The Patent System is Broken – but not in the way you think it is.
The patent system has some weird quirks that makes it feel broken. In truth, you do not want to know how the sausage gets made at the Patent Office, and patent laws are all weirdly nuanced with few bright lines. That is just the way it is. The real problem is the patent applicants, not the underlying system.
Note: this is an excerpt from my forthcoming book “Startup IP Strategy.”
But there are some fundamental issues that create most of the problems. Human emotions get in the way, sometimes with dreadfully bad results. There are some tensions inherent in the patent laws that cause us to make decisions with less-than-optimal data.
Our job is to navigate through these issues and make some hard judgment calls with the information we have at hand.
In the final analysis, the patent system is clunky but it actually works. It is not a panacea and does not promise success at any stage, but these patent assets are used successfully by startup companies in many situations.
My first job out of college was at McDonnell Aircraft in St. Louis. At the time, we made military fighter jets: the F-15, F-18, and Harrier AV-8B. I was assigned to a little research group exploring different ways to use thermoplastic composites. It was there that I had my first “invention.” I wrote up a nice description with several drawings, and I submitted my invention disclosure to my manager. After a few days, something came back from a patent attorney saying that the invention was rejected.
I went to meet the patent attorney. His office was in the basement of one of the enormous airplane factory buildings, in a dark, damp, poorly lit corner. He was an older, plump, disheveled, balding man with thick, dirty glasses and a wrinkled shirt and stained tie. This was my first experience with a real patent attorney. I was honored to be there.
I tried to make my case for my invention, explaining with great fervor how cool the idea was and that maybe, someday, I could get some research money assigned to a project where I could try to make the product. He had heard this thing before, and patiently waited me out.
He said that for every 10 invention disclosures he gets, one out of ten get selected for patenting. For every one out of ten that are submitted to the patent office, one out of ten are granted as a patent. Of those granted patents, one out of ten actually make money. But that one that makes money — pays for all the others ten times over.
The patent attorney’s statistics are not even close to reality, but the concept is spot on. The one patent that makes money pays for all the others ten times over. This speaks to the lottery ticket quality of patents. Those that make money, make real money.
Having been a patent attorney/agent for almost two decades, there are a couple major problems that I see repeatedly. The first is willful blindness, wishful thinking, or over-optimism that ignores any concrete metrics to make decisions about patents. The second is that the patent system requires at some gambling and risk taking due to the timelines. We discuss both of those issues in this section and lay the groundwork for what Investment Grade Patents are all about.
Willful Blindness – the Curse of the Inventor, the Entrepreneur, and the Angel Investor
One of my old engineering bosses called me one day. He had a family member who was getting involved with a wacky invention bordering on a perpetual motion machine.[1] The inventor was making all kinds of silly claims about how great this invention was, and my former boss’s family member was “investing” in this project. They had gone to my old boss asking his advice. His advice was clear and direct: this is an awful invention and worse investment. Stop it and walk away.
But they did not want to hear it. They were convinced they were going to be rich, and it all started with a patent. My old boss called me and implored me to tell them the same thing, which I tried to do.
I met with the “investor” and the “inventor.” The invention was a crazy mechanical invention that was horribly complex. It was the single most complicated electric motor known to man. Worse yet, the inventor was making assertions that literally put it in the category of a perpetual motion machine. I calmly and directly told them that this invention was awful, but they did not want to hear it.
I tried a different approach.
They asked what it would cost to get a patent. Hoping to price myself out of their reach, I quoted them several thousand dollars more than my normal fee.
Without blinking an eye, the “investor” pulled out his checkbook and wrote me a check for the full amount right there. My heart sank.
Since I knew other attorneys would abuse these guys mercilessly, I took the money. I found a logical way to describe the invention and it was granted on the first office action, saving them years of arguing with the patent examiner (and wasting even more money on a patent).
Of course, the product never made it to market. The only person who made money on the deal: me, the patent attorney. This is not an isolated incident. In fact, it is almost always how things work in the startup space.
Inventors and investors are willfully blind to the “truth.”
Part of what makes inventors – and investors – special is that they can see past conventional roadblocks. They can see the possibilities of a new product or new business. They imagine what success tastes like and see the world in ways that normal people do not. Their imagination and insightfulness pushes the world forward, and they are simultaneously the instrument of destruction and innovation.
This story happens over and over, where patents have a net negative value to the company. This is especially true with startup companies. Larger companies with sophisticated inhouse patent departments typically do not let this situation happen, but even they face stiff headwinds by everyone from the CEO on down who really wished they could have a patent.
I see many inventors and entrepreneurs who wish they could have a patent on some big technology. This is the “wishful thinking” patent, where the inventor says something like “we have a patent on anything that can be glued to a car” or something equally as absurdly broad. Some patent clients start at that point, asking for a patent on some giant, over-broad concept, and eventually we have to work it down to something that will pass muster by the patent examiner.
The fantasy of a patent on some (potentially) multi-billion dollar product is almost too hard to ignore, but it is not reality. In the best case, you will get a patent on some point of novelty that has some value, but the worst case will be: you give away everything and get nothing in return.
The fantasy of a “broad” patent can be so enticing that everyone involved makes bad decisions that are emotionally based.
But many times, entrepreneurs, inventors, and angel investors have no real benchmarks or logical rules for making a decision about patents. This book attempts to give you a few tools that make these decisions more objective and quantifiable, rather than being left on our own to make “gut” or emotional-based decisions.
[1] A perpetual motion machine is the classic crazy invention, which makes more energy than it consumes. I get calls from a different Perpetual Motion Machine Guy at least once every couple months. As an aside, a different Cold Fusion Guy seems to call only once a quarter.