Don’t just roll the dice, take these steps to steer clear
Have you heard of Patent Prison? That’s my term for the quagmire that too many companies – especially brand-new ones – get sucked into when handling innovations. Odds are the company you’re currently working at has been there, too.
Patent Prison is time-consuming, legally complicated and expensive. It can keep businesses from moving forward with new ideas. And unlike MonopolyTM, there is no easy “Get out of Jail Free” card.
Let me elaborate.
I often hear the same declaration from clients and other acquaintances: “We’re going to get a patent.” Patents can be a matter of pride, legal protection and, for those hoping to license, a potential source of income.
That’s all great! What’s the problem?
The road to Patent Prison can start with mistaken logic, heavy financial investment and failure to consider other options besides a utility patent. I don’t have anything against patents per se, but I do object to their indiscriminate use.
Some key points to consider:
• Utility patents are typically in the ballpark of $10,000, a lot of money for a brand-new company. Patents become much more expensive for large companies, when filed worldwide and when large numbers of applications are being generated.
• Patents are, on average, only going to be granted about 50 percent of the time (at least here in the U.S.).
While 84 percent of larger companies valuations are in intellectual property, a significant chunk of the IP valuation is likely not in utility patents.
• My premise is that we should realign our spending, ideation, and strategy to consider all options in front of us on how to protect our ideas – before we land in Patent Prison (play plot thickening music now).
How to avoid Patent Prison
1. Consider your other protection options. These include copyrights, trademarks, design patents, trade secrets and so on. The right mix for you is unique to your situation.
Patents are likely the most expensive form of IP protection you can throw your money at, so shouldn’t you consider cheaper options just in case? If you think copyrights are worthless, you better check out my earlier post at https://pearsonstrategy.com/2016/01/could-copyrights-leave-patents-out-in-the-cold/.
2. Consider bribing the guards by having professional prior art research done before you act on a new idea. Why yes, prior art research is something we excel at here at PSG, thanks for asking.
With high-quality prior art research, you and your attorney will have the information you need to determine whether your idea is patentable before you pay for the process and wait months to learn you will not receive a patent.
Prior art research can save both time and money by providing information to help you craft a terrific, informed patent application. You’ll see fewer office actions issued by the patenting authority and you may even discover additional opportunities or markets.
3. Think about all those companies that have likely beat you to the draw with granted patents. It is likely they will have their Patent Prison Police (say that three times fast) looking for violators who infringe upon their Intellectual Property. Can you afford a lawsuit?
The fastest way to identify infringers is a prior art search because most patent applications are filed WITHOUT benefit this key research. These companies will reveal to the world that they are or soon will be a patent infringer because applications become public. That means anyone who cares may see what they’re up to. Those who file patent applications thinking they are so innovative and smart may be neither.
The End Game
With some willful prompting, you, your team, and your council can decide if utility patents are the sole form of needed IP protection, are part of a mix of protections, or not needed at all. You will likely protect your idea better and save enough money to buy that neat right angle grinder you saw at the store this weekend…just in case you ever wind up behind bars.
Picture credit:
Scott Davidson (Wikimedia)
There are some broad and bold claims being made here. What is the source of information for:
1. Utility patents are typically in the ballpark of $10,000;
2. Patents are, on average, only going to be granted about 50 percent of the time (at least here in the U.S.);
3. 84 percent of larger companies valuations are in intellectual property; and,
4. For 3, above, a significant chunk of the IP valuation is likely not in utility patents.
Hi Chang. Thanks for your questions, here’re my responses:
1. I have surveyed many attorneys over the past few years and they have all agreed that a nice round number for all the cost associated with obtaining a US Utility Patent by a micro-entity is around $10k USD. This amount includes the attorney’s fees, prior art research, drawing fees, responses to office actions, filing fees, publication fees and so on. Of course, there’re are many reasons for this amount to vary.
2. I’ve seen this number in my own patent analytics research for clients but the USPTO also shows this in the U.S. Patent Statistics Chart at https://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm
3. See Ocean Tomo’s chart on Ocean Tomo’s Intangible Asset Market Value Study at http://www.oceantomo.com/ocean-tomo-300/. It looks like their number for 2015 has grown to 87% since the last time I saw it about a year ago.
4. Knowing that brand recognition has a huge value for any well-known company and a reasonable percentage of companies on the S&P have no patents of any value, I surmised that patents are under 50% of the total S&P’s combined valuation.
Let me know if this didn’t answer your questions or if you have additional details on any numbers mentioned above as I always appreciate having better sources.
Hi Steve,
Thanks for replying and providing the additional information.
1. I’m still not convinced. $10,000 for a utility patent in the U.S. by a micro-entity still seems a little on the low side.
I’ve seen many instances where the lawyer quotes this amount, or even lower, and then the bill exceeds this amount and there’s still an Office Action that looks like a dead end looming, with no patent issued.
Here’s three examples that sound reasonable, for between $19,900-$22,800, $14,000, and $12,000 respectively for hypotheticals at this blog that gives a good explanation and list of probable fees involved, broken down by complexity of patent (or lack thereof): http://www.ipwatchdog.com/2015/04/04/the-cost-of-obtaining-a-patent-in-the-us/id=56485/
2. You’re right, it looks to be close to 50%, if not a little higher, the last few years. The USPTO statistics are helpful, but you have to be careful interpreting the data.
For example, in the year 2015, 288,335 utility patent applications of U.S. origin were filed. Also in 2015, 140,969 utility patents of U.S. origin were granted. This would be about 48.9% when comparing granted patents to patents applied for.
However, we also have to keep in mind that it will take a few years before a patent that is applied for is granted. According to the USPTO, the total pendency (time patent application is in application process) has dropped from 30 months in 2013 to only 26 months in 2015 – here’s a great graph: https://developer.uspto.gov/visualization/pendency-patent-applications-2-visuals
As a result, since some issued patents would have been applied for 2 years before, and some 3 years before, by taking an average of the two, we get the following % of patents that are applied for being issued:
2015: 48.9%
2014: 52.3%
2013: 50.2%
2012: 47.5%
2011: 46.1%
2010: 45.5%
2009: 35.4%
2008: 34.2%
It’ll be interesting to see if 2016 drops again from 48.9% or if it climbs back to above 50%.
3. I don’t think this is true. It is said that there are 3 common ways that business valuations are done: income approach, asset approach, and market approach. While these approaches are each a little different and serve different purposes, your reference to IP being such a large part of a company valuation could only apply in an asset approach (assuming that most companies do not derive significant income from IP from a traditional perspective, disregarding the now-common licensing of trademarks and technology from one company to another within a single international conglomerate group). Your reference to Ocean Tomo’s index is useful, but misleading as Tomo is focused on patent-owning companies. In fact, I would argue that in terms of transactional value, trademarks are far more valuable internationally than patents.
4. Per my last statement in 4, above, I would tend to go this direction as well. Except that I don’t think that ascribing such a high portion of valuation to IP is warranted to begin with.
: )
Chang,
Thanks for your additional information and citations!
1. You’ve convinced me to modify my future verbiage to “a minimum of $10k”. I generally use this number around inventors since some are appalled at how much it will cost them to patent their great idea. I tell them that if this number is not what they expected or is more than they can afford that they should reconsider their need for a patent and look at other forms of IP protection and whether their business would be better served by investing this money into something else.
2. As in all things in this post and life, I’m trying to simply many factors into a simple and easily remembered number. I do agree with your analysis and have considered this in my simplification. I also appreciate the link to pendency graph as this is the best one I’ve seen.
3. Again, I agree with your assessment but note that Ocean Tomo’s assessment of the S&P 500 data was independent of whether these companies specifically owned patents and this differs from their index of 300 companies.
4. Nothing to add here.
Thanks for the constructive questions and answers, I’ve found this very helpful!