Invention and IP Creation Done with Speed, Quality and Relevance will Swing the Patent Pendulum in a Positive Direction

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1 Invention and IP Creation Done with Speed, Quality and Relevance will Swing the Patent Pendulum in a Positive Direction By John Cronin Introduction The recent Patent Office changes to the America Invents Act (AIA), and changes to case law, such as Alice vs. CLS Bank, have affected our patent system, making it harder to get patents of high quality and relevance. Many of these impacts, when taken together, have severely affected the patent ecosystem, swinging the patent pendulum to one of the weakest patent systems since its inception. These impacts create three major issues, the new necessity for speed to combat the new AIA restrictions, quality to combat the deeper requirements for successful patentability (e.g., overcoming prior art) and relevance for better products that can be protected with patents. By utilizing new IP Creation process and tools, to target the issues resulting from these impacts, there are now opportunities that can allow success. These new opportunities will allow early adopters to distance themselves from the competition and help move the patent pendulum back in a stronger and more positive direction. Background: The Impacts to Patents Impact 1: Dramatic patent system changes in the last 10 years The patent system has traditionally gone through many changes. There is a long history of markets, industries and companies moving the patent system in directions beneficial to doing business. Thus, while it is no stranger to change, the system has never undergone the breadth & depth of changes that we ve seen over the last 10 years. Changes such as the American Invents Act, KSR Teleflex, Bielski, Alice, the new IPR reviews, and crowd efforts to find prior art not available 10 years ago, are forcing companies and inventors to adopt new ways to try to leverage patents in the future. Impact 2: A company s size may drive some patent needs, but only on a volume low-cost basis Companies are increasingly becoming very large, very quickly without enough patents in their portfolios to support their position in the marketplace. As a result, these fast growing companies go on a patent buying spree to normalize their position. Conversely, many large companies lose their way in the

2 market (89% of F500 companies go out of business in 75 years 1 ) and patents, in this case, become an asset for needed cash in litigations or sales. In either case, as these large companies grow fast, or go out of business fast, the patent deals become volume-based deals where the average patent costs are continually reduced in value. Impact 3: M&A gets dramatically impacted by a weakened patent system Are patents valuable in the M&A market today? This question is best answered if we can tightly define the industry, size of the M&A and shift in technology. In industries like biotech, a single patent can protect a single product. This type of entity becomes a way for large companies, through acquisition, to innovate. In other industries, such as in mobile phones, there are hundreds of companies each inventing a small portion of the solution of a larger product. These companies can become targets of acquisition, but the IP in these companies may be easily invented around, or eclipsed. In a weakened patent system, this IP can be made irrelevant by large brand companies who simply copy these inventions. M&A may still be needed for speed-to-market or know-how acquisition, but the valuations will not be in the realm of stunning 5 to 10x revenues; rather, they will be meager 1.5X to 2X revenues. Since a weakened patent system reduces the valuations of these companies, investments in starting these companies will also dramatically reduce, as the probability of a big M&A winner declines. Impact 4: Dot.com bust and trolls created brokers and NPE s which have now turned over all the patents to date, eliminating the patent licensing business and patent value Since the 2000 dot.com bust, when 1000 s of companies went out of business (each with a handful of patents) and the financing of litigation became a moneymaker, patent trolls have become a household word. The troll phenomenon pushed its way into leveraging small public companies. Investors financed and bet on these companies, and achieved high returns. Then, patent brokers sprung up as a new industry, plagued with advisors that lacked credentials and experience. Those with enough business experience found inventors with patents and buyers to buy patents, and these brokers could get success fees or commissions to provide nice returns for their coffers. Unfortunately, there is a limited supply of 2.5 million issued patents and having run its course over the last ten years, all the patents that could get to market, have. The changes in the patent system described above combined with the limited supply of good patents has reduced the overall patent value significantly. Unlike natural supply and demand curves for products or services, patents have seen lower demand because of the decrease in available patent supply, and thus, the decrease in deals surrounding patent leverage (e.g., litigation or brokerage). The litigation and brokerage businesses do not create the demand for patents to change the dynamics, so these businesses are all but eroded and gone out of business. The benefit, of course, is to the large companies that fought hard against the leveraging of patents. However, in the long-term, the weakened patent system eliminates the seed corn of inventions: startups and good patents. 1

3 Impact 5: Patents have become a bad word The markets, industries and companies moved the patent system to counter the above ways to get returns on patents. With changes in the patent laws (e.g., American Invent Act), changes in case law (e.g., Bielski, Alice, etc.) and changes in patent office methods (e.g., IPR s), the system has shifted. In many circles, patent has become a bad word. The average price per patent sale has steadily gone down from $750K to $100K or less. Ironically, not all of these changes really mattered, because over the last 15 years of trading, the limited number of patents kept most of the good patents locked up and out of harm s way. The combination of the changes in the patent system plus fewer high quality patents in the market has changed the market. Almost all the patent brokers are out of business. All of the small public companies that took advantage of patents have poor market caps and have already or soon will, run out of cash. Litigation has become a much larger gamble, and the funds that want to take these gambles have retrenched. Not only are the issued patents all picked through and locked away, the newly created patents that enter the system will have a quality problem, as inventors did not create under the requirements of the changed patent system and recent case law changes. Impact 6: Internet and Prior Art With all of these changes occurring in the patent system, the Internet enabled a new tool for fighting against low quality patents: the crowd-sourcing of patent prior art. Crowdsearching to find prior art, which is based upon a rewards system to knock out patents, has begun to take the worlds prior art and serve it up against most patents where returns are being sought. This has quickly become an added force to make the probability to invalidate a patent high. Culmination of impacts on the patent ecosystem If you were an inventor, patent broker, patent litigator, patent consultant, small company, investor, or small public company, etc., over the last years, your frustration is probably high with the patent business. Any one of the impacts mentioned above would have some drag on the patent ecosystem, but the combination has been near disastrous. The impacts continue with new proposals in Congress, such as loser pays in a patent litigation. If enacted, this change will reduce the value of patents once again, because enforcing patents will be too risky, as defendants are likely to pour even more money into defense, and the losing plaintiffs can have loser pays bills at many multiples of their own plaintiff bills. Taking Advantage of the Impacts The problems become the opportunities Opportunities will exist for those who can take advantage of the impacts and changes outlined above. In essence, all of the impacts to the patent ecosystem come down to just a few simple opportunity areas.

4 First, speed to invention creation becomes essential, as the faster an idea can be converted to an enabled invention and documented as such, the more likely the invention will be patentable over prior art. It will get to the patent offices of the world first, aligning with the first to file world we now live in. The companies that can create robust, fast six sigma invention developments, like what was created in IBM at its patent factory are likely to be duplicated and new 3 rd party service companies will join in to fill the gap. Speed is vital to patenting since the first to file issue, but big companies do not do move quickly. This creates an opportunity to improve speed. Second, quality becomes imperative. The old days of not searching an invention thoroughly in the prior-art before filing are no longer acceptable, because of the ease of invalidating the invention and the resultant wasted expense of the cost of filing. The fear of willful infringement by studying the prior art may shift to an acceptable risk or create new third party companies to bridge the gap. It will not be enough to thoroughly search the prior art before filing as we have in the past, because in the world of quality is imperative, the prior-art searching must cross the globe in a low-cost and high-quality manner. Today s best solution to this is the crowdsearching tools 2 that can search hundreds of countries in dozens of languages. This is prior art meets the Internet in the new world of invention opportunity. Quality becomes vital, so crowdsearching your invention disclosures on the front end is vital, as it very expensive to invest in patents with a 50% success rate in the patent office (70% for larger more sophisticated companies). This creates an opportunity to improve quality. Third, relevance becomes important to invention. Inventing at fast speeds and high quality become the table stakes, but strategy about where to invent, what to invent and how to invent become essential. The tools of relevance become the tools of strategy and visioning supported by data analytics and its resultant visualizations. Relevance becomes the only sane way to leverage the speed and quality efforts. By relevance, we are talking about good inventions. In the old days, good patents were those patents that, in retrospect, were obvious. Inventions like the cursor of a computer changing it shape based upon the function the computer (a very important patent for IBM in the early days). A bi-directional print head that prints in forward and reverse to double the speed of the printer, will, in our new world of the patent system, become harder to obtain. Therefore, the new relevance is reflected by inventions that are converted to patents that the industry really needs. This means that relevant inventions have to predict the direction of the brands, or predict the direction of a winning product in ways that are more non-obvious. If your business sees disruption, it must see beyond the disruption and then invent in this future. Something new is going on Something new is going on, which few have recognized, that may very well change the patent system and with it, invention and innovation. Because there are fewer patents to buy and fewer 2 Article One Partners is a world largest and best utilized Crowd Searching prior-art systems.

5 companies with good patents to acquire, companies starving for innovations that need either of these two advantage points are finding new problems. Companies that have large brands win in the patent change because they can t be challenged as easily over weak patents. Companies that are accelerating up the brand curve with new innovative businesses will be quickly copied; thus, the R&D of the companies growing their brand does not get the same returns it once did. Smaller companies have their value creation impaired because of these same issues, so unless there is a trade-secret that can t be copied, it s harder to create value since cash rich brand companies can simply copy; unless, of course, they need the speed to get into a market. Where does that leave most companies striving for innovation backed by patents to create value? The Speed, Quality and Relevance processes of the future Processes of Speed If you have been involved in IP for any amount of time, you likely know that effective invention extraction is the first step toward successful patent creation. This need is especially relevant in light of the first to file provision of the AIA. The old days of inventor notebooks and waiting to file upon product release are gone, as speed now takes precedent. There needs to be a process where systematic invention harvesting will increase the efficiency of invention extraction process and boost the numbers of invention concepts for potential new filings. ipcapital Group s ipscan process is a systematic invention harvesting service that has been used with its clients for over a decade. This process can help increase the efficiency of your invention extraction process and boost the number of invention concepts for potential new filings. The process typically obtains greater than 150 inventions in an 8-hour session. Each invention idea is 1. Uniquely defined; 2. Thoroughly analyzed and; 3. Fully documented in a comprehensive report. The results of the process often yield a total of 20 invention disclosures and hence patent filings. Most clients have difficulty identifying viable invention concepts; the ipscan process is a solution to this process. Processes of Quality There are many issues that affect the creation of valuable patents, especially the up-front decision-making required to identify the right inventions to file. Recent court rulings, such as Alice vs. CLS Bank have provided precedent that limits the patentability of a number of categories of inventions (such as some software inventions). ipcapital Group s Alice Proofing Checklist helps to analyze a number of issues associated with patentability prior to filing. This process provides the needed guidelines to avoid common pitfalls and provide solutions to Alice risk. Prior Art now becomes even more important to the invention creation process. An in-depth search and review of intellectual property records in the public space will save money in the long run by modifying or eliminating filings that are risky due to prior art. When seeking patent protection for a product and now coming up against prior art as a result of deeper diligence, the inventor runs the risk that such prior art will significantly impact achieving a strong patent, possibly reducing success in the market and lead to lower margins. Therefore, prior art analysis is an integral part of market analysis, because products limited by the prior art often have poor market performance.

6 Our partner company, Article One Partners (AOP), uses a crowd sourced prior art search to help clients achieve extremely high-quality patents, while saving money. For instance, an AOP search (at $1500 per search) for 10 patent applications may eliminate 2-3 non-viable applications potentially saving $10-$20K or more per filing (for drafting and prosecution). The results of this unique search help you to save money, while building a trusted relationship with you or your company. Processes of Relevance As mentioned, the tools of relevance become the tools of strategy and visioning supported by data analytics and its resultant visualizations. Relevant inventions are those that: 1. An industry truly needs; 2. Predict the direction of the brands; 3. Predict the direction of winning products in ways that are more non-obvious; and 4. See beyond the disruption and then protect in this future. ipcapital Group s Invention on Demand (IOD ) process returns the invention efforts with high relevance and which have high novelty in a practical way. The IOD process utilizes your current invention and R&D teams to create new inventions (based upon your strategy and visioning), to create and support more novel product elements. These processes leverage creative thinking and creative problem solving techniques that generate novel ideas and are integrated into engineering and scientific enablement methods. We have found that the cost of many of these novel design changes may even be less costly to manufacture. Typically, IOD will create 25 new ideas, at a first level of enablement in an 8-hour day with 6-8 people. This unique facilitative approach has been used successfully for over 10 years with all size companies in all industries.