Ways to protect yourself while marketing new ideas

Last Monday, I posted on the types of things individual inventors need to consider when thinking about investing in a patent on a new idea. The gist of the article was that patents aren’t a way to easy money — rather, patents create a protectible property interest ripe for investment. So, once an inventor decides to move forward with patenting an invention, what are the options? Here they are, in order from most risky to least risky:

Option 1 — Test market first, then patent

This option involves talking to people in the industry about your idea before seeking patent protection. Your goal is to find out if there are any potential investors/purchasers for your idea before you invest much money. The risks here include: (1) public disclosure of your idea starts a 1-year clock ticking for you to file a patent application, and if you don’t, you cannot get a patent; and (2) industry insiders could take your idea and run with it, and you would face an uphill battle proving it was your idea in court. This is the most risky option because it provides no protection whatsoever.

Option 2 — Nondisclosure agreement

This option is similar to step 1, except that you ask the potential investor/purchaser to sign a nondisclosure agreement (NDAs) before you tell them what your idea is. In the abstract, this option makes it less likely that a third party would steal your idea. However, practically speaking, you might still have to prove what you disclosed to industry insiders and that they did not already know what you disclosed to them. Many companies are unwilling to sign NDAs for unsolicited idea submissions, in part due to these proof issues. This is a reasonable option for inventors who have already identified serious potential “angel” investors (that is, investors who are not in the same field and thus have little incentive to steal the idea) or have existing partnerships with trusted associates.

Option 3 — Patent pending

The patent pending option means that you begin marketing as soon as you file a patent application. This option allows you to prove what you’ve invented to interested parties, since you’ve already submitted your idea to the patent office and have received a dated confirmation. It also avoids complications about when you disclosed your idea to the public vs. when you filed your patent application. For these reasons, the patent pending option shows that you are serious about your invention and what it takes to protect it. The downside is primarily the cost of getting a patent application on file. This option is the one taken by most of my individual inventor clients, as it represents a good balance between the risk of theft by a third party and getting your product onto the market (and making money) as soon as possible.

Option 4 — Full patent protection

The final option, securing full patent protection before marketing your product, is the least risky. It means that others will not know about your product until it is already patented. Under this situation, a potential thief of your idea would be on notice of the patent and would be subject to additional penalties in a civil patent case for stealing your idea. Most of the time, when I see this approach, it is from existing businesses whose R&D departments are coming up with ideas that are several years from production.

Individual inventors: clearing the hurdles

When we watch politicians talk about what makes America great, they often say something about American ingenuity. One example that easily comes to mind is Steve Jobs and Steve Wozniak making the first Apple computer in a garage. Now, Apple is the most valuable tech company in the world.

I get lots of calls from individuals who have an idea for a great new product or service and are looking to take the next step. Lots of these folks have different day jobs and are just looking to sell the idea. What hurdles do they face?

The first hurdle many people face with their idea is it is just that: an idea. This is one of the most common misconceptions about patents — patents protect inventions, not ideas. You have to describe an actual physical product or service in a patent application. That is, you have to know all the components it will take to build the invention and what the function of each component is. A person without a clear picture of how to make a product out of the idea doesn’t have enough information to get a patent.

The second hurdle is that many companies aren’t willing to invest in a new idea unless one of two things happens. First, you can sign a complete release letting them use your idea without paying you anything. This is like sending an email to your favorite software company and asking them to put a new feature in the next version of their software. They may do it, but you would have no claim to any money from the feature.

The second thing companies look for is a patent. Not a patent pending, but an actual patent. But why? A patent pending is not a guarantee that the government will grant a patent. Without a patent, the company would have nothing to protect the idea from copying by others. A company could hire a patent attorney to look at the pending patent application, but this requires a pretty significant cost, and many companies would rather let the individual get the patent first.

The third hurdle is that patents take a while to obtain and, for individuals who are pursuing one outside of a routine business research and development budget, they are also fairly expensive. However, the hard cost of a patent is small compared to the investment of time and money it takes to market a successful product. In order to get a company to buy a patent, an inventor needs to be prepared to make prototypes, go to trade shows, and pitch the product to as many people in the industry as possible.

Like any good investment, a patent is a long-term project that requires patience. It also requires lots of hard work. For people with good ideas and a clear marketing plan, a patent can be a great way to start a new business or to expand an existing one.

Nathan talks to high schoolers about IP law

Nathan Chaney was a guest speaker this morning at a class for high school students at Jessieville and Mountain Pine through the distance learning program at Dawson Education Cooperative. Nathan’s presentation was an overview of intellectual property law and how it applies in today’s world.

The outline for Nathan’s presentation is available here.

Thanks to Robert Cooper for inviting Nathan to come speak to his class.

High-tech patent cold war — Let the arms race begin

Google recently lost a bid to buy Nortel’s patent portfolio in bankruptcy, and it is disappointed with the results. Google blames the patent system for increasing costs of its Android platform and generally stifling innovation.

Google’s complaints are especially interesting considering President Obama’s recent speeches on how America’s government needs to promote innovation to compete with the rest of the world (and he’s right — the Constitution tells us that patents are supposed to “promote progress of science and the useful arts”). These speeches implied that individual inventors and startup companies can help bring us out of our current economic woes by creating jobs at new (and mainly small) businesses.

From a historical perspective, Google is still a startup company; it was formally incorporated in 1998. Assume that Google began applying for patents when its founders created their first search engine in 1996 — those patents would not have expired yet, since patents last 20 years after the date of filing. This means that Google is a relative newcomer to the patent game, but has 15 years’ experience as a startup company for whom the patent system is supposed to promote innovation.

And what is Google telling us from its position of experience? That the patent system is not geared towards promoting innovation by startup companies. What’s to blame, according to Google? First, the patent system itself, since it is geared towards large corporations who can afford to invest millions of dollars and years of time toward procuring and enforcing patents. A patent, at its very core, is merely the right to exclude someone else from practicing a patented invention — and the only way to exclude someone from doing what they’re doing is to sue them. The average utility patent costs somewhere in the five-figure range and takes 3–4 years to obtain, and the average patent infringement lawsuit costs at least a million dollars. What startup company or small business do you know of that can pay a million dollars for a patent infringement lawsuit?

Second, Google complains the patent system is open to exploitation by non-practicing entities (known as “NPEs”, or the less-politically-correct “patent trolls”), who do not actually make and sell innovative products, but instead buy and enforce patents against those who do. Just because a startup or small business has a patent doesn’t mean that it can’t be sued for patent infringement by someone else — products can be, and often are, covered by more than one patent.

What do the pitfalls of the patent system mean for real businesses? Well, there are two general approaches a business can choose to take. First, an industry can elect not to pursue patent protection and compete on the merits of their products. This approach is rare these days, as it is hard for small businesses and startups to attract investment capital without a protectable core product. Second, everyone in the industry can elect to pursue a patent enforcement model. This is the Cold War, mutually-assured destruction model. Since most products in the rapidly evolving high-tech industry are covered by some type of patent, the industry players can extract licensing fees from their competitors, and can resolve patent disputes through some mixture of cross-licensing arrangements, cash payments, and injunctions against future competition. Google’s recent press releases make abundantly clear that while it is playing the patent game, it doesn’t want to be.

Any industry in which one player shifts from the first two the second model will ultimately force all other players in the industry into the second model. Google is a prime example of this. Its press releases following the Nortel patent sale plainly indicate that Google would prefer to compete on the merits of its products, rather than the size of its patent portfolio. That is, Google would rather spent tens of millions per year on research and development of new technology, rather than litigating over old technology. While some portray this as sour grapes, Google is the current poster child for startup companies, so perhaps the architects of our patent system should listen to what it is saying if they truly want to encourage innovation by startups and small businesses.

Trademark Dashboard

Last month, I posted about the Patent Dashboard, a fairly new feature on the USPTO’s website that provides statistics on how quickly and how well the USPTO is examining patent applications.

Last month, the USPTO’s Director announced a new Trademark Dashboard aimed at providing the same type of information for trademark application pendency. Currently, a trademark applicant can expect to hear something about an application within 3 months. Assuming no problems, total pendency is averaging a little under a year.

The new tool provides tons more useful statistics. As a practitioner, it is helpful to have this information available so I can give my clients a firm estimate of how much time it will take to secure a federal trademark registration. This represents a step in the right direction for the USPTO, which has been plagued by a lack of transparency about its operations in recent years.