State of Innovation

Patents and Innovation Economics

IPXI’s Business Model Should be More Like Amazon’s

I have written extensively on the problems I see with IPXI’s model to market licensing rights to patents.  Their model is based on a commodities contracts type of model, where unit licensing rights can be bought and traded.  I believe a model based on how Amazon sells books would be more effective and open up the patent licensing market to smaller entities and inventors.  This sort of retail licensing system would allow inventors to post an invention that they are willing to license with a unit licensing rate for one instance of the invention.  For software enabled inventions the unit licensing rate might be based on a per execution basis or a time limited period.  The retail licensing system would issue a certificate that the licensor would use to prove that they had bought a license and only be good for one instance or execution.  It is my assumption that the unit licensing rates would be so low that it would be easier to license the invention than infringe.  The license would not come with any warranties of validity or non-infringement, but would come with a warranty of ownership of an issued patent.  In addition, there might be bulk unit licensing discounts and a chance for the inventor to sell their engineering talent to help implement the invention.

This system would reduce the cost of licensing.  Avoid some of the problems of IPXIs model, such as having a limited number of unit licenses and it would open up the market to individual inventors and small entities and spark an inventive wave that we would all profit from.


August 30, 2013 Posted by | -Economics, -How to, Innovation | , , | Leave a comment

Administrative Processes for Challenging a Patent (Application)

Here are the four ways to administratively challenge a patent or patent application.  Note that I do not consider an ITC (International Trade Commission) case an administrative challenge.  The challenges are organized from least expensive and complicated to more complicated and expensive.

1. Pre-Issuance Submissions by Third Party

35 U.S.C. §122(e)

37 CFR §1.290

For more information see

This process only allows one to submit printed publications, including published patents and patent application along with a concise statement as to why they are relevant.  Note

Third-Party Submissions must be made (1) before the later of (i) 6 months after the date the  application is first published by the Office, or (ii) the date of a first Office action on the merits rejecting any claim, and (2) before the date a notice of allowance is given or mailed.


2. Ex Parte Reexamination (Determination of issue by Director)

35 USC 303(a)

The basic characteristics of ex parte reexamination are as follows:

(A) Anyone can request reexamination at any time during the period of enforceability of the patent;

(B) Prior art considered during reexamination is limited to prior art patents or printed publications applied under the appropriate parts of 35 U.S.C. 102 and 103;

(C) A substantial new question of patentability must be present for reexamination to be ordered;

(D) If ordered, the actual reexamination proceeding is ex parte in nature;

(E) Decision on the request must be made no later than 3 months from its filing, and the remainder of proceedings must proceed with “special dispatch” within the Office;

(F) If ordered, a reexamination proceeding will normally be conducted to its conclusion and the issuance of a reexamination certificate;

(G) The scope of a claim cannot be enlarged by amendment;

(H) All reexamination and patent files are open to the public, but see paragraph (I) below;

(I) The reexamination file is scanned into IFW to provide an electronic format copy of the file. All public access to and copying of the reexamination file may be made from the electronic format copy available through PAIR. Any remaining paper files are not available to the public.


3. Inter Partes Review

35 U.S.C. §§ 311-319

For More information See

Essentially this is a mini-lawsuit in front of the Patent Office that requires the challenger to present mainly publications as evidence that a patent should not have issued (35 USC 102 & 103).  This process must be initiated within nine months of issuance of a patent.  The decision is non-appealable.


4. Post Grant Review

35 USC § 321

This is a newly introduced process by the AIA.  In general it only applies to patents filed after March 15, 2013.  This process will allow the challenger a broader range of challenges than Inter Partes Review.

For More information see


March 5, 2013 Posted by | -How to, Patents | Leave a comment

Patent Office Uses Restriction Requirement to Limit Scope of Claims

Periodically, the PTO decides they need a more aggressive (more European) approach to restrictions.  This practice not only fails to follow the law but it is an attempt to use restriction practice to limit the applicant’s right to define their invention.  In other words, it is a backhanded way of limiting invention under 35 USC 101 or 35 USC 103.

According the MPEP 803,

There are two criteria for a proper requirement for restriction between patentably distinct inventions:

(A) The inventions must be independent (see MPEP § 802.01, § *>806.06<, § 808.01) or distinct as claimed (see MPEP § 806.05 – § *>806.05(j)<); and

(B) There *>would< be a serious burden on the examiner if restriction is >not< required (see MPEP § 803.02, **> § 808<, and § 808.02).

 The statutory basis for restriction requirements is 35 USC 121, which states

If two or more independent and distinct inventions are claimed in one application, the Director may require the application to be restricted to one of the inventions. If the other invention is made the subject of a divisional application which complies with the requirements of section 120 of this title it shall be entitled to the benefit of the filing date of the original application. A patent issuing on an application with respect to which a requirement for restriction under this section has been made, or on an application filed as a result of such a requirement, shall not be used as a reference either in the Patent and Trademark Office or in the courts against a divisional application or against the original application or any patent issued on either of them, if the divisional application is filed before the issuance of the patent on the other application. If a divisional application is directed solely to subject matter described and claimed in the original application as filed, the Director may dispense with signing and execution by the inventor. The validity of a patent shall not be questioned for failure of the Director to require the application to be restricted to one invention.

Why does the MPEP change “independent and distinct” to “independent or distinct?”  It appears the Patent Office’s is not following the law and attempting to make it easier to require a restriction.

The question the statute leaves unanswered is what is an independent and distinct invention.  According to the MPEP 802.1:

The term “independent” (i.e., **>unrelated<) means that there is no disclosed relationship between the two or more inventions claimed, that is, they are unconnected in design, operation, and effect.

According the MPEP 802.2 the term distinct means

Related inventions are distinct if the inventions as claimed are not connected in at least one of design, operation, or effect.

From the above it is clear that “distinct” casts the widest net.  I will note the MPEP suggests that the case law on point does not always use the above definition.  The important thing to remember is that we are talking about the inventions as claimed.  Thus, if any set of claims incorporates both inventions, they are clearly connected by design, operation or effect.

The Patent Office when issue a restriction requirement often asserts the combination/sub-combination rule to argue that two inventions in an application are distinct.  However, this rule is still based on how the combination/subcombination are claimed and requires the PTO show that it would be a serious burden if the restriction were not upheld.

Unfortunately, the PTO often ignores the “claimed” requirement for distinct inventions.  If the PTO is allowed to do this it arbitrarily limits what the applicant can claim as their invention.  Every invention is a combination of known elements (conservation of matter and energy) and when the PTO incorrectly limits which subcombinations the inventor can claim, they limit the right of the inventor to define what their invention is.  This has the same effect as limiting what the inventor can claim under 35 USC 101 or 35 USC 103.  From a practical point of view this arises when a subsequent Office Action rejects the claims based on certain prior art and the applicant then wants to modify their claims to incorporate the features of one of the subcombinations.  The PTO disallows this amendment by suggesting the applicant has not selected that subcombination.  This practice is wrong, illegal, denies the applicant of due process, and denies the applicant’s right to define their invention.


August 22, 2012 Posted by | -How to, -Law, -Prosecution, Patents | , , , , , | 1 Comment

How Do You Determine if it Makes Economic Sense to File a Patent?

Just because you can obtain a patent for your invention does not mean that you should file for a patent.  So how do you determine whether it makes business sense to file a patent application on your invention?  The goal of filing a patent application is to create a barrier to entry.  There are many ways to create a barrier to entry in business.  For instance, a company’s customer list can give you an advantage over potential competitors since they will not know who the key people are in the industry.  Another barrier to entry might be your location if you are a retail store.  A gas station on at a busy intersection with easy access has an advantage over competitors that cannot be at the same busy location.  Trademarks may also provide a barrier to entry.

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.

April 11, 2012 Posted by | -How to, Patents | , | Leave a comment

Only 2% of Patents Ever Pay Off

I often hear something like ‘only 2% of patents every pay off’ or are commercialized.  This comment is quoted as if it is gospel and often is said in a snide or cynical way.  This comment came to my mind as I was preparing a list of patents and associated products for one of my clients.  This client has seven or eight patents and every single patent covers a product my client is producing and selling.  While I certainly have clients that have filed for patents that are not licensed or being practiced, these are the exception not the rule.  The economist Jacob Schmookler in his 1966 book Invention and Economic Growth, investigates this issue and his survey showed that over 50% of patents are commercialized.  Economists Lamoreaux and Sokoloff investigated the rate at which independent inventors were able to sell their patents around 1900 and at that time it was around 30%.  Clearly, the myth that only 2% of patents are ever commercially successful is without basis in fact.

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.

March 8, 2012 Posted by | -How to, Patents | , , , , | Leave a comment

Virtual Patent Marking

The America Invents Act (AIA) has changed the rules for marking products with patents.  The law allows you to “mark” you product by providing a website that explains which patents cover which products.  This is a positive step to move the patent system into the 21st century.

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:


(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.


February 9, 2012 Posted by | -How to, -Law, Patents | , , , | Leave a comment

Google, Motorola Mobility and the Patent Wars

Google agreed to acquire Motorola Mobility for $12.5 billion.  Most people believe the main motivation for Google was to acquire Motorola’s patent portfolio of over 17,000 patents and patent applications.  The comments on this deal encompass all the insanity around the  Patent Wars.  Below I will discuss some of these issues

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.



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.


August 17, 2011 Posted by | -How to, Patents | , , , , | 22 Comments

Halling to Appear on Ed Jones Radio Show

Dale B. Halling will be discussing the America Invents Act (H.R. 1249 & S. 23) on the Ed Jones Show on 740 KVOR .  The show runs from 7:00AM (MDT) to 8:00AM on July 2nd.  Here is the audio of the show in two parts 1edjones and 2edjones

July 1, 2011 Posted by | -How to, Patents | , , , | 14 Comments