Archive for February, 2013
This story starts about 1982. At the time we were doing job shop work One of the Engines that drives the US economy is the US patent system. Any talk about changing it or doing away with it is stupid. The rewards that a patent can bring are a huge incentive to create. Without the US patent system, I would be near destitute. I have 28 patents I have had 5 licensing contracts. Some of these are world wide successes now. Do a Google search for my and get over 30,000,000 hits. Without US patent protection, I wouldn’t have had an incentive to create these inventions. Anyone who says the opposite is juvenile-stupid or worse. This is why inventors from all over the world are flocking to the US to patent their inventions and corner one of the worlds biggest markets!
Another engine that drives the US economy is our free enterprise system.
[My business started] in my 2 car garage. One day my neighbor came over and asked if I could make some security wrenches for them. He was the manager for the warehouse of a large cable company. He showed me the sample and I could see it would be a very nasty job. So I said we were too busy. He kept coming back. On the third time I said we would. So I made him samples and received an order for 100. He reordered about every 9 months. In the mean time, another cable company wanted some of the same. My other machining business was evaporating. My son Eric said, “lets go in to the cable business,” so I said OK. The first thing Eric did, was to go to work for a large cable company. There, he learned the business and got acquainted with a lot of personnel. This helped with future sales because my son Eric knew a lot of people in the cable business. He worked there for the summer and then came back to work for me.
I decided to build a house first. It took 6 ½ months plus time for drafting and planning. I drew up plans and had them approved by the county. It was a raised ranch house with a 1700 square foot full basement, which would be a machine shop. It was great.
Eric came in one day and said, “ We need a name for this new business.“ I agreed.
I said,make a list tonight starting with your top choice, and we will discuss it tomorrow. The next morning we had the same name at the top of our lists. It’s ‘Cablepro”. I think this is a great name. Every cable installer that sees this name thinks in the back of his mind that these tools will make him more professional
Now the problem was expanding the business. We did several things which worked very well. One thing was that I bought a cable book which listed every cable system and their personnel in the USA. It cost me $375. I chose 1500 of the biggest cable systems in the US to make a mailing list. I made a flier although we only had a few tools and mailed them.
Mailing lists typically yield a return of around 2%. I received over 300 orders from this mailing. That is over 20%. It is important to recognize why this worked so well. First of all, everyone who received a flier was using these very tools. Secondly, big companies don’t want to sell a $10 wrench. They want to sell a truck load of amplifiers at several thousand dollars each or several miles of cable, All the orders were for one tool because they had never heard of us. A few months later I sent out another flyer with more tools and received over 100 orders which were $100-$300 dollars each. Now we were nationwide. I had to hire some more employees.
Another thing we did which worked very well was [to have] a truck with tools on the road. A customer would call and say they wanted to buy a dozen wrenches so the truck would be there the next morning. They usually bought more than they originally ordered. It is expensive to keep a truck and an employee on the road but it paid off. We took over the tool business in this town. An unforeseen benefit was new products. All cable systems have a box where they throw broken tools. My son Eric would ask to see if any of our tools were returned and none were. Whatever tool was the most prevalent in the box was our next new product guaranteed not to break. After we did this several times the cable companies starting saving the broken tools for us to redesign and make. Our biggest competitor was whining about how bad [the] sales of tools were. It was because he didn’t deliver. We never made money with that truck, but we built a business.
Now I had 5 men working for me full time. One on the road and 4 of us in the shop making tools. Business was booming. We had 25 products by now and sales had hit $25,000 per month. What I needed was some fancy machinery which I didn’t have. I didn’t have the money to buy the machinery or a shop big enough to use it. Growing New businesses soak up operating capital like a sponge.
All of a sudden, a potential buyer shows up. His sales had dropped 50% [in the] last year and he had fancy machinery sitting around. We soon had a deal. I sold him the rights to my products for 5% of sales for 7 years. I gave him a customer list, a line of products and my son Eric. My son knew a lot about how to make the products. He was in charge of getting the tools made at the new company. He was responsible for ordering materials, Scheduling production and running production. It went smoothly and soon I was getting royalties. I called it a licensing agreement but my accountant said it was a delayed purchase plan. Anyway, the checks cash the same.
At this time I had about $25,000 in receivables which I was able to collect and $25.000 in inventory which I sold to my licensee because he didn’t have anything to sell. One of the measures of business success is how long does it take to turn over your inventory. One month is outstanding. The shop was working 6 days a week and Sunday was for payroll, taxes, bookkeeping and preparing orders. I hadn’t taken any money out of the business since it started. These were factors which helped make the decision to sell,
Afterward, he asked me to see if I could design a crimper that would crimp a connector fitting round instead of the standard hex crimp. The standard hex crimp is on a round cable and it lets water and signal in and signal out. Does that make any sense? I am an engineer by trade, so I did it and it has been a real winner. This is an unusual situation, Using this crimper enables the cable company to use cheaper connectors, saving 5 cents each. If an employee is putting on 50 connectors a day you can see what a saving this new crimper is. The crimper will pay for itself. This tool and the others are being sold all over the world now.
By now the licensee has a factory in the USA, one factory in China, and two factories in India. He just finished building a new house for $11,000,000. This is what new products, intellectual property and hard work can do for you.
By Don Kesinger
Reason Magazine has released a video, entitled How Patent Trolls Kill Innovation. The magazine banner states that they support “Free Minds and Free Markets” but this video relies on the same irrational, emotion driven logic as the media. I cannot point out all the errors in this video, but below I will highlight some of the major points. Before I do that , let me show some of the sleazy attempts by Reason Magazine to use emotion and hidden assumptions to advance their argument, instead of reason and logic.
Emotion and Faith
*The video starts with the hidden assumption that patents are not property rights – faith not reason.
*The video uses the phrase “patent trolls” to immediately define who is right or wrong without actually proving their case – an emotional appeal.
*The video selects a small entrepreneur to narrate their story – using the typical liberal tactic of pretending this is a fight between a small virtuous entity against a big faceless entity. The reality is that so-called “Trolls” sue large entities much more often than small businesses. Emotional appeal, not reason.
*The video uses an “expert”, Julie Samuels, from a biased source, (Mark Cuban’s lobby group) who has no qualifications in the subject. She has a degree in Journalism and Law, which means she is NOT A PATENT ATTORNEY and does not have the technical skills to understand the underlying technology of patents. Faith not reason.
The video never asks if Austin Meyer did a patent search and clearance opinion before building and selling his software. You would not build a house without doing a title search to make sure you owned the land. Given Mr. Meyer’s surprise that he was being sued for patent infringement, he almost certainly did not undertake this simple due diligence step.
Using Other Peoples’ Property
Mr. Meyer complains that he may have to pay the patent holder for the life of his product. Yes, that is what happens when you use someone else’s property. This is like a steel manufacturer complaining that they have to continue to pay for coal or pay rent for a building they do not own.
Note that the underlying technology is critical to Mr. Meyer getting paid, but he doesn’t want to pay for it.
The anti-patent crowd always complains that these suits are brought in East Texas. If someone refused to pay you rent for staying in your house, would you chose the slowest court in the country or a faster court? Federal Court for the Eastern district of Texas has been one of the fastese to bring invention squatters to justice.
The video makes the implicit assumption that non-practicing entities (NPE) are evil. However, Edison was a NPE, as was Tesla, as was almost every great inventor in the last 200 years, as our most major corporations, as most of our Universities and Government labs. Our Founders looked at the issue of requiring inventors to practice their invention in order to keep their patent and rejected it. They voted for a FREE MARKET system where people could be independent inventors, just like writers do not have to be publishers in order to obtain or keep their copyrights. This is consistent with Adam Smith’s division of labor theory.
The video takes the stand that if you buy the patent rights instead of being the inventor,this is somehow evil. First, all corporations buy their patents – often by paying wages. Corporation don’t invent so they have to buy their patents. Second, we do not argue just because you didn’t build your house you cannot rent it out .
Mr. Meyer states in the video that the technology he wants to use is old, from the 80s. If this were true, Mr. Meyer would be free to use it. But, instead, he wants the updated version of the technology that ensures he gets paid, he just doesn’t want to pay for it.
The Patent Should Not Have Issued
Neither Mr. Meyer nor the so called expert, Julie Samuels, are patent attorneys. They are NOT QUALIFIED to evaluate the scope of the claims of a patent. It is interesting how lay people (I include attorneys who are not patent attorneys in this definition) believe they can just read a patent and evaluate it, but they would never try to do the same thing with a Warranty Clause in a contract or an Indemnity Clause. No one would believe a Journalism major or an attorney (non-technical) is qualified to comment on software technology; but somehow they are qualified to comment on patents on software? This is like asking a plumber to comment on the design of a Nuclear Power Plant.
Patents and the Free Market
Patents are property rights, just like a property right in a farm. The basis for all property rights is creation. Inventions are clearly creations. Property rights are part of the free market. Those countries that are the freest economically have the strongest patents laws, are the most innovative, and have the highest standards of living. REASON MAGAZINE is pushing a point of view that is much more consistent with a Marxist’s labor theory of value than Capitalism.
REASON MAGAZINE is neither promoting REASON or FREE MARKETS in posting this video.
DYSTAR TEXTILFARBEN GMBH & CO DEUTSCHLAND KG, Plaintiff-Appellee, v. C.H. PATRICK CO., and Bann Quimica LTDA, Defendants-Appellants, 464 F.3d 1356, 1368 (Fed. Cir. 2006) illustrates the problem of non-technical, non-patent attorney judges on the CAFC. I suspect this case will cause more and more problems.
Indeed, we have repeatedly held that an implicit motivation to combine exists not only when a suggestion may be gleaned from the prior art as a whole, but when the “improvement” is technology-independent and the combination of references results in a product or process that is more desirable, for example because it is stronger, cheaper, cleaner, faster, lighter, smaller, more durable, or more efficient. Because the desire to enhance commercial opportunities by improving a product or process is universal — and even common-sensical — we have held that there exists in these situations a motivation to combine prior art references even absent any hint of suggestion in the references themselves. In such situations, the proper question is whether the ordinary artisan possesses knowledge and skills rendering him capable of combining the prior art references.
I guess you can obtain a patent when your invention is not more desirable, one that is weaker, more expensive, slower, heavier (unless that would make it better), less durable, or less efficient. Inventors need to focus on inventions that have reduce their commercial opportunities, according to these judges.
Do these people actually read what they write? Do they understand the logical implications of their statements? The judges on this case were Michel, Raider and Schall. Not surprisingly, none of the judges who wrote this have a technical background and none are patent attorneys.
What the hell does “the ‘improvement’ is technology-independent” mean? Not surprisingly, there is no explanation of this phrase in the case.
This is just one more example of why we should not allow non-patent attorneys on the CAFC – or at least they should have to take a course on logic as it applies to patents and inventions.
According to IP Offerings the median value of patents sold in 2012 was $221,000 and the average price of patents sold in 2012 was $373,573. The full report lists transactions by date, buyer, seller, and technology area. The report appears to cover 6985 patents. The most valuable patents appeared to be in the WiFi space and then the wireless handset space. It seems unlikely that this report could be comprehensive, since so many of these deals include a non-disclosure clause.
- Halling asked to Speak at Atlas Summit 2014
- Book Review: The Nature of Technology
- Business Method Patents: A Solution?
- Philosophy of Science
- Guest Post: Stop the Destruction of Independent Invention
- DK Halling Interview with Fran Lewis
- Latest Review of Pendulum of Justice
- PATENT=MONOPOLY – A LEGAL FICTION
- Guest Post: Fatal Patent Legislation Must Be Stopped
- GAO No Patent Litigation Explosion: No NPE Problem