Is Hasbro Making a Serious Intellectual Property Strategy Mistake by Fighting with Scrabulous?

Hearing the news that Hasbro succeeded today in shutting down Scrabulous for apparent infringement of its intellectual property rights, I found it necessary to weigh in on the debate. For those that don't know the saga of the dispute between Hasbro and two Indian national brothers who developed the wildly popular Facebook application, it is summarized here. In this ongoing legal dispute, Hasbro, the maker of Scrabble(r) and owner of the intellectual property rights for this iconic game, contends that the online Scrabbulous game on Facebook infringes its copyright and trademark rights.

While Hasbro is well within its rights to go after violators of its intellectual property, as an intellectual property strategist (more info here: http://www.jackiehutter.com/), it seems to me that Hasbro may be making a huge mistake by taking an aggressive intellectual property enforcement strategy. There are apparently as many as 1/2 million players of Scrabulous on Facebook in a single day. I would venture a guess that there are not this many players of the board game version of Scrabble in a single week. These players of the board game are likely not young--in my experience, the board game version of Scrabble is generally a game for older folks like my elderly mother-in-law. It thus appears that Scrabulous has opened up a huge new player base for this classic game.

Also, this huge new player base would seem to set up the opportunity for an ongoing revenue stream that does not traditionally exist for board games. Once someone buys the Scrabble board game, a user's transaction with Hasbro is finished. That user can play Scrabble to his heart's content, and Hasbro will not gain any financial benefit from that continued play. Continued online play of course provides an imense new opportunity to generate revenue on a continuous basis, and it does not seem sensible that Hasbro would not want to get on this "gravy train."

As an outsider (and who admittedly does not have deep knowledge of the respective strength of the party's arguments), it appears to me that this is a situation where Hasbro can "catch more flies with honey." That is, Hasbro might be better off in the long run by trying to realize some revenue from the advertising stream that flows to Scrabulous online. The players of Scrabulous on Facebook are not likely buyers of the board version of Scrabble and, as such, they are not losing any board game revenue from these online players. Any money obtained from the online game is effectively "money for nothing," which in this down economy Hasbro should be happy to receive.

I understand that Electronic Arts is the licensee of the online version of Scrabble, and Hasbro's action may be largely directed toward protecting EA's market for the non-board game versions of Scrabble. This may be true, but the EA version of Scrabble clearly isn't wowing users like Scrabulous. Like Hasbro, EA should look to obtaining some sort of revenue stream from Scrabulous.

It is worth noting that, from a legal standpoint, Hasbro and Scrabulous must "police" the Scrabble intellectual property rights to ensure that these rights are not lost due to inaction. But there is no requirement that the owners of intellectual property refuse to license their intellectual property rights to others. Licensing is not surrender.

Hopefully, today's action of shutting down Scrabulous is only the first serious action between Hasbro, EA and the designers of Scrabulous and that the parties are poised to quickly resolve this dispute. In this world of fickle on-line technology users, there may not be much time for the players to work out the legal issues before Scrabulous fans become fans of another online game. In this regard, Hasbro and other game companies need only look at the recent history of the now-moribund traditional music industry, where legal and business decision-makers thought that aggressive intellectual property enforcement would hold off the march of online music delivery technology. If I were an advisor of Hasbro or its licensee EA, I would definitely remind them of the destructive results of this strategy to the music industry as a cautionary tale.

Recent BusinessWeek Article Confirms that Energy Innovation is Rampant: Why These Innovations Should be Patented

This current BusinessWeek article entitled "The Real Question: Should Oil be Cheap?" confirms that innovations directed toward energy savings are rampant in these days of high energy prices. Specifically, the article states that "[h]igh energy prices [] water the flowers of innovation, making investments in alternatives pay off . . . ." As I wrote in this blog previously, along with such innovations comes the opportunity for savvy corporate managers to obtain exclusive rights to these energy usage improvements by developing and executing on patent strategies that prevent their competitors from benefiting from their investments in innovation. Moreover, as I wrote in this blog post, I believe that The Pickens Plane will open the floodgates of patenting in the area of wind energy and turbine technology.

I realized after writing these blog posts that some people might find the idea of patenting energy innovations distasteful. Such a perspective might be based on a belief that it is better for society for energy innovations to available for the public to freely use. As such, I thought I would address this potential objection in this post.

Private energy innovation takes place within the confidential confines of the firm. Energy innovators will typically not freely disclose energy innovations outside of the firm in the absence of patent protection. Rather, if an innovator is not able to prevent others, especially his competitors, from using the fruits of his innovation investments, it is unlikely that this energy innovator will disclose his technological advances to the public. The innovator will instead likely maintain the innovation as a trade secret, which will keep the details from the public as long as the technology is kept secret.

You may recognize that if the energy innovator does not obtain patent protection, anyone who can reverse-engineer or independently develop this trade secret energy innovation will be free to use the energy innovation. On balance, however, I believe it is better for many energy innovations to be patented.

When an innovator files for patent protection to an energy savings technology, details of that innovation are available for the public to understand and to improve upon. Moreover, it is quite likely that the energy innovator's patent protection is limited by specific industry or technology. This means that the general concept of the innovation can be freely used outside of the specifically patented subject matter. For example, an energy innovation in glass-making could have broader applications outside of that specific technology area, and if the patent covers only glass making, other industries are freely able to use that energy innovation without incurring patent infringement liability. The disclosure of the technical details to those who can benefit from it also reduces the occurrence of duplicated efforts in development of important energy innovations. I believe these results are a net overall positive for society.

The downside to patenting of energy innovations is that those in the same industry or technology area may be prevented from benefiting from the innovation without incurring patent infringement liability. In the glass-making example, a patent to an energy savings innovation would prevent other glass-makers from benefiting from that patented innovation. However, in my opinion, those who do not seek to innovate to improve should not be allowed to be free-riders to those who invest in innovation.

So, I believe that your company’s energy innovations should be fair game for patenting. The rub is whether company management will realize the value of doing so.

Innovators: Make Sure Your Company Owns the Fruits of Your Open Innovation Projects

In case there was any doubt, this New York Times article of July 22, 2008 shows that Open Innovation is "hot". And it is not just consumer products companies that have jumped on the bandwagon: companies such as HP, IBM and Microsoft have reportedly embraced the Open Innovation model. But, did you also know that, if your company is not careful, you could end up sharing patent rights to any inventions resulting from your Open Innovation collaborations?

If you are going to play in the Open Innovation game, you must also understand how to prevent collaborators outside your company from owning the fruits of your company's innovations. This is a very easy issue to address on the front end of the Open Innnovation process and should be standard procedure for any innovation professional. However, as detailed by Greg Daines in his Ideanomics blog, intellectual property strategy is not a subject that is covered in business school. As a result, simple issues such as this will often be overlooked by innovation professionals because they are not recognized, often with disasterous business results. With this blog post, I hope to provide innovation professionals with a bit of learning that could prevent them from making a huge mistake in their Open Innovation efforts.

When your company collaborates with someone who is not an employee, that person jointly owns any patent resulting from that collaboration. Moreover, that person can use the jointly patented product or technology without payment to the company. Perhaps more significantly, your collaborator can freely license the jointly patented product or technology to a competitor of the company.

Let's illustrate this concept with an example. Assume you are a Director of Innovation at Acme Gizmo. Your innovation team decides that Acme Gizmo can improve its innovation pipeline by going outside the company for new product ideas. You select Dr. Smart, an independent product development consultant, to work with your Acme Gizmo team to develop a new product. The results of this collaboration are excellent: your consumer testing shows that the product your team jointly developed with Dr. Smart will likely be a blockbuster new product. Since Dr. Smart's job is done, you and she part ways. Your innovation and product development teams proceed to introduce the new product to the mariket and, as predicted, the product is a hit.

Since your testing showed that product would likely be a valuable differentiated product for your company, you correctly decided that Acme Gizmo should file for patent protection. However, you find out that because that Dr. Smart participated with your team in the invention of your new product, Dr. Smart is as much an owner of the patent on the product as is Acme Gizmo. As a joint owner, Dr. Smart holds the same interest in the invention as Acme, and Dr. Smart can use or license the patented invention in any way she wishes. This means that she can freely license her patent rights to Acme Gizmo's biggest competitor.

Significantly, Dr. Smart's interest as joint inventor exists by law. This means that your company's patent attorneys are legally required to name her as an inventor even if it is not in the best interests of Acme Gizmo. If they do not and the patent ends up in court, the judge will either make Acme Gizmo name Dr. Smart as a joint inventor or the court will invalidate the patent. Either way, Acme Gizmo does not exclusively own rights to your blockbuster new product.

As an innovation professional you understand that it is unacceptable for Acme Gizmo to not be able to wholly own the rights to the fruits of your Open Innovation projects. How can you go forward with valuable Open Innovation projects but still avoid outside collaborators such as Dr. Smart from obtaining joint rights? It's actually rather easy: prior to engaging in any collaborative activity, you must obtain a written agreement from your outside collaborator will relinquish to your company any inventions resulting from the collaboration. Note that this agreement must be completed before any inventions result. As of the moment the invention exists, Dr. Smart's rights come into existence. This actually means that the agreement should be in place before any collaboration actually occurs, because one never knows when collaboration will result in an invention.

Experienced readers will understand that an invention assignment agreement can be obtained after the invention is made, such as when a patent application is filed. However, I can tell you from years of experience that it can be very difficult and expensive to obtain an assignment after the invention is made because the collaborator will likely perceive that he or she has the upper hand in this circumstance. At a minimum, it is typically much more expensive to obtain an assignment from an outside collaborator after the invention is made. I have had to do this several times in my years as a patent attorney. This extra work to obtain an assignment from an inventor not employed by a company often added several $1000's to the cost of obtaining a patent.

Also, I have also seen that many times the patent attorney does not know that an outsider was involved in the invention and the joint inventor is left off the patent inadvertently. It then happens that inventorship must be corrected at a later date when the product covered by the patent is a blockbuster. In this case, the joint inventor (Dr. Smart in our example) may be inclined to assign her rights to the highest bidder. Unfortunately, the highest bidder may be your biggest competitor.

(Note that correction of joint inventorship after a patent attorney leaves off an out of the company inventor is a common way for defendants in patent lawsuits to make the case go away the defendant often will seek out possible joint inventors and obtain a license to practice the invention from the joint inventor--Dr. Smart in our example. The lawsuit goes away because if the patent lawsuit defendant has a license, they can practice the invention.)

You may assume that in preparing your agreement with Dr. Smart about payment and the like, your legal department will take care of making sure Acme Gizmo will own all rights to inventions from your Open Innovation project. However, I have seen that many otherwise sophisticated business attorneys do not understand that a collaboration agreement should require the collaborator to relinquish all rights in any inventions resulting from the collaboration and this agreement must be in place prior to start of the work. If the collaboration agreement does not include the provision, the damage is done, and it will be the work of the patent professionals to try to fix or mitigate the damage so that the company can own exclusive rights in any patents resulting from the collaboration.

As Open Innovation becomes more prevalent in industry, I expect that more innovation professionals will hear "horror stories" relating to joint inventorship, and hopefully more people will understand how easy it is to avoid making this mistake. In the meantime, at least the readers of this blog post will be aware of this legal pitfall in Open Innovation.

About the IP Asset Maximizer Blog

Readers will note that much of this blog was added in bulk during July 2008. This content was authored by me over the course of several months when I was associated with another organization. Since I have established my own IP Strategy and Consulting firm (more info here: www.jackiehutter.com), I look forward to posting new content at this location frequently. Please contact me at jackiehutter@gmail.com if you have any questions or would like to suggest ideas for new blog posts.

It's All About the Numbers: SuperCrunchers of Patent Data will Gain Competitive Advantage

A recent book entitled Super Crunchers: Why Thinking-By-Numbers is the New Way to Be Smart (available at http://www.amazon.com/Super-Crunchers-Thinking-Numbers-Smart/dp/0553805401) presents an intriguing perspective of how forward-thinking companies can use the wealth of data available today to obtain an edge against competitors. The book, written by Ian Ayres, an econometrician and law professor at Yale University, posits essentially that he who crunches the available data will come out ahead in this modern world of massive amounts of data. A detailed review of this book from Newsweek is found here: http://www.newsweek.com/id/40860.

The "Super Crunchers" premise applies strongly to the world of patents. Indeed, when leading companies such as P &G, GE and others engage in multi-faceted corporate intelligence programs, it cannot be a controversial to contend that those companies that mine and apply the results of data analysis of both their own patent portfolios and those of competitors will obtain valuable information that can be deployed to make better business decisions.

Moreover, the application of patent data dovetails nicely with the modern world of innovation and product development, which focuses sustainable and disciplined internal processes rather than the traditional methodologies that favored, in large part, intuition. Part of these processes can and should be continued review of your company's patent portfolios, and those of competitors.

Before your company actually integrates patent analytics into your organization to augment the information that you use to make business decisions, you need to ensure that the analytics that you are using actually provide actionable business insights. To constitute actionable business insights—that is, information that can readily be applied to your company's business decisions—patent data must be provided to you in a business relevant format. Moreover, the right data must be extracted from patents. I am now an IP Business Strategist and Consultant (more info here: www.jackiehutter.com). However, I know from my time as a consumer of expensive patent analytics products as an in-house patent counsel, providing the right data is not a given with most patent analytics providers. To the contrary, few patent analytics vendors understand the content and meaning of patent data in a way that allows them to extract data in a business-relevant manner.

As a potential purchaser of patent analytics, it is important to realize that all data present in patents is not equal. Patents actually contain two types of data. A patent document discloses technical information that a company would likely rather be kept as a trade secret. Of course, a company does not disclose confidential information to the public out of altruism. Rather, the only reason that this otherwise confidential information is disclosed to the public is because in exchange for this disclosure, the US government grants exclusive ownership of the claimed invention to the company for a limited time (usually 20 years from the date of filing the patent application).

When your competitor gets a patent, your company is excluded from making, using, selling, offering to sell or import the claimed invention. In short, a patent granted to your competitor keeps your company from doing some commercial act that your company would otherwise be legally entitled to do. The business information relevant to your company therefore is what your competitor seeks to own. As such, when your company seeks to obtain and deploy information from patents, your data analysis should focus not on the entire patent document, but on what the patent's claims say.

So, if your company seeks to join those forward-thinking organizations that have embraced the "Super Crunchers" philosophy and seek to apply it to the world of patent data, you must ensure that your vendor is analyzing the data in patents that you care about, that is, the information in the claims of the patent. If the claims are not the focus of the patent analytics vendor's product, you should pass because the data that you obtain will be suspect when applied to your company's business questions.

50% of Money Invested in Venture Capital is Lost: The Right Patent Analytics Can Improve These Odds

According to this article by Arlene Jacobius in Pension and Investments Online, 50% of all investment in venture capital is a loss. This article, which is based upon separate research projects by a Chicago Graduate School of Business professor and a former Chief Economist at the SEC, indicates that the actual return on venture capital investment is not much different from the average annualized returns on the smallest NASDAQ stocks. In particular, the return on venture capital investment from 1987 to 2001 in these smallest stocks was 62% as compared to the 59% mean return of venture capital funds. This 59% value certainly does not reflect the investing public's general perception that venture capital return on investment markedly outweighs what one can obtain on the stock market. And, it is this apparently erroneous assumption of perceived higher return that presumably justifies the risks associated with venture capital investment by the public. Investor perception certainly does not match investment reality for venture capital.


Why this disconnect between perception and reality on venture capital returns? Professor Cochrane, the Chicago GSB professor, posits that, in effect, traditional methods of measuring venture capital return do not take into account the fact that ventures that are a total loss disappear and are not measured. Because these losing ventures are not around to be measured for calculation of rate of returns, Professor Cochrane states that this survivor bias significantly skews the rates of return on venture capital. His simple explanation of the effect of these missing numbers is telling (quoting from the Jacobius article): "They collect the returns for everybody that is around," he said. "It is like collecting data from everyone still in the casino: They're not asking the people on the bus … who are on their way home."


From the Jacobius article, it appears that there is much room for improvement in venture capital investment decision-making. As an IP Business Strategist and Consultant (more info here: http://www.jackiehutter.com/), I am a strong advocate of using knowledge and information to reduce risk and improve the rate of return on investment. I have written about such concepts in this blog (link: http://tinyurl.com/supercrunchers) where I discussed the "Super Crunchers" concept. I firmly believe that venture capitalists, and those who include venture capital in their investment portfolios, can improve their the quality of their investment decisions by collecting and analyzing available information available in published patent data.


When one knows how to extract and analyze the right data in patents, significant business insights are effectively "hiding in plain sight." In short, valuable business information is available for the taking by smart investors. And, why wouldn't you seek to gain knowledge that could reduce the strategic uncertainty of your investment decisions to better manage the risk of your decisions? (I have discussed this concept in detail http://ipstrategyformaximumassetvalue).


In particular, before you invest in a new business idea for a new venture, why wouldn't you want to know whether you can own the business idea in the long term or whether you have minimal opportunity to innovate freely in relation to that business idea? Or, why wouldn't you want to know whether another firm has invested $100K or more in patent rights alone in the new business idea that you are investigating? This, and other, valuable business insights and information are embedded in published patent filings.


However, it is not enough to collect and graph published patent data to obtain insights that will improve the odds that you will make the right venture capital investment decisions. Rather, specific business-focused data collection and analysis methodology is necessary for successful utilization of patent data for investment decisions. In my experience as an actual purchaser of patent analytics costing upwards of $20K per business question, I found that those collecting and analyzing the data had no basic understanding of the business question that my company needed answered. As such, the products of these patent analytics providers were effectively useless to answer our business team's investment and innovation questions. I learned an expensive lesson about patent analytics: the data collection must be based upon the right foundation for the results to have any value. Put another way, with patent analytics it is "garbage in, garbage out."


In the context of venture capital investment, information is undoubtedly power that can fuel your decision-making process. But before you spend good money on patent analytics to improve the odds of your venture capital investment decisions, you must ensure that the data and insights you obtain are based upon methodology that extracts business insights from patent filings. Selection of the wrong methodology could be worse than not conducting patent analytics at all because your investment decisions could be influenced by information that provides the wrong business conclusions. Only those methodologies that are founded on methodology that extracts the business purpose from patent filings can provide you with investment-grade insights from patent filings.


For more information on what methodologies will give you the right information, contact me at jackiehutter@gmail.com

Prediction: The Pickens Plan for a Green Energy Infrastructure will Launch a Gold Rush of Patenting Followed by Rampant Patent Litigation

The day after I posted this about patenting green energy innovations: Corporate Managers: Are You Failing to Obtain Maximum Value from Your Energy Savings and Green Innovations by Ignoring Patent Issues?, multi-billionaire oil man T. Boone Pickens announced The Pickens Plan. This plan, if successfully implemented, will constitute a giant step toward reducing America's dependence on foreign oil by embracing domestically-produced green energy as a significant source of America's power. To show he is serious about this plan, Mr. Pickens intends to spend $58 million of his own money to publicize it and, if the number of radio commercials I have heard about his idea in the last week is any sign, he is well on his way to spending his advertising budget.

In the last week, much has been written, both laudatory and critical, about The Pickens Plan. You can check out some of the articles indexed by Google News here yourself but, to briefly summarize, the plan calls for 1000's of wind turbines situated in America's wind belt—an investment of up to $1 trillion. New power lines would be needed to connect the wind farms to users in various parts of the US who are not currently connected to the power grid that would be fed by these turbines—an investment of up to $200 billion. Mr. Pickens states that about 20% of America's power needs could be served by a fully-functioning, wind-fed power grid. In a second part of the plan, natural gas that is currently used for electrical power generation would be channeled for use as a transportation fuel.

This post is not about the merits (or lack thereof) of The Pickens Plan, however. Rather, as an IP Business Strategist and Consultant (more info here: www.jackiehutter.com), I am intrigued by the patent issues that will invariably arise when so much money is available for the taking. In short, with his announcement of The Pickens Plan, I think that Mr. Pickens may have launched a "gold rush" of patenting, which will be followed by rampant patent litigation.

This gold rush mentality is not unique to Mr. Pickens' plan. Rather, throughout American patent history, innovation leaps have spurred simultaneous patenting efforts in areas such as barbed wire, early telephone technology and television, and today's innovation leaps are no different. As one recent example, we have seen simultaneous patenting activity in recent years in the area of voice over IP ("VOIP") telephony (described here). Looking back at VOIP patent history, it appears that anyone with a modicum of expertise in the area of VOIP thought they would strike it rich by obtaining a patent from which they could extract patent rents (in the form of royalties) from a company that actually sold VOIP technology. To give you a sense of the order of magnitude of patents, this article states that there were over 2000 VOIP-related patents in early 2007, which is a huge number of patents for a technology that had not even been demonstrated to be commercially viable.

Given this large body of VOIP-related patents and litigation, it cannot be controversial to contend that patent complexity could have been substantially responsible for slowing widespread adoption of this technology by the marketplace. At a minimum, the massive investment in legal fees and time needed to manage this complexity took the participants' eyes of their respective businesses. It appears that most of the VOIP-related patent issues have been resolved in the last year, and I am beginning to see a resurgence of advertisements for VOIP providers, such as Vonage. However, it remains to be seen whether VOIP technology will be able to make up for the time and money lost to several years of business uncertainty caused by patent complexity and contentious litigation.

Returning to my predicted wind turbine patent gold rush, I ran a search today (July 14, 2008) and found that there are 137 issued patents and pending applications that use the phrase "wind turbine" in the claims. This number does not seem like very many patents and applications for a technology that is supposed to be worth $1 trillion or more. However, now that Mr. Pickens has declared that wind turbine technology has such a huge potential payoff, I predict that patent applications will be filed on every possible improvement in this area, whether perceived or actual. These increased filings will quickly result in enhanced patent complexity, which will, in short, substantially increase the cost of bringing wind turbine technology innovations to the marketplace.

Moreover, the wind turbine patent gold rush will enhance the risk of playing in this space. To date, it appears that patent litigation in the area of wind turbine technology has been fairly limited and generally appears to have been settled amicably. With the predicted patent gold rush, wind turbine-related patent litigation will become rampant. Also, the identities and business of the parties bringing the lawsuits will change. That is, as of this time, any wind turbine patent lawsuits have likely been brought by manufacturers who had a vested interest in protecting their actual products from competition. In the upcoming wind turbine patent gold rush, many of those who obtain wind turbine-related patents will have no interest whatsoever in making or selling wind turbines. These "patent entrepreneurs" (an example of which I wrote about in this blog post) will seek to obtain patent rents from the actual manufacturers, which will further increase the cost of introducing real innovations into the wind turbine playing space.

Certainly, patent issues should not serve as a barrier to implementation of wind turbine technology if the economics of this green energy source otherwise make it the right thing for business and society. However, any company seeking to play in this space must be cognizant of the effect that the likely wind turbine patent gold rush will have on the ability for them to succeed in their business plans. These companies must formulate and successfully execute patent strategies that will allow them to realize their business objectives, notwithstanding the rush of others to capitalize on this burgeoning $1 trillion market.

If You Have to Ask Your Patent Attorney What Your Company's Patent Strategy Is, You Don't Have One

Tonight I had dinner with a patent attorney friend of mine who I have known for more than 10 years. For the purposes of this post, let's call her "Sue." Sue and I met as young patent attorneys at an intellectual property law firm and grew up together to become partners there. Unlike myself, however, Sue has remained in the law firm environment. These days, she works at a highly prestigious national law firm and has a billable rate of close to $600 an hour. Of course, at this rate, Sue's clients expect to obtain quality representation and, having been a client of hers when I was an in-house corporate attorney, I know that my friend is a great patent attorney and gives excellent service.

As an IP Business Strategist and Consultant (more info here: http://www.jackiehutter.com/), I am no longer engaged on a daily basis in working with clients to obtain patents. In this IP Strategist role, I have developed the view that too many patents are worthless because they are not filed based upon a relevant business case. Put another way, it is my opinion that a patent is worthless unless it supports a current business strategy of the company that is seeking the patent. This strong opinion is easy to state, and I have been seeking to have it validated by someone who makes their money from obtaining patents for business clients.

Sue was a great audience for my perspective because her clients generally pay $20,000 or more for an application prepared and filed by her, which does not include the costs of getting the application through the Patent Office. Seeking her input, I asked her if this statement was true: If someone has to ask you their patent attorney what their patent strategy is, does that mean they do or don't have a patent strategy? Sue responded "if they have to come to asking for an answer to that question, they absolutely don't have a patent strategy." Sue followed up: "My job is to obtain patent protection for my clients, not to tell them whether they should or should not obtain a patent. If they come to me, I assume they need a patent and will do whatever I can to get them one."

This honest answer from a prestigious patent attorney should provide confirmation to you as a business or investment professional that patent strategy means more than merely having your patent attorney prepare and file a patent application. Rather, a fully formed business strategy must necessarily preceed any decision to file for a patent. If a patent is filed for without a first developing a business case to support that filing, then, at best, your business is likely wasting money on that patent filing. At worst, your company will not be able to realize its business objectives because you have not properly protected your product space with patent rights that prevent competitors from knocking your product off.

It is critical for business and investment professionals who deal with patents to realize that, as specialty counsel, patent attorneys have no knowledge of whether your company has developed a business case prior to your instructing them to prepare and file a patent application. Moreover, your patent attorney does not know whether your company has a business case that still supports continuation of patenting efforts after the application has been sitting in the Patent Office for two or more years. To the contrary, if the patent application has been filed, your patent attorney's job is to see the process through the Patent Office unless you instruct them otherwise. In short, it is your patent attorney's job to execute the patent strategy that you develop as part and parcel to your business strategy.

So, if your C-level management asks you what your company's patent strategy is, don't pick up the phone to call your patent attorney. Patent strategy is business strategy, and it is your job to be able to articulate it. If you cannot, your company does not have a patent strategy.

Corporate Managers: Are You Failing to Obtain Maximum Value from Your Energy Savings and Green Innovations by Ignoring Patent Issues?

In this world of ever rising energy costs, your company likely has one or more teams of people working to reduce energy consumption and improve the efficiency of your company's processes. Your company is also probably working diligently on ways to make your operations more "green." For example, if your company exhibits a large carbon footprint in its manufacturing processes, someone in your organization is likely thinking about ways to reduce your carbon emissions in advance of the possible adoption of government-mandated carbon cap and trade system directed to fight global climate change.

However, because the external forces of energy costs and possible governmental regulation are driving these and green innovations inside your company, it is quite likely that these efforts are occurring outside of normal R&D channels. That is, your company's Manufacturing, Operations and Logistics personnel are likely responsible for developing and testing these potential new innovations, and for bringing them on-line as soon as possible.

I have found that when such non-R&D personnel are responsible for corporate innovations, a company often misses out on opportunities to obtain patent protection for such valuable proprietary advantages. This is due to the fact that non-R&D personnel typically do not think of themselves as "inventive" and/or they operate under the radar of the company's in-house or outside patent counsel. As a result, when these personnel develop innovations, they often do not possess the knowledge to recognize that a patent should be pursued to keep competitors from benefiting from their company's innovations. And, even if they do know about the importance of patents, corporate patent resources may not be readily accessible to them.

I believe these problems result from structural impediments existing at many companies. For example, as a senior in-house IP counsel at a large consumer and wood products manufacturer, I found that few opportunities existed for me to learn about innovations occurring outside of the confines of the R&D department. Indeed, patentable innovations were considered to be the province of the "real scientists" who resided in the corporate R&D facilities. Consequently, non-R&D people were generally not considered to be "inventors," and R&D personnel were almost exclusively granted corporate patent resources. In short, due to the siloed nature of the company, there was virtually no way for me to capture and protect innovations developed outside of the officially- recognized channels.

Now that I am an IP Business Strategist and Consultant (more info here: www.jackiehutter.com), a leading provider of IP strategy and consulting services, I have the opportunity to work outside of a siloed corporate environment. This allows me to introduce corporate managers to the concept that protectable innovations can come from anywhere in an organization.

For example, if, like UPS, your company developed a method to save 3 million gallons of fuel a year and to cut carbon dioxide emissions by close to 69 million pounds, shouldn't your company strive to protect that innovation regardless of whether it was developed by the "real scientists" in your R&D division? I do not know if UPS has tried to patent this valuable "no left turns" innovation (although they may have, because they are a prolific filer of patent applications). However, I do know that if they do not obtain a patent on this innovation, Federal Express or any other company will be able to use this method to save on energy costs and cut its carbon emissions without having to make the same investment in innovation that UPS did.

I am guessing that this substantial innovation by UPS did not result from a large R&D project where "real scientists" worked in a R&D silo after being directed to come up with an invention to save gas. Rather, I expect that someone on the UPS logistics team was trying to make a left hand turn one day and thought "I would save lots of gas if I didn't have to sit at this light so long" and he or she brought the idea to the team for consideration, with the idea growing from there. Alternatively, the idea could have emanated from one or more UPS drivers who noted how much time and gas was wasted when they made left turns, and that idea made its way to the logistics team for consideration.

Unfortunately, in many companies, the team responsible for developing and implementing an energy savings innovation such as UPS's might not know that the company even had a patent attorney. Such a valuable innovation would therefore be brought on-line without first considering whether patent rights should be investigated. In this type of environment, I have typically found that the opportunity to obtain exclusive rights on a valuable innovation can be lost forever because the patent application is not filed by the government deadline. When this happens, the innovation can be used freely by a competitor, which results in a net competitive loss to the innovator. (This net loss occurs because the competitor did not have to make the same investment to obtain the benefit of the innovation.)

In this day of intense corporate efforts to obtain energy savings and green innovations, I strongly believe that it is more important than ever for companies to educate employees at all levels about how patents can help provide their company with an advantage over competitors. It is therefore necessary for C-level management to develop and nurture what I call an "IP infrastructure" within the corporation. When personnel outside of the R&D and legal divisions understand and appreciate the need to bring potentially patentable innovations to the attention of management, your company will achieve more success in maximizing corporate asset value. Put another way, the US Patent Office does not ask if a "real scientist" developed the idea before granting a patent on an invention such as UPS's, and neither should your company's management.

I think we are on our way to getting there because, as demonstrated by surveys showing the growing importance of IP management at the C-level, corporate management is becoming more cognizant of the need for IP to be managed at the business level. However, in order for your company's executives to successfully execute on their plans to maximized the value from your organization's IP assets, it will be imperative for them to make sure that each and every employee in your company recognizes the value of IP generally, and patents specifically, to the creation of corporate value and profits.

Recent Worldwide Conference of Thought-Leaders Demonstrates the Criticality of IP Strategy as a Business Issue

As I have been writing about for the past several months on this blog, business and investment professionals should consider intellectual property ("IP") to be a critical matter for business, not just lawyers. The correctness of this concept was validated by the occurrence of a recent conference attended by worldwide thought-leaders in IP. This first annual Business IP Congress(tm) occurred in June 2008 in Amsterdam.

From the final program contents, it appears that the 2 day conference consisted in large part of an examination of what the role of a Chief Intellectual Property Officer ("CIPO") is and should be in today's global IP-centric business environment. The overall context of a thought-leader led discussion of what a CIPO is and should be confirms the emerging modern view that IP is a matter for the C-level business operations of an organization, and should not be relegated to the "backwater" (my words) of the legal department.

I was not able to attend the Congress this year, but obtained a high-level overview of the take-aways from Duncan Bucknell at his IP ThinkTank(tm) Blog. A more detailed summary is provided by Joff Wild at the IAM Magazine Blog (IAM Magazine was a co-sponsor of the Congress).

I will leave the summaries of the Congress to the excellent first-hand accounts of Duncan and Joff. The reason I bring up this event after the fact is because the fact that it even occurred at all provides further proof that IP strategy has become a critical BUSINESS function of leading corporations throughout the world. Thus, any business or investment professional who has not yet developed and executed on an IP strategy that is aligned with his/her business strategy is undoubtedly making a significant management error.

Moreover, taking taking point #4 from Joff's summary, the consensus of the Congress attendees was that US business remains "woefully uninformed about intellectual property". As an IP Business Strategist and consultant (more info here: www.jackiehutter.com), Joff's observation demonstrates to me tremendous opportunity for first mover advantage for those seeking to get a leg up on their competition. That is, if your company wakes up to the value of developing and executing on an IP strategy directed toward protecting your proprietary innovations, even while your competitors still remain "woefully uninformed" about IP, you can effectively (and legally) keep your competitors out of your profitable markets. Of course, if your competitors cannot play in your space, you need compete less on price and, as a result, will be able to earn a premium in the marketplace for your company's successful differentiated innovations.

The establishment of the Business IP Congress as a forum for worldwide thought-leaders to share and develop best practices in the business of IP should send a strong signal to business and investment professionals that IP strategy is only going to become more prevalent in the management functions of the modern company and, thus, become even more critical to its effective operation. Corporate leaders should not wonder WHETHER their company should adopt and execute on an IP strategy, but rather IF they have beaten their competitors to the punch in the IP strategy game.

Why Western Companies Need Not "Dread" the Sucessful Monetization of Intellectual Property by Indian Firms

In his Harvard Business School blog posting entitled "How Indian Firms Convert Intellectual Property into Intellectual Profit," Navi Rajou of Forrester Research contrasts the intellectual property ("IP") activities of Indian corporate strategists with those of their Western counterparts. In this post, Mr. Rajou identifies several aspects of Indian corporate strategy that allow Indian firms to effectively monetize their IP.

Mr. Rajou's examples of the successful IP strategy-related activities of Indian firms can be summarized as follows:

• Tata Motors, which is introducing a $2500 car in India this year, has obtained 40 patents. However, Tata's CEO recognizes that these patents are worthless unless the company also makes money from these inventions. Tata's innovation metrics therefore also include "time to value" and "time to volume".
• Some Indian firms do not even bother filing for patents on new inventions because doing so would distract them from the task of earning profits from these inventions. For these firms, first-mover advantage does not center on who files first on new inventions; instead, the true measure of profitability is from rapidly transforming those inventions into strategic market differentiation.
• Indian firms are successfully avoiding the "Not Invented Here" syndrome that permeates many Western companies. Indian firms recognize that a closed R&D structure significantly limits the ability to innovate at the highest levels. Accordingly, these firms have developed robust programs to externally source and license innovations from academia, start-ups and other idea generating organizations.

Mr. Rajou closes his post by saying that Western firms: "must dread Indian firms’ uncanny ability to swiftly monetize IP, whether its invented internally or sourced externally from their innovation network partners."

As an IP Business Strategist and consultant (more info here www.jackiehutter.com), I agree wholeheartedly with Mr. Rajou that these Indian firms are implementing best practices in monetizing IP and, therefore, are successfully generating profit from their firms' IP. However, by seeming to say that Indian firms are uniquely able to monetizing their IP as compared to Western companies, Mr. Rajou sends an inaccurate signal that Indian firms are inherently better at extracting value from IP than are Western firms.

In fact, the best IP practices in monetizing IP described by Mr. Rajou are alive and thriving at many Western companies. Moreover, each of the activities described as exemplary of Indian firms were actually developed in large measure by companies such as Proctor & Gamble, Dow and BellSouth (now AT&T). Such best practices are illustrated in the 2001 book Edison in the Boardroom: How Leading Companies Realize Value from their Intellectual Assets (more info here: http://www.wiley.com/WileyCDA/WileyTitle/productCd-0471397369.html). Further, as discussed in the article in MIT Sloan Management Review entitled "How Executives Can Enhance IP Strategy and Performance" (abstracted here: http://sloanreview.mit.edu/smr/issue/2007/fall/11/), in just the past few years, many European firms have been successfully creating IP-centric organizations where the focus is increasingly directed toward profiting from inventions, not just obtaining patents. xxxMr. Rajou is correct to applaud the successful efforts of Indian firms in developing and executing on profitable IP strategies. These Indian firms are properly looking to the successes and failures of their corporate counterparts in the stable legal environments enabled by Western governments. (Indeed, some may argue that the immaturity of Indian IP law actually disincentivizes Indian firms from obtaining patents and drives them to seek other strategies for their IP. However, this post is not about how governmental action or inaction affects corporate IP strategy, so I will leave further discussion of this topic to the legal theorists.)

These Indian firms are also fortunate not to operate with entrenched structures where the existing corporate stakeholders may have a vested interest in not adopting these best practices. For example, I expect that Indian firms do not operate in established corporate IP and R&D infrastructures where adoption of best practices in IP strategy, such as not obtaining patents and externally sourcing R&D, would upset the status quo for corporate patent lawyers and researchers, respectively. The absence of these entrenched corporate interests no doubt enables Indian firms to more efficiently select and implement corporate best practices, whether IP-related or otherwise. But it is a mistake to believe that Indian firms have a monopoly on the ability to execute on such best practices.

Unlike Mr. Rajou, I believe that Western firms need not "dread" the IP strategy-related actions of their Indian counterparts. Rather, they need merely recognize that "imitation is the sincerest form of flattery" and look to the successes of their Indian counterparts in the monetization of IP. When more Western firms, both large and small, recognize the value the of the IP strategies developed by their own Western counterparts and adopt such best practices in their own companies, the actions of Mr. Rajou's Indian firms will not appear to be so "uncanny" after all.

Beware of Those Who Would Sell You Worthless Patent Landscapes

If you are an innovation professional or an investor in new technology, you certainly appreciate that it is important to investigate and analyze the so-called "patent landscape" prior to moving forward with your business plans. As shown by examples such as the $600 plus million settlement of the BlackBerry(tm) lawsuit in 2006 (details here: http://www.cbsnews.com/stories/2006/03/03/tech/main1368894.shtml) and the $431 million liability court finding that Boston Scientific infringed the patent of a New Jersey doctor (details here: http://www.law.com/jsp/article.jsp?id=1202815251042), the execution of innovation and technology-based business strategies can be significantly derailed by the pre-existing patent rights of others. In view of these examples (as well as many others), you should not embark on any innovation or technology investment prior to developing a valid point of view on how patents will affect your investment payback.

However, in talking to clients of my IP business strategy consulting company (more info here: www.jackiehutter.com), I know that there is no uniform understanding of exactly what a business professional should be looking for when obtaining a patent landscape. This lack of clarity is not surprising because this term has no established meaning or methodology. Indeed, I have found that the term "patent landscape" is often nothing other than a convenient marketing phrase for the services of companies that purport to be able to cull the mass of patent information available today and provide patent synopses that are readable by businesspeople.

As an IP Strategist and having been a consumer of multiple patent landscape products in my past life as a senior corporate IP attorney, I understand that most patent landscapes are worthless for making business decisions because the underlying methodologies collect and summarize the wrong information in patents. This is a real example of "garbage in, garbage out."

Patents contain two types of information: 1. technical information in the disclosure; and 2. what the patentee owns in the claims. The patent disclosure generally provides broad and fairly non-specific information about the technical area to which the patent relates. In contrast, the claims of a patent specifically set forth what the patentee owns and, as such, the claims define what the patentee seeks to keep you from doing. Put another way, the claims of a patent puts limits on the freedom of the non-patentee (that is, you) to use technology for his business purposes that, but for the patent, the non-patentee would be otherwise free to employ.

Accordingly, for a patent data analysis to be relevant to inform your innovation and technology investment decisions, the search results must provide you with insights into how existing patent rights will prevent your freedom of action in the marketplace. Unfortunately, existing patent landscaping methodologies do not specifically examine the claims of the patents. These methodologies instead consider the patents as a whole to be sources of data to be collected and analyzed in the aggregate. I believe that reliance on these existing patent landscaping methodologies to inform your business decisions could lead you to the wrong conclusions about how existing patent rights will affect your innovation and technology investment payback.

For example, assume that you are thinking of investing in a technology in which widgets are a critical component. As a part of your investment due diligence efforts, you purchase a patent landscape analysis from a vendor that collects and graphs the search results for you to consider in your business decision-making framework. If the analysis reveals that there are many mentions of the word "widget" in the search results, you may then conclude that investment in widgets could be problematic due to pre-existing patent rights. Further assume, however, that none of these patents specifically claim a widget. This lack of claims covering widgets would likely make you free to use widgets in the technology in which you are considering investment. In this example, examination of the claims specifically would reveal that your freedom of action was not limited by the existing patent rights of others. A proper analysis of the patent data would also reveal that your company might be able to obtain its own patents for your proprietary technology improvements, thus potentially reducing your competitor's freedom of action in your marketspace should you choose to introduce products in this area.xxxAnalysis of the claims is thus critical to successfully generate business insights from patent data. So why don't patent landscape vendors do this? I believe that this is due to the origins of the patent landscape industry. Patent landscaping developed primarily from a data analysis framework, not from the framework from which patents derive their business value, that is, the claims. The analysis of patents from this data framework does allow large amounts of patent data to be collected, graphed and analyzed. However, this perspective ignores the real reason that patentees disclose confidential information in patent filings—to prevent others from competing in the claimed technology.

Just because the existing methods of analyzing patent data are flawed, does not mean you can ignore patent data, however. To the contrary, like the makers of the BlackBerry and Boston Scientific, you ignore patents only at your own peril. Since you cannot ignore patents in making your business decisions, your analysis efforts must therefore provide you with a cost-effective synopsis of the subject matter of the claims of a large number of patents. Moreover, this analysis must provide you with the patent claim information in a business-usable format. Such an analysis will allow you to understand how the patent ownership of others will affect your ability to freely act in the marketplace. In other words, to understand how patents will affect your innovation or technology investment payback, you don't need a patent landscape, you need a "freedom of action" analysis.

If you would like more information about how you can obtain a "freedom of action" analysis to improve the quality of your innovation and technology investment decisions, please contact me at:jackiehutter@gmail.com

Using IP Strategy to Reduce the Strategic Uncertainty of Business Decisions

In my wanderings through the Internet, I recently came across a new-to-me management concept. This concept, which generally addresses the management of the risk of strategic decisions, directs C-level corporate decision-makers to embrace as a primary responsibility the management of uncertainty in order to enable the long-term success of their companies. The concept, developed by Michael Raynor of Deloitte Research, is briefly discussed in this article entitled "What is Corporate Strategy, Really" (available here: http://www.iveybusinessjournal.com/article.asp?intArticle_id=722) and in more detail in a book entitled The Strategy Paradox (more info here: http://www.amazon.com/Strategy-Paradox-committing-success-failure/dp/0385516223 ).

In the article, Mr. Raynor effectively asserts that traditional models of corporate strategy are flawed because they are inherently based on a supposed understanding of future events. Instead of embracing the fallacy that they are able to predict the future, business leaders should acknowledge and accept that a significant aspect of corporate decision making is based upon planning for unknowable events. Corporate strategy is therefore really about developing processes and contingencies for dealing with the unknown. As such, Mr. Raynor states that C-level corporate decision-makers must be willing to relinquish responsibility for short-term results and instead focus primarily on the management of strategic uncertainty. These corporate leaders must take primary responsibility for managing the uncertainties associated with the decisions made by business unit leaders so that the individual business units be able to embark on higher risk strategies, to allow these unit s to reap higher returns, without incurring the same level of risk that would otherwise exist.

As an IP Strategist and co-founder of IP Refinery, a leading provider of IP Strategy and Consulting services (more info here: www.ip-refinery.com ), I am always interested in illustrating ways that IP strategy can be applied into modern management concepts such as that proposed by Mr. Raynor. To this end, I am proposing that IP strategy actually comprises a fundamental aspect of the management of strategic uncertainty. Specifically, I strongly believe that when strategic efforts are applied to understanding IP, both inside and outside the company, IP moves from the realm of uncertainty to that of the knowable. And, when something is knowable, risk can be better managed and longer-reaching business decisions are possible with lower risk.

Unfortunately, IP strategy has traditionally not been a pillar of corporate strategy because, in my opinion, business leaders have assumed that IP is not a topic that could be known or understood. Thus, business leaders did not realize that IP concepts could be applied to strategic business decisions.

To illustrate, in the traditional model of corporate IP management, the in-house or outside patent attorney typically has little to no interaction with the business decision makers during the product development process. As such, the patent attorney normally becomes involved in addressing potential patent infringement concerns only when the business identifies the precise parameters of a product or service that is expected to go to market in the short-term. In this scenario, the patent attorney usually conducts a clearance search of relevant patents to see whether the proposed product or service will run afoul of third party patent rights. In this traditional model, the patent attorney serves as a gatekeeper to effectively allow or disallow the company's product from entering the marketplace. This is a go or no go decision based on concrete questions and, as such, this traditional patent attorney model does not provide for the management of uncertainty. Rather, this model allows only the "management" of certainty; that is, the question is whether the proposed product or service infringes a third party's patent rights. If the answer is "yes", the company will likely have to quickly modify or even abort its business plans and the business plans may end up in the loss column of the balance sheet. In this scenario, IP issues must be viewed as inherently uncertain and not manageable, much to the possible detrement of the company's business objectives.

However, a company that integrates IP strategy into its corporate strategy can significantly reduce the uncertainties involved in product or service introduction. In particular, corporate decision-makers who understand that ignorance of the company's own and other's IP increases the risks associated with product or service introductions will be able to reduce such risks by seeking to understand how IP affects the potential payback in that investment.

As one example of this concept, a company can reduce the risk of investment in new technology by understanding at an early stage the degree to which the company can own the resulting technology by way of broad patent rights (as opposed to just owning the product itself). Such knowledge at an early stage, such as in the innovation process itself, will provide the company with a better understanding of the how unique the product or service will be when introduced into the marketplace. If the technology cannot be wholly or substantially owned, the product is more likely to be knocked-off and will appear less differentiated, thus leading to more competition and possibly lower profit margins. This may ultimately be a satisfactory outcome when the business understands and desires competition and has built such competitive effects into its business and payback models. When the business expectations are directed toward sole ownership of a differentiated product, but the IP rights are not available, the payback expectations of the business will not be met. In short, by not seeking to understand the business uncertainties associated with IP, the business risks associated with IP are greatly increased.

This is not to say that a company that embraces the IP strategy as a fundamental part if its corporate strategy will be provided with a clear roadmap of how to manage its own IP and how to deal with the IP of others. Rather, a company that embarks on a disciplined program of strategic management of IP will be better able to handle the risks associated with IP. In Mr. Raynor's concept of the strategic management of uncertainty, a company that has a corporate strategy focused on stripping away as much of the unknown as possible has a higher probability of business success with a lower attendant risk profile. This requires adoption of a disciplined IP strategy to be an imperative for companies that hold Mr. Raynor's view of the necessity of managing strategic uncertainty.

Obtaining Broad Patent Rights Is Just the Beginning of a Patent Strategy: Beware of Those Who Would Block Your Right to Practice

As reported in a recent New York Times article (link here: http://www.nytimes.com/2008/06/08/technology/08stream.html?ref=business), an inventor has developed remarkable innovations in fluid dynamics, which is the way fluids (that is, air and liquids) travel in a system. If widely adopted, these innovations are expected to provide revolutionary improvements in several industrial processes. To quickly summarize this technology, the inventor, Jay Harman, has used a technique called “biomimicry” to adopt (actually co-opt) a fundamental feature of the way fluids travel in nature which, when applied to one or more of the aircraft, air-conditioning, boating, pump and wind turbine industries, could allow these processes to be conducted to much more efficiently, and with less energy consumption.

Notwithstanding the marked improvements seen with Mr. Harman’s technology, industry has not been enthusiastic in adopting it for use. The New York Times article is focused on the reality that innovations are often rejected by industry if they represent too large of a step-change over the status quo. The article is worth reading for its discussion of his experiences and frustrations. Recently, Mr. Harman and his company Pax Technology (website linked here: http://www.paxscientific.com), have received substantial investment from a well-known venture capitalist. With this influx of money, it is possible that Mr. Harman's technology will obtain a more receptive audience and we might see his technology implemented in the near future.

However, this discussion is not about the benefits or lack thereof of Mr. Harman's technology. As an IP business strategist and consultant (more info here: www.jackiehutter.com), I view Mr. Harman's invention as an excellent way to illustrate the concept of patent "one up manship" by obtaining blocking patent rights. Accordingly, this posting discusses how Mr. Harman and his investors must develop a patent strategy focused on the future to ensure that they maintain their position as the dominant patent holders in this area of technology. If they do not, I am certain that they will have to share the field with outsiders who obtained a spot by being savvy players of the patent game.

After reading the article about Mr. Harman, I ran a quick analysis of his patents. In a brief examination of the patent rights associated with Mr. Harman’s technology, I found that he has successfully obtained broad patent claims that appear to cover the fundamental and basic aspects of this revolutionary technology. As such, it would not be surprising to find that the patent rights issued to date and pending today could effectively prevent others from practicing this technology until the expiration of Mr. Harman’s patents. In short, today Mr. Harman, his company and his investors likely effectively own the patent rights to this pioneering technology and they can control who can and cannot use this technology. Given the apparently broad scope of these patent rights, I would bet that Mr. Harman and his investors are expecting to obtain a hugely rich payback for licenses directed to the existing patent rights.

But, are Mr. Harman and his investors sitting in the proverbial "cat bird seat", and should they be preparing to print money based on their broad patent rights in Mr. Harman's technology? Don’t bet on it. Indeed, it is quite likely that other inventors, particularly those at large companies who do not want to be shut out of this revolutionary technology, are preparing patent filings that are calculated to limit the scope of Mr. Harman’s patent rights. Put simply, smart people are today are working diligently toward blocking Mr. Harman from practicing his own revolutionary technology. How can this be? A simple example is useful to illustrate the concept of blocking patents.

Say that Big PharmCo owns patents to a pioneering drug that will prevent hair loss. However, in its inventive activities, Big PharmCo has focused all of its efforts on the development and testing of the active ingredient of the drug, and little, if any, development on manufacturing a formulation that will allow the drug to be delivered to a patient in an effective manner. Seeing that Big PharmCo has not obtained patent protection on a method of actually making a formulation containing the drug, Drug Inc. then performs preliminary testing to determine the most effective method to make a formulation containing the hair loss drug. Drug Inc. can then file for a patent claiming the formulation. If this formulation is the most effective and/or most industrially suitable for the delivery of the drug to the user, Big PharmCo can be stopped from selling its drug to the public because it cannot put its drug into a formulation without obtaining a license to the formulation from Drug Inc. Of course, Drug Inc. cannot make the formulation either because Big PharmCo has the patent on the hair loss drug. But this strategy has allowed Drug Inc. to thwart the business plans of Big PharmCo, and the latter's payback from its investment in the hair loss drug has been essentially derailed by the former's strategic patenting efforts. This is the essence of a blocking patent strategy.

How does this apply to Mr. Harman’s fluid dynamics patents? It appears from the New York Times article that Mr. Harman is not an industrial engineer; rather, he is described as an “Australian naturalist”. As such, he is likely not accomplished in the specifics of the design of the machines and processes in which his patented and patent pending technology will be used. It is possible and perhaps likely that an accomplished industrial designer will be able to design patentable inventions that utilize his fluid dynamics technology. As with the hair loss drug example, the inventor of the industrial applications incorporating Mr. Harman’s technology will not be able to use the technology without infringing the broad patent rights owned by Mr. Harman. However, Mr. Harman’s ability to freely license his technology could be restricted by strategically designed blocking patents. And, if the blocking patent rights are to commercially lucrative applications of his fluid dynamics technology, Mr. Harman and his investors may be significantly limited in their ability to obtain payback from this revolutionary technology.

Mr. Harman and his investors would be well-served by developing and actively managing a follow-on patent strategy that is directed toward anticipating and preventing third party blocking patents. This strategy can involve the drafting and filing of new patent applications, but this can be very expensive in the long run. Alternative strategies are also available. For example, Mr. Harman can publicize as many improvements as possible and monitor third party patent filings to ensure that the Patent Office is aware of these publications and does not allow any patents to be granted on this published information. Other options are possible, depending on the circumstances, but this is best addressed by Mr. Harman, his investors and their attorneys.

The take home from this discussion should be that patent strategy does not stop with the issuance of patents, regardless of how broad the patent rights may be. Like a business strategy, a patent strategy is an ongoing process. If your company develops innovative technology that provides a market benefit that will be sought out by consumers, others will want a piece of the action. A patent, even a broad one, may not be enough to protect your company from competition if the stakes are high enough. Mr. Harman's and his investors’ payback may be dependent on their anticipation of the patenting actions of others.

Only You Can Prevent Patent Expertise Creep: Recognizing the Proper Role of Your Patent Attorneys

Your company has a question about your company's patent portfolio. This is an issue for your company's in-house or outside patent counsel, right? Maybe not. If the question relates to whether an invention is patentable and whether the patent is likely to grant, a patent attorney is the correct person to contact. But if the question is whether you should obtain a patent on a patentable invention, your company's patent counsel is quite probably not the correct source of counsel. The latter is a question of patent strategy, which is inherently a business question, not a legal question. However, many businesses assume that when a patent issue comes up, a patent attorney should be contacted because a patent attorney knows about patents.

So why are patent attorneys typically not suited to address patent business questions? As many people know, useful, novel and unobvious inventions are patentable. Significantly, however, there is no legal requirement that an invention have a business purpose in order to be patentable. Indeed, in my prior life as a patent attorney, most of the 100's of patents that I obtained on behalf of my clients ended up being worthless.

And, truthfully, it did not matter to me whether the invention had a business purpose for my client because as a patent attorney my motivation was purely legal: if the invention was patentable I would do whatever I could to convince the Patent Office that my client deserved a patent. My efforts were typically wholly divorced from any business purpose and, unfortunately, once the patenting process got underway, the process often became an end unto itself. As a result, my clients' and my focus was on whether the patent would issue, not whether the continued efforts to obtain the patent supported the business needs of the client. Put simply, the job of a patent attorney is to obtain patents on the client's patentable inventions, not to ensure the patents are a good business decision for the client. The latter issue is a business question, which should be outside the purview of a patent attorney.

As an IP strategist and consultant (more info here: www.jackiehutter.com), I have seen many companies facilitate this expertise creep of their in-house or outside patent attorneys. Patents are arcane, and it may seem to make sense to allow a legitimate patent expert handle something that "looks and smells" like a patent. But, there are significant and critical distinctions between patent procurement and patent strategy.

These distinctions can be compared the differences in the expertise types of an optometrist and an opthamologist. Both of these learned professions involve treatment of the eye, but each of these doctors treat very different aspects of the eye. An opthamologist will be able to treat diseases of the eye, but if you need vision correction, you are wasting your money (and probably a lot of it) if you are asking your opthamologist to recommend prescription lenses for you. And at the end of the process, it is questionable that you will see clearly because most opthamologists are not trained in optometry.

Of course, most people know better than to ask their opthamologist to prescribe them glasses. In any case, the opthamologist certainly will tell the patient that their vision correction concerns are best addressed by an optometrist. This clear separation of responsibilities is a result of the established nature of treatment of the eye. Over the years, each of these medical specialties has emerged and each has evolved into distinct areas of practice.

In contrast, patent strategy has emerged as an area of business focus only in the past few years. Accordingly, there has not been enough time for a generally recognized distinction to have arisen between the practice of obtaining patents and the practice of aligning patents with business strategy. As more business leaders begin to understand the distinction between these two efforts, it will become less common for companies to assume that patent attorneys should be consulted regarding patent business questions. However, for the immediate future, I believe that it will be common for many patent attorneys to improperly profer business strategy advice to their clients when they should instead be truthful to the client and admit that business advice is not within their area of expertise. Unfortunately, many patent attorneys are unenthusiastic about making such admissions to their clients.

It is then up to you as a business leader to serve as the gatekeeper for your company's patent strategy and patent issues to ensure that your patent attorney does not become the sole purveyor of these two very different types of patent expertise. In short, only you can prevent patent expertise creep.

Can Patent Strategy Be A Key To Help Preserving the Small and Mid-Sized U.S. Manufacturing Base?

On a recent business road trip up the Interstate 85 corridor between Atlanta and Charlotte, I was stricken by the large number of empty small and mid-sized manufacturing facilities lining the expressway. On the drive north to Charlotte, we passed a dozen or more large, but abandoned, industrial buildings with empty parking lots and "Available" real estate signs visible from the road. In a significant manner, these empty facilities demonstrate the debilitating effects of globalization on the formerly vibrant small and mid-sized manufacturing base that previously dotted the landscape of the U.S. After establishing the markets and building the customers for, as some examples, specialty plastics, packaging materials or electronics, these companies lost the "race to the bottom" on price against low cost foreign manufacturers and, as a result, went out of business. When these companies closed their doors, well-paying jobs, the owners' assets and the local tax base were each lost, maybe forever.



However, as an IP business strategist and consultant (more info here: http://www.jackiehutter.com/), I believe the demise of these small and mid-sized manufacturers may not have been inevitable even in this globalized economy. And, perhaps more significantly, the remaining small and mid-sized U.S. manufacturer base could be bolstered by embracing patent strategy as a bulwark against competition from foreign knock-off products.



Put simply, these small and mid-sized manufacturers were innovators before innovation was "cool". Small and mid-sized manufacturers have always innovated on a regular basis to meet the needs of their customers. These companies are typically nimble and are able to respond to customer needs more quickly than larger manufacturers and, accordingly, they have often become the preferred providers of non-commodity materials to their customers. Indeed, that is why so many small and mid-sized companies use the word "specialty" in their names or to describe their product lines. Such innovative differentiation in their products is the "secret sauce" that makes their products more desirable than those of their competitors.



However, innovation is expensive: it requires market research, R & D efforts and sales to identify the market need, invent the appropriate product and to develop the markets. Unfortunately, once the products are on the market, the secret sauce is secret no longer. Once the product is proven in the customers product, the customer will often put the product out to bid for a foreign manufacturer to duplicate the formerly secret sauce at a much lower cost. The innovator is thus cut out of the picture and is left to continue spending money on additional innovations to stay ahead and keep developing new customers for its products or, as shown by the abandoned facilities on 1-85, to go out of business.



A well-thought out patent strategy could slow or stall the race to the bottom faced by these small and mid-sized manufacturers. These manufacturers could be well served by developing a robust strategy directed toward protecting those aspects of their products that differentiate them from those of commodity manufacturers. If the manufacturer's solutions are truly innovative and strategic patent rights can be obtained, the customer will not be readily able to send the product to a foreign manufacturer for knock-off at a lower cost. The customer will be faced with the decision to continue paying a premium for the manufacturer's product or else select an inferior product based on price because the manufacturer's patent rights can be enforced to prevent knock-offs from entering the U.S. (This is discussed in more detail in this previous blog posting: http://tinyurl.com/ipassetmaximizer.

An important qualifier here: merely providing a description of the innovation to a patent attorney to draft a single patent to protect a differentiated product is probably not sufficient to prevent foreign knock-offs of the manufacturer's product. Rather, to be effective, patenting must be strategic and this strategy must proceed the patenting. A single patent may result from this strategy, but the strategy will define the scope and direction of the patent rights to best protect the differentiated product from foreign knock-offs.



Of course, patent strategy is not a panacea for all of the ills of small and mid-sized manufacturers. However, in today's global marketplace, it can be virtually guaranteed that an innovative product will be knock-offed and sold for a lower cost, thus leaving the innovative manufacturer to compete on cost, or to stop making the product. Adoption of a robust patent strategy may be a key to preserving the longevity of many of the remaining small and mid-sized U.S. manufacturers of specialty products.

If You Can't Beat 'Em, Join 'Em: Patent Strategy as a Business Model

In the May 12, 2008 New Yorker Magazine article (linked here: http://www.newyorker.com/reporting/2008/05/12/080512fa_fact_gladwell/?yrail) , Malcolm Gladwell posits that there is no shortage of ideas. Rather, he indicates that what is needed is disciplined processes centering on invention and execution of those ideas through into the marketplace. Mr. Gladwell's article (which I believe is a must-read for those of us in the "innovation game"), goes about proving his hypothesis by reporting on the inventive processes of the principals of Intellectual Ventures. (Intellectual Ventures website is linked here: http://www.intellectualventures.com/).Intellectual Ventures is a new type of company. Its premise is that highly skilled scientists, engineers and other types of "big thinkers" can learn enough about a technical or human problem, such as a common medical condition, to invent possible solutions when in a "brainstorming session" with other high level thinkers of varying disciplines. Intellectual Ventures then files patent applications for the most promising of those solutions, and the team goes on to the next problem. As an IP business strategist and consultant (more info here: www.jackiehutter.com), what I find fascinating about the Intellectual Ventures team is that it appears that the problems being addressed are more often than not, outside of the realm of expertise of most of the invention team members. Instead, solutions for heart conditions, for example, are addressed by someone with a Ph.D. in computer science or electrical engineering. The result of this set-up guarantees "outside of the box" solutions to problems that likely have been "beaten to death" by experts in the field. The payback for Intellectual Ventures is in potential licensing of its inventions if the patented solutions turn out to be viable in the marketplace.

Has this model paid off? Although Bill Gates is a major investor in the company, it remains to be seen what the success of this venture will be in the long term, but there is certainly no shortage of ideas from which Intellectual Ventures can potentially profit. Mr. Gladwell reports that it was originally expected that Intellectual Ventures would file 100 patents a year; instead, it is currently filing 500 a year. There are 3000 ideas waiting in t he queue to be evaluated for patenting. While the vast majority of the team's ideas are likely worthless, Intellectual Ventures' business model is based upon the premise that if a few ideas payoff big, the percentage of successful ideas is irrelevant. Such a model is not innovative in itself; indeed, this the payoff model under which venture capitalists have profited for many decades.

Intellectual Ventures is not the only company with a payback model focused on patent strategy. There are many companies that acquire patents for the express purpose of obtaining licensing fees. One example of this is NTP, the company that sued Research in Motion for patent infringement of the BlackBerry PDA device. (After being threatened with shutdown, Research in Motion settled with NTP for over $ 600 million in 2006.) Companies that have engaged in patent strategy (through licensing and litigation) as the sole source of corporate income have often been referred to with the pejorative term "patent trolls." However, established companies, such as Proctor & Gamble, GE and Dow Chemical have adopted patent strategy as a significant source of corporate value. It would be incorrect to refer to these companies as "patent trolls" because they have other sources of corporate income.

In short, patent strategy has become a legitimate way for companies to generate profits, and in view of this, I prefer to call those who engage in this "patent entrepreneurs."You may be wondering what the patent strategy efforts of Intellectual Ventures and other patent entrepreneurs mean to your company. Well, the efforts of patent entrepreneurs represent both bad news and good news to companies that rely on innovation for a significant portion of profits.

The bad news is that patent entrepreneurs have realized that there is a huge potential payback in obtaining patents for solutions to technological and human problems. In obtaining patents to solutions rather to than existing products, they could be blocking your company's freedom to innovate in your commercial spaces. And, this modern patentee is not motivated by altruism: to the contrary, their legal departments have personnel in place to determine whether the company's patents are being infringed. If your company infringes their patents, a license or expensive litigation or both will be required. As a result, prior to embarking on any innovation program, your company must be aware that such patent entrepreneurs seek to obtain rents from your company if you get too close to their existing patent rights.

The good news is that with foresight and discipline your company can benefit from the efforts of these patent entrepreneurs. You can readily avoid stepping on their patent rights (and the resulting expense of lawyers and possible liability) by integrating patent analytics into your innovation processes. Application of business-focused patent analytics to innovation questions will let your company understand at an early stage whether your innovation efforts could be derailed by an earlier patent filing.

Further good news is found when your company emulates these patent entrepreneurs by developing robust patent strategies for your innovations that are directed toward maximizing your company's payback. It is worth noting that such robust patent strategies should be compared to the more traditional model of obtaining patents to, for example, products only. The conceptual difference between the new model and old model of patenting is that the new model is directed toward ensuring freedom to compete and the old model is directed primarily toward freedom to operate.

When your company recognizes the value of embracing patent strategy at an early stage in your innovation processes, you will be more likely to have freedom to compete in your desired market. As a result, your company will be less likely to be stopped by a patent entrepreneur, and you will have the added benefit of being a patent entrepreneur yourself. With regard to the new business model of patent entrepreneurs: if you can't beat them, join them.

Who Cares if the Patent System is Broken? Making Lemonade from the Patent Office's Lemons

Is the patent system broken? I am now an IP Strategist and owner of a patent strategy and consulting company (more info here: www.jackiehutter.com), however, I spent many years in the trenches working to prepare and file U.S. and foreign patent applications for large and small companies of varying levels of sophistication. From my experiences, there is no doubt that there are fundamental problems with the U.S. patent system, as well as the patent systems of other countries.

As one example, I frequently experienced frustration dealing with patent examiners who clearly did not understand the basic rules of patentability, even when these rules are clearly spelled out for all to see in their manual. In recent years, it started to seem that I was dealing with the "no patent office," instead of the Patent Office.This blog post is not about the problems with the patent system, however. The reality is that the patent system is what it is, and your company cannot wait until the patent system is fixed to jump into the patent game. (For a good summary of the arguments regarding the problems with U.S. patent system check here: http://www.news.com/Fixing-a-broken-patent-system/2010-1014_3-6212615.html). As with many things in life, if you wait for perfection, you may end up waiting forever. Put another way, as a leading business strategist, you understand that there must be a way to "make lemonade from the Patent Office's lemons."

To this end, now that I involved in development of IP strategy and am no longer engaged in a daily "foxhole fight" with patent examiners about the merits of my clients' inventions. As such, I can look at the graph below and see opportunity, rather than feeling despair over the probability that I will be in a continued fight with uninformed examiners in the Patent Office for years to come. The opportunity I see relates to the competitive information embedded in the masses of patent filings that are available for review by the public. This information has only been available in significant volume for the 5-7 years, so methods of evaluating and capitalizing on patent filing information by businesses are still evolving. Nonetheless, smart business people are currently and will increasingly utilize this information, in the form of patent analytics, to inform and improve their business decisions.

Certainly, I do not (and cannot) argue that patent analytics are a panacea for the ills of business. But, in today's fast-moving, global business environment, it cannot be controversial to contend that business intelligence is a critical need. Patent information collected and analyzed in the correct business context can provide a valuable addition to a company's arsenal of business tools. Patent information can illuminate what products and technologies your competitors seek to exclude your company from making, using or selling by obtaining patent protection in that space. Indeed, by definition, what your competitor seeks to keep your company from doing is critical competitive information that should be deployed in your company's business decisions. Your company also needs to know whether your current or future patent spend is directed toward maximizing payback in your corporate innovation investment. Patent information collected in the right way—that is, collected in a manner that generates actionable business insights—can provide a relatively low cost way to obtain this critical business information.

So, viewed from a different perspective, the backlog in the patent office could be seen as good news for your company. Companies that recognize and act on the information available from mass of patent filings will gain competitive advantage that is invaluable in today's business environment.

Your Company Does Have the Resources to Hire Seasoned In-House IP Business Counsel

In today's business world, forward-thinking business leaders at small and mid-sized companies understand that they must develop and deploy IP strategies that will grow their company's intangible asset base. As an IP Strategist and owner of an IP strategy and consulting service (more info here: www.jackiehutter.com), I know that to accomplish this bold objective, the first question must necessarily be whether the company should hire someone as permanent in-house IP counsel, or whether they engage outside IP counsel on an ongoing basis. Regardless of which option they choose (and they realize they must choose), the result for the company is significant expense in the form of headcount cost and/or outside counsel legal expense.

Let's assume that your company has decided to take the plunge and engage either in-house or outside counsel to direct and deploy a business-focused IP strategy. How do you know who to hire if you know little about IP law? Indeed, how can a non-expert expect to be able to evaluate the expertise and skills of an IP lawyer? In short, the information costs of hiring an IP lawyer are very high—likely so high that, as a business leader, you are effectively unable to learn to what is necessary to make an informed selection of the best IP counsel to allow your company to effect your IP business strategy. In view of this challenge, you may resort to the "old-fashioned" way of hiring a lawyer—you call people you know for recommendations. In this typical method of hiring legal counsel, you may resort to hiring someone you know personally or someone that you trust knows.

Even if your company has infinite resources to pay for outside IP counsel, isn't your company's IP business strategy too important to select outside IP counsel on the basis of where he went to college, where her child goes to school or whether he likes to fly fish? In a world of perfect information, you would be able to go beyond personal contacts to select your outside IP counsel by asking those in the community with the most similar needs to yours, and ask them to recommend lawyers with whom they had success. This would entail asking your direct competitors with what lawyers they have found success. Of course, your competitors are unlikely to share who they think is the best IP lawyer(s) with your company. But, even if your competitors would be inclined to give you this information, the rules of legal ethics would likely prevent their recommended counsel from representing your company if the lawyer has already represented the other company.

So, we are back to the drawing board—how does your company select IP counsel that is cost effective and has the right IP and business skills to allow you to flawlessly execute your business strategy? There appears to be an emerging and innovative option. In the legal recruiting world, there is a growing business model of placing of senior lawyers in less-than-fulltime engagements. In this model, (described here: http://www.dailyreportonline.com/editorial/news/singleEdit.asp?search_Keywords=contract+lawyers&individual_SQL=4%2F21%2F2008%4022801&userSel=AMYEARAll), your company is able to engage a highly skilled and seasoned IP counsel to work with you, without your company incurring the salary and headcount costs of a full-time senior lawyer. (Note that it is not correct to call this lawyer a "part-time" lawyer, because, although he may be a "part-time" worker for you, he may be working for several other companies such that he is "full-time" in total hours worked.) The benefits to your company should be obvious here: you are obtaining very experienced in-house IP business counsel at a cost that is a fraction of what you would pay if you hired this person in-house—if you even could find the right person.

Some may wonder "what is wrong" with the lawyer who seeks this type of arrangement. Quite likely absolutely nothing. For example, the lawyer may be "burned out" from years of working 70-80 hour weeks. Or the lawyer may be looking for a new challenge. Or the lawyer may find it more exciting to work with companies that are in the "start up phase" with respect to management of their intellectual assets, an option that is difficult to target and achieve in the traditional legal services models.

Regardless of which reasons the lawyer is seeking a less-than-fulltime in-house engagement, the net result is that this lawyer is non-traditional and, quite possibly, more innovative than many of his peers in the IP legal community. An innovative lawyer is more likely to understand and engage with the IP from a business perspective, as opposed to the usual model of IP as a legal function. If your business is seeking to innovate in the area of IP business strategy, this non-traditional model of in-house legal representation might be just the ticket. For more information on where your company can locate legal placement professionals that work in this area, contact me at jackie@jackiehutter.com.