A Patent Reality Check: Litigation Not a Viable Revenue Source for Most Inventors
A Patent Reality Check: Litigation Not a Viable Revenue Source for Most Inventors: ”
Many inventors have a distorted view of how they can profit from patents.
The ability of an intrepid inventor to strike it rich from a great idea seems to be embedded in the DNA of many Americans. Perhaps this view emanates from the presence of patents in the US Constitution, which could create a feeling that US citizens have an ‘inalienable right’ to use patent protection to their advantage. Alternatively, people may perceive the occasional media reports of successful inventors and substantial patent litigation awards as a signal that patents can serve as a path to wealth for those with great ideas (certainly, this is the Hollywood view). In truth, however, getting rich merely from a patent is a rare occurrence–maybe not as low a probability as winning the lottery, but the odds are incredibly long that any person can make money from a patented idea alone. Think about it: if all it took was a patent to make someone wealthy, there would be a heck of a lot more rich people in this country given the huge numbers of patents that are granted by the US Patent Office every year.
There are many reasons why the idea getting rich from patenting an idea is overstated, several of which I have discussed before on this blog. This posting will specifically address why patent litigation as a business model is a non-starter for making most inventors wealthy.
To this end, I was recently contacted by an inventor with several issued and pending patents covering an innovative solution for homeowners. The patents and applications were well-written and, unlike many other patents I have reviewed lately, the innovation was well-covered such that it would be difficult for someone to make the same product without infringing my client’s patents. My client had spent much money over the years on this solid patent coverage, but, due to health issues, he lost his ability to continue working on bringing the product to market. The client believed that infringement was occurring, and he and his patent attorney were under the impression that they would be able to get an investor to fund patent infringement litigation or have an attorney take the lawsuit on a contingency basis.
Like many inventors, my client assumed that he could make money from a patented idea by suing people using his patented idea without permission. However, this is probably the least likely way someone can make a profit from their patent. The average patent litigation lawsuit with from $1 to $25 Million at risk costs each side more than $2.5 Million through trial. Even if the case does not go to trial, it is unlikely that the lawsuit will settle prior to completion of the pre-trial or ‘discovery’ phase where evidence is collected, analyzed and argued in attorney briefs. For cases that go only through this discovery phase, costs are around $1.8 Million. With most patent litigation attorneys costing upwards of $400 an hour, and patent cases generally incorporating several attorneys per side on a regular basis, I have seen patent litigation attorneys bill their clients several $100K per month starting immediately after the case is filed. Thus, even if a case settles relatively early, both sides must expect to incur substantial attorneys fees. Accordingly, patent owners cannot expect to generate any revenue from suing an infringer without significant cash outlays.
Assuming that the defendant’s product infringes my client’s patents and his patents stand up to the inevitable invalidity attack, what could my client expect to obtain if he wins? Notwithstanding large damage awards reported in the press, such as the more than $600 Million ruling against the manufacturer of the BlackBerry(R), most patent damage awards are much lower. Patent damages are awarded on the basis of how much value the defendant is obtaining as a result of its infringing activity. As a result, damages are awarded in large part on the royalty rate the defendant would likely pay my client license to the patent at issue. (Apologies to patent litigation experts on this broad generalization of patent damage calculations, as there certainly is vast and complex case law on how to calculate damage awards. Certainly, much legal effort and cost is spent trying to increase or decrease the damage award in each particular lawsuit. But, at the end of the day, most damage awards likely come down to the reasonable royalty rate in the particular industry in which the patent falls.)
So, let’s now talk about royalty measurements; that is, how much can my client expect from licensing his patent rights? While the rate varies markedly among industries and situations, most royalties are in the relatively modest range of 4-8 % of gross sales (of course, gross sales is a broad measure, but we’re being very generous for the purposes of this discussion). I generated this royalty rate range as a result of many discussions over the years with fellow patent practitioners. For more information on royalty rates, this Wikipedia entry is helpful. Taking a very conservative patent lawsuit cost of $1 Million, my client would need to obtain $1 Million from the defendant to break even. To obtain this amount, the total gross sales of the infringing product upon which the royalty calculation is made would have to be $25 Million for my client to recover his costs. For an 8 % royalty, the total sales would have to be $12.5 Million to break even. Of course, for my client to make a profit, the gross sales of the infringing product would have to be more. The reader should also note that these hypothetical sales figures ignore sales write downs that reduce the gross sales upon which the royalty amount would be based.
Certainly, there are many products with markets of $25 Million or more. Also, there are many technologies that are used as central aspects in a single product made by many manufacturers. Smart phones are an example of an area where a core technology is used by several manufacturers, so a patent owner in this area could possibly generate mutliple large damage awards, settlements or licensing fees for a single patent. However, most patents cover products that have fairly limited market potential and, as a result, there is a low probability that the patent owner will break even from patent litigation costs, let alone make a profit. This is the case with my client’s patent rights.
For the product covered by my client’s patent rights, total market potential is probably no more than $50 million over the life of the innovation. This is a solid number, and certainly a reason to build a business around the product. However, the current market is small and it will grow only slowly over the next several years. Infringement of his patent rights may be occurring today. Nonetheless, the reality is that, even if my client could afford to bring a patent lawsuit today, the costs of bringing and maintaining the lawsuit far outweigh any financial recovery that my client could obtain by prevailing.
My client cannot fund his own litigation expenses, and was interested in identifying possible alternate sources of funding. Given the real numbers involved in my client’s situation, it would make little sense for a lawyer to take his case on contingency. While the case may be a ‘winner’ in the end, the lawyer would be fronting fees and costs for my client, and he likely would be investing several years in the lawsuit only to share in a relatively modest damage award in the end. It is therefore doubtful that any patent litigation attorney would give my client’s case a second look on a contingency basis.
It is even less likely that my client could obtain an investor to pay the costs of litigation on his behalf. Given the risks involved in patent litigation (see these estimates where the patentee prevails only 25% of the time), as well as the time and cost involved in winning, patent litigation is a poor choice for an investor. So, my client is out of luck in getting someone to fund his patent litigation as an investment vehicle.
In summary, even though my client owns strong patents covering a great innovation that will succeed in the market, it is doubtful that he will ever be able to generate an income by merely enforcing his patent rights. His best hope for earning money from his innovative product is to sell his patents outright to a company that wants to make and sell the covered product. This company will be in a much better position to build the market for the product and would likely be more motivated to police the patent rights in order to keep its competitors at bay. In other words, by patenting an innovative product, my client obtained the right to prevent others from copying his invention, but not the means to do so. A stark reality, certainly, but a critical thing for inventors to understand
The Wolfram Alpha team is having an event dedicated to showing how Wolfram|Alpha, a groundbreaking free website, is a powerful new discovery and
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Knowing how to eat right irrespective of the cost is the best way to keep healthy. Even astronomical prices grow fainter for someone with a gastronomical palate eager to savor mouth-watering delicacies. Check out some of the most expensive foods in the world.
1.Caviar
The most expensive caviar is a type of Iranian Beluga called Almas. The luxurious Beluga caviar consists of eggs that are cut from the belly of the sturgeon fish, the oldest survivor of the Dinosaur era and native to the Caspian Sea.
The caviar is usually served by itself on toast and needs very little embellishment. Beluga is usually handled with a spoon made of mother of pearl, bone or other non-metallic material, as metal utensils tend to impart an unwelcome metallic taste to the delicate and expensive roe. The eggs range in color from dark gray (almost black) to light gray, with the lighter colors coming from older fish, and being the most valued. Therefore the older the fish, the more elegant and exquisite is the flavor. A pearly white variety, called Almas, taken from a centennial female sturgeon, is the rarest type of Beluga available, with the prices reaching almost $25,000 per kilogram. The prized delicacy has aphrodisiacal and anti-aging qualities. Remember, all caviar has an extremely short shelf life, so if you’re able to afford it, make sure you eat it all!
2. White Truffle
The European White Truffle is one of the world’s most expensive and sublime foods. The Italian white truffle comes from the Langhe area of the Piedmont region in Italy. They are extracted from an open ground with the help of specially trained truffle hogs or more recently, dogs. These truffles are sold at an amazing price of €2,000 and €4,000 per kilogram ($1350 – $2700 per pound). White truffles are used sparingly while cooking because of their high price and pungent taste. They are generally served raw, and shaved over steaming buttered pasta or salads. While in the past chefs used to peel truffles, in modern times most restaurants brush the truffle carefully and shave it or dice it with the skin on so as to use most of this expensive ingredient. A few restaurants, such as Philippe Rochat in Switzerland, still stamp out circular discs of truffle flesh and use the skins for sauces.
3. Club Sandwich
Since the 19th century, the club sandwich has been a restaurant staple. But thanks to English chef James Parkinson, the von Essen Platinum club sandwich at the Cliveden House Hotel near London is also the world’s most expensive sandwich at $197. Weighing just over a pound, the triple-decker delicacy is made of the finest ingredients , including Iberico ham cured for 30 months, quail eggs, white truffles, semi-dried Italian tomatoes and 24-hour fermented sourdough bread. It’s a must-try for food fanatics.
4. Most Expensive Pie
In 2006, a chef in northwestern England created the world’s most expensive pie. Based on a traditional steak and mushroom pie, the dish includes $1,000 worth of most expensive Wagyu beef fillet from Japanese cows, $3,330 worth Chinese matsutake, two bottles of 1982 Chateau Mouton Rothschild at a cost of about $4,200 each, as well as black truffles and gold leaf. The pie serves eight with a total cost around $15,900, or $1,990 per slice, which includes a glass of champagne.
5. The Most Expensive Pizza
The most expensive pizza in the world, valued at 8300 Euros, can be tasted in Italy. With generous toppings of expensive caviar and lobster, the pizza has a diameter of 20cm.
6. Most Expensive Omelet
The most expensive omelet in the world can be tasted at the Le Parker Meridien restaurant in New York. The $1,000 omelet consists of 10 ounces of Sevruga caviar, a whole lobster and six eggs.
7. Most Expensive Chocolate
At $2,600 per pound, Chocopologie by Knipschildt Chocolatier of Connecticut is the world’s most expensive box of chocolates. The Chocolatier, opened in 1999 by Danish chef Fritz Knipschildt, also sells a decadent dark chocolate truffle with a French black truffle inside for a mere $250. But don’t expect to just drop in and buy one on a whim . . . they’re available on a preorder basis only.
8. Most Expensive Dessert
Off to something sweet now with one of the most expensive deserts in the world, served at Serendipity 3, a popular restaurant on the Upper East Side of Manhattan. The $1000 sundae was introduced in 2004 and was listed in the Guinness Book of World Records as the most expensive dessert. It’s made up of five scoops of the richest Tahitian vanilla bean ice cream, Madagascar vanilla, 23K edible gold leaf and one of the most expensive chocolates in the world, Amedei Porceleana.
From bornrich.org
Are You an Inventor or an Entrepreneur?: “
Being an entrepreneur has more to do with a state of mind than a state of employment. And when you think of being an entrepreneur, it doesn’t just mean starting a company — I’ve started over half a dozen successful companies but have also brought my experience to established companies. Right now, I am the President of a public company I did not start — so I may in fact be an ‘entrepreneur gone bad.’
One of the most consistent things I hear entrepreneurs say is, ‘I have this great idea.’ And the advice they often get is to write a business plan and make it their bible. Most entrepreneurs firmly believe there is nothing better than a solid plan couples with a great idea.
But don’t confuse being an entrepreneur with being an inventor. Great ideas are a dime a dozen. Action is what differentiates an entrepreneur from an inventor. If you want to focus on ideas, become an inventor — not an entrepreneur.
And as for plans, entrepreneurs probably spend more time on our business plans than just about anything else we do. But business plans are often useless, even counterproductive; the old adage that ‘planning is everything; plans are nothing’ (credited to Eisenhower) couldn’t be more true in entrepreneurship.
The important thing is the process of planning — but you also have to be willing to throw out that plan. The single biggest advantage you have as a start-up versus an established business is your ability to be nimble, to act, to change. If you’re beholden to your ideas or to your business plan, you will fail.
Thomas Edison is a great example of someone who most people think of as an inventor because of the thousands of ideas he came up with. But when someone asked Edison about his ideas he replied that he didn’t care about his ideas. The only ideas that were interesting to him were the ones that he could commercialize. ‘I am quite correctly described as more of a sponge than an inventor,’ he said. Yet most people in fact don’t realize that the light bulb was not Edison’s idea; he just commercialized it. Edison thought of himself as an entrepreneur.
History is littered with great ideas — they’re irrelevant to entrepreneurs. You need to be nimble and you need to act. Sony is a classic example. Few people know that Sony was founded on the idea of offering rice cookers to the masses. They failed at that idea, but Sony is what it is today because the founders were willing to give up on their original ideas and plans.
Gillette is another classic example of a company that constantly reinvents itself. Every year they come up with new products that transform their own industry. We may end up with razors that take two hands to hold, but Gillette proves that innovation is about change and progress, not great ideas.
So don’t be afraid to throw out your business plan, adapt and give up on your original idea…and let your company succeed.
Jeffrey M. Stibel is an entrepreneur and brain scientist. He studied business and brain science at MIT Sloan and Brown University, where he was a brain and behavior fellow. Stibel has authored numerous academic and business articles on a variety of subjects and is the named inventor on the US patent for search engine interfaces. He is currently President of Web.com (NASDAQ: WWWW) and serves on academic Boards for Tufts and Brown University, as well as the Board of Directors for a number of public and private companies.
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(Via HarvardBusiness.org.)
Innovation in Sound Masking: Toward a Cone of Silence: “In ‘‘Cone of Silence’ Keeps Conversations Secret‘ at New Scientist, Paul Marks describes a recent MIT invention of a system that can direct noise toward nearby people to make it difficult to overhear a private conversation. It’s a step toward a functioning version of the ‘Cone of Silence’ from Get Smart. The MIT system, however, demands a lot of infrastructure. Many sensors and sound generators are required to do its subtle work. Will it have market potential, given that simple and relatively effective solutions are out there already? One example is the sound masking technology of Logison near Montreal, Canada. They offer more sophistication and control than generic white noise generators, but in a simple and easy to use system. Who will prevail in the long run? The MIT system certainly has the potential to offer more targeted masking, but unless the complex system can be offered in easy-to-install plug-and-play formats, it may never make more than a whisper in the market, though it may become a preferred tool for a few high-end users.
The key to successful innovation is rarely coming up with the highest performance in a product. The real key is providing a product that can be socially adopted – meaning that it positively changes the way people do things, and drives others to adopt it. The social aspect of innovation can never be neglected. This demands attention to industrial design, to ease of use, to convenience, to cost, to service and repair, etc. These factors help drive social adoption. It’s not all about bells and whistles. I hope the MIT product will become reality and succeed, but at the moment, I think lower-tech solutions will prevail unless the design and business model aspects for the MIT invention can be pursued to deliver successful social adoption.
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(Via Sharp Innovation.)
Is Recycling The Solution? Or Will Bioplastics Be The Answer? Let’s Look At The Economics Of Recycling.
Recycling is probably the number one thing consumer relates directly to ‘Green.’ People are trying to figure out what incentives are required fo rthe mass to adapt recycling. A company called GreenOps has developed a tracking system that can trace products going from the consumer stream to the recycling stream.
Companies that create consumer packaging can participate and put the GreenOps logo on their materials. Consumers buying goods can choose products identified with that logo. When finished, they take it to a GreenOps Tracking Station where they get a receipt showing the number of items they recycled and a code for redeemable cash at a retailer such as Wholefood etc. A 5 cents per bottle.
The concept is to have these tracking stations placed in high traffic areas like shopping malls, sports stadiums and other places where a whole lot of packaged products are tossed in large quantities. When an item is deposited into the machine, it gets scanned and the materials are tracked so companies can see how much of which products are being recycled. There are three questions: 1/I am not sure how often it needs to be cleared particularly high travel area given the size of the box 2/Is the 5 cents an effective motivation for consumers? 3/ The cost of deployment and I am not sure how the economics work.
Not sure we understand the economics of recycling. The bottle needs to be washed, usually in the kitchen sink with running tap water, so water is consumed. The plastic bottle is then taken to a recycle machine that crushes the bottle. Electricity is consumed to power these recycle machines. A special recycle truck picks up your blue (or green) box and then it delivers the recyclable material to a sorting factory. The factories and machines are built to sort the various recyclable materials from each other, paper, plastics, glass etc. These recycled plastic bottles are not made into new ones, theyre used for lower grade plastics such s those used to build playgrounds. So we will still need to keep manufacture more new plastic bottles. This is a hardly a solution.
Recycling is great idea at first thought, but we often consume more energy in reprocessing our recyclables than we are gaining. There are simply no cost-effective means of recycling food containers into new food containers. Can Bioplastics be the answer? Its still an open question on whether it is more energy efficient to use biodegradable plastic or just recycle petroleum-based plastic. There are no straight answers. In the meantime, please bring your own bottle.
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Herschel, First Light, and why it matters [Starts With A Bang]: “
First light is one of the most important tests of any new telescope. It allows you to look at a well-known object, see if there are any problems with your telescope, and to get a small glimpse of how good your telescope is going to be.
Almost 20 years ago, we launched the Hubble Space Telescope. For its first light image, astronomers zoomed in on an area of the cluster NGC 3532, an open star cluster known as the Wishing Well Cluster:
(For all images in this post, you can click on them for a hi-res version.) From this one image, we were not only able to obtain incredible resolution on the bright stars, we were able to discover some very faint stars never seen before from the ground, and we were able to first detect the problem of spherical aberration — a mirror that was defective by just 2.2 microns at the edges — just from this first-light image.
A little over 10 years ago, the Sloan Digital Sky Survey saw its first light, choosing to look at the well-known spiral galaxy NGC 6070 for its first light image:
Sure, the big galaxy is impressive, and we can tell that everything’s working well, but the real beauty of this image is all the other things we can see in it. Stars, galaxies, asteroids, and so much more — around 1,000 objects total — just from this one image. This image is only about a fifth of a degree on each side, but that’s not why it’s spectacular. The power of SDSS is that is can take an image like this every 50 seconds, allowing it to map a vast chunk of the sky more deeply and accurately than ever before. At last count, SDSS had discovered over 500,000 new galaxies and over 75,000 new quasars. And this first light image let us know what was coming.
So, as part of the European Space Agency’s amazing space program, they’ve just launched the new Herschel Space Telescope:
Guess what I have for you here? Herschel’s first light image! They went with a classic: the Whirlpool Galaxy, M51. And I’m not going to lie to you. At first glance, it isn’t very impressive.
Looks like it’s blurry, low-detail, and certainly not as spectacular as many of the other images we’ve seen. Sure, it’s infrared light instead of visible light, but so what? After all, not only is the visible light image much more spectacular and detailed:
But we already have a great infrared picture of this galaxy, courtesy of the Spitzer Space Telescope:
So why should you care about this seemingly inferior infrared picture from Herschel? Because it isn’t infrared like you’re used to. This is far infrared, unlike the near-infrared of Spitzer. This is very important, because stars are practically invisible in the far infrared! What Herschel sees is not the stars themselves, but the neutral dust and gas around them, heated up to such hot temperatures that it shines in the far infrared. No other telescope can see these wavelength that Herschel can see to such accuracies.
Want to see what the one band that Spitzer can see the same as Herschel looks like — side by side — for comparison?
No contest. At 160 microns, Herschel destroys Spitzer. And at 100 and 70 microns, Spitzer is completely blind, but Herschel still sees. That’s what this first light image is: M51 shown as a composite of 160, 100, and 70 microns.
And that’s the potential of Herschel, to learn about the parts of the Universe our eyes would never see, but that this new telescope can uncover — in great detail — for the first time. So that’s what you’re looking at with Herschel’s first light: a warm galaxy without its stars. Isn’t that impressive?
Read the comments on this post…“
(Via ScienceBlogs Select.)
The 10 Questions Every Change Agent Must Answer: “
As leaders, we have no control over how fast markets grow or how wisely banks lend. But we do control our own mindsets and ‘animal spirits‘ — the phrase coined by John Maynard Keynes in the depth of the Great Depression. If all you’ve got is a spreadsheet filled with red ink and dire forecasts, it’s easy to be paralyzed by fear and resistant to change. But if you can summon some leadership nerve, then hard times can be a great time to separate yourself from the pack and build advantages for years to come.
Indeed, when it comes to creating the future, the only thing more worrisome than the prospect of too much change may be too little change — especially in an economy where there are too many competitors chasing too few customers with products and services that look too much alike. Now is the time to rethink long-held strategic assumptions inside your company, to challenge decades of conventional wisdom in your industry, and to push yourself to learn, grow, and innovate. As Albert Einstein famously said, ‘Problems cannot be solved at the same level of awareness that created them.’ Or, in the spirit of some unknown Texas genius: ‘If all you ever do is all you’ve ever done, then all you’ll ever get is all you ever got.’
It’s time to do — and get — something different. Here, then, are ten questions that leaders must ask of themselves and their organizations — questions that speak to the challenges of change at a moment when change is the name of the game. The leaders with the best answers win.
1. Do you see opportunities the competition doesn’t see?
IDEO’s Tom Kelly likes to quote French novelist Marcel Proust, who famously said, ‘The real act of discovery consists not in finding new lands but in seeing with new eyes.’ The most successful companies don’t just out-compete their rivals. They redefine the terms of competition by embracing one-of-a-kind ideas in a world of me-too thinking.
2. Do you have new ideas about where to look for new ideas?
One way to look at problems as if you’re seeing them for the first time is to look at a wide array of fields for ideas that have been working for a long time. Ideas that are routine in one industry can be revolutionary when they migrate to another industry, especially when they challenge the prevailing assumptions that have come to define so many industries.
3. Are you the most of anything?
You can’t be ‘pretty good’ at everything anymore. You have to be the most of something: the most affordable, the most accessible, the most elegant, the most colorful, the most transparent. Companies used to be comfortable in the middle of the road — that’s where all the customers were. Today, the middle of the road is the road to ruin. What are you the most of?
4. If your company went out of business tomorrow, who would miss you and why?
I first heard this question from advertising legend Roy Spence, who says he got it from Jim Collins of Good to Great fame. Whatever the original source, the question is as profound as it is simple — and worth taking seriously as a guide to what really matters.
5. Have you figured out how your organization’s history can help to shape its future? Psychologist Jerome Bruner has a pithy way to describe what happens when the best of the old informs the search for the new. The essence of creativity, he argues, is ‘figuring out how to use what you already know in order to go beyond what you already think.’ The most creative leaders I’ve met don’t disavow the past. They rediscover and reinterpret what’s come before as a way to develop a line of sight into what comes next.
6. Can your customers live without you?
If they can, they probably will. The researchers at Gallup have identified a hierarchy of connections between companies and their customers — from confidence to integrity to pride to passion. To test for passion, Gallup asks a simple question: ‘Can you imagine a world without this product?’ One of the make-or-break challenges for change is to become irreplaceable in the eyes of your customers.
7. Do you treat different customers differently?
If your goal is to become indispensable to your customers, then almost by definition you won’t appeal to all customers. In a fickle and fast-changing world, one test of how committed a company is to its most important customers is how fearless it is about ignoring customers who aren’t central to its mission. Not all customers are created equal.
8. Are you getting the best contributions from the most people?
It may be lonely at the top, but change is not a game best played by loners. These days, the most powerful contributions come from the most unexpected places — the ‘hidden genius’ inside your company, the ‘collective genius’ of customers, suppliers, and other smart people who surround your company. Tapping this genius requires a new leadership mindset — enough ambition to address tough problems, enough humility to know you don’t have all the answers.
9. Are you consistent in your commitment to change?
Pundits love to excoriate companies because they don’t have the guts to change. In fact, the problem with many organizations is that all they do is change. They lurch from one consulting firm to the next, from the most recent management fad to the newest. If, as a leader, you want to make deep-seated change, then your priorities and practices have to stay consistent in good times and bad.
10. Are you learning as fast as the world is changing?
I first heard this question from strategy guru Gary Hamel, and it may be the most urgent question facing leaders in every field. In a world that never stops changing, great leaders can never stop learning. How do you push yourself as an individual to keep growing and evolving — so that your company can do the same?
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(Via HarvardBusiness.org.)
