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Patents and Psychology – The Fear of Loss and the Lottery Ticket

The Fear of Loss

A patent brings out weird psychology of entrepreneurs and investors alike.  They are their own worst enemy.

Note: this is an excerpt from my forthcoming book “Startup IP Strategy.”

From Thinking Fast and Slow by Daniel Kahneman, we learn that fear is 9x more powerful a motivator than pleasure.

The notion of patent “protection” inherently conjures up the fear of losing a business opportunity.  Now that we have uncovered this opportunity, we think we might have something of value.

We become easily terrified that someone will “steal” this opportunity.  As we explore the opportunity further, we become more and more convinced of the value of this opportunity.  And we worry that we have stumbled onto the Gold Mine and feel the need to protect our find.

The terror that we feel is one of the most intense emotions and one of the most intense motivators.  Entrepreneurs feed on this emotion and can do superhuman amounts of work using this motivation.

But patent attorneys feed on this fear to get patents for startups.  This is where many patents go off the rails.

One of the insights from Thinking Fast and Slow is that when the fear of loss is removed from the equation, the decision making becomes much more logical and balanced.

In large companies, the emotional component of patent decisions is removed by having inhouse patent counsel.  Inhouse patent counsel make the non-emotional, business-based decisions about what should get patented and what should not.

Inhouse patent counsel must show results for their patenting decisions: they need to management that their decisions are creating value for the company.  They are responsible for the outcomes, so they are much more dispassionate and objective.  By removing the blinders of that piercing fear component, inhouse counsel can focus on the value that they are providing, not the fear of loss that motivates the entrepreneur.

The big difference between inhouse counsel and outside counsel is the motivators.  Inhouse counsel are presumably going to be around for a long time, so their longevity with the company depends on them making good, business-based decisions that help the company over the long haul.  Outside counsel is paid by the hour (or by the job in a fixed-fee situation) and their motivation is merely to sell more hours.  They are paid up front with essentially no liability if their decisions are good or bad.

Every person who hires outside counsel is at aware of this misalignment of interests, even if it is just a subconscious awareness.  There is a gnawing feeling that they are asking the barber if they need a haircut.

The Lottery Ticket

The flip side of the fear of loss is the intense longing for the Silver Bullet.

The idea that one thing will tip the balance and ensure success is the most successful formula in marketing.  Buy this One Product and all your problems will be gone.

This is the Lottery Ticket mentality.

The toil, hard work, and drudgery of being an entrepreneur is almost more than anyone can bear, but the thought of having a single patent that can make all that pain go away and ensure your success: there is nothing more enticing.

We hear about the lottery ticket winners and imagine ourselves without the worries about our daily slog through life.  What we do not hear about are all those millions of people who bought tickets and are poorer for doing so.

With patents, we hear about the patents that are litigated or licensed for millions of dollars, but we do not hear about the 95% of patent holders whose patents were a complete waste of money.

A lottery ticket is just a tax on people who cannot do the math.

Similarly, patents can be a tax on entrepreneurs who cannot do the math.

As we discussed in Chapter 1, the entrepreneur is ultimately responsible for every element of their patent.  This cannot be abdicated to their outside counsel.

The lesson here is that the biggest stumbling block is often the entrepreneurs themselves.  The entrepreneur’s fear of loss can completely blind them regarding patents.  The double-edged sword of fear of loss and the lottery ticket of huge potential winnings.

Most entrepreneurs do not have the experience base or toolset for evaluating IP strategy, so they are left with what they have: their “gut” or emotion-based decisions.

What is wrong with the patent system?  It is not the system itself, as clunky and inefficient as it may be.

What is wrong with the patent system is that people believe it will provide one result and they are angry and disappointed when it provides something else.  This misunderstanding comes out in name calling (see “patent trolls”) and other anger-fueled decisions.  The entrepreneur came into the patent system having emotionally fueled expectations “protection” from the fear of loss and a lottery ticket hope of salvation, only to have reality come crashing down around them.

The entrepreneur needs the tools to make good decisions throughout the journey.  The biggest problem – by far – is separating the entrepreneur from the almost impossible emotional pull about patent decisions.

The best way to separate the two are to put someone in place who does not have the emotional component to assist in the decisions.  For many companies, hiring inhouse patent counsel is too expensive, but there are IP strategists who can play that role.  It is important that an IP strategist is separate from the attorneys who are writing the patents, so that there is an inherent tension.

The IP strategist must be the person responsible for delivering value from the IP portfolio.

In the BlueIron financing model, BlueIron is the IP strategist.  Because our success is locked into the value we create, we must take the strategy seriously.  We have to make emotionally-neutral decisions about what should be patented and what to avoid, and we need to deliver value on each and every patent.