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10 Common Misunderstandings about Patents from Small Businesses

“Assumptions are just premature disappointments.” This quote from Don Feagan is too often the case with many small business owners when it comes to their understanding of patents.  See how well you understand what isn't quite right about the following statements:

Being granted a patent by the U.S. government provides a right to produce, market and sell the product that is described in the patent.

Patents provide an exclusionary right through a temporary monopoly in a restricted geography.  That is, you can only prevent others from using your patent without your approval.  A product using your patent may have some dependence upon the intellectual property of others.

If you have a patentable idea, you should always get a patent to protect it.

Without a consideration of the expected risks and rewards under the two distinct cases of having the patent or not having the patent, you can’t be sure. Ask yourself the following questions: Would a trade secret provide more value?  Can we realistically keep it secret?  Would we prefer that no one could get a patent on this idea?    Having a portfolio of many patents may provide no net commercial benefit if they are of marginal quality. 

Obtaining a patent in the U.S. is very difficult.

In the U.S., when you consider prosecution time lags and linkage with continuing and divisional applications, the probability in receiving a patent has historically been very high. (Federal Circuit Bar Journal, Vol. 12, No. 1, (2002), pages 35-55 and Vol.18, No. 3, (2009) pages 379-404).  Even with the recent interest in improving patent quality and new obviousness standards, the corrected grant rate for the US was still about 80% in 2008.  Success rates in the US have historically been higher than the probabilities of getting a patent in Europe or Japan.  No matter how the statistics are calculated on issuance rates, the value of an individual patent to a small business must be assessed individually.  Narrowing the claim scope to increase the allowance probability may come at the cost of commercial value.

Due to the thorough analysis done by the patent examiners, you can be confident that the novelty of your idea is secure if you are granted a U.S. patent.

The number of applications per examiner has averaged more than 100 for many years. According to Chapter 5 of Innovation and Its Discontents by Adam B. Jaffe and Josh Lerner, the average salary for a patent examiner in 2005 was around $60K. One factor in this relatively low salary was that the majority had been in the job for less than two years. In 2002, there were about 3300 examiners and 200,000 patents issued. (Quentin Hardy, Forbes, June 24, 2002) Assuming these examiners worked at 100% dedication to patent examination, the average would still be more than one patent issued per week per examiner. Even in this extremely optimistic scenario, the average examiner salary investment per granted patent is only around $1000. It is asking a lot of our patent examiners in understanding the scope and novelty of your patent application for this level of time investment. Their analysis is not concerned at all with the relative strength of your patent, or its importance to your business. Unless your only interest is patent ownership, your investment in a patent should not end with the payment of issue fees.   

Patents should be the exclusive domain of our engineering group.

If your engineering group has a strong commercial slant, understands nuances of the company strategic plan, appreciates how terms are defined in patent documents and can assess financial and litigation risk, this may be appropriate. If their vision is obscured by an ideal view of how the patent system should work or their egos have any “not invented here” bias, this could be a problem. When mergers or acquisitions are in the exploratory phase, it may be appropriate to buffer your technical staff from due diligence efforts to avoid unnecessary churn.  

We’re just a small company with no patents ourselves, so we don’t worry about patents. Even if we are infringing, the patent owner would go after a bigger player in our field with deeper pockets to collect first anyhow. We’re too small to be worth attacking.

Just being in the marketplace is sufficient to consider the effect of patents on your business. Whether you own a car or not, there is danger in driving or walking along the highway. If you ignore the traffic, your danger increases. The patents owned by others may be more important to your business survival than any you own, so it’s necessary to understand the risks from others. A judgment against or license agreement from a small company may bolster the case of a patent owner interested in subsequently going after a large company. It would be reasonable to expect an easier initial win from a smaller company with limited resources to invest in a defense. Anticipating these risks should help prevent a panicked response to any cease and desist letters demanding a response in ten days.  

The best measure of the financial value of a patent is the sum total of Research & Development costs invested in it.

The replacement cost is likely a more meaningful measure of value than invested cost, but market or income approaches may be even more useful. In Making Sense of Intellectual Capital, Daniel Andriessen reviews 25 different intellectual capital valuation methods including eleven financial ones. As in quantum mechanics, the results are not totally independent of the measurement itself. Value depends not only on which definition of value is used, but also upon why and when it is being considered. 

Inventing a better mousetrap will automatically lead people to your door. Potential licensees of your patent will seek you out.

There is actually some motivation to do the opposite due to the doctrine of laches. A patent owner can lose rights if it is shown (or presumed) that there was undue delay in taking action against infringers. Intentionally waiting until the potential infringement damages are high can backfire. 

Do-it-yourself provisional patent applications are the most cost-effective approach to protect your rights for a year while you expand and refine your idea.

While you don’t need to submit claims in a provisional application, your specification must be sufficiently complete and unambiguous to ensure that the pendency benefit of the provisional patent application filing date is preserved. Provisional applications are not examined for patentability. Additional filing fees will be required for any subsequent non-provisional application. Consider your exposure to additional commercial risks by going down this route relative to initial savings in filing and professional fees. 

There are standard rules-of-thumb on how to use patents for best commercial advantage.

Like shoes, one size does not fit all. Different contexts need different analyses and strategies. One of the assumptions above might actually be an appropriate action in a particular situation, but only if this course results from a conscious consideration of business objective and alternate paths.

If you found no surprises here, congratulations. If not, you should be sensitized to some of the general risks. With this sensitivity to faulty assumptions and a commitment to make informed decisions, you should be able to mitigate significant surprises when it comes to patent risks.  None of the above is legal advice and may not even be appropriate for your business' specific circumstances.  

Dan Whittle Patent Leverage LLC  Contact

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