peer-reviewed or not): a value in a different context but certainly not sentimentality. After all, patents are valued from both an offensive and defensive perspective.

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