Americans have long celebrated many things, but one of them has been our incredible ability to continue innovating. Much of what it means to be a modern society is due to innovations made or commercialized most successfully first in this country. The telephone, the automobile, the airplane, computers (mainframe and personal) and software to operate them, air conditioning, and the Internet (with retailing and search) were all commercialized by entrepreneurs in the United States.
Patents have been and remain critical to incentivizing innovation, which in turn is key to sustaining economic growth and increasing living standards. Public officials, academic scholars and other commentators continue to debate whether and how to improve the legal standards and procedures for granting patents and challenging them. As important as these subjects are, they do not address the central economic problem with the current patent system in the United States.
The real challenge is that today the legally oriented patent system imposes significant transactions costs on licensing inventions: Most patent owners and users cannot bear the costs or risks associated with enforcing and licensing their patents. As a result, a substantial portion of the two million-plus patents granted, and thus the knowledge and technology they embody, is not commercialized or used to benefit others. The potential cost of this waste to the American economy has been estimated to be as large as $1 trillion annually, representing a five percent reduction in potential GDP.
Nero and the burning of Rome by M. de Lipman, circa 1897.
Adam Carolla, one of the most popular podcasters in the U.S., is sued by a patent troll. The story goes viral. Across the country, state Attorneys General are using consumer protection laws to guard their small businesses from the predacious patent trolls. And here’s something previously unthinkable: the President of the United States, in the 2014 State of the Union address (“It’s the country’s most valuable political real estate,” noted one D.C. veteran), urged Congress to “pass a patent reform bill that allows our businesses to stay focused on innovation, not costly and needless litigation.”
The greatest long-term threat to the U.S. patent system does not come from its professional opponents – those large businesses and their political allies who stand to profit from enfeebled patent rights. A deeper harm is caused by unscrupulous patent trolls who use extortionist “demand letters” to victimize small businesses. This practice, we believe, is wrecking public confidence in the U.S. patent system – and by extension, profoundly weakening the heretofore bedrock belief in the great economic benefits conferred by patent-protected inventions.
Yet even as damage caused by demand letters spreads, most legitimate patent licensors whose businesses depend upon continued legislative and public trust stand idly by, doing little or nothing to address it. Well-insulated within the patent industry’s cozy professional bubble, we are, in effect, fiddling like a modern-day Nero while innovation’s Rome burns.
Several weeks ago I wrote about the fourth annual DRTV Summit sponsored by InventionHome. Initially the deadline for inventors to submit their inventions for consideration was September 30, 2014, but InventionHome has extended the deadline for inventors to submit until the end of this week. Submissions are now due by the close of business on Friday, October 3, 2014.
The DRTV Product Summit is a one-day event that will be held on Wednesday, October 22, 2014 at Robert Morris University in Pittsburgh, Pennsylvania. Inventors will be given the opportunity to pitch their products to representatives of the six (6) DRTV companies on one day in one location.
The event is not open to all inventors. Over the past few years the event has grown and there has been significant interest in the inventor community. In order to be considered inventors must submit their inventions to be reviewed by a panel of referees. Thanks to an extended deadline, submissions are now due no later than Friday, October 3, 2014. This submission and selection process insures that only the highest quality inventions are presented to the representatives of the DRTV companies that will be present. This maximizes the value for those DRTV companies, which means they keep coming back year after year. It also reserves pitch time for inventors with the most commercially ready products that have the greatest immediate chance for a deal.
Editorial Note: This month’s column from Joe Allen comes from his plenary address to the Eastern regional meeting of the Association of University Technology Managers, which took place in Baltimore, Maryland, on September 18, 2014. CLICK HERE to view his PowerPoint presentation, which includes facts and figures that support the positions taken in this article.
They say when speaking that you should repeat your message at least three times. Here’s the first: Bayh-Dole has succeeded beyond anyone’s wildest imagination. It was not created to benefit universities but the American taxpayer. You are the stewards of a public trust and have an obligation to defend and protect the law in the same way as the Founders of AUTM protected it for you.
Research universities are now recognized drivers of our economy and your discoveries improve lives around the world, but that wasn’t always the case. The reason is the Bayh-Dole Act which gives certainty and predictability to the ownership and management of publicly funded inventions so they can move from the lab into the marketplace.
Last week I was speaking in Brazil which adopted a technology transfer law to spur university-industry partnerships. Unlike Bayh-Dole theirs is full of uncertainty which is undermining its impact. I explained that having clearly stated rules is an essential ingredient for success because companies are undertaking a tremendous risk when turning university technologies into useful products. The time and expense of development is borne by the business—not the government or the university. Companies cannot justify this effort when the bureaucracy inserts itself between a university and its industry partner. That was the situation in the US before enactment of Bayh-Dole and it caused the benefits from billions of dollars of taxpayer supported research to go right down the drain.
Calling all inventors! InventionHome is once again hosting what is becoming a yearly DRTV Product Summit. The one-day event will be held on Wednesday, October 22, 2014 at Robert Morris University in Pittsburgh, Pennsylvania. Inventors will be given the opportunity to pitch their products to representatives of the six (6) DRTV companies on one day in one location.
This will be the fourth such DRTV Product Summit hosted by InventionHome. Over the first three Summits some 66 inventors pitched their inventions in the format described above. 61 of the 66 have left the Summit with at least one of the company representatives expressing some interest in pursuing additional discussions. Ultimately, 18 of the 66 inventors have received either a term sheet, licensing deal or rep agreement.
Unfortunately, this event is not open to all inventors. Over the past few years the event has grown and there has been significant interest in the inventor community. In order to be considered inventors must submit their inventions to be reviewed by a panel of referees. Submissions are due no later than Tuesday, September 30, 2014. The submission and selection process insures that only the highest quality inventions are presented to the representatives of the DRTV companies that will be present. This maximizes the value for those DRTV companies, which means they keep coming back year after year. It also reserves pitch time for inventors with the most commercially ready products that have the greatest immediate chance for a deal.
In my experience the reason most people do not succeed is because they just don’t know what to do, not because they are lazy or unmotivated. My hope is that this article will educate inventors and help take some of the mystery out of the steps associated with turning an invention into a profitable endeavor.
Before you consider contacting anyone the best first place to start is with a simple question, which will help you chart the right course. Ask yourself: What you want to do with your invention? Do you want to make and sell your invention? Or, do you want to sell your invention rights to an individual or company who would make and sell your invention? Or, do you want to try and license one or more individuals or companies to make and sell your invention? After you make this determination your initial strategy should come into focus.
At the heart of policy disputes over standard essential patents is a simple truth: Companies whose products depend on standardized technologies want to increase their profit margins by cutting input costs – the royalties they pay to use standardized technologies invented and patented by other companies.
In other words, policy conflicts over standard essential patents (SEPs) tend to pit implementing companies against inventing-and-licensing companies, one business model against another.
So when in the course of patent policymaking it becomes necessary to examine the worthiness of alleged scholarship about SEPs, a decent respect for the consumers and markets ultimately affected requires policy makers to examine the scholarship’s origin and separate fact from advocacy.
Such is the case for a new “working paper” that entered the standards debate last month with a controversial thesis that generated headlines and a lot discussion in patent circles. Its title: “The Smartphone Royalty Stack: Surveying Royalty Demands for the Components Within Modern Smartphones.” Its authors: Ann Armstrong, associate general counsel at Intel, as well as Joseph J. Mueller and Timothy D. Syrett, two lawyers at Wilmer Cutler Pickering Hale & Dorr who work for Intel.
~ When your enemy’s making mistakes, don’t interrupt him. Billy Beane (General Manager of the Oakland A’s) in Moneyball
~ Can’t anybody here play this game? Manager Casey Stengel in anguish over his 1962 New York Mets. The team went 40-120– the most losses by any team since 1899.
As an avid baseball fan nothing makes me crazier than seeing my team lose because of dumb unforced errors. And anyone who follows the Pittsburgh Pirates has seen more than their share of these (like on Friday the 13th under a full moon when our pitchers walked 6 batters in the 9th inning blowing a comfortable lead). Countries, like sports teams, make inexplicable unforced errors leading to loses that are a lot more significant than just losing a game. Two recent articles and one anecdote caution that if the US loses its technological lead it could be because of our own blunders rather than what our competitors are doing.
The first article illustrates the significance of one of our greatest resources: our unequalled system of publicly supported R&D. Patents as proxies: NIH hubs of innovation published in the June edition of Nature Biotechnology documents the tremendous potential federally-funded inventions have to help move the life science industry forward. Of course, potential is a double edged sword: every day teams with more potential lose to those who play the game smarter, avoiding unforced mistakes.
Patents as proxies looks at medical innovation which employs one million Americans, generates $84 billion in wages and salaries and $90 billion in exported goods and services. The U.S. biomedical industry dominates the world largely because of successful partnerships between our public and private sectors. Taxpayer supported inventions made in universities and federal laboratories are licensed under the Bayh-Dole Act to the private sector for commercial development. The article notes the resulting impact as universities created 1.7 new companies per day and 657 new products from their patent licensing in 2010 alone. It estimates “that approximately 30% of the total value of NASDAQ has roots in academic research.”
Several weeks ago I had the opportunity to speak with Jane Muir, who now serves as President of the Association of University Technology Managers (AUTM). At the time of our conversation there had been a number of so-called “news reports” that were characterizing universities as trolls. That, of course, is utter nonsense. The role of the university is to push technologies into the marketplace and work with those who license university innovation, which is the antithesis of what a patent troll does. Still, some in the popular press who obviously have their own agenda see it otherwise, which is both curious and sad.
In this segment of the interview we talk about concerns over patent trolls and Muir explains exactly how and why universities are NOT patent trolls. To begin reading from the beginning please see Exclusive Interview with AUTM President Jane Muir.
QUINN: There’s this belief that innovation just happens. And that if you do come up with a great invention it’s 1, 2, 3 and you’re done and there’s going to be checks starting to arrive. And you’re going to be laying on a beach somewhere living a life of luxury. And that’s just not true. It’s not true for the individual, it’s not true for the startup, and it’s not true for the university.
MUIR: That’s absolutely correct. When you talk to an entrepreneur as an investor and the entrepreneur shows their plan with how long it’s going to take or how much money it’s going to require, you always take that and multiply by two or three, right?
QUINN: Exactly, because things are going to go wrong. Estimates are going to be wrong. I remember the first business I ever started. And this is, you know, many, many, many years ago. It was a shock to me that the electricity cost more when it was being sold to a business. Just silly things like that, you know, that if you’ve never started a business you don’t really understand that on every level, no matter how insignificant, it seems there’s a hurdle.
Recently IPWatchdog.com published an article that cited the work we do at the Infectious Disease Research Institute (IDRI) as an example of how dedicated individuals and corporations can work together to transform science into global health solutions. By integrating capabilities, we strive to create an efficient pathway to bring scientific innovation from the lab to the people who need it most.
I write today to explain more about what IDRI does and why leveraging spin-out companies supports global health initiatives.
One of the most important engines in populating and growing the life sciences sector within the United States is the practice of universities spinning out new technologies into startup biotechnology companies. This, in turn, drives the development of new drugs, vaccines and other much-needed health products.
Regardless of the number of patent reform bills, IP industry conferences, and risk management business models, the number of patent infringement lawsuits remains exceptionally high. Resolving disputes through the inefficiencies of litigation represents an enormous waste of resources and lost opportunities. And this issue runs beyond the usual suspects—a GAO August 2013 report found that 80 percent of patent litigation is brought by manufacturing companies. Thus, IP games are being played on all sides, resulting in demon dialogues, negative patterns and quick escalations to legal actions. In order to foster productive discussions, both sides need to stop playing games and start being transparent and candid about their intent at each stage of an IP licensing discussion. This is a foundation for building trust, developing cooperative behaviors, and allowing business creativity that is critically needed in our knowledge based economy.
The dialogue begins with a demand letter from a patent rights holder, which can take the form of a soft invitation to enter into mutually beneficial licensing discussions or detailed allegations of patent infringement. Often times, the intent behind this letter is to seek a payment to compensate the patent rights holder for the commercial exploitation of its patented technologies by the receiving side of the letter, not to stop the exploitation. There is nothing condemnable in this intent– trading IP rights offers a way to support the broad dissemination of technological advancements, which in turn create rewards for investments in innovation and job creation. These IP trades are so common that seasoned IP executive speak regularly about “IP monetization” or “IP value creation” in trade associations (e.g., the Licensing Executives Society) and conferences (e.g., the IP Business Congress).
It’s no secret that the regulatory environment is challenging for companies that license patents – in our case, patents that are deemed essential to wireless standards and that our company, InterDigital, has developed in-house over the course of multiple decades, and continues to develop today. Some of the companies that dominate the wireless market today had little or nothing to do with the development of the standards that have contributed so much to their success, so they make every effort to devalue standards participation. And many in Washington lend them a willing ear, and take up arms to wage their battle for them.
One of the greatest frustrations for me is that so much of this rests on a bedrock of total miscomprehension of how standards are developed, the enormous cost and risk of investing in standards development, the value that standards provide, and the kind of licensing practices that have made the market successful, benefitting everybody. Late last year in New York, I met with a reporter for one of the primary tech websites in the world, and he dismissed standards development. It became apparent he didn’t understand how the process worked at all. When we asked him how he thought these things got developed, he said that he “figured there must be an engineering organization somewhere that did it.” And this is from the legal correspondent of a major tech website, someone whose articles influence debate!
He didn’t realize that it was private sector companies – companies like ours – that committed significant engineering time and resources, and competed to develop the best solutions, and in so doing committed to licensing them fairly. So – for his benefit, should he read this, and for the benefit of anyone involved in the debate – I’ll describe our company’s story, and draw some conclusions about what should and shouldn’t be done to protect, foster and incent innovation that benefits everybody.