State of Innovation

Patents and Innovation Economics

State Intellectual Property Bank

The federal government is pursuing a suicidal policy of giving away our inventions to our foreign competitors.  Our state can mitigate the damage of this insane policy by creating a state intellectual property bank.

The United States is giving away our most valuable assets – our technology.  In 2000, the government required the publication of most US patent applications in 18 months after they are filed.  Since patents only provide title to your invention in the country (or countries) in which you apply for patent protection, foreigners are able to steal our technology by just reading our published patent applications.  In fact, Pat Choate in his book, Saving Capitalism, ( documents a company in China that admits to just searching the published patent applications as their only research and development project.  How can our state avoid this suicidal policy?

Besides publishing our patent applications, the federal government requires that owners of patents pay a maintenance fee every four years in order to keep their patent from going abandoned.  Our state can use a process called escheat in order to ensure that no valuable patents go abandoned because of failure to a pay maintenance fee.  Escheat is a common law doctrine that operates to ensure that property is not left ownerless, according to Wikipedia.  Using this process the state can create a large portfolio of patents and ensure that our intellectual property is not lost.

How could the process of escheat be used to increase the wealth of our state?  State sanctioned entities would be allowed to pay the maintenance fee on any patent owned by a person or corporation residing in the state on the last day for paying the maintenance fee and take ownership of the patent using the state power of escheat.  This would allow these state sanctioned entities to build large portfolio’s of patents quickly.  Since the value of patents increases when they are part of a portfolio, this would allow these entities to build valuable patent portfolios that would generate licensing revenue.  My alma mater Kansas State University used a similar process to create a large patent portfolio very quickly.

So who are these state entities?  I do not suggest that the state literally run an invention company, I suggest that they license out this power of escheat to any group that has a reasonable plan to develop these patent portfolios.  For instance, university technology transfer offices are in a good position to evaluate the value of the patents that are about to expire for failure to pay their maintenance fees.  The licensing revenue from these patents could be used to support further university research.  Another potential group would be an intellectual property venture capital group.  Other groups could include NPE (Non-Practice Entities) invention firms, similar to Intellectual Ventures, Acadia, etc. that located in the state.

In order to ensure that the state’s interest is served, these entities could be required to license non-exclusively all in-state companies any patents in their portfolio desired by the in-state company for 30% less than a reasonably royalty.  This would encourage out of state companies to move to our state and be a great Economic Development tool for the state.  If more than one entity wanted to acquire title to a patent that was going abandon for failure to pay the maintenance fees, they would bid for the patent and the proceeds would be paid to the original owner.

The original owner of the patent would be provided certain safeguards.  For instance, they could reacquire title to there patent by paying the maintenance fee, the fees to revive the patent and reasonable attorney’s fees to the acquiring party within the time frames allowed by the patent statute.  In addition, the original owner would receive a small part of any proceed from the patent, such as 5% of any royalties or other return on the patent.

You might ask why anyone would want to pay the maintenance fee for a patent in which the owner was unwilling to do so?   A number of valuable patents go abandoned for failure to pay the maintenance fee because the underlying business has gone under or in the case of individual inventors they no longer have the resources to pursue the patent.  In fact, many of the independent non-practicing entities, such as Intellectual Ventures and Acadia started by acquiring the patents of companies that failed.  Other examples of failed business ventures where the underlying patents were very valuable include NTP and Mostek.  NTP is an invention company created out of the ashes of the failed operating company, Telefind Corporation.  RIM the maker of the Blackberry infringed NTP’s patents and eventually settled with NTP for over $600 Million.  Mostek was a failed semiconductor company that was sold to Thomson SA for $71M in 1985.  In the next seven years, Mostek licensed its patent portfolio for over $450 million.  So as you can see there are numerous patents that are valuable that go abandoned for failure to pay their maintenance fees.

A state Intellectual Property Bank program would ensure that the state did not lose its most valuable assets and be a strong economic development tool.

April 26, 2010 - Posted by | Innovation, Patents | , , , , , ,


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