The point of the interview was not to discuss software specifically, but when the conversation turned to how IBM is deploying Watson, the genius computer that dominated Jeopardy, the topic of software patents came up. What provoked my request for an interview, however, was news that for the twentieth straight year IBM has been the top patenting entity in the United States.
Whenever there is interesting IBM news of a patent variety Schecter has been gracious enough to make time to chat. The news of IBM’s patent supremacy wasn’t just any run-of-the-mill news, at least not in my opinion. The commitment to innovation and belief in the patent system has served IBM well for many decades, and twenty years as #1 at anything is astounding in a world dominated by parity and antitrust regulators that don’t want any single company to succeed too much.
In fact, over this twenty year run there hasn’t been another company come even close to amassing the number of patents that IBM obtains. But how is this possible? The general rule has always been that the tech giants of today will live a good life and burn out like a star does, while the once small tech start-ups assume their position as giant of the day. We have seen over and over again through history how the biggest companies falter eventually. What is remarkable to me about IBM is that generation after generation they are among the top tech companies. In fact, you would be hard pressed to think of a decade where IBM wasn’t considered one of the dominant players.
The IBM recipe is simple enough, but far from easy. When times get tough so many companies will cut research and development activities, and the patent budget is always a target for reductions. But as Schecter explains, IBM is centrally focused on research, development and innovation of all types, which may or may not relate to what people would characterize as the core IBM technology offerings.
I always enjoy my conversations with Schecter, and I think you will find this interview fascinating. We discuss the commitment to excellence required to stay #1 for twenty years, the process for deciding which patents to keep paying maintenance fees on, what may change once the U.S. converts to first-to-file on March 16, 2013, how Watson is being put to use and the parting of USPTO Director David Kappos.
Without further ado, here is part 1 of my 2 part interview with Manny Schecter.
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QUINN: Manny, thanks for taking the time to chat with me today. I always enjoy talking to you. And I thought we had a great opportunity to discuss what you all are doing over there at IBM with this announcement recently that you’ve been the top patenting company for twenty years in a row. So maybe we can just start with a very wide-open question, how you guys manage year after year to be number one?
SCHECTER: Thanks, Gene. The honest truth is, it starts with a long standing commitment to research and development. We’ve been among the leaders in R&D for a long time and when you add to that a long standing commitment to protecting the R&D, we have pretty well developed tools and processes and expectations for not only making the innovations but protecting them. We’ve been doing that longer than some other companies have been in existence.
QUINN: Yeah, isn’t that what really makes it remarkable? I don’t mean to beat a dead horse because it seems like every time we talk about this I ask the same questions and I still am amazed, though, because it can’t be all that easy to do. Because everybody ought to be following your model and so many others, they don’t get it. At times when things are rough they cut the research and development budget which is you might as well just give up at that point. It seems to me that you have got like the perfect storm there at IBM where you’re really committed to research and you really have good business people who understand the industry on a level that maybe to you and me seems commonplace but it’s obviously peculiar.
SCHECTER: Well, you did say something which resonated quite well with me, which is having senior people who are believers and who are themselves committed to R&D and protecting it with intellectual property. That absolutely is the case at IBM, right up to the top of the company.
QUINN: Let me ask you this: How do you guys decide, and not with respect to any one particular innovation, but how do you go through the process of deciding, okay, this is something that is worthwhile filing a patent application on? Is it that you’re going to do it on everything? I suppose been on some level you guys have got limited resources, too, right?
SCHECTER: Of course. It’s not like I have people sitting around doing nothing. Everyone in our org is as busy as can be. But I can assure you that we receive a very healthy pipeline of inventions from our scientists and developers every year. And we have to turn a fair number away because we get so many.
QUINN: I don’t mean to play dumb, but for two decades you guys are number one. Do you internally understand what that means? Maybe I should just ask and not suppose: What does it mean to you?
SCHECTER: First of all, as I said before, it’s a commitment to everything that I do, everything that we as patent attorneys tend to train for and believe in. It also means that we don’t just take a short term view of things. You’re not the leader for such a long period of time by investing a little bit here and a little bit there. We’ve continually invested. We’ve never given that up.
QUINN: And when you guys are going through and you’re getting all these patents, what would you say is the end goal? Because I know a lot of companies will really only focus on those kinds of things that are going to move forward with their core product line. But I sense that you guys do an awful lot more protecting than simply with respect to what maybe people might think of as the core product line for IBM.
SCHECTER: Well, of course we do get quite a large number of patents relating to our core business. But at the same time we do a lot of specialized work for customers and that affords us the opportunity to delve into various fields. Also, we always set aside a bit of our research and development for that research with a capital “R” that is very far reaching. That too enables us to protect innovations that go beyond our industry because sometimes we’re innovating and we can’t foresee all of the different ways that it will change the business. And I don’t necessarily mean IBM’s business, I mean even the economy. Think back about what it was like at the beginning of our twenty-year run. The Internet was in its infancy. The changes that have occurred as a result have been tremendous. Keeping that focus on long term research and not just short term development, keeping the focus on both is what really helps us maintain the breadth of our portfolio.
QUINN: This is an extraordinarily long time to be number one at anything. Do you suppose it is because you guys at IBM you have a solid stable core management team with, I guess it’s easily articulated philosophy, right? Is that we are a research and development company. We research and develop and we protect and we pursue. A lot of companies say that but there’s not a lot of evidence that a lot of companies actually mean that. But you guys actually mean that. It seems it is the philosophy that keeps you on the straight and narrow. Is it the core leadership that is not really wavering or lack of heavy turnover? Because you see in a lot of companies big success followed by the people who helped achieve that success going elsewhere. But you guys grow your own leaders, isn’t that true?
SCHECTER: That is frequently true. And in response to what you were saying, I would generally say it’s all of those things that you mentioned. It is kind of a core belief with us. We’ve been told in CEO surveys that innovation is one of the keys to the future – one of the things that keeps CEOs up at night. So we’ve kept our focus on that for obviously quite a long time now. And I would expect we’ll continue to do that going forward. Generally we’ve been trying to ensure that we have a very robust portfolio of intellectual property because we also know that the importance and value of intellectual property seems to be growing in many industries. It’s only natural that you invest where the growth is.
QUINN: And that seems easy enough to understand. But again, there’s something that really is not all that commonplace about what you do because you manage to execute it better than everybody else every year. I know that as you’re getting a lot of patents, like any company that gets patents, you guys have a whole lot more to manage. But there’s a management process that goes through and decides which patents to keep and which patents to get rid of. And for most people they don’t understand I think they get patent but you have to make three maintenance fee payments in order to keep that during the course of their life. And those fees are not insignificant. So maintaining a portfolio like yours has got to be somewhat of a, I guess a headache or maybe even a nightmare. Could you talk about that process a little bit maybe?
SCHECTER: So you’re talking about the patents after they issue?
SCHECTER: We do have a very large portfolio of patents. And it is a challenge. The numbers sometimes can be difficult to cope with. Over time your sense of the value of a patent or of the value of an invention continually improves. Time is your friend in terms of your ability to assess. And as you correctly sense in the way you phrased the question, sometimes early on in the life of an invention you think it has a chance to be valuable, and later it turns out it’s not quite as valuable as you thought. And maybe not even valuable enough that you’re going to pay maintenance fees. The point is as you learn more about the invention, and it’s relevance to the marketplace, it enables you to prioritize it within your own portfolio and identify the most valuable members of the portfolio. Obviously, those are the ones that you’re going to pay the maintenance fees on. So the way I look at it we’re just doing what comes logically as our information about the inventions improves. Why would I want to continue to pay maintenance fees for patents that I’ve come to the conclusion don’t have a lot of value?
QUINN: Right, right. I think that that makes perfect sense. And I wonder whether, like by doing it this way you first off you’re protecting a whole lot more than anybody else is just based on the numbers alone. And one of the nightmares that I think a lot of, at least people in the know worry about, right, is is whether or not you have said no, you’ve given a red light to something that later on will wind up being a very fruitful area that maybe your competitors or somebody else is going to get into. So I wonder whether the IBM approach to patent as many things as we can justify and then just cut those ones that aren’t moving forward in a very cold business like way allows you to make sure to the greatest extent you can that you’re not saying no at the very earliest point in the innovation lifecycle because you know that you gotta cast the net wide and then you continually reevaluate as the portfolio ages.
SCHECTER: It’s certainly true that we recognize that it makes more sense to cast the net wide early in the process when your certainty is not as good. And as I said, as that knowledge becomes crisper you can make more conservative calls. Certainly everybody in our business makes mistakes occasionally in evaluating an invention. I’m not going to say we do it regularly. I’d like to think we’re as good at it as anybody. But it certainly happens. Even Babe Ruth used to strike out, right? So it happens once in a while and one of the things you have to do is be willing to accept the fact that you can’t be right all the time and make decisions based on the knowledge that you have, not on certainty.