Two issues ago, we covered in some detail how IBM came into existence just exactly 100 years ago when Thomas J. Watson changed the name of the Computing-Tabulating-Recording Company (or CTR) to International Business Machines Corporation (or IBM) in February 1924. And we provided a comprehensive history of the company over the last century.

Last month, we covered three critical products that IBM brought to market, the Selectric typewriter, the System/360 computer, and the IBM PC, and how they each changed the world in their day.

In this installment we complete our celebration of IBM’s 100 years – during which the company was awarded more patents that any other business – with the story of two software programs that – like the Selectric, System/360, and PC – changed the world in their time.

♦ Lotus 1-2-3: The introduction of the IBM PC in 1981 created the need for IBM to offer software that users could run on their PCs. VisiCalc was spreadsheet software introduced in 1979 for use on the Apple II. It was the first spreadsheet, and its inventors – Dan Bricklin and Bob Frankston – never applied for a patent for the technology, in large part because the Patent Office did not consider software to be patentable at that time. In those days, software developers applied for a copyright on the content and a trademark for the product name. VisiCalc ran not just on the Apple II, but also on the TRS-80, Commodore PET, and Atari 800. Just to provide a reference point, Sheldon Cooper from Young Leonard owned a TRS-80 with a dial-up modem!

VisiCalc was sold to the Lotus Development Corporation that turned it into Lotus 1-2-3, an advanced spreadsheet with many additional features. For example, you could create pie charts and graphs from the data in the spreadsheet portion of the software. Lotus Development Corporation applied for a patent in April 1987 and received U.S. Patent No. 4,788,538 for “Method and apparatus for determining boundaries of graphic regions” in November 1988 – just 19 months later. In 1992, Lotus was awarded a second software patent, U.S. Patent No. 5,115,504 for an “Information management system.”

IBM PC owners were buying Lotus 1-2-3 in droves, as well as Lotus Notes, a program for managing emails and a calendar. IBM decided it wanted all that revenue for itself, so it made one of the few acquisitions in its history, and acquired Lotus Development Corporation for $3.5 billion in 1995.

♦ Storyboard: In 1985, IBM introduced software that helped users tell their stories in text and graphics. You could have a headline slide down from the top or slide in from the side and then dissolve right on the screen in front of you. And you could generate all kinds of charts and graphs, and import images. Storyboard enabled many an IBM PC user to create a most impressive presentation in an MS-DOS world! Using an LED projector, the presentation could be show on a large screen for group presentations. IBM followed up with Storyboard Plus and Storyboard Live! But IBM withdrew Storyboard from the market in 1993.

So what happened? None of these software products exist anymore. Lotus 1-2-3 was replaced in the marketplace by Excel®, Lotus Notes was driven to extinction by Outlook®, and Storyboard was overwhelmed by PowerPoint® – all Microsoft products.

IBM made Microsoft the company it became by licensing its MS-DOS, and later its Windows®, operating systems, and a decade later Microsoft drive IBM out of the PC software business. It takes no talent to be a critic, so we will not venture into what IBM did wrong. Last year, IBM rang up $62 billion in sales while Microsoft generated $226 billion.

Excel, Outlook, PowerPoint, and Windows are registered trademarks of Microsoft Corporation.

As we covered in some detail last issue, it was 100 years ago last month that IBM came into existence. Thomas J. Watson changed the name of the Computing-Tabulating-Recording Company (or CTR) to International Business Machines Corporation (or IBM) in February 1924. At that time, IBM was headquartered in the Silicon Valley of that day, the triple cities of Binghamton, Johnson City, and Endicott in New York’s Southern Tier. Over the last 100 years, IBM introduced three significant product lines that changed the world – and we mean literally changed the world!

♦ Selectric Typewriter: In 1961, IBM introduced a totally new concept in a typewriter. It totally replaced the type-bar with carriage design – the paper sat in a carriage that moved left to right and then returned for the next line of text – with a sphere that moved left to right a back again. Rather than be locked into a 10-pitch (10 characters to the inch or “Pica”) or 12-pitch (12 characters to the inch or “Elite”) and a single type face, the Selectric user dropped in a 10-pitch or 12-pitch sphere with any one of dozens of fonts. There were even spheres in foreign languages so the correct accents would appear. The Selectric changed everything!

The Selectric took off and quickly became the market leader, burying all the competitors that were stuck selling type-bar typewriters. In fact, by 1978 the IBM Selectric had 94% of the office typewriter business! The Selectric became IBM’s cash cow, enabling it to fund other projects. It was the daisywheel that finally obsoleted the Selectric sphere in the 1980s.

♦ System/360: The dominant mainframe computer through the 1950s was the Univac, a product of Remington Rand – a competitor of IBM in the typewriter industry – and later Sperry Rand. In 1964, IBM introduced the System/360, the first multi-purpose mainframe. It was called the “360” in references to the 360 degrees in a circle.

The System/360 could do accounting, inventory, personnel, and anything else a business needed. It was installed in a “computer room” because it consumed an entire room! To see what was involved in the installation of a System/360, watch the movie “Hidden Figures.” By the 1970s, IBM owned 70% of the mainframe computer business!

♦ IBM PC: In 1980, IBM decided it was time – spurred on by the success of Apple – to create a “personal computer” or “PC” – a computer that would be used by a single person, replacing the staff that ran the mainframe computer and handed out reports to each department.

Rather than totally develop, design, engineer, and manufacture this new PC in-house – as every previous IBM product had been – IBM assigned Philip “Don” Estridge to get a product to market in one year. Estridge outsourced the PC’s operating system to a two-person start-up in Seattle called Microsoft – and made Bill Gates and Paul Allen millionaires. They both went on to become billionaires, but it was IBM that made them their first few millions with MS-DOS.

The IBM PC went on sale in August of 1981, and they could not build them fast enough! It led to a slew of other PC makers – Hewlett-Packard, Dell, Acer, and Lenovo that bought IBM’s PC business – that are still making and selling PCs today. Meanwhile, Apple grew and grew and grew once IBM had legitimized the concept of a personal computer instead of a big mainframe with dumb terminals.

Don Estridge tragically perished along with his wife and several IBM employees and interns in the crash of Delta Airlines Flight No. 191 at Dallas/Fort Worth Airport when the Lockheed L-1011 Tristar wide-body jet they were passengers in crashed one mile short of the airport August 2, 1985 – four years to the day after the launch of the PC. The crash was attributed to wind shear. Ironically, IBM no longer manufactures PCs and Lockheed no longer manufacturers passenger aircraft.

Today, Apple has a far greater market cap ($2.66 trillion) than IBM ($175 billion).

It was 100 years ago this month that IBM came into existence. And therein lies our tale for this installment of Patent Leather.

Our tale begins with four 19th Century inventors and their patents. Willard Bundy was awarded U.S. Patent No. 393,205 in 1988 for a “Time recorder,” Alexander Dey was awarded U.S. Patent No. 411,586 in 1889 for a “Worksman’s time recorder,” Herman Hollerith was awarded U.S. Patent No. 526,130 in 1894 for a “Machine for Tabulating Statistics,” and Julius E. Pitrap was awarded U.S. Patent No. 589,365 in 1897 for a “Computing-scale.”

A brilliant financier of the time, one Charles Ranlett Flint, acquired these four patents and the companies founded by their inventors and formed the Computing-Tabulating-Recording Company (or CTR) – nothing like a company name that tells you exactly what the company does! It was based in the first Silicon Valley, Endicott, New York. Yes, sleepy little Endicott in the Southern Tier of Upstate New York and part of the triple cities of Binghamton, Johnson City, and Endicott that was also headquarters to the Endicott-Johnson Corporation that manufactured shoes. The Computing-Tabulation-Recording Company had 1,300 employees with offices and plants in Binghamton, Dayton, Detroit, DC, and Toronto.

In 1914, CRT hired a young, ambitious man who had been fired by National Cash Register Company (NCR), Thomas J. Watson, as its general manager. Less than a year in, Watson was president of CRT! He hired a professional, aggressive salesforce, and incentified them to sell!

In February of 1924 – exactly 100 years ago this month – Watson officially changed the name of the Computing-Tabulating-Recording Company to International Business Machines Corporation – nothing like a company name that tells you want the company does! Watson served as president, chairman, and CEO of IBM Corporation for 32 years. He was succeeded by his son, Thomas J. Watson, Jr., in 1956 who served until 1971.

IBM was the innovator. For 28 years, IBM was the number one recipient of U.S. Patents having been granted 126,000 U.S. Patents to date! Just a few IBM innovations include the ATM, the floppy disk, the hard drive, the magnetic stripe card (that lead to the strip on today’s credit cards), dynamic random-access memory (or DRAM), the relational database, the SQL programming language, and the UPC barcode.

IBM sales peaked at $106 billion in 2011, and their sales have declined steadily since, dropping to just $62 billion in 2023. “Just $62 billion?” Apple – the company no one at IBM took seriously – generated $386 billion in 2023 while Microsoft generated $211 billion. So $62 billion is not very much these days. Today, IBM is primarily in the cloud computing, AI, and consulting business.

IBM is currently vacating its Endicott, New York offices, and will no longer have a presence after 2024 in the first Silicon Valley – now known as the Triple Cities Innovation Corridor.

Most inventors and businesses that come to us with their patents simply want to sell their patent or patents. And when we are successful at finding a buyer, the transaction is usually quite simple since the seller and buyer essentially just need to agree on a sales price. There may be a few other details, but the funds change hands and the patent is assigned to its new owner. Done.

When we are approached by a patentee that wants to license his or her or its patent or patents, we are always careful to let that prospective client know that most patent transactions are sales, and that many companies simply will not consider licensing a patent. So, right off the bat, that patent owner has to consider what will happen if the only offer we generate is to purchase the patent – and licensing the patent is not on the table. What will the patentee do? Is he or she or it prepared to walk away from an offer to buy the patent or patents? And hold out for an offer to license the patent? An offer that may never come?

Let’s step back and take a look at a broader, fundamental, economic fact. The cheapest way to acquire any asset – be it a building, a truck, furniture, equipment, a computer, or a patent – is to buy it for cash. Leasing a building, renting a truck or furniture or equipment or a computer, and licensing a patent – is always more expensive.

So, if a company has the cash on hand, it will simply write a check when it needs to acquire any asset. And there are a lot of companies out there today that are sitting on a pile of cash. A big pile of cash. Apple currently has $160 billion in cash in the bank. Yes, billion with a big fat “b”! Microsoft has $144 billion on hand. There are lots of mid-size and smaller companies that are sitting on cash. If a company with cash in the bank likes your patent, and you want to license it, convincing that company to license your patent – instead of just buying it for cash – is a tough sell.

There are three other sell-versus-license dynamics to consider.
1. When Company A licenses a patent, there’s a lot of paperwork. It has to compute its quarterly sales in order to calculate the royalties that are due the licensor (the patent owner). If Company A is licensing a U.S. Patent, it has to deduct non-U.S. sales as well as credits, returns, and adjustments, to determine the net sales on which royalties are due to be paid. Company A then has to cut a check or process a wire transfer. And it has to do this quarter after quarter, year after year, for maybe 15 years or longer. If Company A had purchased the patent, there would be NO such paperwork.
2. When Company A licenses a patent, each time it pays royalties on that patent, it is essentially reporting to the licensor what sales are of the products covered by the licensed patent. And Company A might not want people outside of the company knowing what the sales of those products are. Had Company A purchased the patent, it could keep its sales breakdown confidential.
3. Should the patent that Company A is licensing be infringed, who will assert it against the infringer? And does the licensor have the resources to effectively assert the patent? Had Company A purchased the patent in the first place, it would have total control over enforcement of the patent against any and all infringers.

The bottom line is that companies only license a patent if they have to. And that means they do not have the cash-on-hand to buy the patent or patents. Start-ups will often license a patent so they can preserve their cash. Companies that are losing money will license a patent to preserve their cash. For a profitable company with cash in the bank, there is NO benefit to licensing a patent and, therefore, no reason to do so.

In fact, since licensing is more expensive that buyer a patent, it is not unusual for companies that license a patent to include in the licensing agreement a buy-out number so that once the licensee has paid X in royalties it owns the patent or has the option to buy it. The licensor has to agree to this, of course, while the option is to walk away.

There is also the factor that licensing comes with some risks. Yes, if Company B licenses your patent, and the products based on that patent take off and sell like hot cakes, you will be looking at a stream of royalty income for 10 or 15 years or more! But what if the product does not take off? If the products based on your patent are not successful or just moderately successful – for whatever reason – you could be looking at a trickle of income, possibly less than if you had simply sold the patent in the first place!

That is why IPOfferings takes a broader approach. We believe in “monetizing” our clients’ patents. We do not specifically look for buyers or licensees, but for companies that will benefit from our client’s patented technology. Maybe a company will end up buying your patent, or maybe a company will license it. Or maybe it will be a license-to-own arrangement, or a shared-profits joint venture, or stock-plus-cash deal, or a dozen other monetization options. We take the broadest approach possible to uncover as many opportunities as possible to generate revenue from our clients’ patents!

Going to market with your patent with licensing as your sole objective is a narrow and self-limiting approach.

Here is an opportunity for inventors who are about to file a patent application to receive FREE assistance from the Patent Office. The program is open to just 20 participants!

Last month, the U.S. Patent and Trademark Office (USPTO) announced a new pre-application review program for patent applications that it calls the “Pre-Prosecution Pilot.” The program is part of the Patent Office’s continuing commitment to expand access to patent protection for what it calls “under-resourced inventors.”

The pilot program is designed to support first-time, prospective inventors and patent applicants by providing assistance in assessing the strengths and weaknesses of a potential patent application. USPTO patent examiners will help first-time prospective patent applicants assess if their inventions are novel in the art by providing search assistance using public patent tools.

Such assessments will not be considered official rulings of patentability by the USPTO. They are designed to help potential patent applicants avoid the common mistakes that may slow down the patent review process or invalidate a patent application.

“Inventors and entrepreneurs are the life blood of the American economy. From individual inventors working in their garages to major corporations, the USPTO is committed to fostering more innovation for and from all,” said Kathi Vidal, Under Secretary of Commerce for Intellectual Property and Director of the USPTO in her announcement of this initiative. “This new pilot program is another tool in our toolbox to provide a more welcoming and encouraging innovation ecosystem for independent inventors as they seek to protect and bring to market their ideas.”

The first training under this new pilot program, Stakeholder Application Assessment Training (or StAAT), will be a two-day workshop conducted Tuesday and Wednesday, February 27 and 28, 2024. It will be conducted virtually and is limited to 20 qualifying individuals. Those selected to participate will qualify for not just the two-day workshop, but also have access to information sessions, practice time, and one-on-one feedback sessions with USPTO patent examiners. The workshop will cover patent application basics, patent public search tools (to assist with searching for prior art), legal counsel options such as the USPTO’s Patent Pro Bono program, and additional programs to assist first-time filers.

The USPTO is accepting candidates for this pilot program until January 31, 2024. Interested individuals must complete and submit an application.

If you are not planning to file a patent application in the near future, but you know someone who is, please pass this information along to him or her.

Every once in a while we present an installment of Patent Leather that appears to have little – on the surface, at least – to actually do with patents, and that is the case for December 2023. But, of course, we circle back to the central purpose of our lives – monetizing patents.

We recently had a heated discussion with a client, the basis of which was a commonly used adage that is actually bad advice. So, as you start thinking about your 2024 New Year’s Resolutions, here is some advice you probably received over the years that was really bad advice.

♦ Better late than never: We cannot list all the business opportunities we’ve seen that were lost because some one waited. We live in an incredibly fast-paced world in which a fleeting opportunity is here today, but gone tomorrow. Waiting is never good. In fact, you are better off being a little early than being a little late. Far too many business-people do not make a decision because they do not have enough data, but by the time they have enough data, the opportunity has passed them by. For so many business ventures, the best time to do almost anything was actually last year.

It is a reality of today that you often have to make a decision without all the data you would like to have. But waiting for all that data often results in your missing a window of opportunity for the brief moment it is open.

When is the best time to go to market with your patent? As soon as the patent application publishes. Waiting for the patent to be granted can sometimes actually be too late.

♦ Do not assume: At which point the purveyor of this dreadfully bad advice then tells you what “assume” makes you. Many decisions have to be made without all the facts, so some reasonable assumptions have to be made. Edison did not know that running electrical current through a filament would produce light. Bell did not know that he could capture the vibrations of a human voice and transmit it down a wire. The Wright brothers did not know that if a wing was exactly the right shape, it would produce lift and would fly. These men made educated guesses and reasonable assumptions based on the limited facts they had.

The inventions covered by patents were all made by assumptions – reasonable, rational, well thought out assumptions, and not facts. Once it is a fact, someone has already brought it to market. Those who do not assume never accomplish anything.

♦ If at first you don’t succeed, try, try, again: It was Albert Einstein who said “Insanity is doing the same thing over and over again and expecting a different outcome.” When you fail, the absolute last thing you want to do is try again. You will simply fail a second time! When you fail, you stop, analyze what you did, determine as best you can why you failed, re-think what you did, come up with alternatives that may produce better results, and take a different approach. Try again? You will just fail again.

If the Patent Examiner does not accept your claims, re-think them and submit new claims.

♦ Don’t count your chickens before they've hatched: If you do not, then how many chicken crates do you order? We all need to do projections so we can be prepared. Once again, a business cannot operate unless its management is prepared to make decisions based on reasonable assumptions and projections.

Assume your patent application will be granted as a patent. If you do otherwise, you have lost before you got started.

File that patent application last year, request that it be published immediately, and go to market with it yesterday!

We must begin this article by stating our admiration for the U.S. Patent and Trademark Office. Government agencies are typically bloated and inefficient, and the larger they are, the more bloated and the more inefficient. We could regale you with tales of government inefficiency, but our space is limited.

First of all, the U.S. Patent and Trademark Office (often simply referred to as the “Patent Office” or the “USPTO”) is just one of a few self-supporting federal government agencies. The Patent Office has a long history of NOT using tax dollars. The agency is totally funded by the fees it collects from patent, trademark, and service mark applicants and awardees.

There are just a handful of self-funded government agencies, most of whom you’ve never heard of, such as the Overseas Private Investment Corporation. We often ask why more federal agencies cannot be self-funding? The National Park Service, for example, charges fees to enter National Parks. Why can it not operate on those fees?

We also see the USPTO as an organization that is responsive to the needs of its constituents, while still having to operate withing the restrictions placed on it by Congress. And the Patent Office is not bloated. For example, 96% of its staff are Patent Examiners with just 4% of its employees in administrative roles.

The USPTO is retiring its long-time website access service known as PAIR (“Patent Application Information Retrieval”) and has replaced it with the Patent Center. A question we are often asked is why we link the patents at our Patent MarketPlace to Google Patents and not to the Patent Office website, and the answer is that Google Patents simply offers more information – specifically intelligence that we believe to be important to any business considering acquiring a patent or patents.

Here are links to the listings for U.S. Patent No. 10,680,840 for a ‘System for integrating multiple IM networks and social networking websites” at the Patent Center and Google Patents. They both offer a comprehensive overview of the patent.

In defense of the Patent Office, the Patent Center listing does include the applicant’s patent attorney, and this can sometimes be helpful. But the Google Patents listing includes information NOT available at the Patent Center:

♦ Expiration Date: How many years a patent has to run is a critical factor to be considered when acquiring a patent and determining what to pay for that patent. Neither the Patent Center, nor the actual patent itself, provides an Expiration Date.

♦ Priority Date: The Patent Center provides the Earliest publication date, but not the Priority Date, and that is critical data if one is to attempt to enforce a patent. The Patent Center does not provide the Priority Date.

♦ Forward Citations: A patent applicant must submit Prior Art for his or her invention, and if they are patents or patent applications, they are known as “Patent Citations” – and both the Patent Center and Google Patents show these. However, once a patent application has been filed, it begins to collect citations (known as “Forward Citations”) from patent applicants who cite that patent application as Prior Art. The more Forward Citations a patent has – the more patents that cite it as Prior Art – the more foundational and valuable that patent is. The Patent Center provides neither Patent Citations nor Forward Citations.

We find the additional information available at Google Patents to be of greater valuable and relevance, so we link the patents we represent to Google Patents, not the Patent Center. Private industry wins out.

Here is something else we like about the U.S. Patent and Trademark Office. This is the result of a long-term effort that was launched by David Kappos, the USPTO Director from 2009 to 2013. The time it takes from when a patent application is filed to when a first Office Action is sent out by the Patent Examiner is known as the patent’s “pendency.” Once that first Office Action is filed, anything can happen from a patent being granted to the application being rejected to a Request for Continued Examination being filed.

For Fiscal 2022 (October 2021 through September 2022), the average pendency was 25 months. For Fiscal Year 2023 (October 2022 through September 2023), patent pendency dropped to 20.5 months. And that is a move in the right direction!

An inventor has two critical choices when he or she files a patent application with the U.S. Patent and Trademark Office (USPTO) – file a Provisional Patent Application or file a Non-Provisional Patent Application. There is one choice that most definitely serves the needs of the independent inventor, and one that does not!

Let’s first look at the patent application pool. About 75% of all U.S. Patent Applications are filed by businesses, and the Provisional Patent Application was designed for these applicants. A Provisional Patent Application is not published by the Patent Office for 18 months, and that gives a business the opportunity to establish an early Priority Date for the application, fine tune the invention, and maybe even get a product to market before the actual patent is granted!

A business can file a Provisional Patent Application, and while it sits at the USPTO collecting dust, the company that filed the application can take advantage of that black-out period in several ways. It can build a prototype to see if and how well that invention actually works. It can test the prototypes for performance and reliability. It can show prototypes to key customers to get feedback. It can even go into production and start manufacturing and selling products based on the Provisional Patent Application and mark those products “Patent Pending.”

It is an intensely competitive world out there, and smart companies do everything they can to create a competitive edge for themselves. Getting to market fast with a new product for which the company filed a Provisional Patent Application is one way to keep a company’s technology confidential and out of reach of the competition. Only when a company converts to a Non-Provisional Patent Application, and the application is published by the Patent Office, can the competition get a look at this invention. But by then the product is in production, in distribution, has shelf-space, and may even be building a reputation and brand-name recognition for itself. Smart. Very smart.

However, a Provisional Patent Application offers NO benefits to the inventor who is NOT going to commercialize the patent himself or herself. All a Provisional Patent Application does is burn up 18 months of time that could have been spent finding a buyer or licensee for the patent. An inventor is best served by filing a Non-Provisional Patent Application and then requesting that the patent application be published immediately.

It is simply not practical to attempt to sell or license a Provisional Patent Application. A prospective buyer or licensee wants to see what is in the actual patent application, and even if you provide a copy of your patent filing, it is so much neater, cleaner, and smarter to have a published patent application on file at the Patent Office that the prospective buyer or licensee can see.

Not every patent attorney suggests this, but the patent attorney’s job is to get the patent granted, not monetize the patent. It is always in the best interests of the inventor to file a Non-Provisional Patent Application … and … request that the USPTO publish it immediately!

What do you do if you are an inventor with a Provisional Patent Application sitting at the Patent Office collecting digital dust?
1. Immediately convert it to a Non-Provisional Patent Application.
2. Then request that the USPTO publish your Non-Provisional Patent Application.
3. As soon as your patent application is published, contact IPOfferings.

In our last installment, we covered what we believe to be the two most significant patents of the 20th Century. Remember that the light bulb, telephone, camera, automobile, and motion picture patents were all granted pre-1900, so they were all critical 19th Century patents and were not addressed last issue.

The two 20th Century patents we identified as being the most significant were U.S. Patent No. 804,109 for an “Apparatus for measuring the length of electric waves” and U.S. Patent No. 2,502,488 for a “Semiconductor amplifier.” U.S. Patent No. 804,109 was the foundation for the vacuum tube that made radios possible, and led to both television and the first generation of computers. U.S. Patent No. 2,502,488 established the transistor, making possible the second generation of radios, televisions, and computers possible, and all the consumer electronics that followed.

We received several responses to our article – always good to know that people are reading it – about other patents that were similarly significant. We went through them, and here are our selections for the third, fourth, and fifth most significant patents of the 20th Century.

♦ Airplane: After radio, television, computers, and telecommunications – that all had their start from our No. 1 and No. 2 patents – had to come the patent that made air travel possible. We all know the story, the Wright Brothers owned a bicycle shop in Dayton, Ohio, but they wanted to fly. And at Kitty Hawk, South Carolina, they completed the first manned flight in 1903.

Wilbur and Orville actually filed their U.S. Patent Application in March 1903 – nine months before they discovered that their invention would actually work. It is likely they made a few test flights before the official test flight they made for the press in December 1903.

Here is our question: How could it have possibly taken the Patent Office over three years to grant this patent? Filed in March 1903, U.S. Patent No. 821,393 for a “Flying Machine” was not granted until May 1906, three years and two months later! It could not have been the prior art they patent examiner had to review. We really wonder what took so long? Incidentally, the Wright Brothers’ patent had just 18 Forward Citations including the Boeing Company and Sikorsky Aircraft.

♦ Nylon: Few inventions have touched so many facets of our lives as nylon. Invented at du Pont by a team led by Harvard instructor Wallace Hume Carothers, nylon is a synthetic silk-like thermoplastic made from a blend of petroleum polymers. It can be manufactured as a fiber, film, or in solid shapes.

Carothers applied for a patent for his new synthetic fiber in April 1937. Just 17 months later, U.S. Patent No. 2,130,948 for a “Synthetic fiber” was granted to E. I. du Pont de Nemours & Company. With NO patent citations, and 419 Forward Citations, this is a foundational patent. While du Pont patented nylon, it never trademarked it.

The practical effect of nylon was wide-spread and significant. Nylon was used to replace silk in the manufacture of women’s stockings. By World War II, stockings were simply called “nylons” – and many a G.I. made it through the stress of the war with a gift of nylons for his favorite dame. Parachutes were made from nylon because it was significantly cheaper and more plentiful than silk. Without nylon for parachutes, how World War II was fought would have been significantly different! Nylon was also used to add strength to tires, making nylon a critical element in cars, trucks, busses, and aircraft.

From nylon came rayon and Orlon® that replaced both wool and cotton in clothing. Teflon™ is a derivative of nylon, the basis of non-stick pots and pans as well as many friction-free parts for everything from washing machines to surgical equipment.

Kevlar® – the key material in bullet-proof vests – is a downstream product from nylon, as is Tyvek® - the material used as a moisture barrier in construction. Every time you drive past a building under construction and see the Tyvek sheets stapled to the sheathing, think of all those gals at the USA dance in their nylons.

♦ Search Engine: We could not have the dot.com world and e-commerce without search engines. There was a time – three decades ago – that every local telephone company published a telephone directory that included Yellow Pages, and that is where people went when they needed tires for their cars, shoes for their children, or Chinese take-out. Search engines replaced the Yellow Pages, and without search engines, there would be no way to find what you need on the world-wide-web. Go to Google, search for “patent broker” and see what pops up at the top of the page.

While Yahoo and some other search engines existed before Google, it was Larry Page – while a Ph.D. student at Stanford – who filed a patent application in January 1998 for what was to become search engine technology. Leland Stanford Junior University and Google LLC were granted U.S. Patent No. 6,285,999 for a “Method for node ranking in a linked database” in September 2001. And talk about a foundational patent! U.S. Patent No. 6,285,999 has 893 Forward Citations from companies as diverse as IBM, Xerox, Yahoo!, and Nokia.

E-commerce would simply not be possible without the order that search engines bring to the chaos of the web. From search engines came an entirely new concept in marketing. In real estate, they say there are three key factors to success: Location, location, and location. In the online world of today, that is truer than ever. But in a post-dot.com world, success is not where your business is physically located, but where it ranks with the major search engines.

Orlon is a registered trademark of E. I. du Pont de Nemours & Company.
Teflon is a registered trademark of Chemours Company FC, LLC.
Kevlar is a registered trademark of DuPont Safety and Construction, Inc.
Tyvek is a registered trademark of E. I. du Pont de Nemours & Company.

The light bulb, telephone, camera, automobile, and motion picture patents were all granted pre-1900, so they were all critical patents of the 19th Century and will not be addressed in this article. But we believe there are two patents that were critical to the 29th Century.

♦ Vacuum Tube: It was this invention that made the radio possible in the early years of the last century. And from the vacuum tube also came television, radar and sonar, and the first generation of computers. One John Ambrose Fleming, a child progeny and British ex-pat working in the U.S. for the Marconi Wireless Telegraph Company, was granted U.S. Patent No. 804,109 in 1905 for an “Apparatus for measuring the length of electric waves.”

Unfortunately, Fleming’s patent was invalidated on the basis that the technology had been around for years, so the invention was not truly “novel.” Talk about an unexpected outcome. Fleming sued the De Forest Radio Company for infringement of his patent. The lawsuit dragged on for decades until the U.S. Supreme Court finally invalidated Fleming’s patent in 1943 – 20 years after the patent expired!

The vacuum tube – for those who do not know – is a device that controls the flow of electrons in a vacuum. It is used as a switch, amplifier, or display screen (making television, radar and sonar, and computers possible). When used as on/off switch, a vacuum tube allowed the first computers to perform digital computations.

Getting the first use for vacuum tubes, radio, off the ground was a chicken-and-egg proposition. No one would buy a radio unless there was a radio station to listen to, and no one was going to start a radio station until there were lots of people with radios. Westinghouse Electric was one of the first manufacturers of consumer radios, and to make the whole concept work, Westinghouse got into the radio station business. It launched KDKA in Pittsburgh (Westinghouse’s headquarters city) in 1920 and eventually owned and ran 24 stations throughout the U.S. under the “Group W” moniker. Westinghouse Broadcasting was sold to CBS in 1999, but all those stations – including KDKA – are still in business. KDKA is now an all-news format 50,000-watt clear channel AM station at 1080 on the dial. Tune in on your next trip to Western Pennsylvania.

Vacuum tubes grew in popularity, size, and configurations, but they had two major drawbacks. They generated a lot of heat, so a device using them had to get rid of that heat. In fact, that’s why the first radios were so large – to disperse the heat generated by the vacuum tubes. The second shortcoming was that vacuum tubes – like light bulbs – burned out. And it took just one vacuum tube to burn out to bring down the entire radio, television, or computer. Not good.

♦ Transistor: Bell Labs came to the rescue with the invention of the transistor. It essentially replaced the vacuum tube by performing the same functions, but doing so in a solid encasement instead of in a vacuum. In fact, the term “solid-state” comes from exactly that concept. The first generation of portable radios were called “transistor radios” since it was that invention that made them possible. And, of course, silicon was eventually used as the base material for the transistor, and from that we got Silicon Valley.

The transistor was the invention of three Bell Labs physicists – John Bardeen, Walter Brittain, and William Shockley – but only Shockley showed up as an inventor on the patent. All three inventors were properly recognized when they jointly received the Nobel Prize for Physics in 1956.

For those of you who are not familiar with the organization, Bell Labs was the Research & Development unit of AT&T until it was spun off to Nokia in 2016. Bell Labs is known for most of the inventions that made modern telecommunications and consumer electronics possible, but none surpassed the transistor in its impact on technology, industry, and people.

An original, hard copy U.S. Patent used to be a thing of beauty with its beautiful red ribbon adorning the cover. But, alas, no more. The Patent Office now issues an “eGrant” of all utility, design, plant, and reissue patents. It is an Adobe file with a colorful image showing the ribbon, but not a real ribbon, just what your printer produces.

This change in procedure creates a significant issue that patent applicants need to be aware of. The issuance of these eGrant patents will shorten patent pendency by about two weeks. Once the eGrant patent is email to the applicant, the patent has been issued so it is too late to file for a continuation. Accordingly, if the applicant is considering filing a continuation – always a good idea – it should be done as soon as the applicant receives the Issue Notification and no later!

If you are not familiar with the value of a continuation, we suggest you read “A Continuation Adds Value and Curb Appeal to Your Patent” from our April 11 column.

In our last installment, we told a tale of woe. In the 1970s, Exxon (before it was Exxon-Mobil) made a bold decision to diversify from oil and gas into an industry it believed had significant growth potential – office automation.

Exxon jumped in with both feet and established Exxon Office Systems. They headquartered the business in Stamford, Connecticut (far from their Irving, Texas corporate headquarters) and acquired three start-up office automation companies. Exxon Office Systems was off and running selling Qyx electronic typewriters, Qwip fax machines, and Vydec word processors. Exxon Office Systems set up a national network of offices and service facilities, hired a national salesforce and a network of service technicians, and put a ton of money into advertising.

Exxon lost at least $1 billion before shutting down the venture in the early 1980s. And that was $1 billion in 1980s dollars when gas was 70 cents a gallon. The question we asked last month was “What is the lesson for patent holders?”

The answer lies in a best-selling book that hit the book shelves as Exxon was shutting down its disastrous foray into office automation. In Search of Excellence sold three million copies in just its first four years in the bookstores. Yes, bookstores. No Amazon.com in the 1980s. In Search of Excellence examined why successful companies were successful. Authors Tom Peters and Robert Waterman – both management consultants – had discovered seven variables that were practiced by what they identified as “excellent companies” – businesses that made money year-in and year-out, that had no problem recruiting the best staff, and whose customers delighted in doing business with them.

One of those variables is that excellent companies “stick to the knitting.” They focus on the business they know best. They do not venture out into unknown technologies and industries looking to expand – as Exxon did.

We left exactly what the lesson is as an open question at the end of last month’s column. You receive a reward this month as we share it with you. Although we did receive a handful of emails from readers, and they all guessed what our point was. Bravo!

Most businesses today – especially the successful ones – have learned that straying too far from their core competencies is almost always disastrous. Most businesses today have adopted the strategy of Concentric Diversification. They only expand into new products that either share a technology with their current products or share a customer base with their current products.

Diversifying into a new technology that will be sold to a new customer base is almost always a disaster!

So…the lesson for patent owners is that every business on the face of the earth is NOT a prospect to buy or license your patent. In fact, a very select few businesses on the face of the earth are candidates to buy or license your patent or patent family or patent portfolio!

When we take on a patent or patent family or patent portfolio, as part of the marketing program we develop a Prospect List. It is a list of businesses that currently sell products and services that are in a similar technology or are sold to similar customer base as the invention covered by the patent(s).

Pepsi has expanded exponentially from a single soft drink bottler starting with its acquisition of Frito-Lay in 1965. Ever diversification Pepsi has made has been food or snack related. Pepsi is NOT going to expand into furniture or electronics or energy. No way.

We cannot tell you how many clients of ours want us to take their patents to Meta or Tesla or Alphabet when those businesses are simply NOT involved in anything related to what is covered in the patent. The longer-term issue we have to consider – as brokers – is what happens to our reputation if we took a carbonated beverage patent to Apple, or a face mask patent to Microsoft, or a packaging patent to Qualcomm? What consideration would we receive the next time we approached that company about a patent we represented?

Taking a patent to a company that’s technology and customer base is totally unrelated to the invention covered by the patent is not just unproductive, it is counter-productive because it draws resources away from where they should be deployed and burns bridges that took years to build.

Unless you worked in the office equipment industry back in the 1970s and 80s, the term “Exxon Office Systems” will mean nothing to you. In fact, it sounds strange because Exxon (now Exxon-Mobil) is an oil company? Right?

Right. And therein lies a tale. One that we shall share with you.

In the 1970s, Exxon made a bold decision that was the result of a consulting firm’s recommendation – that they diversify into an industry that had better growth potential than gas and oil. Apple was just catching on, and IBM had not yet introduced its PC (it would arrive in 1981), so office automation looked promising.

To get into the market quickly, Exxon set up Exxon Office Systems headquarter in Stamford, Connecticut, and acquired three start-up office automation companies. That gave Exxon Office Systems three product lines:

♦ Qyx Electronic Typewriters: These are typewriters that had a memory and small display so documents could be drafted before they were printed on paper, and they could be stored, revised, and reprinted as necessary. The PC with a printer and word processing software made the electronic typewriter obsolete.
♦ Qwip Fax Machines: Before email, fax was the way to electronically transmit documents. The Internet and scanning obsoleted fax technology.
♦ Vydec Word Processors: These were PC-like units that created, stored, edited, and printed documents – but just documents. A PC with word processing software can do everything a word processor does, plus it can do accounting and dozens of other tasks, obsoleting the single-purpose word processor.

Exxon Office Systems went into business full bore. They set up a national network of offices and service facilities, hired a national salesforce and a network of service technicians, and put a ton of money into advertising.

It is impossible to determine exactly how much Exxon invested in its Office Systems business unit, but experts report that it was over $1 billion. And that’s $1 billion in 1970s and 1980s dollars. The division only generated a few hundred million in sales, and in 1983 Exxon threw in the towel and closed down the operation.

Just as Exxon was shutting down its disastrous foray into office equipment, In Search of Excellence was published and it went on to sell three million copies in just its first four years in the bookstores. Yes, on shelves in bookstores. No Amazon.com in the 1980s. In Search of Excellence examined why successful companies were successful, and the authors – management consultants Tom Peters and Robert Waterman – came up seven variables that were all practiced by what they identified as “excellent companies” – businesses that made money year-in and year-out, that had no problem recruiting the best staff, and whose customers delighted in doing business with them.

One of those variables is that excellent companies “stick to the knitting.” They focus on the business they know best. They do not venture out into unknown technologies and industries looking to expand – as Exxon did.

Exxon, now Exxon-Mobil, apparently learned a valuable lesson because Exxon-Mobil now has three business units – Upstream, Product Solutions, and Low Carbon Solutions – all different aspects of oil drilling and gasoline refining.

So, what is the lesson for patent owners? You will have to wait for the next issue.

In the last installment, we explained how filing for a continuation patent application before your patent is granted adds a valuable asset to your granted patent. It enables the acquirer of your patent-and-continuation-application to add additional claims and end up with a second, sister patent to the original patent that includes technology or methods or facets that were not included in the original application.

In this exciting installment, we address the second asset that will add both value and curb appeal to your soon-to-be-granted patent – a PCT Patent Application.

Everyone knows that the “World Is Flat.” We refer to the best-selling book by newspaper columnist Thomas Friedman. He proposes in his book that the competitive advantages that the industrialized nations once had are gone, and with the Internet, smartphones, Zoom, and all the other technologies that make the 21st Century the 21st Century, no one country or group of countries has a competitive advantage. All nations are now – except for labor – competing on a level playing field. A “flat” world.

In response to that, the Patent Cooperation Treaty (PCT) has expanded dramatically to include over 150 nations! It is administered by WIPO (World Intellectual Property Organization). Filing for a PCT Patent Application gives a patentee a valuable asset for his or her or its patent family. A PCT Patent Application enables the buyer of the patent and PCT Application to more easily apply for foreign patents. However, like a continuation, you MUST apply for a PCT Patent Application BEFORE your patent is granted!

We are not opposed to applying for national patents. If an inventor believes that Japan or Canada or Australia or any other nation will be a location for buyers of his or her or its patent, then by all means apply in that country or countries. And applying for a European Patent is also a good idea since one patent application can generate multiple national patents in nations with relatively large and active economies.

To be clear: A PCT Patent Application is an “application.” It does not give you patent protection, but it does make it considerably easier to apply for a foreign patent by allowing you to use the documents from your original patent application to apply for foreign patents. Additionally, a PCT Patent Application does NOT automatically guarantee you a patent in every country in which you apply for one.

Applying for a PCT Patent Application before your U.S. Patent is granted gives you yet another valuable asset in the patent family you will take to market one day. The company that buys your patent family that includes a PCT Patent Application can much more quickly and easily secure patent protection in the countries where it has a presence and plans to sell products based on your patented technology.

We receive at least one email a day from inventors with fleshly granted patents that they want to sell or license. We have to tell them that their patent has NO commercial value, and they are always upset – sometimes confrontational!

Let’s take the UK. A Great Britain Patent only grants the patentee patent protection in Great Britain (England, Wales, Northern Ireland, and Scotland). The problem is that any company anywhere in the world (except the UK) can manufacture and sell a product based on a Great Britain Patent and as long as they do not manufacture or sell it in the UK, there is NOTHING the patentee can do about it! And the entire world – less the UK – is a very big market.

The same is true of a Canadian Patent, an Australian Patent, an Indian Patent, and a South African Patent. The entire world less just one relatively small nation is a huge market! So why buy or license this British or Canadian or Australian or Indian or South African Patent when you can simply infringe the patent in all the other countries around the world and the patentee has NO recourse?

That is why we require that portfolios we represent include a U.S. Patent. Not because we are America-phobic and believe that the U.S. is the greatest nation in the world and the center of the known universe – even though it is – but because the U.S. is the largest economy. It accounts for about 15% of global Gross Domestic Product (GDP). And manufacturing and selling a product, but not in the U.S., deprives the patent infringer of a large, active, and lucrative marketplace full of early adapters. And U.S. Patents can be enforced, while patents in many other nations are very difficult to enforce.

An Australian Patent and a U.S. Patent is an attractive package, as is Korean and U.S. Patent, or European and U.S. Patent. But a single patent in a relatively small nation is of NO commercial value. Sorry.

In the last issue, we began a series in which we are answering our readers’ most often asked questions.

Two issues back we addressed selling a just-filed patent application, why IPOfferings does not exhibit at or attend trade shows, why most businesses that buy a patent keep the transaction a secret, and what exactly a PCT Patent Application does and does not do for its applicant. In the last issue we covered why some inventors’ patents do not exactly match up with the invention in their heads and why one cannot first sell the idea and then have the buyer file for a patent.

But you have more questions, so we have more answers.

Q: How Do I Know If My Patent Is Infringed? Let’s start with what infringement is. According to U.S. Patent Law (U.S.C. Title 35), “…whomever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.”

The courts have extended this definition to include that every aspect of at least one Independent Claim in a patent must be duplicated in a product for that product to be in infringement of the patent. That means that a product cannot just be similar or share some aspects of the invention covered by the patent, but it must exactly copy each and every aspect of that patent as detailed in one of the Independent Claims in the patent.

So, the inventor has to look at just the Independent Claim(s) in the patent, and verify that each and every aspect of at least one of the Independent Claims has been copied in this product – not some or even most, but all the aspects at least one Independent Claim.

We get calls and emails from inventors all the time who believe their patents have been infringed by products that are similar, but not identical, to what is covered by their patents. We remember a specific instance in which the product identified by the inventor did, indeed, very closely copy exactly what was described in an Independent Claim from the patent except that the patent called for the product to have a USB port while the allegedly infringing product did not have a USB port. Close but no cigar. There was no infringement. In retrospect, the inventor and his patent attorney should have left the USB port out of the Independent Claim and make in a Dependent Claim, but alas they did not. Had they done that, the inventor would have had a valid claim of infringement.

What we recommend to all inventors and business or university executives who believe their patent is infringed is that they order an Initial Infringement Analysis. This is a study that is performed by a team of IP and technical experts who identify products that are highly likely – at first pass – to be infringing the patent.

Q: Why Can’t I Do My Own Infringement Analysis? An Infringement Analysis is simply not valid unless it is done by a qualified third party. When you buy a house and apply for a mortgage, the bank will require an appraisal to determine the fair market value of the house. Will the bank permit the buyer do to this? Of course not. The appraisal must be done by a third-party who has the proper qualifications and who has NO interest in the outcome of the event. Similarly, an Infringement Analysis has to be done by a qualified, disinterested third party who has no interest in the outcome of your potential patent assertion claim.

Q: Once I Identify Infringers, Should I Sue Them All? Probably not. It is not worth the court costs and legal fees to sue an infringer with insignificant sales. In fact, you should really concentrate on infringers that are generating tens of millions of dollars in sales of infringing product.

The damages due a patent holder for infringement of his or her or its patent is reasonable royalties – what the infringer would have paid the patentee in royalties had the company licensed the patent instead of infringing it. Since suing for patent infringement will cost upwards of $100,000, there must be tens of millions of dollars of sales to generate enough royalties to make suing the infringer a viable undertaking.

Q: What Can I Do about a Patent that Is Infringing My Patent? Only products and services can be infringed by a patent. A patent cannot infringe another patent! If, however, you believe that the U.S. Patent and Trademark Office granted a patent that essentially covers the same invention as your patent, you can file for an inter partes review of the patent. That is, you can request that the Patent Trial and Appeal Board (PTAB) re-examine the patent to see if it should not have been granted or that some claims in the patent should not have been approved. However, you will need to engage a patent attorney and this can get very expensive.

There is a new Pro Bono program that provides free legal services to patentees who file inter partes appeals before the PTAB, but you must have filed under Micro Entity status and your income cannot exceed a defined level to quality.

Unlike a patent infringement lawsuit, there are no monetary damages to be collected if your inter partes review is successful – just personal satisfaction.

Next Month: Yet more answers to your questions…

In the last issue, we began a series in which we are answering our readers’ most often asked questions.

Last issue we addressed selling a just-filed patent application, why IPOfferings does not exhibit at or attend trade shows, why most businesses that buy a patent keep the transaction a secret, and what exactly a PCT Patent Application does and does not do for its applicant. But you have more questions, so we have more answers.

Q: What Do You Mean “This Is NOT in My Patent.”? This may seem like a strange question for an inventor to ask, but it is actually quite common. To understand how an inventor comes to ask this question, we have to go back to the beginning and take you on a journey.

An inventor has an idea. He or she may have had this idea rolling around in his or her brain for years, but the time comes that the inventor decides to file for a patent for his or her invention. The inventor engages a patent attorney, describes as comprehensively as possible what the invention is to the patent attorney, and the patent attorney files a patent application on behalf of the inventor. In so doing, the patent attorney attempts to capture in words and drawings what this wonderful invention is and what it does.

The patent application is assigned to a patent examiner at the Patent Office, and the patent examiner either rejects or questions some of the claims in the patent application. As the patent application works it way through the application process, some claims may be rejected by the patent examiner – even after reconsideration at the request of the patent attorney – or may be dropped by the applicant and patent attorney while other claims may be re-written, and new claims may be added.

Two years or so after the initial patent application was filed, the patent is granted. The average pendency these days at the USPTO is about 26 months. The inventor finally has his or her shiny new patent, so the inventor reaches out to a patent broker to represent the inventor in the monetization of this wonderful new patent.

As IPOfferings begins to develop marketing materials to support this patent, we run drafts of everything past the inventor, now our client. The inventor asks why item X or step Y or process Z is not in the marketing materials. And we explain that those items are not in the patent. And thus we get the question that set off this merry tale.

It is not uncommon for a patent to include just a portion of the original invention conceived of by the inventor and conveyed to the patent attorney. Patent attorneys – by and large – do an excellent job of representing their clients and their client’s best interests, but the choice facing a patent attorney as he or she communicates with and negotiates with the patent examiner is to either secure a patent for a portion of the original invention, or secure NO patent for the entire original invention.

As someone once said, Life, business, baseball, and patents are choices among less than perfect alternatives.

For a broker like IPOfferings – that puts considerable efforts into marketing – the answer to “What do you mean “This is not in my patent.”? is that we are not selling the original invention as it was conceived of over two years ago, we are selling the granted patent. Therefore, our marketing materials – if they are to be accurate and effective – must reflect what is in the granted patent.

This is why we strongly recommend that every inventory have his or her patent attorney file for a continuation before the patent is granted, because the continuation gives the inventor and the inventor’s patent attorney the opportunity to add in some of the elements that were not included in the initial patent.

Q: Why can’t I just sell my invention and have the buyer patent it? We almost do not know where to start. First of all, is your invention patentable? Many inventors file a patent application only to find during the Prior Art search that someone else already filed a patent for that invention. What it the application is rejected by the patent examiner when he or she finds Prior Art the applicant missed? And what claims will be accepted? And which will be rejected? Or modified significantly from the original? If you show your invention to a prospective buyer, and the company passes, and then comes out with a product based on your invention, what do you do then? Sue for patent infringement? Oh, oops, you cannot do that. You do not have a patent! Sell your invention and have the buyer file for a patent? Just not practical.

Next Month: Yet more answers to your questions…

In the last few issues, we answered readers’ questions about selling or licensing their patents. The response from our readers was very positive!

In this issue, we will continue what has become a popular format. We will answer the most often asked questions of inventors, would-be-inventors, investors, business executives, and company owners about patents, patent brokerage, and patent monetization. These questions most often come to us via email, but some are from phone calls and a few from personal visits. So here goes.

Q: Can I Sell a Just-Filed Patent Application? Technically, Yes. But you can technically sell anything including building lots on Mars and perpetual motion machines. The practical answer is No. To illustrate why, we will work backwards.

When we take a patent (or portfolio) to market, we can send prospective buyers or licensees to Google Patents where they can see the entire patent filing. We prefer Google Patents over the U.S. Patent and Trademark Office (USPTO) website because it includes more data. When we send a prospective buyer or licensee to Google Patents, he or she can see the abstract, claims, narrative, and artwork of the patent. Google Patents also provides the Priority Date and Application Date, when the patent was granted, and when it expires. Google Patents also includes any Prior Art as well as Backward and Forward Citations. It is most comprehensive and informative, and easy to navigate. Bravo Google. And it is free.

Let’s go back one step from there. If we are representing a published patent application (it will have an 11-digit number of which the first four digits are the year the application was published), Google Patents shows everything a buyer or licensee would want to know about the published patent application, including everything that is shown at the listing of a granted patent except, of course, the date the patent was granted since that event has not yet occurred. Visitors to a published patent application filing realize that what they see at Google Patents may not be the eventual granted patent. Some claims, for example, could be rejected by the patent examiner or modified by the applicant.

OK. Let’s go back in time one more step to this freshly filed patent application. While a granted patent is a public document, and a published patent application is a public document, a recently filed patent application is NOT a public document! An interested buyer or licensee cannot go to the USPTO website or Google Patents or anywhere else to see the actual patent application filing! And therein – to quote the Bard – lies the rub.

When an inventor or business or university or anyone else files a patent application, it is kept private by the Patent Office for 18 months. So, during those 18 months, we cannot send a prospective buyer a link to go and see the patent application. And sending out what is in the unpublished patent application to a prospective buyer or licensee is…well…messy to say the least. So we do not represent patent applications that have not yet been published!

However, an inventor can request that his or her or its patent application be published immediately. The inventor can file a 1129 Request for Early Publication [R-11.2013]. The patent application will be assigned an 11-digit number and be published – usually with a few weeks. Once it is published, and is a public document, it is now practical for us to take it to market.

Q: Why do we NOT go to trade shows? We have clients who want to know why we do not include trade shows as part of our marketing and sales campaign. If we go as an attendee to a trade show, who are the people working the booths at the trade show? Salespeople. And while salespeople perform a critical function for their employers, they are NOT involved in the acquisition of patents. So talking to a salesperson at a trade show booth is a total waste of time and the cost to traveling to and from the trade show. But won’t a salesperson see the potential in my patent and take it to someone in corporate? No, because it is not the salesperson’s job and a salesperson only makes money when he or she focuses on selling.

What about renting a booth at a trade show? Well, who would be visiting our booth? Trade show attendees are there to see the latest products in their industry and, possibly, place orders on behalf of their employers. Trade show attendees are NOT the executives who make decisions about acquiring intellectual property. And no trade show attendee is going to take your patent back home with him or her and take it to the right person in Corporate. So, trade shows are simply not a wise use of our time and resources. Trade shows are for products and services – not inventions.

We had a client a few years ago who had tried to sell his patent on his own for three years. He worked almost full time for three years without any success before he engaged us to represent him. He was one of those who asked about trade shows. We asked him what he had been doing for three years to promote his patent? He went to trade shows. And he wanted to know why we did not go to trade shows?

Next Month: Yet more answers to your questions…

In our November and December 2022 installments we answered our readers’ questions about selling their patents or patent portfolios. We addressed controlling what your patent or portfolio sells for, the pros and cons of holding an auction to sell your patent(s), figuring out what to ask for your patent or portfolio, ensuring that you get paid, increasing the value of your patent portfolio, and the benefits and drawbacks of selling versus licensing your patent or portfolio.

♦ What Are the Tax Consequences of a Patent Sale? This is the only question we cannot answer as it we are not prepared to provide tax advice. We can tell you that if you are a U.S. entity, you will receive a 1099 reporting the revenue paid to you from the sale, licensing, or other revenue generated from your patent transaction, but the tax implications are something you need to discuss with your accountant or tax adviser.

♦ What Are My Obligations after I Sell/License My Patent?This will be defined in the Patent Purchase Agreement entered into by the parties to the transaction. Most patent sales are a transfer of the ownership of the patent(s), as well as all rights associated with those patent(s), to the new owner (or “assignee”). In this case, the seller of the patent(s) has NO obligations once he or she or it has sold the patent or portfolio – just as you would have no obligations once you have sold any other asset such as stock or real estate – unless such obligations are included in the Patent Purchase Agreement. The seller will be required to certify to certain things in the Patent Purchase Agreement – that the Maintenance Fees were paid and that there is no litigation pending against the patent owner, for example. So as long as the patent seller was truthful in what he or she or it claimed in the Patent Purchase Agreement, the seller can walk away with NO outstanding responsibilities or obligations if that is how he or she or it wants the sale structured.

Some Patent Purchase Agreements have requirements and obligations for the seller. For example, some patent buyers retain the services of the inventor to assist in the implementation and commercialization of the invention covered by the patent(s). What these obligations and responsibilities are will be detailed in the Patent Purchase Agreement after negotiations among all parties to the agreement.

When you license a patent, you will likely have some ongoing responsibilities such as paying the Maintenance Fees or enforcing the patent(s) against infringers. Again, just as in a Patent Purchase Agreement, a Patent Licensing Agreement will enumerate what responsibilities or obligations the patent owner has once the patent(s) has been licensed.

This is a good point for us to interject a key factor about Patent Purchase Agreements and Patent Licensing Agreements. These are agreements negotiated among and agreed to by the parties to the transaction. The patent owner does not have to agree to anything that he or she or it does not want to agree to. We are asked all the time by clients if they “have to” do this or they “have to” do that? The patent owner does not have to do anything he or she or it does not want to do! We are reminded of the story Michael Corleone told Kate about how his father made the bandleader an “offer he couldn’t refuse.” No one will hold a gun to the patent owner’s head. The patent seller or licensor does not have to agree to anything, but he or she or it must also be prepared to walk away from the deal if the buyer or licensee wants something the patent owner is just not prepared to do.

We should also add that in our many years in patent brokerage, we never had a buyer or licensee that made any outrageous demands on the patent seller or licensor.

♦ How Do I Select a Patent Broker to Represent Me? We had to save this one for last. NO patent broker can guarantee that it can successfully monetize your patent or portfolio – at least NO ethical patent broker will make this promise. What the patent owner seeking to monetize his or her or its patent(s) should do is select a patent broker that understands the invention covered by the patent(s), has a practical strategy for commercializing the technology covered by the patent, has a two-track business model that is proven and makes sense, and takes a broad monetization approach rather than focusing on just licensing or just selling the patent(s). Then be prepared to work with the broker by providing the information and insight the broker needs to successfully tell the story of your patented invention.

Our last two installments addressed questions from our readers about selling their patents. Two issues ago we addressed controlling what your patent or portfolio sells for and the pros and cons of holding an auction to sell your patent(s). Last issue we addressed knowing what to ask for your patent or portfolio and ensuring that you get paid. But you have yet more questions, and we have yet more answers.

♦ How Do I Increase the Value of My Patent? This question reminds of all the real estate TV shows that show homeowners how to sell their houses by re-arranging the furniture and making quick fixes. There are NO quick fixes, but there actually are three things you can do that will increase the value of your patent.

The first is to file for a Continuation before your patent is granted. A Continuation is a patent application that saves the Priority Date and the claims from the first patent in a patent application to which you can add additional claims. Should a buyer like A, B, and C about your patent, but wishes it did D, that company can buy your granted patent and patent application and use the open patent application and apply for a second patent that includes D. If the Patent Examiner accepts the new claim or claims, the assignee has a new patent that better suits its needs.

The second is to file a PCT Patent Application. Let’s say your buyer is a U.S. company but it has a significance presence in Australia, or Germany, or Korea, or any other country or countries. The buyer of your patent and your PCT Patent Application can use the PCT Patent Application to apply for additional national patents in any of the countries where it does business.

The significant limitations that filing a Continuation and/or filing a PCT Patent Application have is that they both have to filed before your U.S. patent is granted. Every patent attorney should inform his or her client of this, but many – unfortunately – do not. So, if your U.S. patent is already granted, you missed both of these opportunities. Sorry.

The third thing you can do – after your patent has been granted – to make your patent more valuable is to develop a working prototype or have some type of proof-of-concept. This will take the invention covered by your patent beyond the concept stage and make it a reality, and of greater value to a buyer.

♦ Won’t I Get More If I License My Patent? Maybe. Maybe not. As a wise man once said, “Bingo, business, and baseball are games of chance.” Company A could license your patent, sales of products based on your patent could take off, and you could earn millions in royalties. This only occurs IF Company A agrees to license your patent and IF sales of products based on the patent take off.

We have represented patents that were licensed, but there were no sales or very little sales of products based on the patent, so the royalties generated by the transaction were minimal. When we draft a patent licensing agreement, we always protect our client by requiring payment of a minimum royalty payment to insure that our client gets something. On the other hand, we’ve licensed patents for clients that generated revenue well into seven figures! That’s life. And bingo, business, and baseball.

This is also why few companies opt to license patents these days. The vast majority of deals we close are for cash purchases of the patent or portfolio we represent. Buying a patent – owning it, practicing it, controlling it, promoting it, and enforcing it – is the alternative most buyers prefer. Buying a patent is a clean, neat transaction while licensing involves bookkeeping, reporting, liabilities, paperwork, and other assorted headaches.

We’ve had at least one instance in which an inventor insisted on licensing his patent, but we had just one offer and it was to buy the patent, so the inventor turned the offer down because he was only interested in licensing his patent. Unfortunately, we were never able to find an offer to license the patent! So just be prepared – if in your heart of hearts you really, really, really want to license your patent – that you may get just one offer, and it may be to buy your patent.

Next Month: We answer the last of your questions about selling your patent.

Three recent installments in this space addressed what a patentee (the patent owner) needs to know about selling his or her or its patent or patent family or patent portfolio.

In the last installment we started answering the many questions we received about selling a patent or portfolio. The last installment address what control the patentee has over the selling price of his or her or its patent, plus why auctions are simply not practical nor effective.

But you had more questions. And we have more answers.

♦ How Do I Know I Will Get Paid? When you send an invoice to a customer for products or services, you will probably get paid, but you might not. That is why when one is selling a major asset like real estate or intellectual property the seller does not simply send out an invoice. Just as the sale of real estate always involves a trusted third party that acts as an escrow agent – it could be an attorney, a real estate agent, or the title company – the sale of a patent or patent family or patent portfolio also uses a trusted third party as the escrow agent.

No seller of a patent is going to sign the patent over to the buyer and just hope that he or she or it gets paid. And no buyer is going to send money to the seller of the patent and then hope that the patentee assigns ownership of the patent to the buyer. Either situation could lead to lengthy litigation. Not good.

A much better system has evolved. Once the Patent Purchase Agreement (PPA) has been executed (signed by all parties), the funds to acquire the patent(s) are wire transferred to an escrow account held by the patent broker. Once the funds are received, the broker notifies the seller, and a Patent Assignment is executed and filed with the Patent Office. This is the document that transfers ownership to the new owner – a sort of deed for a patent. It only takes a few days for the USPTO to update its records and show who the new owner (“assignee” in patentspeak) is. If the sale is for an international patent portfolio, similar filings will need to be made at those patent agencies that record changes of ownership as the U.S. Patent and Trademark Office does.

This filing for change of ownership is done by either the patent broker or the buyer’s attorney. The process is similar to how the recording of the change of ownership of real property is recorded at the County Clerk’s Office in the county where the property is located. Once the change of ownership is recorded by the Patent Office, the broker releases from the escrow account the funds due the seller – usually via wire transfer but it is also sometimes by check – completing the transaction.

This system of using the patent broker as the escrow agent prevents monetary disputes and possible lawsuits, ensuring the seller gets paid.

♦ How Do I Know What to Ask for? We do not recommend setting an asking price for the patents we represent, and we do not put an asking pricing on any of the patents we represent. The reality is that it is a buyer’s market out there, so we let the buyer set the price. Setting an asking price will only work against you and never in your favor.

A few years back we had a client who insisted when he first contacted us that he “would not settle for a penny less than $250,000” for his patent. We reviewed his patent and agreed to represent him. That was fine, but we had to keep in mind that he “would not settle for a penny less than $250,000.” In every email he sent us, he reminded us that he “would not settle for a penny less than $250,000” and he even wanted us to put that in the newsletter, at our website, and in the prospectus. We refused to put a selling price on his patent and he was very upset.

We received an offer from a buyer for $325,000. We suggested he make a counteroffer for $400,000 which he did. We ended up selling the patent for $380,00. Had we actually told the buyer that the patentee “would not settle for a penny less than $250,000” what would we have received for the patent? We’d have left $130,000 on the table.

Going to market with too low an asking price can leave money on the table, while going to market with too high an asking price can chase a away an otherwise serious buyer. The bottom line is that there is no need to put a selling price on your patent. You and your broker can have a price range in mind, but that should be proprietary data.

Next Issue: Yet more answers to your questions about selling your patent…

Our last three installments addressed what a patentee (patent owner) needs to know about selling his or her or its patent or patent family or patent portfolio.

In this installment we start answering the many questions we received. Here we go…

♦ Do I have control over what my patent sells for? First of all, we are very surprised to receive this question! When you sell a house, do you have control over what it sells for? If you sell a car, or stock, or a dining room set, or your golf clubs, or that ugly painting that your crazy aunt left you, do you have control over the price? Of course you do! The only exceptions we can think of to your NOT having control over what an asset you own sells for is if you file bankruptcy and your assets are sold at auction, or you are declared incompetent and your court-appointed trustee sells off your assets.

If you have not filed bankruptcy, and no court has found you not competent to manage your affairs, you absolutely have control over what your patent(s) – and all your other assets – sells for! When your patent broker finds an interested buyer, that buyer will make an offer, and your broker will bring that offer to you. A quality broker will include its recommendations regarding the offer, but it is 100% your decision as the owner of the patent to either reject the offer, accept the offer, or make a counter-offer. There are NO circumstances we can conceive of under which a patent owner would be forced to sell a patent and have no control over the price – unless you filed bankruptcy or were declared incompetent!

We also need to add that there will be a Patent Purchase Agreement (PPA) that will be drafted, reviewed, edited, and agreed to by both sides, and the PPA will include not just the price the patent(s) sell for, but all other terms and conditions regarding the transaction. There is NO sale of the patent(s) until the PPA is signed by the patentee, giving the patentee 100% control over not just the price at which the patent(s) is sold, but all other terms and conditions of the sale! Again, we are surprised that people asked this question.

♦ Why not just have an auction to sell my patent? Ah, were it that easy. To answer this, we first have to explain the process by which a company decides to acquire a patent. Most businesses have a purchasing agent or purchasing director who makes decisions regarding the acquisition of items the business regularly uses in the course of its business – supplies, parts, components, packaging, equipment, and so on. Retailers have buyers who select what products will be purchased for resale in their stores or online. No such positions exist when it comes to patents. It would be great if we could just call up Denise, email her the patent we represent, and Denise would either decide to buy or not buy it. That is not how things operate in patentland.

Acquiring a patent is a company-wide decision. Before Company A acquires your patent, Engineering will need to determine what will be involved in turning your patented invention into a patented product. Manufacturing will need to either set up a line for this new product or contract with an assembler to produce it. Accounting will look over the cost structure of such a product to determine if it can be sold at a reasonable profit. Sales may need to bring on new staff to handle this new product, and if it is a retail product, Sales will need to negotiate for shelf space with their retailer network. Marketing will need to come up with packaging and an ad campaign for the product. Human Resources may have to recruit specialized personnel to handle the manufacturing or packaging or distribution of the product. Customer Service will need to train its personnel to support the new product. And so on and so forth.

That’s why we’ve written in this space many times that the selling cycle for a patent is typically three to nine months. Here is the problem with an auction. If Company A has not brought Engineering, Manufacturing, Accounting, Sales, Marketing, Human Resources, Customer Service, and other business units into the decision-making process before the date of the auction, Company A will not be ready to make a bid for the patent. The odds that all the companies that might be interested in your patent will all be ready to make a decision on a certain date are pretty long. So an auction with no bidders - or just one bidder - is a colossal waste of time and resources.

The other problem with an auction is that if there are no bidders, or just a few low-ball bids, it damages the value of the patent and makes it more difficult to sell down the road. Why not just have an auction? Auctions are great for selling everyday objects that anyone or any business can use – computers, furniture, supplies, equipment, fixtures, vehicles, art, etc. Auctions just do not work for something as specialized as a patent.

Next Issue: We answer yet more of your questions about selling your patent.

Our last two installments addressed the nuts and bolts of selling your patent or portfolio. Once, that is, that your patent broker has identified a buyer for your IP assets!

The last two pieces covered a Term Sheet, Patent Purchase Agreement, Encumbrances, Grant Back, Escrow, Patent Assignment, Selling a Patent Application, and a License-to-Own. If you missed either or both of the last two installments, scroll down where both are re-printed along with all previous Patent Leather installments.

This issue we pick up where we left off and address additional intelligence you need to know when you sell your patent or portfolio.

♦ Due Diligence: It is a common practice for the acquirer of a patent or portfolio to conduct due diligence to make sure there will be no problems down the road with the patent or patents it is acquiring. The buyer will review the prosecution of the patent application to see if there were any filings made challenging the patent application. The buyer will also research if any challenges have been made against the granted patents - if there are any Post Grant or Inter Partes reviews filed before the Patent Trial and Appeal Board (PTAB)

A buyer will sometimes search for Prior Art that might have been missed by the applicant and the patent examiner to determine if the patent(s) could be subject to invalidation by the PTAB.

Due diligence can also include verifying ownership of the patent. If it was transferred from the original assignee, were all the filings in order? One issue that some buyers will research is if the inventor has a waiver from his or her employer relinquishing any rights to the patent.

Other due diligence issues include verifying that all maintenance fees were paid and if there are any other possible financial liabilities or obligations associated with the patent(s). Also, when will the next maintenance fees be due?

♦ File Wrapper: Some buyers will request the File Wrapper. This consists of all the documents filed by the applicant and all files produced by the Patent Office (Office Actions, for example) during the prosecution of the patent application. Your patent broker can secure this for you if the buyer requests it.

♦ Deliverables: Some Patent Purchase Agreements will have a Deliverables section that details items that the buyer requires be delivered before the transaction can be completed. For example, some buyers may want the original hard-copy ribbon version of the patent(s). Some buyers will request the inventor’s notes or any prototypes or proof-of-concept the inventor developed. What is provided under Deliverables is negotiated among the parties prior to the execution of the Patent Purchase Agreement.

♦ Enforceability: The reality is that the acquirer of the patent may need to enforce the patent one day. After all, that is the whole idea behind a patent – a monopoly granted by the federal government – but a monopoly that has to be enforced by the patent owner. Accordingly, the buyer will research the enforceability of the patent. Were there issues during the prosecution of the patent(s) that might hinder enforcement of the patent(s)? Did the seller ever have any contacts – telephone calls, letters, emails, or meetings – with prospective infringers? Have patents in similar technologies been successfully enforced? Are there 101 issues that might limit enforceability of the patent(s)?

♦ Services from the Inventor(s): An acquirer will sometimes engage the inventor or the invention team of a patent to assist in the commercialization of the patent into a deliverable product. This is usually done in the form of a consulting engagement by the acquirer of the patent with the inventor(s) or the company that is selling the patent. After all, who understands the nuts and bolts of the patent better than the inventor?

Also, inventors often have ideas for their inventions that go beyond what they were able to include in the patented invention. Remember, there is the invention, and then there is the patent invention. And the original invention may have been a much grander concept! The buyer of the patent may also want that grander concept.

Questions: We did our best to describe what a patent seller needs to know. If we missed something, or you need clarification or anything we covered, contact us at [email protected].

Our last installment addressed the nuts and bolts of selling your patent or portfolio. Once, that is, that your patent broker has identified a buyer for your IP assets!

Last month we covered a Term Sheet, Patent Purchase Agreement, Encumbrances, Grant Back, and Escrow. If you missed the September 28 IP MarketPlace, you can go to scroll down to where it is re-printed along with all previous Patent Leather installments.

This issue we pick up where we left off and address additional issues you need to know when you sell your patent or portfolio.

♦ Patent Assignment: Just as the sale of real estate is a public record that is recorded by the County Clerk in most U.S. states, the change in assignment of a patent is also a public record that is recorded by the U.S. Patent and Trademark Office. A Patent Assignment is completed and signed by the seller (the “assignor”) stipulating who or what is the new owner (“assignee”) of the patent, and that form is filed with the Patent Office. It just takes a few days for the USPTO to update its records and show who or what is the new assignee of the patent.

Some foreign patent offices have a similar process that has to be followed for any foreign patents in the portfolio. However, some countries to do not record and publish the second or subsequent assignees of a patent – it differs from country to country.

♦ Patent Application: It is not uncommon these days for an inventor or business to sell a patent application – either as a sole asset or as part of a portfolio. We’ve preached to our readers the value of filing for a continuation before a patent is issued, so it is not uncommon for a portfolio to include one or more granted patents plus a continuation application.

If the sole asset is a patent application, there is the issue of what happens if the application is not approved and a patent is not granted. After all, only about 50% of all patent applications are granted as patents, so there is the distinct possibility that the patent application is sold, but NO patent is granted. This is addressed a few different ways.

The buyer can purchase an option on the granted patent. The patent application owner then continues prosecution of the patent application, and when a patent is granted, the buyer exercises the option and buys the granted patent. Or the buyer can make an initial payment to the seller, take ownership of the patent, take over prosecution of the patent application, and make a second payment to the seller when the patent is granted. Should a patent not be granted, no second payment is made. If the buyer has confidence that a patent will be granted – usually based on advice provided by the buyer’s patent attorney – the buyer will simply buy the patent application, take over prosecution of the patent application, and hope for the best.

If the patent application or applications are part of a larger portfolio, then it makes sense for the buyer to acquire the entire portfolio and take over prosecution of any patent applications in the portfolio. By “take over” prosecution of the patent application, we mean that the buyer either engages the patent attorney currently prosecuting the patent application and pays the patent attorney’s fees going forward, or the buyer has its patent attorney replace the seller’s patent attorney in the prosecution of the patent application.

♦ License-to-Own: As we’ve reported previously, most patent transactions these days are cash sales. If a company has the cash-on-hand to buy a patent, that is what it will do. The only advantage to licensing a patent is that it backloads the cost, and that is of benefit to a company that is short on cash – a start-up, for example, or a company with declining sales and profits looking to make a turnaround.

The license-to-own program starts out as a license. The licensor (the company paying for the use of the patent technology) pays the licensee (the owner of the patent) an agreed-to quarterly royalty or a quarterly royalty based on unit or dollar sales. The agreement includes a purchase price for the patent or portfolio, and once the licensee has paid that amount in royalties, it takes ownership of the patent. This is a way for a cash-strapped company to preserve its cash, but also be able to acquire the patent or portfolio outright.

Our last three installments addressed licensing versus selling your patent or patent portfolio, and we answered reader questions about licensing. A key point from the last three installments is that most patent transactions today are straight-up cash sales. While many patent owners would prefer to license their patents – and sit back and collect royalties for 15 or 18 years – that is not always an option. In fact, it is many times not an option at all.

If the only offer on the table to monetize your patent is a cash purchase of the patent – but you really, really want to license it – you may find yourself with just one option. And you will have to swallow hard, accept a sale of the patent, and give up your dream of years and years of royalty checks rolling in.

So, to prepare you for what is ahead, here are the nuts and bolts of selling your patent once you have engaged a quality patent broker, that broker has identified a buyer, and you and the buyer have agreed on a price for your IP. Whether you are selling a single patent, or a patent family, or a patent portfolio, they are all incorporated into a single agreement and the structure is essentially the same regardless of the number of patents.

♦ Terms Sheet: Many brokers suggest starting with a Terms Sheet. It is a one-page document that enumerates the key elements of the sale. Not just what the agreed-to price for the patent(s) is, but if there are encumbrances, will there be a grant back, and other issues. Once both parties have initialed the Terms Sheet, the broker can draw up a Patent Purchase Agreement (PPA).

♦ Patent Purchase Agreement: The PPA includes all the terms and conditions of the transaction. IPOfferings has a PPA template that we make available to the buyer, but some buyers prefer to draw up their own PPA or they may have a PPA template of their own. The PPA is reviewed and red-lined by both parties, and eventually a final version is agreed to and signed by all parties. You may want to have the PPA reviewed by your attorney, but understand that large corporations know it is a buyer’s market, so they are not too receptive to major edits by the patent seller to the Patent Purchase Agreement. Three key elements that are included in a Patent Purchase Agreement are Encumbrances, Grant Back, and Escrow.

♦ Encumbrances: Just as the buyer of a piece of real estate has a Title Search done on the property he or she or it is purchasing, the buyer will want to know if there are any encumbrances to the patent(s) it is purchasing and what they are. Are there any licensees? If so, the buyer will want to see the license agreement(s) so it knows exactly what its limitations and responsibilities are as the licensor of the patent once it acquires the patent. Are there any leans against the patent? A patent agent will sometimes take a lien (a patent is an asset like real estate or a vehicle against which third parties can file a lien) against a patent to ensure he or she is paid. If the patent owner has borrowed against the patent, the buyer needs to know that as well. If any actions were filed against the patent – challenges during prosecution of the patent application or any post-grant reviews – the buyer needs to know. Have all the USPTO Maintenance Fees been paid? If not, who will pay them?

Most patents are unencumbered. There are no licensees, no liens, no litigation. And if that is the case, the seller must so stipulate in the PPA. If there are encumbrances, they must be detailed in the Patent Purchase Agreement along with how each will be addressed by both parties.

♦ Grant Back: When a patent is sold, it is sometimes a condition of the sale that the buyer will issue a “grant back” to the seller. A grant back “grants back” to the seller the right to practice the patent even though he or she or it no longer owns the patent. The buyer is essentially granting the seller a free lifetime license to the patent. This gives the patent seller the right to commercialize the patent at a point in time and prevents the patent seller from ever being sued for infringement of his or her or its own patent!

Some patent buyers will simply NOT agree to a Grant Back. They want 100% ownership of the patent and all rights associated with the patent. Other buyers will issue a Grant Back, in large part because they do not imagine the patent owner becoming serious competition should he or she or it exercise the Grant Back and start manufacturing and selling products based on the patent.

♦ Escrow: There is the issue of how the seller will be paid by the buyer. The buyer is not going to pay the seller and then hope that the seller signs the patent(s) over to the buyer. Should the seller fail to sign over the patents, the buyer will have to sue and that is messy and time-consuming. Similarly, the seller may not want to sign over his or her or its patent(s) to the seller until he is paid. This stand-off is resolved by using the broker as an Escrow Agent. The funds for the purchase are paid to the broker – usually via wire transfer – and put in an Escrow Account. The broker notifies the seller that it has been paid, so the seller is then secure in signing over ownership of the patent(s) to the buyer. Once the ownership (“assignment” is the Patent Office term) of the patent(s) has been made and it is recorded by the USPTO, the broker then releases from the Escrow Account the funds due the seller, and the transaction is completed.

However, if a company does not have sufficient cash-on-hand to buy a patent – it is a start-up company with limited resources or it is a company that needs to preserve its cash – it will license a patent since licensing has the advantage of back-loading the cost of the patent. Yes, the company will pay more – very likely much, much more – over the life of the patent in royalties than the company would have spent to buy the patent, but it will preserve its cash and have access to the patented technology.

Our installment on selling vs licensing a patent drew many questions, and we answered several of them in our last installment. But there are yet more questions, and here are the answers.

♦ What if the licensee never actually sells any products covered by the patent? This is entirely possible. Company A could license your patent, build a few prototypes, take them to trade shows, and show them to its best customers, only to discover that no one is interested! Or the price to build a product based on the patent makes it too costly and not competitive. If the licensee fails to generate any significant sales of products based on the patent, there will be little or NO royalties to be paid. This is one of the risks of licensing.

Some patent licenses include a minimum quarterly royalty payment. For the first year of the license, for example, the licensee agrees to pay X dollars a quarter until sales of the patented products reach the level that royalties begin to exceed X dollars. This can be negotiated into the patent license, and it is usually just for a fixed period at the beginning of the term of the license.

♦ What is cross-licensing? Company A has a patented technology that Company B (a direct competitor, perhaps) wants, but Company A is not about it sell its patent to Company B. Meanwhile, Company B has a patented technology that Company A wants, but Company B is not about it sell its patent to Company A. The solution is for Company A and Company B to license (i.e., “cross license”) the two patents to each other. Cross licensing is not for inventors, but for operating companies that own and practice patents.

♦ What if the licensee fails to pay the royalties? Just as a vendor can fail to pay in invoice or a tenant can fail to pay the rent, a licensee can fail to pay the royalties due the licensor. Most license agreements include verbiage to address this issue and what the penalties are should the licensee fail to make the required royalty payments. To collect unpaid royalties, the licensor may have to sue the licensee – usually in state court.

♦ Can a patent license agreement be re-negotiated? Any agreement can be renegotiated. If the licensor or licensee is not satisfied with how the licensing agreement is working out, either can contact the other and enter into negotiations to terminate or modify the agreement. Of course, both parties must agree. It cannot be done unilaterally.

♦ How does the licensor know it is being paid the royalties it is truly owed? The licensor (the owner of the patent to whom royalties are paid) must rely on the licensee (the entity that is paying royalties for the use of the patented technology) to report its sales of products covered by the licensed patent(s). It is normal procedure that a licensing agreement gives the licensor the right to audit the licensee’s books if it believes it is not being paid all the royalties it is due.

♦ Can you sell the patent AND collect royalties? As we wrote previously, everything is negotiable. If a company really, really, really wants your technology, it is possible that a company may BOTH buy your patent for cash on the front end AND pay you a royalty on the back end. It is rare, but is has been done.

♦ What happens to a patent that is licensed and then sold? Should a patent be licensed, and then sold, the licensee will be obliged to pay royalties to the new owner of the patent – just as a tenant would pay rent to the new owner of a house or office or warehouse that it is renting.

♦ What happens if the licensee is acquired by another business? All patent licenses include verbiage that the license is still effective should the licensee be acquired by another business, and that the acquiring business must assume all the responsibilities detailed in the patent licensing agreement.

♦ What happens if the licensee files bankruptcy? This is yet another risk of licensing. When a company files bankruptcy, it is in most cases not legally obliged to pay royalties until the bankruptcy is discharged, at which time royalty payments should resume. The licensee will, of course, attempt to use bankruptcy to renegotiate the terms of the license.

♦ What if the licensee goes out of business? Yet one more risk of licensing. The only good news is that the patent – if it was an exclusive license – can now be licensed to another company – very likely a direct competitor of the first licensee.

We must remind our readers that despite the desire of many patent owners to license their patents – and then sit back and collect royalties for 15 or 18 years – most patent transactions these days are straight cash acquisitions. The patent owner who wishes to license his or her or its patent needs to be prepared for a situation in which he finds just one monetization offer on the table, and it is not a license.

However, if a company does not have sufficient cash-on-hand to buy a patent – it is a start-up company with limited resources or it is a company that is losing money and needs to preserve its cash – it will license a patent since licensing has the advantage of back-loading the cost of the patent. Yes, the company will pay more – very likely much, much more – over the life of the patent in royalties than had the company bought the patent, but it will preserve its cash and have access to the patented technology.

Our installment on selling vs licensing a patent drew many questions, and we shall answer them all.

♦ How are royalties computed and paid? For those few patents that are licensed, royalties can be computed in three ways. Most patent licenses call for a royalty that is a percent of sales – from as little as 0.25 or 0.50% to as much as 4 or 5% depending on the product, the industry, the competition, and other factors. A second option is a fixed dollar amount – for example, $5.00 for each product sold regardless of the selling price of the product. Whether the royalty is a percent or a dollar amount is the result of negotiations between the licensor (the patent owner) and the licensee (the entity that is paying to use the rights to the patented invention). The licensee may not want the licensor to know what it is selling the patented product for, so a fixed per unit dollar royalty addresses that need.

A third option is a fixed fee. Rather than a percent of sales or dollar fee per unit, the licensee pays X dollars a quarter for the use of the patent. For a company that sells a package of products and services – some elements of which include the technology covered by the patent – it may be difficult to define exactly what part of the company’s sales are patent-protected, so this is a simpler option.

Royalties are almost always paid quarterly via wire transfer. How they are paid is detailed in the Patent Licensing Agreement.

♦ How are royalties paid for a U.S. Patent if there are international sales? If Company A is licensing U.S. Patent No. 12,345,678, the patent only covers products that are made or sold in the U.S. So, the license can be written to include that Company A only has to pay royalties on products manufactured or sold in the U.S. However, if the Company A really wants the technology, the licensor may be able to negotiate to have royalties paid on ALL products – regardless of where they are manufactured or sold. Every element of a licensing agreement is negotiable, and we have done licenses for U.S. Patents in which the licensee agreed to pay royalties on ALL sales, U.S. and export.

♦ What Is an exclusive and non-exclusive license, and what are the benefits and drawback of each? An exclusive license is one granted to just one licensee, so the licensee has exclusive rights to the patented invention, while a non-exclusive license is granted to more than one licensee. The royalties for an exclusive license will generally be greater since there is a sole entity licensed to use the patented technology, giving it a monopoly on the patented invention. No competition is a rare and wonderful thing. A non-exclusive license often comes with a lower royalty, but there will be other licensees that will be direct competitors. Needless to say, most patent licenses are exclusive.

♦ What is the term of a license agreement? Just as a licensing agreement for a U.S. Patent will typically only cover products manufactured and sold in the U.S., a licensing agreement will typically be for the remaining life of the patent. That’s 20 years from the Application Date unless the Patent Office granted a Term Adjustment. However, every aspect of a patent licensing agreement is negotiable, and we have done patent licenses that ran beyond the expiration date of the patent because the licensee wanted the technology and was willing to agree to continue to pay royalties past the expiration of the patent to get the technology.

♦ What if the licensee stops selling products covered by the patent? It is entirely possible that five or eight or ten years into the licensing agreement the licensee will cease selling products based on the patented technology. There are any number of reasons for this. The company shifts its focus to other technologies. The product is no longer profitable or in demand. A new technology has come along that has obsoleted the technology covered by the licensed patent. If sales of patented products stops, payment of royalties then also stops. This is one of the many risks of licensing.

In the next issue we will answer additional questions from our readers about patent licensing.

Let’s step aside from patents for a moment, and consider the options of buying versus leasing other assets. In the long run, it is cheaper to buy a house – make the mortgage payments, build equity, and eventually own it – than to lease or rent a house. The same concept applies to an office building, factory, or warehouse. And it is cheaper to buy a car than lease a car – especially if you can buy the car for cash so you have no payments. But even if you have to make car payments, financing is always cheaper than leasing. The same concept applies to a truck for a business. Or office or factory equipment. Or any other capital expenditure.

To be fair, there may be one exception to this rule. In some cases, it is cheaper and smarter to license rather than buy software especially if support and training are covered by the license, but this is the only exception we know of to the rule that buying is always cheaper than renting, leasing, or licensing.

The same principles apply to buying versus licensing a patent. It will almost always be cheaper for a business to buy a patent for cash, own the patent, practice the patent, maybe license the patent to a competitor, cross license it to a strategic partner, promote the patent at is website, mark its products with the patent, and assert the patent against any and all infringers.

That is why the vast majority of the patents we successfully monetize for our clients are cash sales. The companies that are acquiring patents put one and only one monetization offer on the table – a cash purchase. By “cash purchase” we really mean a wire transfer, but our readers know that. “Cash purchase” is the current vernacular.

The simple reality is that if Company A licenses a patent, and the products based on that patent take off, Company A will be paying royalties for the life of the patent – which could be 10 or 15 or more years depending on the age of the patent. And that could get very expensive. We recently ran an article about the inventor of the flash memory drive. Imagine what the royalties must have been on $8 billion in sales?

There are also some negatives – other than cost – to licensing a patent. The licensee (the entity that is licensing the patent) has to break out sales from its total sales of just those products that are covered by the patent. It then has to subtract from that number those sales not covered by the patent. If we are talking about a U.S. Patent, for example, then foreign sales – unless they were included in the licensing agreement – are not subject to a royalty. The licensing agreement will probably also consider returns, adjustments, and credits to define exactly what sales of patent-covered products are subject to royalties. And then the royalty has to be paid four times a year for the life of the patent. That’s a lot of bookkeeping.

On top of that, when the licensor (the patent owner) receives each quarterly royalty payment, he or she or it knows exactly what the licensee’s sales are of patent-covered products. And that is a number the licensee might not want the general public – and, especially, its competitors – to know.

And there are other negatives to licensing a patent. If an infringer shows up, and the licensee informs the licensor of the infringement, what if the licensor fails to act to protect the licensee’s interests? What good is a patent license if the patent is infringed, and the licensor fails to take action?

Okay. There must be some benefit to licensing a patent. And there is. If Company A does not have the cash on hand to outright buy the patent, it will offer to license it. While it will be more costly to license the patent, at least those costs are backloaded. And as everyone in business knows, whenever possible, frontload the revenue and backload the costs. A start-up company, or a small privately held company, or a company that is losing money and needs to preserve its cash, are all candidates to license a patent.

And since buying a patent is so much cleaner, neater, simpler, easier, and more confidential than licensing a patent, it has become a common practice for start-ups or smaller businesses that have to license a patent to negotiate a licensing agreement that includes the option to acquire the patent at an agreed-to price during the term of the license, so the licensee can buy the patent – with cash generated from sales of the patent-protected products – and stop making royalty payments.

According to the latest figures from the Federal Reserve, U.S. corporations are sitting on $3.82 trillion. That’s cash sitting in bank accounts. That’s why so few companies license patents, but opt to buy them.

So….if you own a patent, and you want to license it, we will take our best shot at it if we believe in the viability of the patented invention. But prepare yourself to not be surprised if the only offers you get are for straight cash acquisition of your patent or patents. And then you have to decide not between selling or licensing, but between selling or walking away.

Well, one of the people who benefited from the un-enforced USB patent was Dov Moran, a prolific Israeli inventor and entrepreneur who was granted U.S. Patent No. 6,148,354 for an “Architecture for a universal serial bus-based PC flash disk” November 14, 2000. His invention became the USB Flash Drive, and his patent generated billions – yes, “billions” with a “b” – for him and his company, MSystems, Ltd.

Moran’s company started manufacturing and selling flash drives based on Moran’s patent, and sales were brisk and healthy. In 2006, MSystems was sold to ScanDisk Corporation for $1.6 billion. SanDisk was acquired by Western Digital Corporation (NASDAQ WDC) in 2016.

Moran very wisely filed for multiple foreign patents, and he filed four continuations that become patents. Moran and M-Systems vigorously defended their patent, filing numerous patent infringement lawsuits in several countries. The last patent in the series was a reissue, U.S. Patent No. RE44641 that expired in 2019. Western Digital was collecting royalties in 2019 on $60 billion in flash drive sales!

The USB Flash Drive is one of the best examples of how performance increases while the price of the product drops. The original MSystems flash drive held a whopping 8 MB of data! The capacity of the flash drive has steadily grown into the terabytes. While the price has steadily dropped.

A case now before the courts is addressing the question of if Artificial Intelligence can be an inventor! A Federal Circuit panel must decide how to define what an “inventor” and an “individual” is in a test case for artificial intelligence inventorship.

The term “individual” as used in U.S. patent law should be interpreted broadly, including extending it to artificial intelligence machines such as DABUS (Device for the Autonomous Bootstrapping of Unified Sentience), a form of AI developed by Australian computer scientist Stephen Thaler. This is the argument made by Ryan Abbott, a partner at the Brown, Neri, Smith & Khan law firm, before the U.S. Court of Appeals for the Federal Circuit. Chief Judge Kimberly A. Moore and Circuit Judge Richard G. Taranto centered their questions to Mr. Abbott on how to more simply define “individual.” They questioned the concept of zero human involvement in the creation of AI-generated inventions.

Taranto noted that in some cases it would be “odd” to list an AI as an inventor. Artificial intelligence refers to a capability, he said, citing dictionary definitions. “My general sense has been that the term artificial intelligence is nearly always and in some dictionaries only used to refer to the capability, not the machine that has it,” Taranto said. “That would make extremely odd, just for that reason alone, to indulge the usage that you have to indulge when you say, ‘an AI, the AI as a unit,’ that could be an inventor,” he added.

Abbot responded that the judges can view DABUS as an “inventive entity” because it is a software program operating on a specific physical computer.

The case currently pending in the U.S. is not the beginning of Stephen Thaler’s challenge to have AI accepted by national patent offices as an inventor. Thaler has one win under his belt in South Africa where he received a favorable decision from the Companies and Intellectual Property Commission. However, his request was denied by the European Patent Office, the second largest patent agency.

This case began when the U.S. Patent and Trademark Office ruled that DABUS cannot be an inventor on a U.S. Patent Application, and the U.S. District Court for the Eastern District of Virginia’s backed up the Patent Office. The district court decision was appealed by Thaler, putting it before the U.S. Court of Appeals for the Federal Circuit.

Thaler’s appeal to the federal circuit is Case No. 1:20-cv-09003.

Each of the conference sessions include input from several panelist who each approach the topic from a slightly different perspective, and each session will include time for Q&A. Here is the conference agenda.
♦ Primer on Patent Monetization
♦ Primer on Spinning Off Technologies
♦ Selling a Royalty Stream
♦ Preparing for Negotiations with Buyers/Licensees
♦ Monetizing Patent Through Exits
♦ Working with Contingency Lawyers and Litigation Finance Companies in Patent Infringement Actions
♦ Monetizing Standard Essential Patents
♦ Patent Pools for Complementary IP
♦ Deal Terms and Negotiating Strategies
♦ Patent Acquisitions from the Buyer’s Perspective

Our very own Alec Schibanoff will be a panelist on two of the conference sessions, and the other panelists come from a cross-section of the IP community so it will be diverse learning experience for the attendees. Best Practices for Monetizing Patents is co-sponsored by Tech Transfer Central and Certified Patent Valuation Analyst.

Registration for the conference is very affordable, and you can also order on-demand videos from the conference for training and reference purposes. You can download the conference program and registration at this link.

Many printers worked with a parallel port. The Centronics parallel port was the most popular through the 1980s and into the 1990s. It did work, but it was large and clumsy, and while the female end plugged right into the back of your printer, that did not mean that the male end necessarily just plugged into the PC! The other problem with conventional serial and parallel connectors is that if one of pins got bent, it did not work!

What was needed was a single connector that would interface any peripheral to any PC.

It was Arjay Bhatt, the Chief Systems Technologist at Intel, who came up with a concept for a universal port. Intel partnered with Microsoft, Compaq, Digital Equipment, Northern Telecom, NEC, and IBM to invent what became the USB port and U.S. Patent No. 5,694,555 for a “Method and apparatus for exchanging data, status, and commands over an hierarchical serial bus assembly using communication packets” was granted to Intel Corporation in 1997. To show just how long ago that was, Compaq is now part of HP, Digital Equipment was acquired by Compaq before it was acquired by HP, and Northern Telecom is out of business!

Intel chose to NOT enforce the patent, and USB products currently generate $18 billion in worldwide sales.

AND…if you are not currently do so, you should be subscribing to IPWatchdog. It is the most informative publication covering patents and IP.

Mark Twain was more than a novelist. He traveled the world and in his later years toured the U.S. to packed theaters where he performed a one-man show. He reported on his travels, told stories, gave advice, and thoroughly entertained his audiences. Before Vaudeville, he was the best show in town.

Here are some of his best quips:

• Human beings are the only animals that blush. Or need to.
• Never put off till tomorrow what you can do the day after tomorrow.
• Nothing so needs reforming as other people’s habits.
• The lack of money is the root of all evil.
• The secret of getting ahead is getting started.
• If you tell the truth, you don't have to remember anything.
• All you need in this life is ignorance and confidence, and then success is sure.
• Whenever you find yourself on the side of the majority, it is time to pause and reflect.
• In the first place, God made idiots. That was for practice. Then he made school boards.
• It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt.

The next time you are in Connecticut, check out the Mark Twain House & Museum in Hartford. You can see the whole thing in a couple of hours. Most enlightening and lots of fun for the whole family.

Will Rogers started entertaining at rodeos and in Vaudeville, and then moved on to radio and the movies. At the height of his career, he had a daily radio program, a daily newspaper column, was making movies, and toured the country with his one-man show.

Here are a few of his best quips:

• Buy land. They ain't making any more of the stuff.
• Diplomacy is the art of saying 'Nice doggie' until you can find a rock.
• Everything is changing. People are taking their comedians seriously and the politicians as a joke.
• Make crime pay. Become a lawyer.
• There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest of them have to pee on the electric fence for themselves.
• Everything is funny, as long as it's happening to somebody else.
• Even if you're on the right track, you'll get run over if you just sit there.
• Good judgment comes from experience, and a lot of that comes from bad judgment.
• I am not a member of any organized political party. I am a Democrat.
• The older we get, the fewer things seem worth waiting in line for.

Should your travels ever take you to Oklahoma, the Will Rogers Memorial Museum & Birthplace Ranch is in Claremore which is northwest of Tulsa right off Interstate 44. Plan on spending the day.

According to the third edition of Intellectual property and the U.S. economy, there were 127 IP-intensive industries in sectors such as manufacturing, wholesaling, retailing, and professional, technical, management, and administrative services that accounted for $7.8 trillion in U.S. gross domestic product (GDP) – 41% of total U.S. GDP for 2019. Direct employment in these industries accounted for 47.2 million jobs in 2019 – 33% of total U.S. employment. In addition, jobs in other industries that rely at least partially on IP-intensive industries for their sales accounted for an additional 11% of U.S. employment. That adds up to 44% of the U.S. workforce.

The report provides data that offers greater insight into the demographics of workers in IP-intensive industries. The report concludes that patents, trademarks, and copyrights are the means for establishing ownership rights to the creations, inventions, and brands that bring tangible economic benefits to their owners. Again, we knew that. The report also found a substantial wage premium for workers in IP-intensive industries, with average weekly earnings 60% higher than wages paid to workers in other industries.

Relative to workers in non-IP-intensive industries, workers in IP-intensive industries were more likely to:

• Earn higher wages
• Work in larger companies (500 employees or more)
• Participate in employer-sponsored health insurance plans
• Participate in employer-sponsored retirement plans
• Have a bachelor’s degree or graduate degree

The first Intellectual property and the U.S. economy report was published in 2012 and second report was issued in 2016. The third edition of Intellectual property and the U.S. economy can be downloaded from the USPTO website.

A case in point is the European (Old World) Patent Office that just released its annual report for 2021. There were 188,600 European patent applications filed in 2021, an increase of 4.5% over 2020. Once again, the United States was the leading national source of patent applicants, accounting for 46,533 patent applications or 25% of all filings. Germany (the largest economy in Europe) was second, Japan was third, and China was fourth.

Here is what surprised us – but then really did not surprise us. What single company filed the most EPO patent applications? Maybe one of the Europe’s largest car companies, Stellantis or Daimler? Nope. How about Europe’s two Big Tech companies, Philips and Thomson-CSF? Nope. Oh, it must be Alcatel-Lucent, the telecom giant. Nope!

The company that filed the most European Patent Applications in 2021 was – drum roll – Huawei, a Chinese consumer electronics and telecom manufacturer, with 3,544 patent applications. Korean companies Samsung (of the Apple-Samsung Patent Trial of the Century fame) and LG were second and third. The highest-ranking European business for European Patent Applications was Ericsson at fourth place followed by Siemens at fifth. The highest-placing U.S. company for EPO patent applications was Raytheon Technologies (sixth place with 1,623 applications) followed by Qualcomm (seventh place with 1,534 applications). Sony was eighth, Philips was ninth, and Robert Bosch was tenth. So, only four of the top ten applicants for European Patents were European businesses, while two were U.S. companies, and four were Asian enterprises.

Not surprisingly, the most popular technology fields for EPO patent applications were communications (15,400 applications), followed by medical technology (15,321 applications), and computer technology (14,671 applications). The largest increases in European Patent Applications were in micro-structural and nanotechnology (up 27%), audio-visual technology (up 24%), and semiconductors (up 21%).

The Patent Index 2021 is available from the EPO website.

Here are the facts. The U.S. Energy Information Administration, a unit within the U.S. Department of Energy, reports that 60.8% of the electric power in the U.S. power grid comes from fossil fuels (natural gas, coal, and petroleum products). Nuclear power accounts for 18.9% of the U.S. power supply. Only 20.1% of the U.S. power supply is renewable (wind, hydropower, solar, biomass, and geothermal).

That means that when an electric vehicle is plugged in to be charged, 79.9% of the electric power to charge that vehicle is NOT green – NOT from a renewable energy source. EVs drive around on batteries that have been charged with electricity that is 61% fossil fuel and 19% nuclear. Those are the facts.

Yes, the electric vehicles do not directly emit hydrocarbons themselves, but the natural gas and coal power plants that produce the largest share of the electric power used by EVs most definitely DO emit hydrocarbons.

If – and this is a big IF – you installed solar panels on your home, and only charged you electric vehicle during the day when the sun was shining, your EV would then be a green vehicle. Or if you installed a wind turbine and only charged the vehicle when the blades were turning, you would have a green vehicle. But charge your Tesla with power from the local electric utility, and your car is simply not green. Sorry.

It was a tortuous trip with many fits and starts. One of the first and most powerful proponents for electric vehicles was none other than Thomas Edison. Although he and Henry Ford were fishing and hunting buddies, they were direct competitors in this area.

The first electric vehicles were available in the 1890s, a decade before the introduction of the Model T. Edison heavily promoted an electric car, but the challenge then, as it still is today, was range. The longer you can drive your EV on a charge, the more practical is the vehicle. Realizing the limited capacity of lead-acid batteries, Edison developed a nickel-alkaline battery that was much more durable and far less hazardous than their lead-acid predecessors. Unfortunately, the new battery was also larger and more expensive than the conventional lead-acid battery, so it significantly increased the cost of an electric vehicle over competing gasoline vehicles. Not much has changed in 130 years!

One of the early advantages of electric vehicles was starting them. Like a toaster oven, you just turned it on. If you owned a Ford, Oldsmobile, or Pierce-Arrow (the best-selling cars in 1910), you had to set the choke and the advance, get out the crank, insert it, and turn the crank in the hope the car would start – and you would not throw out your back or break your arm in the process. When the auto industry offered an electric starter in 1912, it was a significant advancement for gasoline-powered cars and just one of many, many set-backs for electric vehicles.

In Surf City, the Beach Boys sing that they “bought a 30 Ford and we call it a woody.” They are talking about a 1930 Ford station wagon in which the back of the car is actually made of wood! Years later, Ford re-introduced the concept with its Country Squire station wagons with fake wood trim on the exterior, creating a premium station wagon that was both popular and profitable. They also offered a woody version for the Mercury wagon branded the Colony Park.

We recently came across a 1941 Packard “woody” not too far from our office, just over the state line in Connecticut. If you are not familiar with Packard (no relation to Hewlett-Packard), it was a luxury car brand that thrived from its founding in 1899 through to the 1950s.

During World War II, Packard converted to engine production. It manufactured engines for aircraft and World War II PT Boats were powered by three Packard straight-eight engines. One of Packard’s last major achievements was building a presidential limousine in 1953 that was used in both the Eisenhower and Kennedy Administrations.

There were once over a dozen automobile manufacturers in the U.S., but after World War II they had to consolidate to take advantage of economies of scale. Packard merged with Studebaker, but the combined company just could not make it and folded in the early 1960s, leaving the Big Three – General Motors, Ford, and Chrysler.

Well, we fell in love with this totally restored Packard woody. It holds eight adults comfortably in three rows of leather seating. Just gorgeous. So, we decided to buy it to transport visitors to our Suffern corporate headquarters in style to and from the airport and train station.

Just kidding! We did NOT buy this car. Just kidding. But we really wanted to….

What, you may ask, does this have to do with marking a product with a patent? The Packard Motor Car Company fulfilled that obligation by placing a metal plate on the inside of the engine compartment that included the car’s VIN, its point of manufacturer, and a list of the 63 patents that cover the vehicle.

Among the patents covered by this fabulous car are U.S. Patent No. 1,451,040 for a “Steering rod connection,” U.S. Patent No. 1,916,310 for an “Internal combustion engine,” and U.S. Patent No. 2,101,130 for a “Motor vehicle.” All pretty basic stuff!

The point of this pleasant excursion is that when a company sells a product or service that is protected by a patent, it must “mark” the product with the patent or patents that are covered by it. If a business fails to do this, it weakens its ability to assert a patent against an infringer who can claim it did not know the product was infringed, possibly diminishing the damages it can collect from an infringer. If the infringed party can prove willful infringement – and marking a product with the patent number that covers it is one way to do this – it is entitled to treble damages. Properly marking a product with its patent number(s) can be a matter of some dollars.

If the patent number cannot be attached or imprinted on the actual product, or if you selling services, the product’s patent number(s) should be included in the product’s documentation – user’ manual, install or configuration instructions, tech support details, or warranty information and registration materials, for example – will do. In the case of software, it should be included in that 18-paragraph user agreement that no one reads and everyone signs.

And, most important, all of your patents – whether they cover a specific product or not – should be listed on your website.

If you have only applied for a patent, the product should be marked “Patent Pending” to scare away prospective infringers. One of the advantages of “Patent Pending” is that your competitors do not actually know what aspect of your product’s technology is covered by the patent application, So you get fairly broad protection in terms of warding off the competition.

If your patent application is not allowed, you must remove the “Patent Pending” notice – or file for a new patent application and keep the competition guessing. And if your patent application is allowed, you need to change “Patent Pending” to the actual patent number.

We’ve covered in this space that there has not been a permanent Director of the U.S. Patent and Trademark Office since Andrei Iancu, President Trump’s appointee, left the post last January. President Biden nominated Kathi Vidal – a Big Tech patent litigator with the Winston & Strawn law firm – to fill the post.

US Inventor – an inventor rights organization – is opposed to Vidal who represented the likes of Apple, Microsoft, Netflix, Samsung, Cisco, Dell, and other large-tech corporations and is an advocate for patent invalidation.

USPTO Director appointments have traditionally been fairly non-political and were rubber-stamped by the U.S. Senate. US Inventor mobilized its members and supporters to contact the members of the Senate Judiciary Committee, and they stirred up a political hornet’s nest! When Vidal’s nomination came before the Judicial Committee, five Senators opposed her nomination on the grounds that she was another “Big Tech lawyer” who would weaken the U.S. Patent system.

Republican Senators John Kennedy (Louisiana), Ted Cruz (Texas), Mike Lee (Utah), and Josh Hawley (Missouri) were joined by Democrat Senator John Ossoff (Georgia) who bucked his own party’s nominee. This is the first time that a USPTO Director nominee every got any NO votes from the Judiciary Committee!

Despite opposition from these five courageous Senators, Ms. Vidal was voted out of committee and her nomination now goes before the full Senate.

We agree with US Inventor and these Senators. We do NOT need another Big Tech lawyer running the Patent Office. Visit the US Inventor website to see how you can join the cause!

If you’re a regular reader of this column, you will recall that we just completed a five-part series on patent assertion. While suing an infringer in U.S. District Court is the most common venue, there is an alternative if the infringing products are imported into the U.S. – as so many products unfortunately are these days.

The alternative is to take your claim of patent infringement before the U.S. International Trade Commission (USITC). The USITC is an independent agency of the U.S. federal government that has the authority to levy tariffs and issue injunctions.

On January 7, the U.S. International Trade Commission issued an order barring Google from importing products that infringe five smart speaker patents owned by home-audio products manufacturer Sonos Inc (SONO NASDAQ).

Google issued the standard Big Tech statement: They are NOT infringing any patents and the decision will NOT have an impact on their sales. But what is Google going to say? “Oops. You got us!”

Sonos and Google have been embroiled in a global patent war over multi-room audio technology going back to 2020 when lawsuits were filed in California, Canada, France, Germany and the Netherlands. While this decision does not generate damages for Sonos, it does block Google from importing several products, and that’s decreased sales for Google, and it gives Sonos some leverage in its patent infringement assertion efforts.

The five Sonos patents that Google is infringing are:
• U.S. Patent No. 8,588,949: Method and apparatus for adjusting volume levels in a multi-zone system
• U.S. Patent No. 9,195,258: System and method for synchronizing operations among a plurality of independently clocked digital data processing devices
• U.S. Patent No. 9,219,959: Multi-channel pairing in a media system
• U.S. Patent No. 10,209,953: Playback device
• U.S. Patent No. 10,439,896: Playback device connection

In 2021, the best-selling vehicle in the U.S. was not a sedan or SUV. It was the Ford F-150 pickup. The second best-selling vehicle was the Dodge Ram 1500 pickup, and third best-selling vehicle was the Chevrolet Silverado pickup. Yup! The three best-selling vehicles were all pickups. The Toyota RAV4 came in fourth and the Honda CR-V came in fifth – both SUVs. The best-selling sedan was the Toyota Camry at No. 6. The GMC Sierra pickup was No. 9, and the Toyota Tacoma was No. 10, putting five pickups in the Top 10 best-selling vehicles in U.S.

In the intensely competitive pickup market, every aspect of the truck is up for grabs and market share. GMC introduced a fold-down step in the “MultiPro” tailgate on its Sierra pickup, and Dodge offers the “MultiFunction” tailgate, a two-piece open-from-the-center or flip-down tailgate, on the RAM 1500.

In July of 2020, Ford Global Technologies filed U.S. Patent Application 16/918,335 for a “Tailgate assembly having a door and method of providing access to a cargo bed,” and it reveals what Ford aficionados can expect on their next F-150. Ford has created a smaller tailgate within the larger tailgate that opens horizontally to make it easier to load smaller items such as groceries, adding a partition that creates a smaller cargo space. We assume, for mom, when she borrows the truck and heads into town for coffee, beans, bacon, and hardtack.

This month we wrap up our series on patent infringement. First, however, here is a recap. We first addressed the remedies available an NPE (non-practicing entity) whose patent was infringed. An NPE is a patent owner who does not practice his or her or its patent – primarily independent inventors and universities. In the second installment we addressed remedies for Practicing Entities (or “Market Participants” as they are also known). These are businesses that own a patent, and manufacture and/or sell a product or service based on that patent.

The third installment in the series addressed what infringement is and, even more importantly, how you document that infringement, and the fourth segment addressed your options once you decide to enforce your infringed patent.

In this last installment, we address the process of asserting a patent and the possible outcomes of that effort. Once you have engaged a patent litigation law firm to represent you, or you have partnered with a patent assertion firm and the PAF has engaged a litigator, the next step is for the law firm to file a patent infringement lawsuit. Since patents are covered by federal law, patent litigation is filed in U.S. District Court.

Once the lawsuit is filed, there are multiple communications and exchanges of documents between the plaintiff’s (the patent holder) and the defendant’s (the alleged infringer) attorneys. The defendant will immediately make the standard claim that (a.) they are definitely NOT infringing the patent and (b.) it does not make any difference because the patent is not valid.

Under what is known as “Discovery” both sides must show the other side any evidence they have. We find it hilarious when we watch a courtroom drama and an attorney presents a shocking piece of evidence that is a total surprise to the opposing attorney. That does not happen in the real world because both sides must disclose to the other side all the evidence they have before the trial.

It is likely that each side will depose (or question) the other side’s witnesses in what is known as a “Deposition.” Any witnesses that the plaintiff will call during a trial – such as the inventor – must be revealed to the defendant, and the defendant has the right to question the witness – usually in the law firm’s office – pre-trial. The purpose of the Deposition is to see exactly what the witness has to offer, but to also determine how effective a witness he or she will be.

One strategy that infringers often use today is to try to invalidate the patent. This is done by requesting an ex partes review of the patent before the Patent Trial and Appeal Board (PTAB). If the review is granted, the lawsuit goes on hold. The plaintiff's and defendant's attorneys appear before the PTAB and argue the validity of the patent. The defendant will try to locate Prior Art that challenges the novel aspect of the patented invention. If the patent is invalidated by the PTAB, Game Over. There is NO patent to assert. If the patent is not invalidated, the original patent infringement lawsuit resumes.

After motions have been filed, and there are various hearings, a trial date is finally set, and now it’s time for both sides to play chicken. Going to trial is a big risk for both sides. Either side could win big…or lose big. The result is that most patent infringement lawsuits end in an out-of-court settlement in which the infringer usually agrees to no wrongdoing, but also agrees to take a license under the patent and pay for both past and future use of the patent. An out-of-court settlement is the most desirable outcome since it is a final agreement among the parties, and both sides can walk away and go about their lives. Unless there are additional infringers to pursue – which there often are.

IF – and this is something most patent litigators representing the patentee will try to avoid – you have to go to trial, there are two possible outcomes: You can lose, in which case Game Over. Or, you can win, but it is almost a certainty that the losing side will file an appeal, and it can drag things out for months or years. Apple sued Samsung in the “Patent Trial of the Century” in 2012 and won. Samsung filed various appeals and the case was not finally settled until 2017, five years later! That is why an out-of-court settlement is best.

An out-of-court settlement typically has two parts. First, there is an amount that is agreed to that covers past infringement of the patent – theoretically what the royalty payments would have been over that period had the infringer licensed the patent in the first place. This is usually a lump sum payment. If the patent still has years to run, and if the infringer is going to continue to manufacture the infringing product, the infringer must take a license for the patent. This second half of the settlement can be paid in a lump sum or paid out in royalty payments for the life of the patent or for as long as the infringer continues to sell the infringing product.

So, as you can see, patent assertion is a High Risk/High Reward undertaking. You face the double risks of having the patent invalidated by the Patent Trial and Appeal Board, and the risk of being forced to go to trial and losing. But if you and your legal team can prevail, and secure an out-of-court settlement, you could be looking at a considerable windfall. Patent infringement settlements can run into the millions – even tens of millions – of dollars!

The last three columns in this space covered three aspects of patent infringement. We first addressed the remedies available to an NPE (non-practicing entity) whose patent is infringed. An NPE is a patent owner who does not practice his or her or its patent – primarily independent inventors and universities.

The second installment addressed remedies for Practicing Entities (or “Market Participants” as they are also known). These are businesses that own a patent, and manufacture and/or sell a product or service based on that patent.

The third installment in the series addressed what infringement is and, even more importantly, how you document that infringement. If you missed any of these missives, they are all available below.

This fourth article in the series addresses your options once you have identified and documented what companies and what products or services from those companies are infringing your patent. Let’s start with the one and only Don’t on the Do’s and Don’ts List of Patent Assertion: Do NOT contact the infringer yourself! Many patentees think that a letter to the infringer will bring a quick settlement and a license for the patent. Contacting an executive at the company that you believe is infringing your patent can only have negative effects. It could, in fact, result in the infringer filing a Summary Judgement lawsuit against you, so you end up as the defendant and have to hire an attorney to represent you. Just as you would not attempt to fill your own cavity, do NOT attempt to enforce your patent yourself!

You need to know that patent litigation is VERY expensive. It can cost from $200,000 to $500,000 or more to try a patent infringement lawsuit when you add up all the costs – not just direct legal fees, but filing fees, depositions, expert witnesses, exhibits, damages consultants, travel expenses, and other items.

If you represent a business or you are a high net worth individual, and you can afford to invest that kind of money to enforce your patent rights, you do not need to read the rest of this article. If you need a referral to a patent litigation law firm, and there are several that IPOfferings can recommend.

If, however, you are not prepared to invest hundreds of thousands of dollars in the enforcement of your patent rights, you will need a partner, and that comes in the form a Patent Assertion Firm. These are businesses that specialize in asserting patents against infringers on behalf of the patent owner. It is a highly specialized field, so there are less than 50 such businesses in the U.S.

Just as IPOfferings can represent a patentee in the monetization of his or her or its patent by finding a buyer or licensee for the patent, IPOfferings can represent a patentee in the monetization of his or her or its patent by finding a Patent Assertion Firm to partner with the patentee in the assertion of the patent against its infringers.

There is another factor here that has to be considered at this point. Since the damages that can be collected by the infringed party are “reasonable royalties” (we covered this in the first installment of this series), there must be sufficient sales of the infringing product so the reasonable royalties will be enough to cover the litigation costs and still leave a profit. As a rule, there must be tens of millions of dollars of sales of the infringing product for a patent assertion campaign to be a viable undertaking. Sue an infringer that has generated $4 million in sales of infringing products, and if the reasonable royalty is 1%, that’s just $40,000 in damages, not nearly enough to cover the legal fees to sue the infringer in the first place!

A Patent Assertion Firm (or PAF) will need to see the Claim Charts we covered in the last installment in this series. If the PAF believes that you have a valid claim of infringement and there are sufficient sales of infringing products to make the patent assertion campaign a profitable venture, it may decide to partner with you. We use the word “partner” because the patentee contributes the patent and the PAF contributes the legal and litigation fees along with the company’s expertise.

Should the PAF be successful, the revenue generated from the patent assertion campaign will be divvied up per an agreed-to formula among the Patent Assertion Firm, IPOfferings, and the patentee. The PAF needs to recoup its out-of-pocket expenses along with a reasonable profit, so it earns -as it is entitled to - a substantial share of any settlements and awards. And while the patentee receives just a portion of the total settlements and awards, the patentee risked no cash of his or her or its own.

Finally, if the patent assertion campaign is not successful – for any reason – the Patent Assertion Firm writes off all the expenses it incurred on behalf of the patentee, and the patentee owes nothing.

Next Time: What are the risks and potential rewards of a patent assertion campaign?

Two columns ago, we addressed the remedies available to patentees whose patents were infringed. Since the available remedies differ by the status of the patent holder, we first addressed the remedies available to an NPE (a Non-Practicing Entity). An NPE is a patent holder that does NOT practice the patent – that is, does not manufacture or sell a product based on the patent. NPEs are most often includes independent inventors and universities.

In our last column, we covered the remedies-at-law that are available to Practicing Entities (or “Market Participants” as they are also known). These are businesses that manufacture – or have manufactured – and sell a product or services based on a patent owned by that business.

In today’s installment, we address what infringement is and, most important, how you prove it. U.S. Patent law (35 U.S. Code § 271) states that “…whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.” Ah, were it that simple.

In order for a patent to be infringed, the product or service must “read” on every aspect of at least one independent claim in the patent. That essentially means that if you were to describe the features of a product it would be as if you were reading from an independent claim in the patent. To infringe, a product cannot be close to what is covered in the patent. It has to be exactly what is covered in the patent!

Let’s say you have a patent for a toaster over, and Claim 1 of your patent states that the toaster oven has a timer that is set by the user, it turns the toaster oven off in a specific number of minutes, and it beeps to alert the user that the food is ready. A toaster oven with just a timer does not infringe that patent. Only a toaster oven with BOTH the timer AND the beeper infringes the patent. If the toaster oven has additional features not covered in the patent, that is okay. But to infringe a patent, a product or service must include every aspect of one independent claim.

We were recently approached by a patent holder. A company was making a product that exactly duplicated what was described in the inventor’s patent except that it did not have a port for uploading data. And without that port – that was a key element in Claim 1 – the product was not infringing the patent, despite the fact that it read on every other aspect of Claim 1 from the patent!

Had the patent been written without the data port in Claim 1, and had the data port been included in a dependent claim, that inventor would have had a valid claim of infringement. But that was not how the patent was written and not how the patent was granted, so only a device that includes all the elements in Claim 1 – including the data port – would infringe the patent.

The next step is to document infringement, and that is done with what is called a Claim Chart. It is a document that lists each element in an independent claim from a patent in the left column, and in the right column it documents the infringement of each element in the claim using either pictures of the infringing product or descriptive copy about the infringing product. The infringement evidence must be documented, and that is usually done with a link to the website page from which the images and/or text was taken.

An inventor cannot prepare his or her own Claim Charts. We receive Claim Charts on a regular basis submitted by an inventor, but no one will take them seriously. To be authentic and acceptable, a Claim Chart must be created by a knowledgeable third party. And – unless you are the inventor who believes his patent has been infringed – anyone can understand why.

If you go to the Patent Infringement Services page at our website, you will see the first page of a Claim Chart from the Cellular Communication Equipment v. Apple patent infringement lawsuit from 2016.

Next Time: You have documented infringement of your patent. Now what?

Last month this column addressed the remedies available to patentees whose patents were infringed. Since the available remedies differ by the status of the patent holder, we first addressed the remedies available to an NPE (a Non-Practicing Entity). An NPE is a patent holder that does NOT practice the patent – that is, does not manufacture or sell a product based on the patent. This most often includes independent inventors and universities.

The only remedy available to the infringed patent holder is to sue the infringer in U.S. District Court. If the court finds that infringement did occur, the patentee is entitled to “reasonable royalties” – what the infringer would have likely paid in royalties had the infringer simply licensed the patent in the first place. As we pointed out, it does not seem fair that the only consequence of patent infringement is that the infringer ends up paying what it would have paid in the first place had it licensed the patent, but that is the law.

However, if the patentee can prove willful infringement – prove that the infringer knew about the patent, but went ahead and infringed it anyway (a tough case to make, but it can be made) – the infringer is now liable for treble (or triple) damages, considerably more than the infringer would have paid had it simply licensed the patent in the first place.

In this installment, we address the remedies available to a Market Participant or Practicing Entity. A Market Participant or Practicing Entity is most likely a business that owns and practices a patent. The enterprise manufacturers or sells a product based on the patent, and a competitor is infringing that patent. To clarify an issue about which we are often asked, a Market Participant does NOT have to manufacturer a product to be a Market Participant. It only needs to sell a product based on the patent. Many U.S. companies have their products manufactured overseas – so the company does no manufacturing itself – and it sells those products in the U.S. A company that has a patent-protected product contract manufactured, and only sells it, is most definitely a Market Participant and entitled to all of the remedies available to a Market Participant.

For the Market Participant, there are three remedies.

♦ Reasonable Royalties: Just like the Non-Practicing Entity, the Practicing Entity – if it can prove infringement – is entitled to what the infringer would have likely paid in royalties had it licensed the patent in the first place. And if the Market Participant can prove willful infringement, it is also entitled to treble damages. Both the NPE and the Market Participant are entitled to reasonable royalties from the infringer, and treble damages if they can prove the infringement was intentional.

♦ Lost Profits: Since the infringed party is selling a product based on its patent, there are profits generated from the patent via the sales of the products based on that patent. When a competitor sells an infringing product, it is essentially stealing sales from the patent owner since had the infringing products not been available, the buyers of those products would have had to buy product from the patent owner. And so, a second remedy available to the Market Participant is the profits it lost on sales that went to the infringing party. By determining what the sales and profits were for the infringer on the infringed products it sold, what those lost profits are can be determined.

♦ Injunctive Relief: The third remedy is not remunerative, but it can be very potent. The court may issue an injunction ordering the infringer to cease sales of the infringing product in the U.S. For an infringer that has a few warehouses full of product that it cannot now sell, and factories set up to produce a product that it cannot sell, an injunction can be devastating! When a Market Participant can secure an injunction from the court ordering the infringer to cease sales, that infringer comes begging to the patent owner to take a license for its patent!

In the famous Apple vs. Samsung patent infringement lawsuit back in 2012, the jury decided in Apple’s favor that Samsung was infringing several Apple patents and Apple was entitled to damages. Apple petitioned the U.S. District Court for the Northern District of California to issue an injunction prohibiting Samsung from importing infringing Galaxy smart phone into the U.S. The judge denied Apple’s request. Apple appealed the ruling, and three years later – that's how long an appeal can take – the Appellate Court ruled that the judge should have issued the injunction. By then, however, it was too late to benefit Apple since Samsung had substantially changed the design of its phones.

Had the judge properly granted Apple the injunction, and Samsung could NOT sell its smart phones in the U.S., Samsung would have been forced to seek a license from Apple for the infringed patents. Apple could have refused to license its patents – that is most likely what Steve Jobs would have decided – and Samsung would be out tens or million or hundreds of millions in sales revenue. Ouch!

Next Issue: Proving Infringement

We’ve worked with many inventors and businesses over the years who were horrified to discover that their patents had been infringed. Ironically, though, for many of them, it turned out to be a fortuitous and profitable event!

The bad news is that there are no “Patent Police” that you can call when your patent is infringed who will find and arrest the infringers. Patent infringement is a civil matter, so the patent owner (the “assignee” in patent lingo) has to pursue the infringers through civil litigation.

We are often asked by the owner of an infringed patent what he or she or it can expect in compensation for infringement of the patent, and the answer depends on the status of the assignee – NPE (non-practicing entity) or market participant – as the remedies are quite different.

♦ NPE: A non-practicing entity is a patent owner that does not practice the patent – that is, does not make or sell a product based on the infringed patent. This most often includes independent inventors and universities. The NPE who can document and prove infringement is entitled under current U.S. patent law to “reasonable royalties” – what the infringer would have likely paid in royalties had the infringer licensed the patent in the first place instead of infringing it. It seems unfair that Company A blatantly infringes a patent, and the only penalty is that it has to pay the royalty it would have otherwise paid had it simply licensed the patent in the first place, but that’s the law.

The most common chain of events is that the assignee engages a patent litigation law firm or partners with a patent assertion firm, and files a patent infringement lawsuit against the infringer. There are hearings and motions are filed, and there is “discovery” (an exchange of evidence and documents between the plaintiff and the defendant). The patent assignee – the party filing the complaint – is the plaintiff, and the party who is being sued is the defendant.

Both sides are entitled to question the other side’s witnesses in what is known as a “deposition.” At some point – before the actual trial begins – the two sides usually sit down and work out a settlement. Very few patent infringement lawsuits go to trial – the vast majority are settled out-of-court because it is simply too risky to roll the dice and take your chances with a jury. The question every plaintiff asks is “Do I want my fate determined by 12 people, none of whom is smart enough to get out of jury duty?”

In the famous Apple vs. Samsung smartphone patent infringement lawsuit back in 2012, Steve Jobs wanted to go to trial to position Apple as the innovator and Samsung as the intellectual property thief. Jobs’ gamble paid off, and Apple won, but it was a bold move on Apple’s part!

When the assignee and the infringer reach an out-of-court settlement, it often has two parts. First, there is usually a lump sum payment that covers past infringement from when the infringing product first went to market to the present. If the infringer is still selling the infringing product, there is a second part of the settlement in which the infringer takes a license for the patent and pays royalties on sales of the infringing patent going forward for the remaining life of the patent. This is sometimes paid out in quarterly royalty payments, but to close the books on the whole affair, infringers will often agree to a second lump sum settlement that approximates what the royalties would likely be for the life of the patent.

If the two sides cannot reach an agreement, and they do go trail, either side could win or lose. And the whole affair could drag on for years with appeals and other legal maneuvers.

There is often more than one infringer. If Company A’s products are infringing a patent, Company A’s direct competitors' products are also likely infringing the same patent, so there is Company B and Company C that also have to be sued. From that point forward, the process is pretty much the same with each infringer. However, once two or three infringers agree to out-of-court settlements, the remaining infringers will sometimes just settle up with the plaintiff and save a few hundred thousand in legal fees.

There is one other wrinkle to all of this. If the plaintiff can prove that the infringement was “willful” (the infringer knew about the patent and infringed it anyway), the infringed party is entitled to treble (or “triple”) damages. In many cases, a company comes up with a new idea for a product and goes to market with that product unaware that there is a patent that covers the technology behind the new product. That is unintentional infringement, and the infringer only owes reasonable royalties while the willful infringer owes reasonable royalties times three.

And finally, the plaintiff – in the vast majority of cases – is out the legal fees it took to file and pursue the patent infringement litigation. There are limited “special circumstances” under which the judge in the case will require the defendant to reimburse the plaintiff’s legal fees – or require the plaintiff to reimburse the defendant’s legal fees – but that is a rare outcome.

♦ Market Participant: The rules are very different for the company that owns a patent, produces or sells a product based on that patent, and the patent is infringed. And we will cover that in the next Patent Leather.

Last month, we covered the difference between a patent and a trade secret. If you missed it, and you want to know the key difference between these two key intellectual property assets, last month’s column appears in the Patent Leather section at our website.

There are some innovations that really should be patented, while there are other inventions that might be better served as a trade secret. Clearly the best-known trade secret is the formula for Coca Cola, and the decision that was made over a century ago to not patent the soft drink formula, but keep it a trade secret, has served Coco Cola corporate well lo these many years.

So… if you have a trade secret – and you have clearly made the decision for one reason or another to NOT file a patent application to cover the technology – you are next presented with the challenge of monetizing your trade secret. Or, if you have very wisely decided to engage professional assistance with your venture, your broker is presented with the challenge of monetizing your trade secret.

One of the advantages of a patent is that while it is a monopoly granted to the inventor by the federal government – thank you, Founding Fathers – it is also a public document. We are often contacted by an inventor with a patent who wants us to sign an NDA (non-disclosure agreement) before showing us his or her patent! And they are surprised when we tell the inventor that is not necessary. One of the advantages of selling a patent is that we can simply send a link to any interested party that provides the prospective buyer or licensee with the entire patent filing. Our preference is Google Patents, but there are other sites that also provide patent data.

The exact opposite is the case with a trade secret. It is absolutely NOT a public document, and we absolutely, positively do NOT want any aspect of the trade secret to be a public document. Ergo, describing to a prospective buyer or licensee what the trade secret actually is is most definitely a considerable challenge.

Some inventors have a prospective buyer sign an NDA, and with the NDA in place, they share their trade secret with the prospective buyer or licensee. Bad idea. Especially if you have multiple parties looking at the trade secret. If one of the NDA-signers lets the trade secret slip out, the challenge is proving who spilled the beans. Even if there is one NDA-signer, and somehow the trade secret goes public, what recourse does the inventor have? He or she will have to prove in court not only that the trade secret was made public, but specifically who revealed the trade secret. And unless the trade secret appears in a by-lined article, that’s almost impossible!

Two Trade Secret Challenges: Two significant challenges are created when one wants to sell or license a trade secret.
1. How do you show the prospective buyer or licensee the trade secret without actually showing them the trade secret and risk letting it slip out into the public domain? Yes, that seems impossible, but it is simply too risky to reveal your trade secret to a prospective buyer or licensee and hope that person does not steal it.
2. Once you’ve sold or licensed the trade secret, how to you prevent the buyer or licensee from letting the cat out of the bag? What good is keeping a trade secret secret, only to have the buyer or licensee fail to take necessary precautions and let your trade secret go public?

Fortunately, for the owner of a trade secret who is seeking to monetize that asset, IPOfferings has developed solutions to both Items 1. and 2. How do we do it? We cannot tell you because it they are trade secrets.

We are regularly contacted by inventors who have either (a.) made the decision to keep their inventions a trade secret and not file for a patent for their inventions or (b.) ask us our advice about keeping their invention a trade secret as opposed to filing for a patent. So…let’s spend a few paragraphs on this.

There are several famous and successful trade secrets. The most famous and unquestionably most successful trade secret is the formula for Coca Cola. Almost every knows – or should know – the story. An Atlanta pharmacist, one John Pemberton, invented Coca Cola in 1886. As recently as thirty or forty years ago – a good example is the pharmacy run by James Garner in Murphy’s Romance – drug stores had a counter that sold ice cream sodas and cold drinks. Pemberton invented a new and different beverage to sell at Jacobs’ Pharmacy on the corner of Marietta and Peachtree Streets in downtown Atlanta.

Rather than file for a patent – that would have expired over 100 years ago – Pemberton decided to keep his drink – actually the syrup he invented that is mixed with carbonated water to produce the actual beverage – a trade secret. Coca Cola is a good illustration of the two elements that are required for a successful trade secret:

1. It cannot be reverse engineered! While a chemical analysis can identify the actual ingredients that go into the dreadful drink – the IPOfferings crew are NOT Coke drinkers – it cannot determine the sequence in which the ingredients are blended, the exact quantities of each, and how they are mixed together.

2. It Can Be Kept a Secret! The number of people who know about the trade secret need to be small and trustworthy. The formula for Coca Cola is – as legend goes – kept in a safety deposit box at an Atlanta bank. Just a small handful of long-term and highly trusted Coca Cola employees have access to the formula. Is there a formula for New Coke? We do not know.

The bottom line is that a successful trade secret really has to be a process and cannot be a thing. If you have an invention for the next great toaster oven, protecting it with a trade secret is ridiculous because any competitor can simply buy one of your new, super-duper, next-generation toaster ovens and disassemble it, reverse-engineer it, and build a product identical to yours. And you can do nothing about it!

And that is the other major difference. If a company infringes your patent, you have legal recourse. You can sue them for patent infringement and, if you make your case, can collect damages. If you are a market participant – you are making and selling a product based on a patent – you have three remedies: Damages, lost profits, and injunctive relief.

If a company or competitor manages to steal your trade secret, you have NO recourse! You can try to find out who the culprit is that sold you out, but that is almost impossible. And even if you do, all you can do is fire the guy.

A trade secret – if it is a process that cannot be reverse-engineered – and it can be kept secret and still utilized to make a product or provide a service – can be sold or licensed just like a patent. But if it is sold or licensed, and the buyer or licensee does not take the necessary precautions and lets the trade secret cat out of the bag, your trade secret is now worth zero! Ouch.

Then there is the challenge of selling a trade secret. We will address that in August.

A granted patent – while its value is listed under “Intangible Assets” on most Balance Sheets – is very much a hard asset. It is a document from the U.S. federal government granting exclusivity to the owner (the “assignee”) of the invention covered by the patent for 20 years. It is an American concept the Founding Fathers believed to be so important that – rather than leaving it up to Congress to enact patent legislation – they incorporated patents (and copyrights) into the original U.S. Constitution! The brilliance of the Founding Fathers still amazes us 250 years later.

But what about a patent application? IPOfferings and other patent brokers represent primarily granted patents. The rights created by and protected by the patent are right there in black and white in the patent document. And when a patent is sold, ownership of the patent is “assigned” to a new owner who acquires the patent and all rights associated with the patent.

A patent application, however, is not a guarantee by the United States of America of anything! It is an application. It may – or may not – be approved and become a granted patent. In fact, only 52% of all patent applications ever become granted patents. Almost half of all patent applications are either rejected by the patent examiner or the patent application is abandoned.

When we are contacted by patent applicants who want to monetize their patent applications, we always advise them of the 50/50 approval/rejection rate. Their responses are always the same – they have the single greatest patent ever filed in the history of U.S. patentry, they have the best patent attorney to ever practice before the USPTO, and there is absolutely no doubt that their patent applications will be approved! While we admire their enthusiasm, the fact remains that only half of all patent applications become granted patents, so that factor has to be accounted for when one goes to sell a patent application.

The 50/50 approval/rejection rate of a patent application must be accounted for in the sale of a patent application. It is usually done in one of the following manners.

♦ Cash Sale: Some patent applications are simply purchased for cash, and the acquiring entity takes over the prosecution of the patent application – sometimes retaining the original patent attorney, sometimes engaging a new one – and the new assignee of the patent application assumes the risk that the patent application may not be approved as a granted patent. In such cases, the buyer has usually conducted considerable due diligence and is reasonably satisfied that a patent will be granted.

♦ Buy an Option: Some acquirers will pay for an option on the granted patent – for if and when it is granted. A purchase price for the granted patent is agreed to, and when the patent is granted, it will be transferred to the new owner in exchange for the agreed-to purchase price. Either the original applicant continues with the prosecution of the patent application, or the optioner takes over the prosecution. If the patent application is rejected, the original applicant keeps the money he or she was paid for the option, but there is no patent sale because there is no granted patent.

♦ Purchase with Bonus: The acquirer buys the patent application for X dollars and takes over prosecution of the patent application. Should a patent be granted, an agreed-to bonus of Y dollars is paid to the original applicant.

For both of the second two options there is the sticky question of which claims make it through to the granted patent. It is not uncommon for a patent examiner to accept some claims and reject others, so it is possible – in fact, likely – that the patent that is granted will not have all the claims from the original application, some of which may be of importance to the buyer, so this factor has been included in the agreement to acquire the patent application or take an option on the granted patent.

Published vs. Unpublished Patent Applications: When a patent application is filed, it is held in secrecy by the Patent Office for 18 months, at which point the patent application is published. That is, it is made public. As a result, it is much easier to sell a published patent application since anyone can go the USPTO website or Google Patents or a half-dozen other websites and see the actual patent filing. During those first 18 months – while the patent application is a secret document – giving copies of the patent filing to anyone who asks to see it is – to say the least – messy. You can see why it is much easier to sell a published patent application than an unpublished one.

Why Wait 18 Months? The reason the Patent Office sits on a patent application for 18 months is not arbitrary. When Company A comes up with a new idea for a toaster oven, it files a patent application for its new technology. That 18 months of secrecy gives Company A time to develop its new product – do the design, engineering, testing, prototyping, packaging, sourcing, and other tasks required to bring a new toaster oven to market – and proudly label it “Patent Pending.” And it can do this without fear that one of its competitors will steal the idea behind Company A’s new toaster oven. Once the patent is published, and the patent application is approved, “Patent Pending” will be replaced with the Patent Number. If the patent application is NOT approved, “Patent Pending” has to come off the product, but Company A had a couple of years of de facto patent protection while the patent application was in prosecution. Giving patent applicants that 18 months promotes innovation, and that is the whole idea behind patents in the first place!

However, that 18 months provides NO benefit to the independent inventor who does not have a factory in which he or she can produce a product based on his or her patent. If the plan is to monetize your patent – and not commercialize it – it makes no sense to wait out those 18 months in secrecy.

Free Consultation: Our advice to all independent inventors who do not plan to commercialize their patents but hope to sell or license or otherwise monetize them, is to request that the Patent Office publish their patent applications immediately so they become public documents, making them much easier to promote to prospective buyers and licensees.

Additional Benefit: There is an additional super-secret upside to having your patent application published early. We cannot reveal it here, but if you have a patent application, and you are considering our recommendation, there is an additional benefit that we will share with you. Contact us at [email protected].

The concept is very appealing. We all know that water is H2O – two hydrogen atoms and one oxygen atom bonded together. Most of us experimented with hydrolysis in High School in which we separated water into oxygen and hydrogen. And therein lies a tale.

It was back in 1959 when a scientist at General Electric, one Leonard Niedrach, filed a patent for a totally new concept in how electrical current was generated. Five years later, in 1964, he received U.S. Patent No. 3,134,697 for a “Fuel cell.” In addition to the impact of this foundational patent is the question on our part of why it took the Patent Office five years to grant that patent? There was no prior art to review. Fortunately for us today, patent pendency is about 30 months.

Getting back to the main story, the concept behind a fuel cell is brilliantly simple. Put oxygen in one chamber and hydrogen in a second chamber with a catalyst and a proton-exchange membrane between the two chambers. The oxygen will attempt to combine with the hydrogen to form water, but the membrane will only permit the protons to pass through, leaving the electrons stuck on the other side. However, a wire from the hydrogen side to oxygen side will permit the electrons from the hydrogen atom to pass over the membrane via the wire to join their proton mates and complete the merger. And what do we call electrons passing through a wire? We call it electricity!

Imagine this. An electrical-current-producing device that consumes no fossil fuel but uses oxygen and hydrogen, that has NO moving parts, that makes no sound, and that produces as its waste product water vapor. No hydrocarbons are consumed by the device, and none are emitted as waste, so a zero-carbon footprint! And since it has no moving parts, it will last forever! No repairs or maintenance! Can you image the possibilities?

NASA jumped on this technology and powered many of its space vehicles with fuel cells. Fuel cells were going to be the future of non-polluting automobiles. In fact, several manufacturers produced hydrogen-fueled autos such as the Jeep Treo and the Chevrolet Colorado ZH2. While battery-powered electric vehicles took off – and made Elon Musk a billionaire – hydrogen-powered vehicles languished. There are a few reasons why.

♦ Infrastructure: First of all, you need a network of hydrogen filling stations so all those hydrogen-powered cars and trucks can fill-up. The vehicle can use air for the oxygen, but it needs a tank of hydrogen. California mandated and funded a network of hydrogen filling stations under what it calls the California Fuel Cell Partnership. So you can buy and drive a fuel cell car in California, but once you leave the state, there are no hydrogen stations, so you are out of fuel – and luck. Until there is a national network of hydrogen filling stations, fuel cell-powered cars will just not take off. It is much easier to build electric car charging stations than hydrogen filling stations. Also, while it is relatively easy and not too costly to deliver electrical current to EV charging stations, it is very expensive and a logistical challenge to truck hydrogen to H₂ filling stations.

♦ Cost: Then there is the cost of the hydrogen. It must be refined from a compound that includes hydrogen. The richest form of hydrogen is methane or H4C – four hydrogen atoms bonded to a carbon atom – that is produced by rotting garbage and is captured from landfills. Really! The problem is that when hydrogen is liberated from methane, that carbon atom bonds with an oxygen atom and forms carbon dioxide or CO that is emitted into the air. And the whole idea behind a fuel cells was to eliminate all those hydrocarbons!

♦ EVs Are NOT Pollution-Free! Only about 12% of the electricity consumed in the U.S. is green. The rest is generated from fossil fuels – mostly coal and natural gas. So, while an electric vehicle is in and of itself pollution-free, there is substantial pollution that is created to generate the electricity to charge the EV’s batteries. Electric vehicles do not eliminate spewing hydrocarbons into the air, they simply move pollution from the highway to the local power plant. And fuel cell-powered vehicles move pollution to the hydrogen recovery facility and to all those trucks delivering hydrogen to all those hydrogen filling stations.

Congratulations to Jason Diedering and Sarvanna Kumar on the granting of their patent. What earns these inventors special attention is that they were granted U.S. Patent No. 11,000,000 for “Repositioning wires and methods for repositioning prosthetic heart valve devices within a heart chamber and related systems, devices and methods.” The assignee of the patent is 4C Medical Technologies, Inc.

Since the first U.S. Patent was issued in 1790 – it was signed by George Washington and the patent examiner was Thomas Jefferson – we’ve come a long way. For the first 46 years of the operation of the Patent Office, U.S. Patents were simply identified by the date they were granted. The Patent Act of 1836 set up a system of numbering, so the current system of sequentially numbered patents goes back 185 years.

Back in 1970, Alvin Toffler predicted in his book, “Future Shock,” that in a “post-industrialist” world change would occur at an increasing rate, leaving people suffering from "shattering stress and disorientation." Today we call that “innovation” and we got used to it! To put the granting of the eleven millionth U.S. Patent in perspective, here is a hyper-cruise through U.S. Patent history, one million patents at a time.

♦ 1908: It took from 72 years to reach U.S Patent No. 1,000,000 for a “Vehicle-tire.” The automobile had just come onto the American scene and Henry Ford was cranking them out by the thousands, so a new tire design made sense. Why they hyphenated the title we do not know. The inventor was one Francis H. Holton who assigned his patent to the B. F. Goodrich Company, an American icon until it was acquired by Michelin of France.

♦ 1935: It took much less time – just 27 years – for the Patent Office to grant U.S. Patent No. 2,000,000 for a “Vehicle wheel construction.” Ironically, this patent was also auto-related. The inventor was one Ledwinka Joseph and the assignee was the Edward G. Budd Manufacturing Co. that today is owned by ThyssenKrupp of Germany.

♦ 1961: It took another 26 years for U.S. Patent No. 3,000,000 to issue for an “Automatic reading system.” This patent was invented by Kenneth R. Eldredge and assigned to yet another American icon, General Electric Company.

♦ 1976: Just 15 years later, U.S. Patent No. 4,000,000 was granted for a “Process for recycling asphalt-aggregate compositions.” The inventor was one Robert L. Mendenhall, the founder of the Las Vegas Paving Co. Just think of all the casino parking lots that needed paving over the past five decades!

♦ 1991: Another 15 years passed until U.S. Patent No. 5,000,000 for “Ethanol production by Escherichia coli strains co-expressing Zymomonas” was granted to the University of Florida. The inventors were Lonnie O. Ingram, Tyrrell Conway, and Flavio Alterthum.

♦ 1999: The pace of innovation really picked up in the 1990s because it took just eight years for U.S. Patent No. 6,000,000 for an “Extendible method and apparatus for synchronizing multiple files on two different computer systems.” Two computers talking to each other was cutting edge in 1999! The inventors were Jeffrey C. Hawkins and Michael Albanese, and the assignee was another American icon, 3Com Corporation, now a unit of super icon Hewlett-Packard.

♦ 2006: Just seven years later, U.S. Patent No. 7,000,000 for “Polysaccharide fibers” was granted. The inventor was John P. O'Brien and the assignee was yet another American icon, E. I. du Pont de Nemours and Company.

♦ 2011: From eight years to seven years to just five years for U.S. Patent No. 8,000,000 for a “Visual prosthesis” to be granted. The inventors were Robert J. Greenberg, Kelly H. McClure and Arup Roy, and the patent was assigned to Second Sight Medical Products Inc. which is still in business and is traded on the NASDAQ.

♦ 2015: Innovation charged on, and in just four years U.S. Patent No. 9,000,000 was issued for a “Windshield washer conditioner.” The inventor was one Matthew Carroll who assigned the patent to his company, Wiperfill Holdings LLC. The invention captures rain water, deionizes it, and uses it to refill the windshield washer reservoir. There is no record of this invention ever being commercialized.

♦ 2018: In just three years and two months, U.S. Patent No. 10,000,000 for “Coherent LADAR using intra-pixel quadrature detection” was granted to yet another American icon, Raytheon. Part of an international patent family, it addresses the use of laser detection and ranging (or LADAR) for autonomous vehicles.

♦ 2021: It took just slightly less time – two tears and 11 months to be precise – for U.S. Patent No. 11,000,000 to be granted.

Here are the spans of years between each millionth patent:
U.S. Patent No. 1,000,000: 72 years
U.S. Patent No. 2,000,000: 27 years
U.S. Patent No. 3,000,000: 26 years
U.S. Patent No. 4,000,000: 15 years
U.S. Patent No. 5,000,000: 15 years
U.S. Patent No. 6,000,000: 8 years
U.S. Patent No. 7,000,000: 7 years
U.S. Patent No. 8,000,000: 5 years
U.S. Patent No. 9,000,000: 4 years
U.S. Patent No. 10,000,000: 3 years and two months
U.S. Patent No. 11,000,000: 2 years and 11 months

We are trying to locate the source for “You are not a man until you have a daughter.” It is a true statement, proven over and over again from generation to generation. What does that have to do with the Smart Home?

There is another true saying. A business sector is not really a business sector until it has a really nasty, drag-down, all-out, patent infringement lawsuit. Based on Vivint v. ADT (Case No. 2:2021cv00115) that was filed in U.S. District Court for the District of Utah, the Smart Home business segment has arrived. IPOfferings represents several Smart Home portfolios, and we were one of the first businesses to see the potential for this new business segment several years ago, so we have some skin in this game.

The plaintiff is Vivint Smart Home, Inc., a leader in the Smart Home business segment. The company was founded back in 1999, it boasts 1.7 million customers, and company became publicly traded just last year.

The defendant is ADT, Inc., a much, much older company. The bad guy is always the older company. In fact, ADT it was founded back in 1847 – yup, 175 years ago! – as American District Telegraph, the primary competitor of Western Union. Over a century and a half, the company morphed into business and home security services, becoming the leader in that segment. With a presence in six million homes and businesses, expanding into the Smart Home and Smart Office business segment made a lot of sense.

In the lawsuit, Vivint claims that ADT is infringing six of its patents:

• U.S. Patent No. 7,956,739: Monitoring and entry system presence service
• U.S. Patent No. 8,392,552: System and method for providing configurable security monitoring utilizing an integrated information system
• U.S. Patent No. 8,700,769: System and method for providing configurable security monitoring utilizing an integrated information system
• U.S. Patent No. 9,349,262: Security system providing a localized humanly-perceivable alert for identifying a facility to emergency personnel
• U.S. Patent No. 10,228,151: Floating thermostat plate
• U.S. Patent No. 10,325,159: Entity detection

ADT’s response was the standard one: “ADT believes the claims asserted by Vivint are completely without merit and intends to vigorously defend against the lawsuit." Just once – just once – we’d like the response to be “Oops. You got us. We bad!”

This is not the first litigation between these parties. In 2018, Vivant paid ADT $10 million (not much for a company with just over $1 billion in sales) to settle a deceptive sales lawsuit.

We will keep you updated as the case progresses.

The Turing Award for 2021 has been awarded to Alfred Aho and Jeffrey Ullman for their work in computer languages. The Turing Award is named after Alan Turing, the brilliant British mathematician whose team created one of the first computers and used it to crack the coded messages sent by the Nazis using their Enigma machine.

Known as the “Nobel Prize” of the computer industry, it is given each year by the Association for Computing Machinery to those who are responsible for an innovation "of lasting and major technical importance to the computer field.” Messrs. Aho and Ullman met many years ago when they worked together at Bell Labs, and therein lies a tale that we shall share with you.

The story begins with the founding of Western Electric Manufacturing Company in 1869. It manufactured electrical products such as typewriters, alarms, and lighting products, and was closely aligned with the Western Union Telegraph Company, for which Western Electric supplied relays and other equipment. Western Union was the company that ran the U.S. telegraph system for over 100 years.

A decade later, U.S. Patent No. 174,465 was awarded to 29-year-old Alexander Graham Bell of Boston on March 7, 1876 for what was to become the telephone. Bell’s investor in his start-up business to produce and install telephones and provide telephone service was his father-in-law, Gardner Greene Hubbard, who formed the Bell Telephone Company in July 1877.

Bell and Hubbard set up a subsidiary, American Telephone & Telegraph Company, to handle long distance telephone services, but in 1899 they decided to make Bell Telephone a subsidiary of American Telephone and Telegraph. AT&T became THE U.S. telephone company for another 80 years, and came to be known as “Ma Bell.”

In 1879, Western Union and American Telephone and Telegraph were involved in a nasty patent infringement lawsuit – all great disputes are over a patent or a woman – and the suit was resolved when AT&T acquired Western Electric in 1881. For the next 100 years, Western Electric was the manufacturing subsidiary of AT&T. If you ever see an old black dial telephone at a flea market or in an antique store, turn it over and you will see that it was manufactured by Western Electric.

As the manufacturing business of the telephone industry, Western Electric needed to be on the cutting edge of technology, so on January 1, 1925, Bell Telephone Laboratories, Inc. was formed, and into this new company was combined all the engineering, development, and design departments of AT&T and Western Electric. Bell Labs – as came to be known – hit the ground running with 3,600 employees housed in 4,000 square feet at 463 West Street in Manhattan.

Bell Labs became one of the most prolific invention machines in history, having received 30,000 patents to date. Bell Labs invented everything from talking pictures to the transistor. Bell Labs invented the photovoltaic cell (or solar panel), the laser, radio astronomy, fiber optics, the UNIX operating system, and the picturephone – 50 years before Zoom! It was at Bell Labs that the 2021 Turing Award winners. Alfred Aho and Jeffrey Ullman, met and worked and became colleagues.

When AT&T was broken up in 1984 into regional operating companies and a long-distance telephone provider, Bell Labs became AT&T Bell Laboratories, a subsidiary of the long-distance company. In 1996, AT&T Bell Labs and Western Electric were spun off into a separate company, Lucent Technologies, Inc., but a small number of researchers were kept on staff by AT&T as A&T Labs.

In 2006, Lucent merged with French telecom manufacturer Alcatel to form Lucent-Alcatel, S.A.

In 2016, Nokia Corporation, the Finnish multinational telecommunications giant, acquired Lucent-Alcatel and established Nokia Bell Labs, the current successor to this storied American institution.

We are often asked by our clients who have chosen IPOfferings to represent them in the monetization of their patents what value we should put on their patents. IPOfferings provides not one, but three, separate Patent Valuation Services, but we do not go through the process of performing a formal patent valuation – unless the clients engages us to do so – because it is a buyer’s market, and the buyer sets the price. Not all patent brokers will admit it, but that is the reality today.

There are times, however, when performing a patent valuation makes a lot of sense. In fact, there are times when a patent valuation is a critical event that should not be avoided. When a company has home-grown patents – patents that it did not acquire, but patents it applied for itself – it is critically important that a business know what those patents are worth. To see why, follow along with us on this adventure.

A business comes up with a new technology. It’s CTO (chief technology officer), its VP of Engineering, its Marketing Director, or any other employee at the company from the executive suite to the loading dock, comes up with an invention that the company could develop into a new product or use to improve or enhance a current product. What does a smart company do? It files a patent application for the new technology.

It probably engages a patent attorney to file the application, and two or three years later – current patent pendency at the USPTO is 23 months, but it was recently as high as three years – a patent is granted. Congratulations. But here is what does not occur: There is NO accounting transaction that records the acquisition of that patent.

When a company buys a truck, or a lathe, or shelving for the warehouse, or computers, or any other capital equipment, an accounting transaction occurs that takes funds out of Cash and adds the value of the acquired truck, lathe, shelving, or computers to the Equipment line under Property and Equipment. So as a company builds its assets, they automatically appear on the left side of the Balance Sheet.

If a company buys a patent – we hope it buys the patent through IPOfferings from one of our clients – an accounting transaction occurs that takes the funds out of Cash and records the value of the acquired patent under Intangible Assets.

But – and this is a very common but – when a company does what we covered back in the third paragraph (go back and read it if you need to), there is NO accounting transaction. The filing fees and attorney fees for the patent application are not assets. They are expenses that are properly written off in the year they are expended. So, when that patent is granted, it is most definitely an asset, but not one that appears on the company Balance Sheet automatically as other assets do.

We come across companies all the time in all industries that have from a handful to dozens of active, granted patents that are not accounted for on the company’s Balance Sheet!

Why is it important for a company to record its patents as assets? Because adding the value of its patents – and other intangible assets – to the Balance Sheet increases the company’s value. And a company with greater value has easier access to financing. It is much easier for a start-up business to raise venture capital or other financing if the value of its patents are reflected on its Balance Sheet. Adding the value of its patents to the Balance Sheet of a publicly held company can do wonders for the company’s stock price. And let’s face it, any company’s Balance Sheet should accurately reflect all of a company’s assets as well as its liabilities.

If you represent a company that has home-grown patents, and those patents are not reflected on your Balance Sheet, the time has come to have a professional valuation of those patents performed so their value can be accurately reflected on the company Balance Sheet.

1. File for a continuation
2. File a PCT Patent Application