Patents– Great for Big Business, Trolls… But For All Others– Its Worthless, Stifles Innovation, Not Enforced, Waste of Time.

Patents litigation costs companies millions of dollars in time and lawyer fees; but just how effective is a ‘patent’ anyway? According to Florian Mueller; analyzed 222 smart-phone patent assertions– with Android being major target of many of them– only to find that 90% of those cases have gone absolutely nowhere… about half (49%) of assertions have failed thus far, while 42% of assertions were dropped without a comprehensive settlement or ‘comparably negative fate’…

As it turns out, only 20 or the 222 patent assertions (9%) were able to establish liability, but only 10 of those 20 cases resulted in ‘lasting injunctive relief’… In other words based on patent litigation by; Apple, Samsung, Microsoft, Nokia, Motorola, and host of others litigation– more often than not, it’s a serious waste of time and money for all parties involved…

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According to Erik Heels; filing for a patent is ‘a waste of time and energy’, not to mention money… Indeed most startups think they need a patent– often claiming that VCs won’t invest without it… but as many smart VCs point out, having a patent in a startup is near worthless without well conceived strategy with products that provide value and relevancy to target markets, and rarely is a patent a significant difference maker…

According to Gil Silberman; a fake gun is just as good as a real one if you don’t have to fire it; similarly, a worthless patent can still be useful for raising money on perceived value, or as ‘threat’, in defending against competitors… however, the value of a patent is often unknown until litigation, which usually costs more money than most companies can afford…

In the article Most Small Companies Patents Are Worthless by Todd Hixon writes: A widespread meme in the tech community holds that patents are a path to riches: An entrepreneur who solves a key technical problem and receives a patent can build a business on the technology and ride to glory… However in reality, most patents are just about worthless… Many entrepreneurs misunderstand the real value patents create and how difficult they are to enforce…

A patent is a sword, not a shield; it gives you the right to attack a competitor who makes commercial use of (or ‘infringes’) patented technology… But enforcing patents in courts is a nightmare, e.g.; plan on 3-5 years and $3-$5 million to get to a judgment and then there are appeals…

Patent litigation is the true sport of kings; it costs $20k-$30k to file a final (‘utility’) patent. Some companies make dozens of filings, spending a good fraction of a million dollars,and there are no guarantee that these investments will pay off… However, there are situations where patents do pay off, e.g.; patents for drugs are indeed a lynchpin of value, or patents for information technology has been shown to be effective… But, usually these patents are in the hands of big companies that have the resources to defend them. Whereas in smaller companies the value of ‘patents’ is questionable, hence a few tips for smaller companies:

  • Don’t base a business strategy on patents and don’t try to raise money primarily on the basis of patents…
  • Pay close attention to patents that others hold which might enable competitors to block you– ‘freedom to operate’ is more important when evaluating a business plan than patent ownership…
  • Non-patent intellectual property (IP) strategies can hold-off copycats more effective, e.g.;  trade secrets, knowledge of customers, series of connected innovations…
  • Build the business on real competitive advantages, e.g.; value, relationships, rapid innovation… don’t count on patents to defend from competitors…

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In the article Are Patents Useful, Useless, Necessary Evil? by David Allsebrook writes: Decisions about how and whether to patent protect innovations are hard, e.g.: start-ups have it worse, since usually they have little cash and the cost of patent applications are very expensive, plus 75% of venture capitalists say they will only invest in companies with patents…

According to Don Lancaster; patents are useless and makes no sense for most  small business… patents guarantees only the right to fight to protect the ideas, and fighting takes a large amount of resources, e.g.; lots of time, negotiating assets, lawyer fees, emotional stamina… whereas often same results can be had without patents by– moving fast, staying nimble, leveraging ideas… Patents is big business, there corporate games… and should be avoided by anyone trying to work outside of that framework…

In the article Relax: Let Your Guard Down by David H. Freedman writes: Companies continue to treat intellectual property (IP) as an asset to be kept out of the hands of others at all costs, but there are compelling reasons that such aggressive IP protectiveness is not only unnecessary but also counter-productive… Some $5.5 trillion worth of IP is said to be rattling around computers and file drawers of U.S. companies accounting for significant percentage of the nation’s GDP… About twice as many patent-related lawsuits were filed last year as were 20 years ago, suggesting that companies are more determined than ever to keep others off their good ideas…

And yet simple truth is that most companies ‘rarely succeed’  when protecting patents, or ‘rarely fail’ because they do not– there are other strategic factors that determine success or failure…

Ninety-five percent of patents end up being of absolutely no commercial value, even in high-tech where IP is king, the best rule of thumb for patent protection is: Don’t bother… According to Glen Whitman; the faster the pace of innovation, the less important are patents, or to put it another way; superb strategy and execution trumps a patent every time… That’s because it usually isn’t the individual big-bang idea– in and of itself– that makes or breaks a company; but rather it’s a ‘constant stream’ of smaller good ideas that drives the business…

According to researchers; patent protection is of little or no benefit when it comes to an ongoing string of ideas… Which makes sense given the time it takes to get a patent into place and the relative perishability of any single idea… Business tend to have a greater chance of profiting when patents are relaxed and the door is opened to increased competition and imitation…

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However, many big companies see it differently, after all, they have the resources to prevail in patent disputes… As a result when smaller companies trying to bring out new products, especially in high-tech, they often find themselves buried with administrative and financial requirements for license fees for processes, technologies… covered by patents… Of course, there are some situations in which patent aggressiveness may be reasonable and even essential, e.g.; the pharmaceutical industry is a clear example; it takes about 10 years and the better part of a billion dollars to identify the one molecule out of trillions that works against a disease and then drag it through the multi-staged testing process. Once the pill is out, it might take only a week to bring out an imitation that could be sold at cut-rate prices to take over the market…

Patents have become gold standard of national competitiveness, but academic studies have typically failed to find much of a connection between patents and innovation… But still the patents have created a ‘Scylla-and-Charybdis’ world where companies must navigate between– infringing on countless patents, or paying multitudes of stiff licensing fees… One study found that companies spend an amount equivalent to 14% of research and development budgets on patent litigation…

According to Jordan Weissman; many companies spend billions on ‘defensive patents’, which are essentially worthless other than as protection against lawsuits… This is common practice when a business is forced to license a patent from a litigious ‘troll’… Also, untold dollars are spent on legal fees and unnecessary patent filings for ludicrously broad or impractical ideas…

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According to Gene Quinn; questions that all companies must  ask themselves are: Why do you want a patent? Is it an asset and foundation for building a business, or is it a wall ornament? For example; there are millions of smartphone/software ‘apps’, and many of them are developed by very smart people whose objective is to build a business (although for some there may be other motivations)… 

But since it costs on average $30,000 for a software patent– does the return on investment make good business sense? The world of business and technology is rapidly changing and companies  must objectively think about: Why is a patent needed? What’s its purpose? How will it be defended? What are workarounds?

Let’s face it, overwhelming percentage of patents have very little, if any real economic value, hence think hard, smart… about the practical realities before wasting time and resources filing a patent…