Two of our legal experts on Office Hours, Attorneys Jason Webb and Rich Goldstein, have both emphasized the need to do a thorough assessment of one’s overall business strategy before considering filing for a patent because it can both be a daunting and costly process. With over 38 patents (pushing 40) under our belt as product designers, Tom and I have pretty much mastered how to make a business case for patenting products under development in our business. We have learned that patents should be filed only when you are truly sure of selling or commercializing your idea or product, especially if you are a small business owner, product innovator or inventor up against bigger brands with deeper pockets. Grow your business by learning how to maximize intellectual property, and knowing how to make the crucial business decision of whether you should patent your invention.
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We’re going to talk about a subject that we’ve been covering here, at least some of the other experts have been covering. We have Jason Webb and we have Rich Goldstein on the platform who are both IP attorneys and they’ve been covering lots of topics around it. We want to provide you because we’re inventors with patents. We’ve been hearing a lot of, “It’s up to you as the inventor or as the product brand,” because it’s also a brand issue or you as a business to make the case for whether or not patenting is valuable to your business. “Do patents have a value?” is the question. We’re going to answer that in context of some typical business cases because you may not be aware of the business cases that are coming up because you’re new to this.
We’ve been through this with both clients and with our own and we want to give you that broad look at what business cases might look like. It’s not always a direct, “I’m going to make money and I know for sure I’m going to make money,” because it’s early when you patent. Rich said, “Should you patent?” It was now, never, someday in the future thing. At the end of the day, what he recommended was that you go back, you look and you make sure that you have a business case for it. You know that you’re going to market it, you know that you’re going to sell it, that there is a business model for which you have a case to patent, not just because you want a pretty piece of paper. I admit the very first time for me it was all about the paper and getting that patent. I did not have a business plan. It was one of the ones that I’ve got. We made samples, but we never commercialized that one. It’s one of the few we didn’t make it to market. As we’ve cited before, it’s a little off because we haven’t recalculated it a couple of years, but it’s an 86% commercialization rate. Meaning that out of all of those 38 patents we have, we’ve brought them to market in some way, shape or form, and they’ve made money for us or for our clients.
Another way that I might say that is that we didn’t follow through and file patents for things that we weren’t sure we’re going to go to market. That’s why our hit ratio is high. That’s also the case. As soon as we made this decision not to go to market, that there was no business case for it. When we proceeded to go, we had a business case intent with the exception of that first patent because Tom thought it was cool to get a patent. What I was going to say is pretty much when I go to inventors’ forums and groups around the country, that’s the model that most of them follow. It’s exactly what you did back in college because that was when you filed for it. We want to give you a broader look at the different types of business cases that might be the case. Marketability is the first one. Do you have a market for it and are you going to sell it?
These days, certainly with all our experience in it, that’s definitely it. You have to either know that there’s going to be a market for either the patent itself or there’s going to be a market for products that utilize that intellectual property that you’re going to sell. This gets into maybe straying away from a business decision. You say business case and I think of it as a business decision. At some point, it also becomes a personal decision because you might believe that there will be a market for it. That doesn’t mean there will be.
To go back to one of the things both Rich and Jason on our platform have talked about and both of them have said is that, “If you are not reasonably certain that there is an absolute financial business case in this case, a marketable sales case for which you do this. The minute you start selling something, you lose your rights to be able to file patents later.” Your clock ticks. It’s a decision to make at that time is, “I reasonably believe this is going to sell. I have all of these indicators and all of these check boxes that I’ve done. Research and focus groups and whatever they might have been. I’ve done some presales.” Whatever those things might be, that’s the case for filing maybe a provisional, not filing a full patent, because you don’t have great certainty. If you’ve already done those things and you have your provisional and you’re making the decision about, “Do I file because my year’s up the utility patent and do full patent filing,” that’s the case at which you’re saying, “I’ve given it a year and the thing’s sold 100 units. It’s not going to sell. It’s not going to be worth the thousands of dollars. I’m not going to recoup it.” That’s the financial business model that I’m talking about in terms of sales. Sometimes it’s a reasonable certainty, so I’m going to go file the provisional. I have definite certainty, “It’s selling. It’s doing really well. I’m going to go file my utility because I want my design patent,” whatever those cases might be, whatever types you might be filing. Those are good cases to it.
In addition to the financial model, you might have other business cases like competitiveness. Competitiveness is a really good one. Let’s talk about both defensive and offensive? Let’s start first with defensive because that one’s a little harder to define. In terms of a defensive patent strategy, that may be when you’re up against a bigger brand. You’re coming in and you’ve carved out a niche for yourself. Maybe you’re in a Procter and Gamble marketplace, with heavy consumer product good companies with bigger, deeper pockets are coming in and you need to make sure that you’ve carved out your little niche there. You need to go in because you know you have an innovation but it’s small. It’s not gigantic and it is right in the wheelhouse so you do need to protect yourself there so that they don’t knock you off and do it. It may be that your product or your invention and its potential is not small. It may be just you’re small as a company and there are these bigger companies. You’re the David, they’re the Goliath. To me that’s defensive in that they’ve got enough money to drag things out in court for years and years if anybody ended up suing each other. If you have a patent, it’s going to be very hard for them to completely ignore you. That to me is a good defensive strategy.
Especially if you have a plan to get bought out by one of them, you might want that as a strategy because you’ve hit right in their target zone and you’ve carved out your little place there and they’re aware of that. That may be a really easy way for them to buy you, fold you in, license you, if that’s your case and that’s what you’re looking for doing. I want to caution you here though because being paranoid about bigger guys knocking you off, in Rich’s Office Hour, I asked him that question. I was like, “How often does that happen that people knock off?” From a patented perspective, if you’re talking about in the marketplace, it happens with sourcing and other things. These types of things happen on the Amazon platform and eCommerce. When we’re talking about really knocking off true innovation, true invention, true patented products, it happens very little that you get infringed upon and go for lawsuit on it and go all the way out and do this. It’s not done as often as you think it is because most often you have an idea that is marketable and they’re like, “Who cares?” Until it’s selling really well, at that point the question becomes with a big brand is like, “Let’s just buy them. It would be faster and cheaper.”
It’s much easier for the big guy to buy you, buy your patent at least if not buy your company, make an asset purchase and buy your intellectual property, and then it’s win-win. They get to gobble it up, have it and not have to worry about you trying to take some market share away from them. You get the windfall of that purchase. I have to say that I was chuckling as you were talking about how often does it happen you get knocked off because it happened to us. Maybe it’s rare but happened to be one of our earliest business ventures of our careers that we did patent as an offensive strategy. We patented this stylus pen for PalmPilots. This was a utility patent in terms of the technology of what we did with the tip of the pen. It was really unique. We have the stylus pen that we invented and we did not have any market research. This was a new invention and the whole PDA market was new. It was very hot at the time, it was pre-smartphone. It was very hot. I traveled to California. I met with the company Palm Computing, 3Com at the time and showed it to them under nondisclosure.
If you’ve seen our Office Hour or listened to our podcast on non-disclosures, we’re no longer big fans of those. I did have one at the time. I showed it to them under nondisclosure and they’d never seen anything like it. They thought it was fantastic. There was some corporate validation. I still think it was a good business case. We didn’t have provisional patents that we could file back then, but we did have sales. We started selling pretty much within four months of developing right about the time we met with Palm. Our business was in process, we were in preset. We had business validation, but I don’t think we had a good market test. I don’t think you could say we had real market data that said it was going to work. By the time we were infringed upon, we did. We had been selling but not by the time we filed the patent.
This is an old case of old style patenting, inventing and that thing. It doesn’t apply here in terms of the business case of it being a defensive choice. In the defensive strategy of it, yes, we had to defend it. If we did it all over again, we may have made different choices we’ve come up with. We may have made completely different choices of it. The reality was at that time that we were doing that, our whole business was based on it and that’s a whole another one that I want to get to next. We want to talk about it in defense of bigger brands knocking you off. What about the Staples case study? That’s a good defensive one.
We had a client that we developed these many different things for but in this case, it was office chairs, the kind you would buy at Staples. That has come up with new unique designs that would sell better. We did that. We did it successfully and there was one particular design that we told them they should design patent. We’re not always fans of design patents but in this case, it was a unique stitch pattern design. It was very unique and attractive. It was especially selling to a lot of women, which was important. We told our client who was selling this chair to Staples, under their brand, that we recommend you file a patent on this. They had filed a lot of patents. They followed our recommendations on a lot of things, a lot of utility patents for different functional things we’d invented, but this was a design and we said we should do it. They said, “We don’t see the value in that. We’re not going to do it.” This chair ended up selling $3 million or $4 million a year to Staples. It was good item for them. They did well.
Staples decided they weren’t making enough money on the item. They said, “It’s selling really well. We want to make more money on it,” and Staples knocked it off. The dead nuts knocked it off. That’s a whole long story that I’m shortening here. They dead nuts knocked it off and had our client had that design patent, Staples wouldn’t have been able to go around them and solicit another factory in China to make a knockoff chair that they sold.
In that case, it would have been against their vendor agreement as well. It wouldn’t have been not the right thing to do and not the right legal thing to do, but it would have been against their vendor agreement to do it. With no IP on it, they didn’t have any obligation to adhere to that. This is a case of which defensive strategy makes sense. If from a competitive standpoint, it’s going to keep you secure in your position in the marketplace, that’s valuable too. That can be a defensive and an offensive strategy. Tying that into the offensive strategies, sometimes that’s what we do. We file provisional patents. We believe that we’re going to be able to reasonably sell this item. We think it’s going to do well in the marketplace, but we also want to make sure we protect our first to market entry whenever possible.
Can we do that? Can we fend off that early supplier knock off that can happen? That happens more often than the bigger brand knockoffs. The bigger brand happens when you sell well. It goes the other direction, but you can have an early supplier where they’re like, “Americans want to buy this. Let me knock this off,” and that happens all the time. Can you do that? You could push back and say, “I filed a provisional patent,” and so you have cases. If you go further and it starts to sell and then it issues, it gives you also something to stop at the border from the customs perspective and you have lots of other things that you can do. Utilize tools in your toolbox to be able to utilize that in a defensive way, but you started with this offensive idea that you wanted to carve this market out for yourself.
That’s the best strategy if you already have access to that market place. If you’ve got in the back of your mind that, “I’ve already been selling items and these kitchen tools and I’ve got some new innovative ones I’m bringing in. I know the market. I’m doing well. I know how to sell on Amazon or I know how to sell on Shopify. If I’ve got my own shop and direct response marketing and all of this is working for me and how I’m selling this, I believe I have access to this consumer and I can sell a product. This product is great, it’s going to sell even better than the other things that I have.” If you’re in that position and you’re already in that marketplace, you’re better off with that strategy and saying, “It’s a good business case for me to spend money on that.” Keep it small at the beginning, provisionals if possible.
The defensive intellectual property strategies come into play a lot with Amazon sellers. I’m thinking defensive meaning most Amazon sellers who have been selling for any reasonable period of time know that if you don’t have something original you’re selling, then anybody else could buy it from your factory or from a distributor. If you have a listing that starts rising to the top and getting a lot of sales, people are going to go to school on you. They’re going to do jungle scout. They’re going to know what you’re doing and say, “I want some of that market too. I’m going to go and do it. I can work the algorithm and the keywords better than they can or at least as well and take some market away.” If you have something that’s patent pending or patent, that is a good defensive strategy. Not only to keep your competitors at day from going head to head with you, but we hear a lot about Amazon, while Amazon is the marketplace, a lot of times Amazon becomes your competitor too, in certain products. They are always looking for more products to sell direct from Amazon.
We have an episode on that as well, that is in the part of the first 50 free that that you can access when you come onto the site. It’s our opinion on that. The thing about it is yes, Amazon can become your competitor, but you also have to remember that you don’t have any power when you’ve only filed a provisional or the patent isn’t issued. You have no power to shut other people down. You can’t enforce it there. It’s a deterrent but it’s not an enforcement. Trademarks are different so make sure that you’re also trademarking and branding your items with your name on it and other things. One, in case it falls off the truck from your actual tool and your actual product, you can definitely shut that down. Secondly, that is more enforceable. If they’re trading off of your brand and trolling or listing, you can stop them if they were utilizing a brand that you’ve registered and trademarked. Make sure you do that as well because that’s a part of what I would say is an offensive and defensive combination strategy.
Thinking about that, these are important business plan ideas. If you don’t even know if you should be in this business, if you’ve never tried selling before, if you’ve never accessed the market, you have to dive deep into this and make sure that you are reasonably certain and you have outside perspective that is giving you the business case that, “I believe I can sell this. I believe I have the path to sell this and I believe I’m going to make enough money to sell this to pay for and recoup the investment value of these patents.” That leads to the model that we talk about all the time, the money-making model, which is building up an asset value, an asset portfolio.
This is not a one product, one patent strategy. It’s a selection of patents. We talk about this as intentional invention and we talked about that multiple times already on the platform. Intentional invention is where basically you have your core patents, you know your product is selling and you have your core patent and you surround it with smaller other patents, other ways to make things. It gets you a portfolio of patents. Even if each one of those is very niche and a lot of times we find attorneys will advise you, “These aren’t very enforceable. They’re very narrow, they’re not really worth it,” but at the end of the day, if you’re creating this silo, this fortress around your core patent, that could be very valuable. A great example of that, and we may have talked about this before but it’s worth mentioning again, is the TV stands.
We have client who already had a well-established business at mass market retail in a certain TV stand that was of particular value and interest to the market as less expensive flat screen TVs came to be. They filed for a patent and they had never filed for patent before. This was their first big foray into filing a utility patent and they decided, “We don’t know anything about patents. We’re going to trust the lawyers.” They gave all the information and the files to the lawyers and said, “The lawyers will know what to do.” The lawyers analyze it based on their experience and decide how to structure the claims and what to file. In reality, they didn’t understand the business case for this patent and structured the claims incorrectly, not understanding that and the patent kept getting rejected in limbo and it was never getting over the finish line to become an issued patent. Meanwhile, half a dozen other companies went to school on what our client had invented and had made their own, manufactured their own versions, different designs, but functionally definitely tripping over their intellectual property.
That’s the case here. In fact, they didn’t do anything inventive. They pretty much did the exact same thing believing that it was never going to issue. Some people put patent pending on their products and this is how they saw it. It’s gone on so long in this patent pending stage, it was entering almost five years or something like that and it still hadn’t issued yet. They felt free reign. Like, “This is never going to issue. It’s a false claim of patent pending.”
It was not a false claim. They were still in a pending status. We were clients of theirs in the product category and heard about the trouble they were having. They asked us if we could look at the patent, analyze it and see if we could help give them any advice and guide them. When I looked at the file and I saw the history of what had happened trying to get this patent, I could see where it got off track. It got way off the rails so far away from what they had invented. When I reviewed this patent and this filing, I could see not only have they really invented something, I could see the patent examiner had no clear understanding of what they had invented. We got through that.
More important than that, in doing so, what we also discovered were three alternative ways to make the product that wouldn’t infringe on their patent that other people could immediately do. If you decided that, “This patent is issued,” which it eventually did and fairly quickly after Tom got involved and that it issues now, then you send the cease and desist letter. They should stop, but what they could’ve done was immediately gone to one of these other methods. Instead, the company bought those three other methods from us and acquired the rights to make them patentable. They had a whole circle of patents. They had four patents that surrounded the technology and at the end of the day, they found that one of the three ways that we had designed was more efficient and cost-effective to make. It’s less expensive to manufacture and achieve the same result. It ended up being better for them. It ended up being valuable to them.
This was a case in which because of that enforcement around it, they made it even more difficult for them to do anything but settle with them and resolve the patent infringement. It worked out well in their favor. That’s what we like to do is we like to fortress around a core patent to make it valuable there. That’s one of the things that we do. You look at it and if you’ve only got one product, and if you’ve only got one innovation, it makes it hard for you to command a high value in the marketplace because what if interest in your product dies tomorrow? Having multiple assets, multiple value, high value products with patents associated with them has been the strategies that we’ve utilized and helped our clients get multipliers when they go and get evaluated and then possibly their brand acquired and or licensed. It helps to make that more valuable. This is a business case as well.
I say this because overall, I don’t want you to go willy-nilly and spend money on patents on the one hand, unless you do have demonstrated value, there’s going to be a business case for it. On the other hand, I want you to also have built a bigger brand with bigger value and I want you to build that in along the way. They go and they have to evaluate them. You really have to weigh those for the stage of business you’re in. Early on in the stages of proving you have a market, stay conservative. File provisionals only until you know for sure that the product is going to take off and has it. Don’t file international and PCTs too soon because they’re costly. Make sure you have some sales going and make sure you have a plan to get sales in that one-year time period because that’s when you want your answers. You want as much indicator that you have a market as possible during that timeframe before you start spending more money.
The second side of that is that once you have a market and you know have it and your brand has value and it’s growing in value, now start doing an asset buildup so that you can command a higher value. Don’t do it false. You don’t file false patents to actually invent stuff. Do that and come up with innovative things that are worth patenting and valuable. Rich pointed out that too often you think you have something valuable, but then you go to do a search and you’re like, “They’ve done that.” You definitely need to do your due diligence to make sure you really do have something. Just because you haven’t thought it before, you hadn’t seen it before, it doesn’t mean that it hasn’t existed out there. You mentioned about having a portfolio and an asset portfolio of patents. When we did this patent, this was it. We had a couple other things we invented a few years later in the company, but our entire company was based on this one patent.
There are four versions of it, but that doesn’t count. Essentially, it’s still the same thing. You don’t have a full product line of product brand. You have different sizes, different colors and different models. That’s not the same thing as having a product line, let’s be clear on that. A product line diversifies you. When you’re thinking about that, it’s like, “How valuable is your company?” At the end of the day, it’s one thing. It might be a big thing but it might not also. This is the one we did get knocked off on. To put that out there because you say it doesn’t happen. It may not happen that often but it happened to one of our clients who didn’t file a patent and that happened to us even though we did file a patent.
Where it happens though is it doesn’t happen to paranoid inventors who still aren’t on the market yet. You’ve got patents and you’re sitting on a shelf somewhere. It doesn’t happen. That happens accidentally in the scope of things and maybe it wasn’t innovative or it was already out there in the mainstream and you just happened to patent it sooner. It’s rare that without sales, without proving that you have a marketplace, that people are even thinking about this. In our case, this was a high intensity new market that people were examining and working within. You can see how that would happen in cell phones. You can see in cell phone cases and all of these things, everybody’s tripping over each other in patents because there’s so much form and function you have to work within so the innovations are minor. Everybody’s working on one because there are lots of market. You could see how that could happen in that space. To truly do something, stepping out and very innovative though is highly unlikely that they would do that. In this particular case, the whole way that it happened was an insider intellectual property leak way. Basically, they knew what we were working on.
Just ignore the fact that we had a patent pending and then filed one of their own in the process. The good news is we prevailed and invalidated theirs. We ended up owning theirs at the end of the day, which then we killed that patent application. Our patent was very valuable and we sold it off eventually as the Palm economy changed. We’re big believers in patents, no question, but we’re not believers in patenting everything. We’re big believers in patenting things that have enough value, that have enough business and marketing potential, and patenting for the right reasons. Things that are going to help move your business forward not be a big expense that is going to suck more of your precious capital unnecessarily.
Valuable patent protections come from having a business case, having a sales case, having marketability, having commercialization available to it. That’s what we wanted to stress with you so that you could go back and take the advice that Rich and Jason have been giving you on this platform about whether or not what types of product patents you need and should you do it and all of those things. Go back and think about what that looks in practice in a business that maybe you don’t understand or you don’t know.
We want to invite you to ask us questions about that at any time. Come on another Office Hours and ask us questions about that. We wanted to jump on and follow up these episodes so that you could have a practical experience and practical understanding of what that looks like as a product inventor or product brand and look at that from your eyes and not from the outside looking in from an attorney looking towards you. Get a perspective of that. That’s what we hope you get off of all of the Office Hours on Product Launch Hazzards is you’ll get these different perspectives on what that means for licensing, for patents, for developing products, for sourcing. You get different viewpoints all along the way so that you could form a more well-rounded picture of where the hazards lie, where the problems happen but also where the opportunity is and where you want to build your business.
- Jason Webb – previous episode
- Rich Goldstein – previous episode
- Office Hour on nondisclosures episode