In order to understand the value of a patent to your business it is helpful to make an analogy to physical barriers to entry.  You probably lock the door to your house, but you know that someone can break the window and still get into your house.  So why do you lock the doors to your house?  Probably because you know that it will slow down any burglars and make it more difficult to enter your house.  As a result, you increase the chance that any burglars will either give up or move on to someone else’s house.  Note that you can always spend more money on the locks to your house, but at some point it doesn’t make economic sense.  If you spend $1 million on a safe for a $10K diamond, it doesn’t make sense.  The same thing is true for patents.  You are not trying to create a perfect barrier to entry, you are trying to increase your competitors cost and slow them down if they decide to compete with you.  For many of my clients the main goal is to make it painful enough for someone to compete with them that the potential competitor would rather buy out my client.

Thus the question is not whether you can afford to enforce a patent, or whether having a patent will eliminate all you competitors, but whether filing for a patent application or obtaining a patent will increase your competitor’s cost and slow down their entry into your market.  If you spend $10K to obtain a patent and it increases your competitor’s cost $100K and slows them down, then it probably makes sense to file a patent application.

The size of your market must also be taken into account.  The bigger your market the smaller the barrier needs to be.  For instance, a company with $5 billion a year in sales in a well defined market should file patents on almost any invention in their market space.  Vice versa the smaller the market the bigger the barrier to entry needs to be.  I have had clients walk into my office where I am pretty sure we can create an almost perfect barrier to entry, but the market is only $80k a year.  This is essentially buying a job and it makes no sense to file a patent for that size of market no matter how strong the barrier to entry.

Remember the goal of patent is to create a barrier to entry.  Just like physical barriers to entry, you should not expect a perfect barrier to entry.  For most startups, you want a strong enough barrier to entry that your competitor will buy you out rather than compete with you.

I believe this myth about the success rate of patents is part of an attempt to devalue patents and inventors in general.  Large companies that do not want to pay for using other people’s inventions (patents) use this myth to paint inventors who sue them as crackpots.  In addition, these companies use this myth to pay their employee inventors less.  The anti-patent crowd has an interest in perpetuating this myth, because it demonstrates that patents are economically unimportant.  However, the evidence shows that patents are successful financially at a much higher rate than the myth suggests and this shows the importance of patents and inventors to our economy.

The reason for marking you product with a patent number is that it provides “constructive notice” to infringers of your patent.  Damages for patent infringement accrue from the date of actual or constructive notice to the infringer.  As a result, the damages you may recover will be larger the sooner an infringer is deemed to have notice of your patent.

From a practical point of view, having a website explaining which patents cover which products is significantly easier and less expensive than marking the actual product or the product’s packaging.  If it is not too expensive to also mark your product or its packaging I would suggest that inventor’s do both.

Here is how Section 16 of the AIA reads:

(a) VIRTUAL MARKING.—

(1) IN GENERAL.—Section 287(a) of title 35, United States Code, is amended by striking ‘‘or when,’’ and inserting ‘‘or by fixing thereon the word ‘patent’ or the abbreviation ‘pat.’ together with an address of a posting on the Internet, accessible to the public without charge for accessing the address, that associates the patented article with the number of the patent, or when,’’.

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to any case that is pending on, or commenced on or after, the date of the enactment of this Act.

 

Business Deal

Is this a good deal for Google?  Does it make economic sense?  In buying Motorola, Google gets a company that has been in the forefront of mobile communications since its inception.  The biggest risk is that Motorola is bit bureaucratic.  They were slow to develop CDMA phones in the 90s and never completely recovered.  Motorola has been hardware focused, when the industry is clearly being driven by software advances now.  The main reason for acquiring Motorola is to get their patents and leverage them into freedom of action in the Andriod market space.

Innovation and Paying for Patents

There are numerous people complaining that Google’s $12.5 billion is being spent on patents instead of being spent on engineers and products.  Actually, spending money on patents IS spending money on engineers.  Engineers created the inventions and the patents just provide legal title to the inventions.  When companies spend money acquiring patents they are spending money for the development of inventions and therefore engineers.  If inventions are not protectable, companies do not spend more on engineers they spend less.  They just take other people’s inventions, rather than paying for internal or external development.  In fact, you can trace engineering salaries and employment to strong patent laws.  Countries with weak patent laws either have very few engineers or their salaries are fairly low or both.

New products are the result of inventions.  Increases in our level of technology are what make us wealthy.  When people pay for patents (inventions) it encourages other people to innovate, it does not discourage innovation.

Too Many Overly Broad Patents being Issued

There has been a lot of wailing about too many over broad patents being issued.  This whining is coming from the same people who complained about Amazon’s one click patent, which was upheld after numerous challenges.  Why did Barnes and Noble get a 10x increase in online sales (after copying Amazon’s one-click technology) if the one click patent was not innovative?

All objective measures of patent quality have been increasing for years.  For instance, the GDP per patent, R&D dollars per patent, and number of citations per patent have all been on the increase.  For more information see Patent Quality Nonsense.

Do some bad patents get issued?  Absolutely and some of my clients have been affected by this.  However, most people making the claim that there are too many bad or overly broad patents do not even know that the scope of a patent is determined by its claims.  They do not know that claims cannot be read like prose, they have to be read like an equation where every word has to be given meaning.

Litigation Explosion

Many people see this acquisition as just another outgrowth of the numerous frivolous patent cases being filed.  However, the facts do not support this point of view.  Judge Michel, former head of the CAFC, the court which hears all patent appeals, points out that the number of patent suits filed each year has remained constant at less than three thousand.  Only about 100 of these suits ever go to trial.  In a technology based, $14.5 trillion economy with over 300 million people and 1 million active patents- THIS IS A TRIVIAL NUMBER.

Solutions

Are there any problems with our patent system?  Absolutely.  The underfunding of the patent office causes inventors to wait years and even up to a decade to receive their patent.  But, more specifically to the Google/Motorola case, the wireless smart phone space needs a more efficient method of clearing patent rights.  I suggest a non-profit entity similar to ASCAP, which clears copyrights for musicians and composers.  For more information see Patent Wars a Market Solution.

Finally, for those worried about the poor, small company who had a great idea for an app and are now scared they may find themselves embroiled in a patent lawsuit- GET A PATENT CLEARANCE OPINION before you develop.

The USPTO has a data visualization center, which tracks many usefl statistics.  For instance, the overall allowance rate is 62.9% from a low of around 56.4%.  The overall allowance rate does not consider RCEs as a new case.  For companies that can afford to fight indefinitely with the PTO this is a better measure, but for companies on a limited budget this is small consolation.  Despite the rhetoric that companies file multiple patents willy-nilly, the extreme cost and length of time it takes to obtain a patent means that even the wealthiest of companies are discerning in their patent filings.  As a result, an overall allowance rate near its historical average of 70-75% makes more sense.

It now takes on average 25.2 months from the date of filing a patent application until you receive an Office Action.  This varies significantly from one art unit (technology) to another.  In addition, Congress stole another $100M in user fees, which has caused this delay to increase.  Unfortunately, our Congress is not serious about their Constitutional duty to secure the rights of inventor.

PATENT THICKET

This Article repeats the Patent Thicket theory (too many patents inhibit innovation).  Every single empirical study has found little or no evidence for the Patent Thicket theory.  For instance see R&D, Invention and Economic Growth: An Empirical Analysis, by Professor Hulya Ulku and Ted Buckley, Ph.D., The Myth of the Anticommons, Bio, www.bio.org (2007) and Epstien, Richard A., Kuhlik, Bruce N., Is there a Biomedical Anticommons, Regulation, (Summer 2004), pp. 54-58.  You would expect an organization like the Economist to do their homework before they repeat these myths.

However, there is plenty of evidence that a lack of a patent system or a weak patent system inhibits innovation and economic growth.  For instance, North Korea has no patent system and has absolutely no innovation.  Those countries that first adopted a modern patent system have been the most innovative.  When the patent system was under attack in the US in the 1970s the US suffered stagflation.  For more information see The Source of Economic Growth.

PATENT QUALITY

This Article also repeats the myth of low patent quality in the US.  By every objective measure the quality of patents has been increasing, including GDP per patent, R&D spending per patents, and number of citations per patent.  See Patent Quality Nonsense and The Patent Quality Myth.  It is disappointing that the Economist repeats these diatribes against patents without even a cursory check of the facts.

PATENT REFORM: America Invents Act

The main problem with the US patent system is the long pendency time.  This is a result of the underfunding (stealing of user fees) of the Patent Office.  Suffice it to say that correcting this situation is not the major thrust of this legislation.  The main point of this legislation is to weaken the US patent system, by the addition of oppositions and the weakening of the US grace period, so that it easier for large corporations to steal the inventions of startups and independent inventors.

The inventor is highly educated and well respected in the area of technology of the invention.  The inventor has several other patents in this area of technology and is over 65 so we filed a Petition to Make Special.  The company is a typical start-up that is looking to raise additional financing in order bring the invention to the market.  Having an issued patent would provide a huge boost to their fund raising efforts.  This funding would provide jobs and the technology will save billions of dollars a year to the U.S. economy.  This is exactly the sort of company that drives employment in the U.S. according to the Kauffman foundation.  Their study showed that all net new jobs in the U.S. are created by new companies – to see the study click here.  High paying, high quality jobs are mainly created by companies with new technology.

I was concerned that the Ombudsman Program may not be able to help me, since it is clear that it is not designed to circumvent the normal examination process.  The essence of the problem was failure to follow the requirements for compact prosecution.  In the first telephone interview, I explained that our technology was able to cut a channel in the substance without creating enough heat to change the state of the material surrounding the channel.  All the prior art not only generates enough heat to change the state of the material it is a goal of the prior art to generate this heat and cause the change in the state of the material.  During the first telephone interview, the Examiner and the SPE told me the claims were just TOO BROAD.  Of course, no such rejection exists under the law and the Ombudsman program should be able to deal with this issue.  While Jon Dudas may have thought this was valid rejection, he was not a patent attorney and his ignorance of patent law and technology would fill whole libraries.  In an attempt to work with the Examiner, I added additional structure to the claims.  Some of this structure made it even more clear that we were not heating the material and changing its state.  I was told that the changes looked good and it was likely we would receive a Notice of Allowance, but they could not make any promises.  The next Office Action cited a new reference that again purposely generated enough heat to change the state of the material.  This process was repeated three times.  This sort of switch and bait process where the applicant amends the claims based on an interview to only be shot down in the next Office Action became standard under the Dudas’ regime.  In many cases, the only reason the applicant agreed to the amendment was to obtain allowance, not because they agreed with the Examiner.  These amendments to the claims should be considered contingent on allowance.  Otherwise they should be withdrawn.

Only once was a prior art reference not in the category of purposefully generating heat while cutting to change the state of the material, but it was even more irrelevant to the invention.  Then we filed a Notice of Appeal with a request for a Pre-Appeal Conference.  The result of the Conference was to reopen prosecution with another reference that again purposely generated enough heat to change the state of the material.  That was when we decided to try the Ombudsman Program.

I sent my issue into the Ombudsman form and was quickly contacted by an Ombudsman.  Our telephone conversation was very cordial and they said that they would contact the SPE.  This process took awhile because it was around the holidays.  Eventually, I received a call from the SPE.  The SPE has not reviewed the case, they had no idea of the issues involved, and instead of listening to me they quickly starting arguing about the case.  The SPE even went so far as to call our invention “MAGICAL” because the claims state that we generate essentially no heat during the cutting process.  This was not only rude it is wrong.  I have a MS in physics and I clearly understand that any frictional engagement is going to generate heat.  However, we have viewed this procedure with an infrared camera with sensitivities down to 1/10^th a degree and the surrounding material does not appear to heat up at all.  The phrase about generating essentially no heat is clearly true and is in context of the prior art which generates enough heat to change the state of the material.  In order to change the state of the material it must be heated around 32 degrees Celsius above its standard operating temperature.  The most likely reason we do not generate any measurable amount of heat in the cutting operation is that the cutting tool starts at ambient room temperature, which is below the operating temperature of the material being cut, and the material is relatively soft so the cutting process takes very little time and does generate much frictional heat.  In the end, all I got was another useless interview the SPE.  I could have done this without contacting the Ombudsman.

Conclusion – Is it worth it to use the Ombudsman Program?

1) It is possible I asked too much of the Ombudsman Program, but I should have told this in the initial conversation with the Ombudsman.

2) The Ombudsman program should be able to at least demand that Examiner and SPE comply with the requirements for compact prosecution.  This is a procedural issue which is the type of issues the Ombudsman Program is suppose to deal with.  It is also a huge problem with Examiners trained under the Dudas’ regime.  The Ombudsman should be able to demand that the Examiner and SPE clearly explain why they keep citing new art with each new Office Action.  If the Examiner and SPE cannot explain this to the satisfaction of the Ombudsman, the Ombudsman should have the authority to demand that no new art be introduced in the case.

Note that the excuse by Examiners and SPEs that changes to the claims required an additional search is usually not valid.  The Examiner is suppose to perform their search based on the specification, not the claims.  None of the changes to the claims in this case in anyway change the basic thrust of the invention.

3) I have another case where an Office Action after the Appeal has raised the same issues that were decided on Appeal.  This would be a perfect case for the Ombudsman program to demand the Examiner and SPE comply with the law and not reargue issues already decided, but based on my present experience I doubt I will contact the Ombudsman program.

4) It would be nice for the PTO or anyone reading this to post any successes they have had with the Ombudsman Program so that we all know what issues they are capable of solving.