What you have to know before you acquire patent
Innovations economics of the modern times is somewhat different from its origins. These changes are initiated during Carter’s and Reagan’s administrations in US but managed to affect the entire world. During those two decades, we’ve seen emergence of two new technological fields: software and biotech. Both have made and are still making a deep influence on our society.
What’s new in the entire game of patents is:
- US patent legislation First-to-file system installed in 2013,
- and lifespan of exclusivity rights of 20 years.
It was just a corrective measure to adjust legislature with the ones present outside the US. Those changes forced the companies to speed up the processes of innovation to gain a competitive edge. Today patents are ever more important for the companies and their advancement strategies.
Patent is the single most important asset in every company’s repository.
It enables company to establish optimal tactical dispositions within the sector of interest. In turn, these tactical dispositions are providing with a fast and efficient way to take over the next important strategic field.
Due to their underlying importance for both industry and society in whole, patents are extremely sensitive field in today’s economy.
And from the business perspective, patent wars are one of the hardest to wage and to win. The reason behind that is a patent litigation process. During the time, the role of litigation has dramatically changed. The process is now used for strategic lawsuits and it is in fact a main strategy for one of the three entities present on the scene.
If you are not careful, you are risking the strategic lawsuit which can drain several millions of dollars from you.
So, before you even consider the acquisition of the patent to use for the end product, you need to familiarize yourself with the environment. You need to know the types of players and different aspects of this modern warfare. You are entering the real war arena, don’t think otherwise.
You have 3 basic entities in the patent arena: big incumbents, entrants (that’s you) and NDEs or non-practicing entities. Each has its advantages but also downsides.
These are corporations such as Google, Apple, Pfizer and hundreds of others. They are using patents for practical purposes, meaning that they use them in a production of new product or service. In the same time they are building their patent portfolios by acquiring many, potentially profitable patents. They use them as a weapon of deterrence when facing patent litigation.
How to use patent portfolio as the weapon of deterrence?
There are millions of patents. Some of them are invalid regardless of the reason and some of them are overlapping with some other in a patent landscape. This goes particularly in fields of software and biotech. There is a great chance that your end product will infringe on one or more patents. And that’s what they’ll use if you find them infringing on yours. You threat to file a lawsuit and they will simply say,”OK, here are our 10.000 patents, you probably infringed on one of ours too.”
So now you are facing an alternative. You are either enforcing or practicing. No way that you can do both since litigation requires immense resources in terms of finances, time and experience. This scenario is not rare and it usually ends in settlement or cross-licensing. It’s how big incumbents are bullying the entrants.
Entrants are companies, which business analyses suggest that they should involve in innovation either by developing one or by acquiring the patent. You are an entrant. The only way to avoid all the traps is a complex and expensive Due Diligence prior to acquisition. It is expensive but at the end it saves money since it will make sure you are not infringing on anything and that the patent you are about to buy is indeed valid. We’ll go in more details about Due Diligence a bit later.
There is something else you need to know in this point of time. You need to be aware of those who are building up their portfolios with potentially profitable patents that will not be used in practice. The only purpose of these patents is a strategic lawsuit. And while big incumbent is able to somehow cope with this menace, you are not.
To better demonstrate the importance of patent litigation and its potentials thus; potential risks, here are few stats. You’ll get an idea what you’re facing:
- Median damages award is around $5.8 million;
- In last couple of years we are witnessing growth of patent litigations (24% increase from long-term average). In the same time annual growth rate of granted patents is only 11% higher than a long-term average;
- Top 10 plaintiffs generated over $8 billion in damages over the last 20 years;
- Median awards are declining for practicing entities while median damages award for non-practicing entities (NDEs) are increasing.
It can be lethal for your business if you infringe on the patent.
It may pass unnoticed by big incumbents, but it will never fail to trigger the trap set by NPEs because this is what they do.
Non-practicing entities (NPEs)
NPEs, otherwise known as Patent Trolls are those entities who are using patents only for litigation. They conduct detailed analyses of patent landscape (clusters of patterns within one segment of industry), choose the most promising and then wait.
They are waiting for the product that overlaps with one of their patents.
Uniloc vs. Austin Meyer litigation process
The best example of this war strategy is one involving the creator of X-Plane, today’s most popular flight simulator. Austin Meyer, software engineer and passionate aviator decided to build his own simulator because the Microsoft’s Flight Simulator, the number one choice of that time, was known as software that doesn’t correspond to the real flying of the plane.
Austin launched his product which became famous over the night. Couple of years later, with an increased popularity of smartphones and applications, Meyer decided to expand his reach and offer an application for both IPhones and Androids.
In the same time, Texas based company Uniloc was swiping the patent landscapes in software field, trying to locate next profitable patent. It wasn’t long before they found one. Uniloc acquired “System and method for preventing unauthorized access to electronic data” patent, originally invented by Martin S. Edelman, granted on February 15, 2005, under number US6,857,067.
When you purchase the application, the only way for the vendor to know that the one who is using it is really the one who paid for is through license identification process which is basically an algorithm that transforms your personal data into variables and then uses a set of mathematical formulas to derive a unique ID. This is exactly what Uniloc’s patent was – license check software.
And that’s exactly the same algorithm that Meyer used for license check in his application. Did Meyer infringe on purpose or did his engineers develop the same one — which is plausible — we’ll never know. What we do know is that Meyer is now facing a multi-million lawsuit and additional cost of damages award if he loses. That can mean that Uniloc will own a part of Meyer’s business forever. Given the value of X-Plane, we are talking about hundreds of millions of dollars in revenue for Uniloc or loss for Meyer.
This is the prime example of innovations economics of modern times. And this is exactly what can happen to you if you don’t do your homework – a proper Due Diligence.
Due Diligence in patent acquisition
You can’t do it alone or with the help from your friends or colleagues. Patent landscapes are complex environment and only experienced professionals should be hired to do the job. These professionals are in fact intelligence agents; specialists in this type of business analyses. Thus, you have to hire an intelligence agency which specializes in innovations economics, patent landscape analyses in particular.
Their job is to make sure you:
- buy a valid patent, and to
- point you to potential overlaps where you can unintentionally infringe on the patent when you launch your product or service.
What they will do is to first conduct primary analyses of patent landscape in required field of industry. They will search, find and predict the marketing potential of a specific patent.
That patent will undergo additional check where they will:
- investigate forward and backward citations (relationships between patents and their owners),
- future market potentials, and
- prior litigations.
When this is over and everything seems in order, intelligence service will undertake the final investigation:
- owner verification,
- conducting a Prior Art check (if this is violated patent is not valid),
- checking for liens and encumbrances and possible enforceability issues.
They will also review a prosecution history.
Only now, if everything is in order, you can initiate negotiations. Failing to do so can cost you.
Patents are without any doubt the most effective weapon in an arsenal of every serious company. They are used for effective tactical disposition on the market. Good stratagem will use the optimal disposition to advance and dominate certain sector. Indeed, it can be done only through innovations because it is the only way to offer a brand new product or service that will last long and yield extensive revenue.
Understanding the patent litigation process
Patent litigation process is the only type of legal proceedings that is used as a business strategy. They are expensive, can last long and there are no guarantees that plaintiff will be in fact awarded with monetary damages. But even under these circumstances, some companies are generating immense revenues on account of won lawsuits.
This is due to the two distinct factors:
- Poor intelligence analyses or total voidance of them;
- Nature of the Anglo-Saxon law practices.
This first can be directly influenced by hiring proven specialists. These companies are doing whatever is possible to either prove validity of the patent or to disqualify it. In most cases they search for Prior Art if their job is to dispute the legality of the patent. Prior Art is a situation where innovator had published or even discussed the patent’s feature(s) before acquiring the legal license. In that case, patent, even already granted (licensed), can be disqualified.
The second instance, regarding the nature of legal practice, implies the use of experienced litigation attorney. These lawyers are specialized in international patent laws since most of the patents are filed in more than one country or the infringer may be outside the country of patent’s origin. The fact is: side with more experience, decisiveness and resources will eventually win the case.
Having a valid patent and strong claim is not always enough.
It doesn’t have to end with monetary revenue as it had already been mentioned. Court may rule the injunctive relief or exclusion order. Both rulings are implying the seizure of all activities involving the infringed patent.
These rulings don’t imply monetary compensation.
Conclusion is simple.
Patents and innovations respectively are the primary tool to gain a competitive edge regardless of the industry. This is mostly connected with their exclusivity feature; something that might seem as a paradox in a contemporary free market. In fact, that exclusivity is what motivates disclosure which then acts beneficiary for the entire society. Without it, no inventor would ever disclose his innovation to public.
But in the same time, patents are floating over a dangerous ground. You are advised not to engage in acquiring before you undertake the proper analyses. And when everything is in order, and you negotiate a deal, you will have a great weapon in your arsenal.