PATENTS

 

Patents and proprietary position

 

In school we learn about patents.  They are legal mechanisms that intend to protect the rights of inventors and their companies from having their ideas exploited by competition, at least for a specified period of time.  If someone takes your idea, you can sue and force that person to stop using your idea and pay appropriate damages.

 

That's the theory, at least.  When I got to real industry and viewed the patent situation through the eyes of management and the patent attorneys, I found that it could really be quite different from that simple notion.  And it varies widely between industries.  Here are some practical aspects of the patent situation that may help you to understand the dynamics of your industry and the practices of your company.

 

  1. First, distinguish product from process patents.  With a product patent, some aspect of the product is patented, and it is usually easy to tell whether someone has copied your patented idea.  The product is out on the market and available to anyone to inspect.  Not so with a process patent which may allow you to produce your product for less cost, or faster, or with higher quality than your competition.  But the end product usually bears no sign of the process by which it was made, so one cannot examine the product to determine patent infringement.  To claim infringement, one must have access to a competitor's process plant or documentation -- not the usual case.  Thus proprietary processes are often protected as trade secrets rather than patents.

  2. But in some industries even product patents seem to have less value than one might have expected.  I was surprised to find out that my company usually didn't prosecute patent infringements.  If the infringer was a small company or an individual, it would be hard to win the case of a "big guy" trying to suppress a "small guy".  If the infringer was a large company (often a customer who wanted to integrate your product) practical considerations made suit a last resort.  What's the point of protecting your proprietary position on one product when the customer can cut you out of many times that profit by denying you other business.  It didn't sound right to me, but that's the way it really was.  I never reconciled myself to this position, but my experience might alert you to find out just what patents are really worth to your company and your industry.  For such a company, patents are primarily defensive in nature.

  3. In some industries, patents are poker chips.  Companies build large portfolios of patents with no real intent of prosecuting infringement or, often, of really commercializing the patent.  What they want is an impressive portfolio that they can use when they get into an argument with another company about infringement.  Very often such a disagreement ends up with the two companies cross-licensing each other to part or all of their patent portfolios, with the strength of the respective portfolios determining the terms of the agreement.  Again, this wasn't quite what the patent laws were established for, but the practice is common.

 

Find out what patents are worth and how they are used in your industry.  Then find out how your company thinks of its patents and how it uses them.  Do not take a simple answer on this -- most management either does not know or does not want to admit the situation.  Find out from the patent attorneys.  Find out how many times the company has actually actively protected one of its patents and what the outcome was.

 

None of this should lead you to believe that patents are worthless in general.  In some industries they are absolutely vital.  The point of this essay is to alert you that this is not always the case and that for a large segment of American industry patents have quite a different meaning than you might expect.

 

There is another aspect of patents/proprietary positions that was a surprise to me.  Companies receive unsolicited ideas and technology from outside sources, usually individual inventors.  To analyze these submissions companies form committees chartered to examine what came in and determine what to do with it.  All well and good.  Except that when I got into the matter a little more deeply I found that the situation was again not what it seemed.  My company was very reluctant to have any outside idea examined by people within the company for fear of being sued by the inventor when something even vaguely resembling his idea eventually turned up in our product.  Thus we would only talk to submittors on a strictly non-proprietary basis.  But with this stricture, how do you evaluate an idea?  And signing some sort of confidentiality agreement only works if the submission is in some area where the company does not now have or plan products -- otherwise how can you prove that you didn't steal the guy's idea?  Thus there was a Catch-22: we could only look at ideas that were outside of our product area, but we only were interested in ideas within our product area.  I had to conclude that these outside submission committees were strictly a defense mechanism for my company.  To find out whether this was also true at other companies, I called the patent attorneys at the three U.S. car companies to see what their experience had been.  As of that time (circa 1980) none of them could ever recall having accepted an idea from the outside!  I found this astounding!

 

So the message is: determine what the real reason is for whatever mechanism exists in your company for handling outside submissions.  It will certainly be related to how the company really treats patents and proprietary information.  Then consider what you might need to do to tap into the reservoir of ideas out in the general world, without needlessly endangering your company.  There must be a way to balance the risk against the potential reward.

 

A final word about patents.  Most patents are worthless.  Yes, it's true.  But people secure patents in the hopes that theirs will be the "big one".  And there certainly have been some big ones: the Forester Patent made loads of money for M.I.T. -- it underlay the entire field of numerical control of machine tools.  The same was true for the patent on core memories, at least until semiconductors took over.  But the existence of one or two big ones in a patent portfolio doesn't make the others in that portfolio valuable.  So patents are an area of high risk and high reward, at least in industries where they have value.  Most patents will have little value, but a few will have really major value.  If only you could know which was which at the start and protect only the good ones!