Thomas Edison famously said: “I have not failed. I have just found ten thousand ways that won’t work.”
After hundreds of experiments with different materials for a long-lasting light bulb filament, Edison, as much as businessman as an innovator, zeroed in on carbonized thread.
“At that point,” says James Pooley, author of SECRETS: Managing Information Assets in the Age of Cyberespionage, “Edison had two trade secrets: first, the identity of the best material. And, second, the identity of the materials he had tried.”
A business’ lack of success, a matter of specialized know-how more aptly called “know-go,” is protected under trade secret law because it is valuable not only to it but to a competitor who wishes to catch-up without spending as much time and money.
Know-how, sometimes known as show-how, is the “secret sauce” that can give an otherwise mundane invention meaning. But the value of negative experience — of what not to do; of repeated failures and near successes — should not be under estimated.
The Intangible Investor in the December IAM magazine looks at “Failure – IP’s most underrated asset.” The full piece can be found here.
A popular television series, “What Not to Wear,” has run for 345 episodes over ten years. The show advises women and men about how to spare themselves the cost, time and embarrassment of fashion faux pas. The value, the show’s loyal followers reason, is not only in identifying the right clothes choices, but in avoiding the more costly mistakes.
Information, data or experience that spares businesses time, cost and potential embarrassment is an asset, often an invaluable one, especially to large, risk-adverse businesses where R&D is at a premium.
Know-go is also attractive to potential acquirers who need to know how far towards a solution a target may have progressed.
Closely related to the concept of negative information is the idea that you can be guilty of trade secret theft (“indirect misappropriation”) even though your product looks very different, or significant investments have been made in your own research.
“Intangible assets of this nature that serve to avoid failure,” says Pooley, former Deputy Director of the World Intellectual Property Organization (WIPO), “can be more valuable than knowledge that enables success.”
At the IP Awareness Summit held at the Columbia University on November 29 Jay Walker, entrepreneur, prolific inventor, TEDMED curator and founder of Priceline.com, spoke about a “broken” patent system and need for a Constitutional Convention to fix it. In the following response to Walker’s speech, Brenda Pomerance takes a different view.
Improving the Patent System:
Independent Inventors Need Apply
By Brenda Pomerance
At the IP Awareness Summit held by the Center for Intellectual Property Understanding on November 29, 2018 at the Columbia School of Journalism, Jay Walker gave a keynote presentation asserting that the Patent System was irreparably broken for individual inventors lacking “deep pockets.” He based his position on five problems, and called for an entirely redesigned Patent System.
In fact, two of these problems are features, not problems. The existing Patent System can be tweaked to provide individuals with a fairer playing field for the other three problems.
First, clarity: Walker says that patent claims are impossible for him to understand.
Lack of clarity, for laypersons, is due to the need for a claim to only distinguish from the prior art, not to explain how to make an invention and to distinguish that invention from the prior art. Walker can eliminate his clarity problem by telling his patent attorney to write claims that are essentially a production specification for the invention, but the scope of these claims will be much narrower than is needed. Examiners will love these production specification claims and prosecution will be faster.
Also, the Patent System enables a claim to encompass something that the inventor did not specifically think of when the patent application was filed, if claims are suitably written and there was no discussion of this issue in the prosecution history, but an inventor can relinquish this flexibility via clearer claims that are limited to exactly what the inventor invented.
Second, reliability: Walker says that because so many patents are invalidated, a patent is not a reliable property.
Walker can hugely improve validity by telling his patent attorney to write claims that will survive most litigation challenges (a very high standard), rather than claims that an examiner will allow (a lower standard). But, the inventor will have to (a) do the comprehensive prior art search that litigation defendants do (costing up to $100,000 for the search), then (b) figure out why it would not be obvious-to-try to combine this prior art to arrive at the invention, and finally (c) explain non-obviousness in the disclosure, which requires a detailed in-context understanding of each piece of prior art and vastly more care expended on the background section of a patent application.
An excellent prior art search along with an explanation distinguishing the claims from the prior art will speed up prosecution, but will substantially increase the cost of patent application preparation, possibly making it too costly for shallow pocket individuals.
Third and Fourth, cost and time: Walker says that it is too expensive and takes too long to enforce a patent.
Here are some tweaks to address enforcement cost and time problems:
(A) Require that all prior-art based challenges to a patent be presented in an IPR Request that is filed within nine months (not one year, to reduce gamesmanship of multiple IPR filings) of the lawsuit’s filing, unless plaintiff consents to addressing prior art invalidation in litigation, with a prohibition on staying the lawsuit for the IPR until the IPR Request is granted, and an automatic lawsuit stay after the IPR Request is granted unless the parties agree to concurrent litigation. During litigation, this would leave mainly inequitable conduct available to invalidate a patent during litigation unless and until defendant negotiates for prior art, perhaps via accelerated discovery or payment. It requires that the PTAB consider as prior art more than merely printed publications.
(B) If PTAB denies the IPR Request (the current PTAB denial rate is 40%), the patent is presumed valid over prior art against the challenger in all Patent Office and court proceedings. This will speed up enforcement against defendants who make only small changes but keep infringing to force patent owner to file new lawsuits.
(C) If all claims, asserted in litigation at the time of IPR Request filing, are invalidated in an IPR based on a prior art rejection (references and motivation to combine) that the patent owner was notified of by the patent challenger at least three months prior to the filing of the IPR Request, then the patent owner has to pay the challenger’s attorney fees for preparing and filing (but not prosecuting) the IPR Request. This encourages defendants to quickly share their most relevant invalidity arguments, and punishes plaintiffs who ignore relevant prior art and waste defendants’ resources in an IPR, but the punishment is limited by not including prosecution costs so as not to be too scary for good faith plaintiffs.
(D) After an IPR Request has been disposed of via denial or an IPR, a deep pocket defendant must begin paying half of the monthly cost of litigation attorney fees for a shallow pocket plaintiff based on redacted attorney invoices. If the judge or jury finds the defendant is not liable for any infringement damages, then the plaintiff must repay the attorney fee payments.
(E) For a patent that has survived IPR, via IPR Request denial or an IPR, and that a defendant has been shown to infringe, restore the presumption of irreparable damage for patent infringement that was destroyed by eBay v. MercExchange, 547 U.S. 388 (2006), leading to an injunction absent exceptional circumstances, regardless of whether patent owner licenses or practices the patent.
(F) Provide a rebuttable presumption that the patented technology is frequently used by all accused products and services of an infringer, and require that damages be based on how often a technology is actually used to provide a product or service, so that rarely used features have relatively small damages awards, while frequently used features can have large damage awards. The incentive of rebuttal should encourage defendants to provide discovery, instead of the current gamesmanship of withholding discovery.
(G) For a prevailing shallow pocket individual plaintiff, a deep pocket defendant must pay 200% of the plaintiff’s attorney fees absent exceptional circumstances. This penalizes deep pocket litigants for litigation gamesmanship.
Fifth, price discovery: Walker says that it is difficult to predict what infringement damages will be.
The pre-litigation part of this difficulty is because parties like to keep confidential the cost of licenses and settlements; but confidentiality should be their right.
The litigation part of this difficulty is because defendants are extraordinarily reluctant to provide discovery on what portion of their business infringes and the revenue associated with doing so; D-G above, especially F, will reduce such reluctance.
I agree with Walker that, at present, the enforcement part of the Patent System is hostile towards under-funded individual inventors. However, the Patent System is still quite viable and can evolve to be friendlier towards individuals. Independent inventors are a fabulous source of ideas and patents reflect the diligence to make the fruits of their ideas available in commerce, which benefits all of us.
Brenda Pomerance has almost 30 years of experience in prosecution of approximately 2,000 patents, including Appeal, Ex-parte Re-examination, Reissue, Inter Partes Review and Interference. Clients have included Research in Motion (now Blackberry), MIT, AT&T, Lucent, IBM, Sony and Canon. Ms. Pomerance has represented clients in licensing, in several patent infringement lawsuits and in a software copyright infringement lawsuit. She is a solo patent attorney in the Law Office of Brenda Pomerance in New York City. email@example.com
IP is the engine that makes economic and cultural developments work and the USPTO keenly focused on facilitating this goal.
That was the message delivered by Undersecretary of Commerce and Director of the United States Patent and Trademark Office, Andrei Iancu, at the Second Annual Intellectual Property Awareness Summit in New York on November 29.
“For the IP system to work as intended,” Director Iancu told the audience of IP owners, creators, executives and educators, “we must make sure future IP laws are predictable, reliable and carefully balanced.”
Director Iancu, who holds degrees in aerospace and mechanical engineering and who has taught at UCLA, said he believes that it is really important for new members of congress coming into office in January, as well as existing ones, be informed about the importance of intellectual property.
“They should be aware why IP is important to the economy and to America’s standing in the world and competitive position.”
“I would urge folks in this room,” he said referring to the IP professionals and educators present, “to talk about these issues with members [of Congress] in ways that relate to their priorities and constituents.”
A Different World
The Director told the audience that the battle for 5G is not likely to be limited to giant American companies but is international and being waged by the smallest and biggest countries; from Singapore, for example, to China.
“We live in a different world,” he concluded. “For the United States to maintain its competitive leadership it is critically important that we have an IP system and innovation and entrepreneurship ecosystem that encourages innovation; that provides stability and predictability, so folks can invest here in the U.S. confidently.”
Other featured speakers at IPAS 2018 included Manny Schecter, Chief Patent Counsel of IBM and a member of the board of directors of the Center for Intellectual Property Understanding (CIPU); Jay Walker, inventor, entrepreneur, TEDMED curator and founder of Priceline.com; and Adam Mossoff, Director of the Center for the Protection of Intellectual Property (CPIP) at George Mason University College of Law.
IPAS also included 17 other speakers, four panels and three workshops focused on the IP literacy requirements of IP owners, creators, educators, investors and the public. For the full IPAS 2018 program, presenters and partners go here.
Several surveys of global innovation have noted that the U.S. innovation edge is slipping, but until now they have not pinpointed where the U.S. share of global tech investment is going and possible reasons why.
A recent report detailing which cities today are attracting the most venture capital, Rise of the Global Startup City, states that the U.S., while still a lead player, is no longer the epicenter of all things new and technological. Other cities are attracting a growing share of the venture pie, especially those in China.
“America’s long-held singular dominance of startup and venture capital activity is being challenged by the rapid ascent of cities in Asia, Europe, and elsewhere,” reports the study. “While the United States remains the clear global leader, the rest of the world is gaining ground at an accelerating rate.”
The reasons for the shift are complex: better access to data and computing power; local talent that cannot easily emigrate to the U.S. – or no longer wishes to – and soaring real estate prices and salaries in established technology centers like Silicon Valley, New York and Boston.
Another reason not mentioned in the “Global Startup,” which was commissioned by the Center for American Entrepreneurship, is the inhospitable environment for U.S. IP rights, especially patents. The U.S. has fallen into an abyss where most IT patent rights are uncertain and virtually impossible to license, creating disincentives for both investors and tech companies.
At the same time, China has flaunted an increasingly plaintiff-friendly patent system that is more welcoming to innovators and foreign participation than a decade or two ago. Also, a decade or so ago, cities like London, Berlin and Delhi were barely a blip on the VC radar. Now they are serious players who want to grow.
For the full report, “The Rise of the Global Startup City, go here.
What is the appropriate response to a legitimate request for patent licensing?
If you are an information technology company comfortable taking full advantage of confusion in the patent system, and unfettered by business ethics it may be tossing the offer in the garbage can — just because you can.
Can a business simply ignore a reasonable licensing offer or does it have an obligation, ethical or otherwise, to take seriously a reasonable request to taking a license to an invention it requires or may already be using?
For an executive at one inventor-owned business, Personalized Media Communications, being totally ignored when a legitimate request to discuss a patent license is presented is an abusive practice and a threat to innovation that must be stopped.
The Real Issue
“Too often, this abusive behavior is conflated with ownership models to deflect attention from the real problems,” said Aaric Eisenstein, VP Licensing Strategy. “PR efforts targeting ‘trolls’ have warped stories of threats to mom & pop businesses to cast large companies as the equally helpless victims of these ruthless predators… the real issue is abusive behavior, and that’s what needs to be targeted…
“The responsibility for ending abuse rests not only with the Patent Office and the federal courts but also with the stakeholders in the patent system themselves. The stakeholders cannot simply complain and lobby for one-sided solutions. They must work together to improve the system upon which they all depend.
“The responsibility for ending abuse rests not only with the Patent Office and the federal courts but also with the stakeholders in the patent system themselves.”
“Following these rules eliminates both problems: skimpy-to-ridiculous notice packages and throwing legitimate packages in the trash. It doesn’t matter whether the companies are large or small or whether they’re direct operating competitors or have completely different ownership models. The critical point is that these standards are targeted to prohibit abusive behavior per se…
“The US patent system was the envy of the world for generations. It can be again if we’re honest about its shortcomings and address them in direct and balanced ways.”
The TROL Act in the House of Representatives reintroduced legislation with apparent bi-partisan support that would give the Federal Trade Commission and the state attorneys general authority to issue civil penalties up to $5 million for sending misleading or bad faith letters demanding patent licenses.
There is no indication that penalties will also be instituted for bad faith on the part of businesses that ignore legitimate offers to license good patents, forcing owners to file suit.
Eisenstein is grateful to USPTO Director Andrei Iancu for having “reminded patent system stakeholders what US inventors have given the world and the right way to enhance the system.”
It has never been easy for American innovators hoping to generate a return on their inventions, but new hurdles have made it impossible to license even the best patents.
Despite increased availability of capital and access to data, IT patents, today, have a much more difficult time proving themselves than a decade or a century ago. The vast majority of Americans are not aware of the impact.
With the enactment of the American Invents Act (AIA) in 2012 and several supreme court decisions setting an ambiguously higher bar for patent certainty, licensing began to resemble scaling a high peak, with enough challenges even the most innovative business or inventor.
Two such obstacles are the Patent Trial and Appeal Board (PTAB) and inter partes reviews, created to validate patents already issued by the United States Patent and Trademark Office. Until the AIA came along, USTPO-issued patents had enjoyed a “presumption of validity,” the standard since 1952.
In theory, a “second look” for issued patents is not a bad idea. Examinations are not always as thorough as they could be. If it were fairly applied, these re-examinations would kill any dubious patents that should not have been issued by time-constrained examiners, and affirm those that deserve to be. This would make it easier for owners to license without resorting to costly litigation. In practice, however, is not the case.
Patents that the PTAB choose not to review and even those whose reviews are instituted and claims are affirmed, still, are rarely seen as licenseable, and are subject to subsequent IPRs and/or protracted litigation. New and event more onerous obstacles to patent certainty have added to the time and cost of resolving disputes. How much time and cost?
The illustration on this page, courtesy of Brody Berman Associates, IP communication specialists, is an illustration of the just how difficult patent licensing has become. That is not to say that every licensor must go through all of the steps, all of the time, but many do, especially those who believe the infringement warrants significant damages or a potential licensor believes the royalty costs outweigh the expensive legal ones. Many accused infringers have the capital and constitution to withstand a protracted dispute, which can last five years or more.
Defendants who take their time engage in what is known as “efficient” infringement. For a patent holder to prove patentability, validity, infringement and damages is frequently too costly and time-consuming a climb, so why bother? For many IT patent holders, licensing without litigation is no longer an option.
From Edison to Alexander Graham Bell to Nicola Tesla, market leaders have been reluctant to accept new ways of solving old problems if it may hurt their bottom line. An expensive challenge with many impediments along the way is one way of mitigating a threat. Patents that are held by businesses and individuals but are not used (enforced) are seen as less threatening to established businesses. To them, the best patents are seen but not heard.
An overly arduous path to patent certainty not only tilts the playing field, it dissuades competition and dims the future.
Priceline.com founder and one of the most prolific and successful U.S. inventors in history will join USPTO Director Andrei Iancu and IBM Chief Patent Counsel Manny Schecter as featured speakers at the IP Awareness Summit in NYC on November 29.
The Summit will is being held by the Center for IP Understanding, an independent non-profit, at Columbia University’s famed Pulitzer Hall in the School of Journalism in conjunction with Columbia Technology Ventures.
Mr. Walker, an owner of TEDMED, which bridges the gap between science and the public, has long held that despite increases in U.S. technology and innovation, the patent licensing system is broken.
“The fact is that without a functioning licensing system we really don’t have what need to compete,” Mr. Walker, a former member of the Forbes 400, has stated. “Licensing is the way that inventions get into the economy; it’s the way they get used and brought into the marketplace and creates jobs and helps our economy to be more competitive.”
Mr. Walker is number eight on the U.S. all-time U.S. inventor list with 950 issued utility patents. Thomas Edison had 1,084. At the current pace, Walker will surpass Edison sometime in 2023. Many of his patents cover gaming and risk calculation.
Iancu and Schecter, too
Joining Mr. Walker as an IPAS 2018 featured speaker is USPTO Director Andrei Iancu, who will present at 1:30 and is likely to touch upon U.S. and China IP issues. Another featured presenter is Manny Schecter, Chief Patent Counsel of IBM, who will speak about the impact of a faster, more digitized world on IP and how it is seen.
Other speakers and panelists include a range of IP thought-leaders, owners, educators and organizations from the U.S., Europe and Asia, who will present and serve on panels. Luncheon breakout sessions will permit IP holders, creators and others to consider specific IP leadership challenges. Registration for IPAS 2018 is now open to the public but space is limited.
The IPAS 2018 theme – IP Literacy in a Digital World will be the basis for examining the impact of information and speed on how intellectual property is seen and often taken for granted, as well as ways to address the disconnect through education and the media.