By Sheila Pursglove
Legal News
If Shakespeare’s Hamlet had been an intellectual property attorney, he might have asked: “To patent or not to patent new inventions in the currently changing business and legal climate?”
That’s a question posed by Monte Falcoff, an IP attorney and a principal in Harness Dickey in Troy, and an adjunct professor at Michigan State University College of Law.
One huge issue is the very real upfront cost, with continuing costs during Patent Office prosecution and maintenance, for each patent filed, but with an uncertain return on the investment.
“Patent portfolio management must be very strategic or it’s often a waste of money,” Falcoff says.
He recommends one of two strategies: (1) File a lot of patents, realizing that typically only 5 to 30 percent protect commercial products and/or generate royalty revenue; or (2) only file a handful of patents on inventions you know up-front will be commercial winners.
“The first approach is typical for large companies or research institutions where you must ‘place a lot of bets’ relying on statistics to work in your favor since it’s very difficult to predict which inventions will ultimately be successful to you or your competitors – even if you leave that area – over the next 21-year potential life of the patent,” Falcoff says.
The second approach is more commonly used by smaller companies/individuals, or by larger companies that do not wish to commit as much money up-front, he notes. But again – the future can be difficult to predict.
Falcoff suggests a good balance is to employ a bit of both approaches: for the in-house staff within a company to initially decide which inventions it believes to be more likely winners or to protect cash-cow highly profitable product lines, versus those that are more “long-shots” with an uncertain commercial future, in light of conversations the in-house staff has with the engineering and marketing staffs. If time allows, it is very helpful for the patent firm (or in-house staff if they have the manpower) to conduct a prior art search to determine the potential scope of the patent claims (which define the protective coverage or exclusivity), he notes.
“Territorial commercialization potential must also be realistically determined,” he adds.
Such assessments are difficult if only the inventors are asked about the merits of the invention.
“Every inventor considers his or her invention to be the best thing since sliced bread with no expense being too great to globally protect the invention de jour,” Falcoff says.
As Julius Caesar did with Gaul, Falcoff likes to divide inventions into three groups: (1) high value, worth the extra legal expense; (2) medium value, where quality coverage is desired but probably not worth too much extra expense; and (3) lower value due to either limited commercial potential or limited patent coverage, where minimal expense is the over-riding concern.
Falcoff explains that for high value inventions, it is worth including 40 to 80 total claims in the patent; file continuation/divisional patent applications to always keep something pending in the Patent Office when others in the family issue, or which you may desire to appeal within the Patent Office if you believe the examiner’s rejection is incorrect, and expensive foreign filing is pursued.
“Of course, the initial assessment should be revisited prior to issuance of a patent in the event that a lower or medium value invention rises or a higher value one decreases, which is not unusual based on your business evolution or new competitive interest,” he explains.
Start-up companies have a different or additional incentive, with usually far more value in their patent portfolio than all other assets of the company.
“Start-ups often need a solid patent base to satisfy their investors and banks,” Falcoff says. “Then they sometimes hope to sell their company to a larger entity once they are successful – but again, the patents commonly play a significant role in the valuation of such a sale.”
Cash flow limitations are often extreme with start-ups, so the use of German utility models/petty patents may provide a better return on the investment than the very expensive European Patent Office filings.
“This is a meaningful approach for quick-to-market products but not so good with pharmaceuticals and other slow to develop inventions,” he says.
Patents and trademarks serve as a “sword and shield,” by establishing a proprietary advantage. Patents create exclusivity for the invention and reduce competition for the invention. Properly employed, Intellectual Property can translate into enhanced market share and higher margins. The PR value in patent pending and patent marking improves a company’s financial performance by improving shareholder values. “They are intangible assets that can be secured as collateral for loans,” Falcoff explains. “Intellectual property is a growing corporate asset – just look at the multi-billion value of the Coca-Cola trademark, for example. It may be more valuable than all of their physical facilities. Microsoft’s patents and software copyrights are another example.”
Patent licensing brings in revenue and can be used defensively.
“In a cold war nuclear standoff between competitors, no one will sue since both have significant patent portfolios,” Falcoff says. “This can force competitors to possibly design around a client’s patents, at greater expense, and prevents customers from shopping your technology to other suppliers.”
Falcoff generally finds it hard to “dabble” in the patenting game with success. “It’s a ‘long-term play’ and not usually a quick return on the investment. It’s finding the right mixture of quality and quantity, with use of only one of those making it easier on competitors.”
A large quantity of poorly written/prosecuted patents is rarely respected – and will almost always cause enforcement problems down the road – yet it is difficult to aim a single high quality patent or two at the future moving or yet unknown target, he explains.
The very high costs and time delay of patent litigation must also be taken into account. “Less than 15 percent of patent lawsuits go to trial and of those that do, a final district court decision will not usually come for at least three years if not much longer – then the time for the inevitable appeal,” he says.
Almost all patent lawsuits are either resolved by settlement or a Summary Judgment/claim interpretation ruling by the judge, however, such a resolution may not occur for 18 months from filing of the lawsuit – but will the patent owner still care about the dispute 2 or 5 years later, and is it worth the internal manpower and mental diversion of the conflict, Falcoff notes.
“There are no easy answers but I would rather have a strong patent portfolio backing me up in negotiations – regardless of whether I am representing a potential plaintiff or potential defendant – so the company can make a well supported decision as to whether to proceed with the fight, license, cross-license, reach another amicable resolution, or not proceed,” he says. “No patents means you have no leverage or a decision, such that you are entirely at the mercy of a potentially irrational or calculated copyist customer who is actively competitively shopping your invention to the lowest bidder, or a competitive bully who is asserting his own patent.”
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