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Archive for September, 2009


Patent Allowance Rate Falls (Again) to 41%

According to US Patent and Trademark (USPTO) Power Point presentation the allowance rate has again fallen to 41% by mid year 2009.

allrate6.09This continues the sad trend of falling allowance rates that started in 2002.  Why has the allowance rate changed so dramatically in the last six years?  Sometime early in this decade, the USPTO started to define the “quality” of examinations by the allowance rate.  The USPTO tracks the allowance rate of every examiner and grades the quality of their examinations by their allowance rate.  If one examiner’s allowance rate is higher than the average allowance rate of the group they work in, their examination of applications is considered to be of lower quality.  If an examiner never allows any patent applications, they will be considered to have the highest quality examinations.  This has created a perverse incentive for examiners.   There has been some rumors that the new director, David Kappos, of the USPTO intends to change this, but the continued drop in the allowance rate is discouraging news.

 

We know that in all areas of economics where it has been tested private property rights encourage economic activity.  We also know that when the government establishes incentives, it always results in more of the incentivized activity.  We also know that countries with the strongest patent laws have the most innovation and the greatest technology diffusion and vice versa those countries with weak or non-existent patent laws have little or no innovation and little technology innovation.  Despite this Mr. Kinsella and the anti-patent crowd ask us to believe that patents do not follow the normal rules of economics and logic.  As Thomas Paine pointed out in his book The Age of Reason, extraordinary claims require extraordinary evidence.  Mr. Kinsella and the anti-patent crowd have provided no evidence that patents harm innovation.

 

The first step in build a market dominating patent portfolio is to undertake a survey of the patent landscape in your marketplace.  For more information on how to perform a prior art survey please see Competitive Analysis and Patent Portfolios .  This analysis will show you where there are gaps in the prior art that can be exploited and also help stimulate your thinking about design options.  Gary Boone, the inventor of the microcontroller, explains the advantage of surveying the prior art this way.  “Most engineering design groups do not feel there is much to learn by reading patents.  I feel that’s unfortunate, because there is a huge amount to learn from the accumulated five million issued patents, just picking up the U.S. patents alone.”

 

 This post is the Introduction to my book, which should be available on Amazon.com in December of 2009.

This book started as a project based on my observations.  I deal with technology start-up entrepreneurs everyday as a patent attorney.  I noticed a difference between the sort of projects my clients were undertaking since the technology downturn of 2000-2001 and the 90s.  Clients, in the 90s, would come into my office with plans to build businesses that were disruptive or revolutionary.  The technologies underlying these companies held the potential to completely redefine a market.  Some of these of these ideas would increase the available bandwidth by 10x for minimal costs or allow data searches that were 10-100x faster than existing technologies.  It was extremely exciting talking with these entrepreneurs.  Their energy was infectious and the potential implications of their work was mesmerizing.  The technology downturn of 2000-2001 forced a reevaluation of these aggressive business plans.  I expected that after a couple years of the technology market taking a breath, I would again be working with companies trying to change the world. 

 

The Obama administration has released a white paper outlining a strategy to encourage innovation and thereby stimulate the economy, entitled “A Strategy for American Innovation: Driving Towards Sustainable Growth and Quality Jobs. ”  According to President Obama, “The United States led the world’s economies in the 20th century because we led the world in innovation.”  The first step in solving a problem is identifying the cause and the Obama administration has nailed it on the head.

 

The term patent trolls is usually applied to companies that enforce patents that they are not practicing.  These Non-Practicing Entities (NPEs) include companies specifically organized for this purpose such as Intellectual Ventures.  However, it also includes Universities and divisions of most large corporations such as IBM.  Many of these corporations complain about NPEs.  However, any consistent definition of a NPE (troll) would include these hypocrites.

 

The only asset that technology start-up companies have is their intellectual property.  Creating a strong patent portfolio and understanding the competitive landscape are critical to maximizing the market value of technology companies.  A strong patent portfolio is also the company’s best barrier to entry.

 

The IEEE oral history with Gary Boone, co-inventor of the microcontroller, has been lost for over decade but is now posted on the IEEE site.  Please read the whole oral history.  Mr. Boone has a number of interesting insights.  For instance, he states that he invented microcontroller while at Texas Instruments because of boredom.  He was working in a group designing custom Integrated Circuits (ICs).  While designing these chips he began to feel “I’m tired of doing this.  I’m working long hours.  My family is not happy.  I have to find a better way of doing this.”  He also noticed that the basic requirements for all these projects were similar and this led to the idea that a general chip that was programmable could solve multiple customers’ requirements.  He also discusses the resistance in the community to this innovation.

 

Scott A Shane, a professor of entrepreneurial studies at Case Western, has an article in the NY Times, explaining that the current patent reform proposals will hurt the interests of start-up companies.  Please read the full article.  Shane shows how the proposed changes in the way damages are calculated for patent infringement would encourage large firms to infringe the intellectual property of start-ups.

 

A patent is an attempt to create a “barrier to entry” from a business perspective.  Other barriers to entry include advertising, control of key resources, economies of scale, exclusive supplier agreements, etc.  An effective patent strategy will focus on the product’s or company’s unique selling points.  The goal is to focus the claims of the patent(s) on the technology that provides the unique selling points.  This will result in a patent(s) that provides the strongest barriers to entry and make it easy to spot competitors that are infringing your patent(s).

 

Most companies that generate enough patents to justify an in-house patent counsel have a Patent Review Committee. The Patent Review Committee determines if an invention described in an “Invention Disclosure Form” is worthy of obtaining patent protection. The committee is usually made up of a business/marketing person, one or more technical people, and one or more patent attorneys. An inventor usually makes a short presentation to the committee based on the Invention Disclosure Form. Here are the top five reasons why Patent Review Committees result in second rate patent portfolios, hurt innovation, and increase legal costs.

 

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