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September 13, 2006

Patent Happy

Dennis Crouch & Peter Zura in the past few days have been kicking around the question: why so much patenting when so few patents are worth anything? Sophisticated studies cited by these esteemed bloggers raise paradoxes and postulate justifications, when, in fact, corporate patenting is both systemic and systematic, as in, automatic like a dog.

We are in a period of patent frenzy, with no end in sight. Public awareness of patents has risen in recent years, but corporate policies that drive patenting numerically have generally been in place for a quite some time, though, in some quarters, are picking up steam. Earlier this year, for example, Microsoft announced numeric patent goals for the year, like invention rolls off a production line; but actually, more like a hopeful press releases roll off the production line.

Many companies give employees incentives, usually a few hundred bucks, for coming up with patentable ideas. Some companies use an employee's patent prolificacy as a measure of quality, glossing over the fact that it's a problematic metric.

As a professional patent reader, there's probably no surprise in my stating most patents are pretty crappy. It seems logical that disclosure quality directly relates to monetary potential, though of course standout exceptions exist.

Some companies, however, fairly consistently write rather high quality disclosures, with solid innovation - when you read such patents, you can almost hear the crackle of brain wattage; serious endeavor to forward the technology marker, with a solid foundation in understanding the state of the art at the time. One of the strongest traditions of this was old Ma Bell, long dismembered and reconfigured, with patent quality from the Baby Bells suffering. IBM has done beautiful patent work through the years, and continues to do so. It's part of the corporate culture. And that's the point.

Companies set policies towards patenting, and management, sometimes, such as Microsoft recently, and Lou Gerstner, IBM's 1990s turnaround savior, positively encouraging patenting.

Product companies, particularly large ones, have tended to view patents as a defensive measure, though the tide has turned to view patents more for their monetization potential. Since patents are, at the time of filing, more often than not almost impossible to assess in terms of potential, the bar is set fairly low to file and prosecute an application. Time tells, and so many patents are abandoned by failure to pay maintenance fees.

A few companies manage their patent portfolios consistently to sweet profit; IBM being the king of this realm. In the large, it seems that hungry smaller companies tend to be more aggressive in monetizing their patents. Qualcomm is a queen in patenting savvy. But some larger companies play the assertion game smartly. Printer maven HP jealously guards it turf by asserting its ink patents.

But a lot of companies just don't know what to do with their patents, or are afraid to do much. Microsoft, for example, is still positively retarded in asserting its patents. Some companies get patents whose assertion might offend their customer base, and so the patents languish. A lot of product companies are better at getting patents than asserting them. Patent prosecution costs but a few thousand, while patent litigation costs a few million, and a lot of nerve. Again, corporate culture plays a large role.

There's a touch of irony in how much fuel to the patent frenzy fire comes from innovative companies that got steamrolled in the marketplace, or just lost steam over time, but lived to tell the tale in asserting their patents against successful copycat product companies. NTP v. RIM is one such example. Creative Technologies' recent suit & settlement with Apple over MP3 players is another.

There's a positive feedback loop going on. Greater awareness of patent potential, exemplified by big payoffs, and corporate intelligence of competitive trends, feeds further corporate patenting initiatives. Patent overheating like global warming.

Patents as a lottery ticket, defensive patenting, the value of patent portfolio outweighing the insignificance of individual patents - all theories backing up a trend that comes naturally with competition: seek every possible edge, either as a bet or a hedge.

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P.S. Yes, definitely read the excellent "Patent Portfolios" paper by Polk Wagner & Gideon Parchomovsky.

Posted by Patent Hawk at September 13, 2006 12:08 AM | Patents In Business

Comments

I would argue a disconnect between patent value and the ability to monetize. Could it be that only three percent of patents have value because only that percentage of patent holders have the knowledge, skills and ability to monetize them. This is an illiquid yet rapidly evolving market that makes the valuation of such property more of an imprecise art than a science. As we evolve and forms of valuation and monetization become more prevalent I think we will see a much larger percentage of "quality" patents having greater value.

As you pointed out I also do not think that patents should be painted with such a large brush. Some junk patent improving on a widget is obviously a lottery ticket or of little or no value. Can the same be said about the semi, biotech, or cellular industry. Royalties on cellular phones are expected to range from 80 to 100 billion over the next ten years. As you know Qualcomm claimed 2 bn of that last year at a 92% margin. Is that random, like a lottery?

Posted by: Steve Lozan at September 13, 2006 2:48 PM