This week, I am using the IP Maximizer Blog to let readers know about an exciting upcoming IP Strategy event. My fellow IP Strategist, Jordan Hatcher, and his team at ipVA and colleagues at ExponentIP are working with Managing IP to provide a free webinar on IP Strategy in Europe on February 26, 2009 at 9 am EST. (I understand it is also going to be recorded.) I am very excited about this program because, as someone who advises on worldwide IP strategy, I am sure the insights provided in this webinar will elevate my knowledge and allow me to provide enhanced advice to my clients regarding IP protection in Europe.
Some might wonder why I am so looking forward to learning more about strategic IP outside of the US, so I will give some background.
By counting a number of many multi-national companies as clients in the course of my years as a patent prosecutor, I was fortunate to gain substantive experience in patent law in many foreign jurisdictions. (This is not necessarily common for US patent attorneys who tend to focus primarily on US clients or foreign clients needing US patent services to support their US operations.) Notwithstanding this experience, it always seemed difficult to know whether the non-US focused strategy I was recommending for my clients was indeed the right one because most foreign associates with whom I interacted clearly did not understand my clients' business objectives. In truth, these foreign associates typically acted as conduits to the respective national patent offices in which they practiced. I did not expect substantive business advice from my foreign associates, nor did they expect to be asked--their job was to take my instructions and file the papers as instructed by me or my client.
On rare occasions the foreign associates did get to show their mettle by addressing a legal issue that was unique to their national laws. But, typically, they retyped my instructions into the local language, and charged me and my clients handsomely to do so. The value-add on our end to hire expensive non-US patent practitioners was that they could potentially spot the unique issues that occasionally arose to provide a further measure of legal protection for our clients. I have no doubt, however, that my clients wasted immense sums of money by not fully understanding the type of protection available in the foreign countries in which we were filing and prosecuting expensive patent applications that did not support their business objectives in that jurisdiction.
As someone who believes there is a profound need for improvements in the way that IP and patent services are provided in the US, it is affirming for me to find out that there are others outside of the US, like Jordan and his colleagues, who are also working to effect change in other countries. I look forward to collaborating with Jordan to continue to bring the model of IP Strategy to forward-thinking companies and entrepreneurs throughout the world. And, as I am sure Jordan will agree, we welcome others who wish to join us in our endeavor to reshape how people look at IP.
Thursday, February 19, 2009
Friday, February 13, 2009
A Consumer Product Company's Costly Patent Lesson: It's Not Enough to Protect the Invention, the Innovation Must Also be Patented
A SVP at a large consumer products company recently expressed frustration that he cannot bring a patent infringement lawsuit even when his company holds 18 US patents (and many other foreign patents) on a product that closely resembles a competitor's product. His annoyance is compounded because his company spent several years developing the product and technology covered by the patents. His company also spent several $MM introducing the product, which turned out to be a failure. The company removed the product from the market after several months, but the many patents remain in the portfolio today, and are still being maintained at considerable expense. I estimate that the patent protection for this failed product cost as much as $500K for patent coverage worldwide.
Significantly, the product did not fail due to quality or performance issues. Rather, it failed because it was over-engineered and used many expensive ingredients, a fact which made the plastic product too costly for the target consumer market. The competitor's knock-off product has been successful because they have removed much of the cost from the product by using less expensive ingredients, while still being able to maintain its desirable performance aspects. Of course, the SVP's company provided the competitor with a road map for product development: consumers desired the product but just not at the higher cost. With much of the cost removed from the product due to reformulation of the plastic composition, consumers have clamored for the product. The competitor's path to success was thus both less expensive and less risky, which significantly improves the ROI of their product development process.
So why can't the SVP go after the competitor by suing on one or more of the 18 US patents for which his company paid so dearly? Quite simply, the patents cover the INVENTION not the INNOVATION. The difference is subtle, but critical. The invention centered on the plastic composition of the product, that is, how much of each ingredient was present and how that composition manifested in the finished product. In contrast, the innovation centered on the performance of the product, irrespective of the plastic composition. The product was innovative (and desirable to the consumer) because it performed in a way no other product ever had before. When the competitor was able to extract the same performance from a much lower priced composition, the product not surprisingly experienced market acceptance.
Unfortunately for the SVP's company, its 18 US patents failed to address these superior performance attributes, which the competitor's product mirrors exactly. The innovator of the product i.e., the SVP's company, thus has no legal recourse against the company that is now profiting from the innovation. Compounding the problem is the fact that significant expense was incurred to protect obtain patents that were ultimately worthless to protect the SVP company's market.
The reason for this situation is clear: the 18 US patents were prepared in a R & D/patent attorney "silo" where the "cool factor" was considered to be the attributes of the plastic composition, not the attributes of the final product. In such a science-focused world, the composition was viewed as the important feature on which to focus the patent coverage. (And, clearly, the R & D and patent silo found the composition innovative enough to obtain 18 US patents covering each and every possible aspect of the composition.) But, as far as the consumer was concerned, the composition did not matter one bit. So the competitor can now copy the performance because the patents do not address what is in fact the critical commercial feature of the product.
Sadly, the patents could have covered the performance of the product. This product was truly innovative. However, the people working on the performance of the product and its value to the consumer were divorced from the patenting process. As a result, the SVP's company spent several $MM of now-sunk costs on a failed product launch. His company is now also losing market share in adjacent products because the competitor's product is gaining in popularity, a fact which compounds the pain caused by the product's failure.
After hearing my explanation for his frustration, the SVP wondered aloud how to learn from this costly patent lesson. I told him that the answer was easy: he must dismantle the patenting silo where his patent attorneys work only with his R & D team. Instead, his business team must drive the patenting process at his company by holding primary decision rights on what patent applications his company files and what those applications cover. No patent applications should be filed unless the commercially relevant features of the product can also be protected. In addition, prior to filing the applications, the business team should perform design-around exercises in which they ask "if this product becomes successful in the market, how will our competitors try to knock us off?" The answers to this question will likely stretch the view of the invention, which may allow broader protection to be obtained. Such broader protection will invariably make it harder for a competitor to knock off their products without also incurring patent infringement liability.
Of course, not all new products possess truly innovative performance attributes that can serve as the basis of broad patent protection. But if one does not approach the patenting process with the commercial features of the product as a focus for protection, it can be virtually guaranteed that the resulting patent coverage could be too narrow to prevent competitive knock-offs. And, as my SVP friend found out, once the patents are filed, the "damage done been did." If his company had possessed a business-focused patenting process, as opposed to an R & D-focused patenting process, maybe they could have prevented the competitor from taking some of their business today by using the marketing road map laid out by his company's failed product launch.
Significantly, the product did not fail due to quality or performance issues. Rather, it failed because it was over-engineered and used many expensive ingredients, a fact which made the plastic product too costly for the target consumer market. The competitor's knock-off product has been successful because they have removed much of the cost from the product by using less expensive ingredients, while still being able to maintain its desirable performance aspects. Of course, the SVP's company provided the competitor with a road map for product development: consumers desired the product but just not at the higher cost. With much of the cost removed from the product due to reformulation of the plastic composition, consumers have clamored for the product. The competitor's path to success was thus both less expensive and less risky, which significantly improves the ROI of their product development process.
So why can't the SVP go after the competitor by suing on one or more of the 18 US patents for which his company paid so dearly? Quite simply, the patents cover the INVENTION not the INNOVATION. The difference is subtle, but critical. The invention centered on the plastic composition of the product, that is, how much of each ingredient was present and how that composition manifested in the finished product. In contrast, the innovation centered on the performance of the product, irrespective of the plastic composition. The product was innovative (and desirable to the consumer) because it performed in a way no other product ever had before. When the competitor was able to extract the same performance from a much lower priced composition, the product not surprisingly experienced market acceptance.
Unfortunately for the SVP's company, its 18 US patents failed to address these superior performance attributes, which the competitor's product mirrors exactly. The innovator of the product i.e., the SVP's company, thus has no legal recourse against the company that is now profiting from the innovation. Compounding the problem is the fact that significant expense was incurred to protect obtain patents that were ultimately worthless to protect the SVP company's market.
The reason for this situation is clear: the 18 US patents were prepared in a R & D/patent attorney "silo" where the "cool factor" was considered to be the attributes of the plastic composition, not the attributes of the final product. In such a science-focused world, the composition was viewed as the important feature on which to focus the patent coverage. (And, clearly, the R & D and patent silo found the composition innovative enough to obtain 18 US patents covering each and every possible aspect of the composition.) But, as far as the consumer was concerned, the composition did not matter one bit. So the competitor can now copy the performance because the patents do not address what is in fact the critical commercial feature of the product.
Sadly, the patents could have covered the performance of the product. This product was truly innovative. However, the people working on the performance of the product and its value to the consumer were divorced from the patenting process. As a result, the SVP's company spent several $MM of now-sunk costs on a failed product launch. His company is now also losing market share in adjacent products because the competitor's product is gaining in popularity, a fact which compounds the pain caused by the product's failure.
After hearing my explanation for his frustration, the SVP wondered aloud how to learn from this costly patent lesson. I told him that the answer was easy: he must dismantle the patenting silo where his patent attorneys work only with his R & D team. Instead, his business team must drive the patenting process at his company by holding primary decision rights on what patent applications his company files and what those applications cover. No patent applications should be filed unless the commercially relevant features of the product can also be protected. In addition, prior to filing the applications, the business team should perform design-around exercises in which they ask "if this product becomes successful in the market, how will our competitors try to knock us off?" The answers to this question will likely stretch the view of the invention, which may allow broader protection to be obtained. Such broader protection will invariably make it harder for a competitor to knock off their products without also incurring patent infringement liability.
Of course, not all new products possess truly innovative performance attributes that can serve as the basis of broad patent protection. But if one does not approach the patenting process with the commercial features of the product as a focus for protection, it can be virtually guaranteed that the resulting patent coverage could be too narrow to prevent competitive knock-offs. And, as my SVP friend found out, once the patents are filed, the "damage done been did." If his company had possessed a business-focused patenting process, as opposed to an R & D-focused patenting process, maybe they could have prevented the competitor from taking some of their business today by using the marketing road map laid out by his company's failed product launch.
Friday, February 6, 2009
Chief IP Counsel: Stop Trying to Change How Your Lawyers Bill You and Focus on the Model They Use to Provide Your Legal Services
As legal service fees continue to rise five percent or more year after year, corporate IP managers, such as Chief IP Counsel and the like, continually face pressures from their management teams to reduce outside counsel legal expenses. The current economic downturn has also resulted in corporate legal budgets being slashed, thus increasing the pressure on corporate IP managers to reduce outside counsel costs, even while IP asset value is becoming more important to C-level management. As a result, the need for corporate IP managers to achieve outside counsel fee relief while at the same time maintaining IP legal service quality is more acute than ever today.
Today, there are a number of commonly accepted methods to achieve outside IP counsel fee relief including fixed (or "capped") fee arrangements and a percentage reduction per total hours billed, as well as electronic billing systems set up to automatically audit law firm bills. For corporate IP managers, adoption of one or more of these methods certainly provides a perception of immediate relief. A corporate IP manager's task of negotiating with his outside IP lawyers regarding legal service fees nonetheless amounts to nothing more than “pushing the same rock up the same hill” because the same conversation will invariably occur again and again. Significantly, existing models of outside IP counsel fee relief focus primarily on modifying the way the law firm bills its corporate clients. In working within the law firm legal service paradigm, however, only incremental improvements are possible because only so much cost can be removed from this legal service model.
In reality, corporate IP managers do not need improvements in the way IP law firms bill them for legal services. Rather, these clients need improvements in the way their IP lawyers deliver legal services to their corporations. If such improvements ultimately emanate from a group of lawyers collectively practicing in an entity known as an "law firm," then that group of IP lawyers should be looked at as providing innovative solutions to their clients' IP legal service needs. But if these improvements come from IP lawyers working outside of the traditional law firm model, corporate clients seeking truly innovative solutions to ever-rising IP counsel fees should not be afraid to try such new models.
One such innovative IP legal service model now emerging is the "micro-firm" concept. An IP lawyer practicing in this manner works either alone or in loose association with other like-minded professionals. Typically, micro-firm lawyers work virtually, such as from their homes or from "hoteling" office locations. Without the substantial administrative costs of a traditional legal practice, micro-firm lawyers can charge markedly less than those practicing in a law firm setting.
Some might wonder how a micro-firm lawyer differs from a lawyer practicing in a small firm or solo setting. Well, the answer depends on whether or not the small firm or solo adheres to the traditional law firm model. If she works alone in loose association with a small group of lawyers but maintains the accepted staffing paradigm (e.g., receptionist, secretary, docket clerk etc.), this lawyer is still working within the law firm paradigm and cannot truly be considered a micro-firm lawyer. But if the lawyer handles her own administrative matters or outsources them to independent contractors on an as-needed basis, she fits the profile of the emerging micro-firm legal service model.
A further distinguishing aspect of a micro-firm is that a lawyer practicing in this setting typically possesses many years of high level law firm or corporate practice IP experience. Such level of experience generally means that she will possess a skill set more appropriate to address the IP legal service needs of clients seeking to maximize corporate IP asset value than that of a lawyer who has practiced primarily in a small firm or solo setting. Accordingly, the corporate IP manager who hires a micro-firm lawyer should expect to obtain IP legal services at a quality comparable to the best IP law firms at a significantly lower overall cost. Put simply, although the micro-firm lawyer no longer works in a well-appointed office fully supported by competent administrative staff, she nonetheless still provides high quality legal services, albeit in less glamorous surroundings where she likely must sharpen her own pencils.
Admittedly, the micro-firm concept is not a solution for all corporate clients needing IP legal services. Because the micro-firm lawyer endeavors to keep overhead low, she likely will not provide docketing services and may also not desire to provide IP filing and management services for clients. For a corporate client that maintains its own in-house IP infrastructure, these limitations should matter little, however. If a corporate IP manager employs competent docketing and administrative staff, there really is no need for his organization to carry the overhead costs associated with his outside IP lawyers also maintaining a comparable infrastructure. In other words, if a corporate IP manager believes that his IP administrative staff are doing their jobs correctly, the redundancy afforded by hiring a IP lawyer who maintains the same infrastructure is likely a waste of money. (But, if the corporate IP manager feels that he must rely on his outside IP counsel for administrative back-up, he might want to examine whether he has the right people staffing his internal IP infrastructure.)
As one example of the micro-firm concept in practice, a highly experienced chemical patent attorney with whom I am acquainted would bill over $500 an hour if she still worked as a partner at a well-known IP boutique. Now that she works from home on her own terms, she bills her clients about $250 an hour. Of course, her work product does not differ from that she prepared at the law firm. To the contrary, her work product quality, as well as her responsiveness to clients, is likely greater today because she is not subject to the pressures of client development and law firm management that caused her much consternation while in private practice. A difference in my acquaintance’s practice and that of a traditional law firm is that she does not handle docketing matters for her clients. She prepares high quality patent applications and handles other patent matters and then passes off her work product to her clients for docketing, filing and managing using their own corporate staff. My acquaintance makes a good living from this "micro-firm' model, and instead of having to take clients to dinner in the evenings, she is home when her kids get home from school in the afternoons.
Corporate IP managers may wonder how they might identify well-qualified lawyers working in the micro-firm model. Social media products such as LinkedIn, Twitter and Facebook operate as innovative resources in this regard. Internet IP job boards also now increasingly feature ads for virtual and part-time IP lawyers to provide legal services directly to corporations. Also, corporate IP managers should also not be reticent about asking their existing IP legal services providers for recommendations. (Surely they would rather a corporate client outsource work on a piecemeal basis to a business friend, as opposed to losing a corporate client wholly to another law firm.) Most experienced firm lawyers know one or more IP lawyers who became weary of the pressures of law firm practice, but who still wish to practice law, although likely in more low-key manner. And, with the increasingly frequent closure of previously storied law firms as a result of the current economic downturn, it is likely that significantly more highly experienced IP lawyers will become available as outsourcing resources for savvy corporate IP managers.
The micro-firm concept clearly is a new way to provide IP legal services to clients. Many who work within the traditional law firm model will no doubt find many reasons why the law firm legal service model is superior to a lawyer working at home in her pajamas. And, these critics may be right in many respects. Micro-firms certainly do not serve as a universal answer to all of the issues today facing corporate IP managers. The micro-firm concept can nonetheless operate as one of the innovations that collectively allow corporate IP managers to maintain the overall quality of their IP operations, while at the same time allowing them to reduce the cost of obtaining such IP legal services.
Today, there are a number of commonly accepted methods to achieve outside IP counsel fee relief including fixed (or "capped") fee arrangements and a percentage reduction per total hours billed, as well as electronic billing systems set up to automatically audit law firm bills. For corporate IP managers, adoption of one or more of these methods certainly provides a perception of immediate relief. A corporate IP manager's task of negotiating with his outside IP lawyers regarding legal service fees nonetheless amounts to nothing more than “pushing the same rock up the same hill” because the same conversation will invariably occur again and again. Significantly, existing models of outside IP counsel fee relief focus primarily on modifying the way the law firm bills its corporate clients. In working within the law firm legal service paradigm, however, only incremental improvements are possible because only so much cost can be removed from this legal service model.
In reality, corporate IP managers do not need improvements in the way IP law firms bill them for legal services. Rather, these clients need improvements in the way their IP lawyers deliver legal services to their corporations. If such improvements ultimately emanate from a group of lawyers collectively practicing in an entity known as an "law firm," then that group of IP lawyers should be looked at as providing innovative solutions to their clients' IP legal service needs. But if these improvements come from IP lawyers working outside of the traditional law firm model, corporate clients seeking truly innovative solutions to ever-rising IP counsel fees should not be afraid to try such new models.
One such innovative IP legal service model now emerging is the "micro-firm" concept. An IP lawyer practicing in this manner works either alone or in loose association with other like-minded professionals. Typically, micro-firm lawyers work virtually, such as from their homes or from "hoteling" office locations. Without the substantial administrative costs of a traditional legal practice, micro-firm lawyers can charge markedly less than those practicing in a law firm setting.
Some might wonder how a micro-firm lawyer differs from a lawyer practicing in a small firm or solo setting. Well, the answer depends on whether or not the small firm or solo adheres to the traditional law firm model. If she works alone in loose association with a small group of lawyers but maintains the accepted staffing paradigm (e.g., receptionist, secretary, docket clerk etc.), this lawyer is still working within the law firm paradigm and cannot truly be considered a micro-firm lawyer. But if the lawyer handles her own administrative matters or outsources them to independent contractors on an as-needed basis, she fits the profile of the emerging micro-firm legal service model.
A further distinguishing aspect of a micro-firm is that a lawyer practicing in this setting typically possesses many years of high level law firm or corporate practice IP experience. Such level of experience generally means that she will possess a skill set more appropriate to address the IP legal service needs of clients seeking to maximize corporate IP asset value than that of a lawyer who has practiced primarily in a small firm or solo setting. Accordingly, the corporate IP manager who hires a micro-firm lawyer should expect to obtain IP legal services at a quality comparable to the best IP law firms at a significantly lower overall cost. Put simply, although the micro-firm lawyer no longer works in a well-appointed office fully supported by competent administrative staff, she nonetheless still provides high quality legal services, albeit in less glamorous surroundings where she likely must sharpen her own pencils.
Admittedly, the micro-firm concept is not a solution for all corporate clients needing IP legal services. Because the micro-firm lawyer endeavors to keep overhead low, she likely will not provide docketing services and may also not desire to provide IP filing and management services for clients. For a corporate client that maintains its own in-house IP infrastructure, these limitations should matter little, however. If a corporate IP manager employs competent docketing and administrative staff, there really is no need for his organization to carry the overhead costs associated with his outside IP lawyers also maintaining a comparable infrastructure. In other words, if a corporate IP manager believes that his IP administrative staff are doing their jobs correctly, the redundancy afforded by hiring a IP lawyer who maintains the same infrastructure is likely a waste of money. (But, if the corporate IP manager feels that he must rely on his outside IP counsel for administrative back-up, he might want to examine whether he has the right people staffing his internal IP infrastructure.)
As one example of the micro-firm concept in practice, a highly experienced chemical patent attorney with whom I am acquainted would bill over $500 an hour if she still worked as a partner at a well-known IP boutique. Now that she works from home on her own terms, she bills her clients about $250 an hour. Of course, her work product does not differ from that she prepared at the law firm. To the contrary, her work product quality, as well as her responsiveness to clients, is likely greater today because she is not subject to the pressures of client development and law firm management that caused her much consternation while in private practice. A difference in my acquaintance’s practice and that of a traditional law firm is that she does not handle docketing matters for her clients. She prepares high quality patent applications and handles other patent matters and then passes off her work product to her clients for docketing, filing and managing using their own corporate staff. My acquaintance makes a good living from this "micro-firm' model, and instead of having to take clients to dinner in the evenings, she is home when her kids get home from school in the afternoons.
Corporate IP managers may wonder how they might identify well-qualified lawyers working in the micro-firm model. Social media products such as LinkedIn, Twitter and Facebook operate as innovative resources in this regard. Internet IP job boards also now increasingly feature ads for virtual and part-time IP lawyers to provide legal services directly to corporations. Also, corporate IP managers should also not be reticent about asking their existing IP legal services providers for recommendations. (Surely they would rather a corporate client outsource work on a piecemeal basis to a business friend, as opposed to losing a corporate client wholly to another law firm.) Most experienced firm lawyers know one or more IP lawyers who became weary of the pressures of law firm practice, but who still wish to practice law, although likely in more low-key manner. And, with the increasingly frequent closure of previously storied law firms as a result of the current economic downturn, it is likely that significantly more highly experienced IP lawyers will become available as outsourcing resources for savvy corporate IP managers.
The micro-firm concept clearly is a new way to provide IP legal services to clients. Many who work within the traditional law firm model will no doubt find many reasons why the law firm legal service model is superior to a lawyer working at home in her pajamas. And, these critics may be right in many respects. Micro-firms certainly do not serve as a universal answer to all of the issues today facing corporate IP managers. The micro-firm concept can nonetheless operate as one of the innovations that collectively allow corporate IP managers to maintain the overall quality of their IP operations, while at the same time allowing them to reduce the cost of obtaining such IP legal services.
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