Intellectual Property Directions

A recent issue of the on-line Harvard Business Review “The Magazine” has an interesting and provocative Q&A with Oded Shenkar, who, they say, exhaustively reviewed research on major business-model innovations and on breakthroughs in eight scientific and academic disciplines, ranging from history to neuroscience. In all cases, he found imitation to be a primary source of progress, even though that progress often went unrecognized by executives and scholars. He also discovered that good imitation is difficult and requires intelligence and imagination.

While I don’t know how valid his research is, I strongly agree with his key business finding; that being the holder of a seminal patent does NOT always position your company in the best competitive position. In fact, he believes the data says that companies that are adept at “imitating” [what I prefer to call "designing around" or "building off of"] other companies’ intellectual property are often the big winners in the marketplace.

It’s important to note that Shenkar is NOT suggesting infringing - in fact he is pointing out that “imitators” are actually doing exactly what the patent system was set up to facilitate:

Good imitators don’t wait [until an idea is successful in the marketplace]; they actively search for ideas worth copying. And they often look far from their industry or home country. They also don’t just copy an idea, they come up with a cheaper or better—increasingly it’s cheaper and better—mousetrap. They disrupt the innovator, whose costs are higher by a third, on average, and who’s still sinking investments into the innovation while the imitators are building an offering based on the market reaction to it. [emphasis added]

The patent system is a contract between inventors and society. We (society) give inventors a limited time of exclusivity on their inventions in exchange for teaching us about this advance in the state of the art - so that someone else can take that information and advance the art even further. If you, as an inventor, didn’t realize that this was the bargain you were making, well, you know it now.

UPDATE 02-Mar-10: As has been pointed out (see comment), the blog belongs to BRAD Feld, not Michael.

A recent post on Michael Feld’s blog, http://www.feld.com/wp/archives/2010/02/sawyer-weighs-in-on-intellectual-ventures.html, prompted me to post the following comments:

“Sawyer’s” comments on IV, as useful as they may be in making him feel self-righteous (or is he spending all that time in Texas pro bono) are, for the most part, avoiding the real issues of the failure of the patent system, world wide, to keep up with technology and business realities. He is attacking someone who plays a bad game better than he instead attacking the bad game itself.

The three hundred year old perception that it was a fair trade to give an inventor some period of exclusivity to profit from his invention in exchange for teaching society the invention’s details never envisioned a world in which product/technology lifecycles might be measured in months or in which patent litigation costs start at 7 figures. Nor did they envision technologies where a patent examiner would need an advanced degree to understand a patent application. Or inventions that were totally intangible, like software or business methods.

Furthermore, I doubt the founding fathers envisioned the growth of the patent law practice, where one set of attorneys bill out at well over 50 times the minimum wage to nitpick through the legal maze created and interpreted by another set of lawyers.

My point is not that attorneys charge too much - it is just that the constitutional basis for the patent laws (that society benefits when innovation is encouraged and that that goal is achieved when inventors are encouraged to share the details of their invention with society by having an opportunity to profit without competition) is no longer served by the laws and processes that form our patent system.

The Montagues and Capulets, the ranchers and the farmers, the Hatfields and the McCoys, and, least we forget, the multi-nationals and the small inventor. On the battlefield of patent reform what’s good for one may be an anathema to the other.

As widely reported, a new set of patent reform bills has risen from the ashes of last year’s bills and it will be interesting to see what changes, if any, survive the legislative process. Some of the included changes would:

1. convert the US to a first-to-file system;
   >I like this change. Most small inventors/companies do a lousy job of keeping invention notebooks anyway and really can be more efficient in filing, not needing approvals from multiple bureaucratic layers.
2. revise the determination of damages, in particular, how a “reasonable royalty” is calculated;
   > While I’m not sure of the answer, I am sure that it is important that a royalty be somehow related to the added value of the invention and not to the total value of a complex system.
3. codify the Federal Circuit’s In re Seagate decision regarding the standard to determine willful infringement;
   > with the large body of, frankly, crappy patents out there I wholeheartedly think Seagate, which essentially said you are not being willful if you can see a reasonable infringement defense, is an important protection for small entities, who can’t afford to pay for freedom-to-operate opinions on every marginal patent out there.
4. provide for an improved inter partes reexamination system and an administrative post-grant review to challenge patents within 12 months of the patent’s issue or reissue, i.e., a “first window” post-grant review:
   > while a good way to pare away unworthy patents, the extra costs of “re-prosecuting” patents must not become a financial club used by large entities against small entities. Since virtually all infringement defenses say “I didn’t infringe, but if I did it doesn’t matter since the patent is invalid” it would be nice to address the invalidity question first and in an out-of-court setting.
5. provide for interlocutory appeals of Markman decisions
6. amend the venue statute to reduce forum shopping
7. provide the director of the Patent Office with expanded rulemaking authority to set or adjust fees; and
8. repeal the residency requirement for Federal Circuit judges.

Dennis Crouch, a associate professor of law at University of Missouri has compiled a table of the time to first office action for a variety of technology centers. That is, how long does it take the patent office to get back to you with their (no doubt obviousness-based) rejection of most or all of your claims.

For the technology centers he lists the time ranges from a low of 1.7 years for Manufacturing Devices to a high of 3.7 yearsfor a couple of un-important technologies - fuel cells, batteries, and solar. Now remember, this is the time between filing and your first office action. It can easily take another year before your patent issues and during all that time you have been unable to enforce your patent rights. Heck, you didn’t even know if you were going to have any patent rights.

Mind you, if you filed a provisional application first, then your patent application has been public after 0.5 years from the filing date of the regular application, so you fuel cell companies out there have had your proprietary information hanging around the street, so to speak, for a little over 3 years and counting.

I always tell my clients that the patent system is supposed to be a deal between the inventor and society. You get limited time control over your invention in exchange for teaching the rest of us all those juicy details. This bargain breaks down, I think, when your teaching is published 3 or 4 years before you know that you have control over your invention, if you ever do get that control. During that time your competitors have had the chance to build on your proprietary information to your disadvantage.

It makes one wonder if it’s still worthwhile applying for a patent in a fast moving technology area.