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Joe Hage
🔥 Find me at MedicalDevicesGroup.net 🔥
March 2015
Stealing Your IP and Getting Away With It
11 min reading time

A few months back at a medical device investor conference, an Intellectual Property (IP) lawyer basically said:

If a LARGE company steals a SMALL company’s IP

– and SMALL sues –

SMALL will lose most of the time because it doesn’t have deep pockets, bandwidth, and counsel to defend it.

That stuck with me.

So I asked my IP lawyer Doug Limbach (http://medgroup.biz/Doug) for his perspective. And he replied,

“Your scenario, where LARGE usurps SMALL, is rare. Usually LARGE licenses, partners, or acquires SMALL. By and large, the U.S. patent system works the way as intended and LARGEs rely on SMALLs for breakthrough technologies.

That said, SMALLs must take a close look at the ideas that came before them and clearly define what they consider theirs.

If SMALL wants to keeps others out (and avoid being sued for infringing others’ IP), the general options are:

1) File patent, trademark, and/or copyright applications;

2) Keep the technology a trade secret; or

3) Make the company’s technology fully public so no one is able to obtain patent protection covering it.

The second and third options typically cost very little, but often don’t provide viable alternatives for protecting a technology. Conducting a freedom to operate patent search and analysis is also a good idea to ensure the company has actually come up with something new. Just because something didn’t made it to the market doesn’t mean it is novel and unpatented.

A fairly recent shift in the patent ecosystem is the rapid rise of non-practicing entities (NPEs) or patent aggregators, pejoratively known as patent trolls. These often develop no products or technologies, but acquire patents from companies that no longer can use them.

For example, when a company changes direction or dissolves, some or all of its patents may be sold to an NPE. The NPE will then use these patents to extract licensing fees from companies that are developing products in the area of the NPE’s patents.

NPEs play useful roles when purchasing a dissolving company’s patent assets, but often impede progress in a technology area when collecting royalties from companies who utilize and advance the technology.

New legislation is proposed to reign in NPE abuses but these proposals may weaken the patent system and harm many stakeholders.

For example, fee-shifting legislation proposes to have a losing party pay the legal costs for both parties. However, such a change could make it even more risky and cost prohibitive for SMALLs to legitimately assert their patents.

We’ll see if the proposals move forward in their current form.”

>> For the group, what are your greatest IP concerns?

+++

Doug will cover this and related topics during his 10x Medical Device Conference talk on May 5 in San Diego.

If you want to attend our annual meeting, register now.

Only 57 seats remain.
And the price increases tomorrow.

See the agenda: http://MedicalDeviceEvents.com/#schedule
And the speakers: http://MedicalDeviceEvents.com/#speakers

++++++++++

Make it a great week.

Joe Hage
Medical Devices Group Leader

P.S. Got a question for Doug? Ask him at http://medgroup.biz/protect-intellectual-property


Bogdan Baudis
Prinicipal Software Engineer at Cambridge Consultants
@Will
“I would not start a business”
And they (the developers) do not. Neither do trolls (they are not developers).
And the progress is not progressing or is progressing with the “working around overhead”.
Yes I know lots of silly things to be done to “get around” but I would like to grow up by now…

Willi Glettig
Owner of LCC Engineering & Trading GmbH and co-owner of Koldsteril
Dear Bogdan
I suspect your problem is not an IPR problem but rather a “freedom to operate” problem. You seem to fight with your competitors and not with trolls. If you start a new business you have to do your survey and then to create a new world. I am not a computer specialists but why not using machine language or prolog, oberon or what ever. If a troll accuses you of wrong doing you may turn around and sue him. But make sure you are unique and not infringing their territory. If you havent got a unique basis I would not start a business.

Bogdan Baudis
Prinicipal Software Engineer at Cambridge Consultants
@Will
The problem with the software patents is that they are trivial, the patent offices are still learning the software basics and there are jurisdictions where they are allowed (US for one…).
Most of these “patents” are “invented” by scouring existing publications.
You may say that since there is a prior art then they should be invalid and you are correct … but it will NOT help you in US when trying to start-up a business and receiving an injunction letter from a troll.
You can go to the court … if you have lots of money and time that is, and after all, you are already in bad position relative to the trolls:
you are trying to bring something to the market, your and your organization skills are mostly or exclusively NOT in the patent litigation business, the trolls do not do anything else but that.

If I was an emperor an attempt to patent software would be punishable with public whipping… One can dream…

Willi Glettig
Owner of LCC Engineering & Trading GmbH and co-owner of Koldsteril
Dear Bogdan
I dont know where you have a problem? In most countries you cant patent software and business processes. In those countries where you can patent software nobody is forcing you to go for patenting. Your only problem in such countries is “freedom to operate”. You just publish your personal intellectual property in a newspaper/journal so that nobody can steal your knowledge and patent it.

Bogdan Baudis
Prinicipal Software Engineer at Cambridge Consultants
@Willi
“Don’t you think we should move forwards with constructive suggestions?”
I already did.
For starters: Abolish software and “business process/practice” patents.
Otherwise we will be all playing silly games as we do now.
Or as you said: accept the status quo.
In other words: something must be wrong with status quo, otherwise we all would be happy by now?

About that cyclone vacuum cleaner … I find the traditional sucker good enough and much cheaper, thank you very much. Does not look very cool but it is hidden for most of the time in the closet. Sometimes this invention stuff is somewhat overblown …

Willi Glettig
Owner of LCC Engineering & Trading GmbH and co-owner of Koldsteril
Dear Bogdan

We all know the difficulty in patenting. However not everything is bad and impossible. We have to accept the status quo and concentrate our energies on finding viable strategies. Trying to change the world through the political process is waste of time, very costly and unpredictable. Maybe we should swing the discussion in this blog towards strategies that protect inventors and developers.

Maybe we should register patents in countries such as China and to export to the USA? Or we should register Trade Marks, Design and hid know how into EPROMs. Maybe a smart lawyer can come up with protecting IPR through some other laws to create competition to UPSTO? Maybe we should develop only niche products with small target markets but high margins? How would you solve the status quo problem?

If we talk Patents we also have to talk financing. Serious product development takes years and in most cases product developer runs out of money to pay patent maintenance. (Read CV of Dyson who developed the cyclone vacuum cleaner). Maybe we should talk about where we find equity investors that can be trusted and what to do to build trust? You certainly don’t find suitable investors in a shark tank. You would increase rate of success by approaching successful business people that have a similar background and to make it clear at the start that you don’t accept game playing.

Don’t you think we should move forwards with constructive suggestions?

Bogdan Baudis
Prinicipal Software Engineer at Cambridge Consultants
@Willi
“That we as serious creators/ developers don’t have the guts to search and find sensible net-wealth people”
Most of the so-called “net-wealth people” are interested in preserving their wealth in the less risky and easiest way possible rather than “invest directly in new products/technologies”.
They figured out that the best is to pay politicians to steer laws to preserve their position and employ media in dumbing down and confusing the message so the public is occupied with anything but boring thins like technology.
The patents and copyrights expiration terms ballooning to ridiculous lengths are one of the symptoms.
They rather live off the rent than risk their money for unsure ventures…

Sure John Olivier is far from a civil, detailed and professional discourse on the subject we should have. He is a comedian after all.
But that is what we are left with.

Willi Glettig
Owner of LCC Engineering & Trading GmbH and co-owner of Koldsteril
Dear Joe
I had a look at the youtube presentation. The clip touched on three worrying issues:
1. Peoples that invest all their flesh and blood in developing new products and technologies to build the basis for new job opportunities and to advance society are being instrumentalized by the media and shark tank goons to behave like clowns.

1. That we as modern and hopefully decent society participate and support such events!

3. That we as serious creators/ developers don’t have the guts to search and find sensible net-wealth people that have money and interest to invest directly in new products/technologies. Having BAs, VCs, Consultants, Mentors present will increase the risk of conflicts exponentially because they are all OPMs that don’t have money. They aim to earn their money by issuing crazy term sheets and by playing investors against entrepreneurs. Entrepreneurs have to be good persuader and should never participate in a game of divide and rule.

Bogdan Baudis
Prinicipal Software Engineer at Cambridge Consultants
Of course I did! Highly recommended.
Sad state of affairs when the real news have to be delivered by comedians …

Joe Hage
🔥 Find me at MedicalDevicesGroup.net 🔥
Did you see? (Note: profanity.)

Last Week Tonight with John Oliver: Patents (HBO) – YouTube ow.ly/LTeOs

Stephen Carter
Are you an ambitious company looking for an expert who can demystify intellectual property? Then look no further.
Good points Doug and Burrell. We find that for a majority of out startup clients, the PCT patent application route is the way to go. It minimizes the cost whilst maximizing the opportunity, buying more time to secure investment (and my experience is that whilst an investor may not attribute great value to an early stage patent application, the absence of a patent application may be a deal breaker if no other potential barriers to competition exist).

One point to bear in mind is that when you are filing a PCT application you are filing an application not only for the U.S. but also for Europe and elsewhere, so it ought to be written in a way that is sympathetic to the laws and practice in key jurisdictions if it is to give the best results down the line.

Doug Limbach, JD
Patent Attorney at Shay Glenn, LLP
Good points Burrell. One point of clarification: foreign patent applications must be filed within 12 months of the first US filing, or if a Patent Cooperation Treaty application is filed within this time period, the national phase must be entered within 30 months of the first US filing. This often works out to be 18 months after the US non-provisional filing when both provisional and PCT applications have been utilized and the full year is taken between provisional and non-provisional filings.

Burrell (Bo) Clawson
I research patents & design products to get a patented competitive position: Over 30 patents.
Patents for a small company are only done for future value (you usually need more than one, and it typically takes 3+ years to issue now.) Investors/buyers won’t assign much value to patent applications.

Patents are only of initial value as a deterrent and for gaining interest from investors or companies who would buy out the small company after the patents issue.

One item not mentioned here yet are foreign patent applications which must be filed within a short 18 months after the US patent application is filed.

Getting significant coverage in key industrialized countries becomes a major expense for a startup. This is exactly why a startup can benefit so much by getting investors early so the capital is available to protect what you develop so you can cash out or earn money later at a greater rate by protecting your product’s exclusivity.

Bogdan Baudis
Prinicipal Software Engineer at Cambridge Consultants
@Dough
On a certain econo-social-philosophical level it boils down to the question: do you want economy ruled by rent or actual work?

As for the software being copied ,,, It is one thing to take a software verbatim and repackage it under different name, that is theft. It is another to take a structure construct and use it to solve another problem. Software has roots in mathematics and it should operate more this way: you cannot patent a theorem and this is the base of progress in math. And still it did not prevent from mathematicians, academics and industry to make respectable profits.

The biggest blow to the federal and academic research is the budget starvation perpetuated by shortsighted and frankly not very sharp Congress and succession of administrations who do not have understanding of the value of basic research.
This is of course OT, and a much more difficult and wider issue…

Doug Limbach, JD
Patent Attorney at Shay Glenn, LLP
Here’s another avenue for group members to create positive change in the patent system:

http://www.uspto.gov/blog/director/entry/first_patent_quality_summit_a

The previous Director of the USPTO actively solicited, listened to, and acted on comments from all stakeholders, including SMALL companies and independent inventors, and I’m hopeful the current Director will too.

Burrell (Bo) Clawson
I research patents & design products to get a patented competitive position: Over 30 patents.
1. solutions for small companies and entrepreneurs: Negotiate, negotiate and negotiate some more.

Negotiating is a specialty and though people “trust” their attorney, a lot of attorneys are not good at negotiating or advising on negotiating.

Patent licensing offers a number of options to negotiate and they should be explored in all the permutations before you go in to negotiate:
* Up front fees, based on exclusive period to negotiate (& later fees could be based on the 1st year material or capital equipment cost savings);

* license rates, fixed or declining,

* Time period for patent to expire or possibly competitors to do a workaround,

* Future upgrades with added patents automatically being included in the license and extending the time for payment of fees,

* Trade secret part of implementing the patent (could be more valuable than the patent),

* Join Forces: Cooperative development between companies for the next gen patents to gain seriously extended coverage.

* Pressure tactics: “Look, a NYSE company like yours needs exclusivity. I can license that. If we fight, we may just have to put our next generation inventions into the public domain and you won’t be able to exclude competitors from using those. The alternative is we work together or competitors get an advantage.” NYSECo will say “But you wouldn’t get anything out of public release.” and you can state back, “But NYSECo will then be saddled with more competitors.”

The point is to obviously be able to offer the larger company a deal on a compelling value point or points for them so they can see obvious long term value and sell a deal to their executive suite.

There are dozens of ways to skin a deal. Write them down and plan each scenario out.

Bogdan Baudis
Prinicipal Software Engineer at Cambridge Consultants
@Abhinav Rai
“Lawyers come into action after the technology layer is breached”
Well, not exactly.

See Apple/Samsung patents war, most of the “patents” are issued preemptively, I don’t know how many stoop to the levels of “a rectangle with oval corners”, but many I saw as just plain ridiculous.

But this are two giants pummeling each other and do not own stock of any of them (at least directly…), so I care less.

However patent trolls showing on a door of a successful start-up with bogus broad “patents” when the company went thru sweat and blood to finally reap rewards is a different story. The so called “inventions”, laying and collecting dust for years, with nobody actually bothering to implement them, usually containing such earth shattering “innovations” like “a system for an Internet-assisted backup” without any other substantial supporting technology or claims? (see Carbonite case, this one a jewel, the guy who patented it was apparently no more than a scribe during the meetings, he was allowed to patent the idea without even given due to his colleagues, effectively making USPTO a vehicle for what should be labeled as IP theft!).

The patent system was supposed to foster innovation and protect the ACTUAL innovators.
It does not.

I can try to claim a patent on “a hand-held apparatus to be used for digging Martian soil” without ANY chance of implementation or even concept validation and I may be lucky to actually get it approved. No just wait until somebody gets there and uses a shovel…

Abhinav Rai
Sr. Manager-Projects at Hero MotoCorp Ltd
@Joe
When you say small companies do not have deep pockets so that they can save their IPs. Here is where a proper IP implementation program is needed. If a company no matter what the size of it is rich or poor, make use of technology, can never loose IPs to competitors. Lawyers come into action after the technology layer is breached.

Bogdan Baudis
Prinicipal Software Engineer at Cambridge Consultants
@Dough
Well, I am a software engineer, as such it is hard to me to be cool about patent system. 99.99% of software patents should be illegal if we are serious about progress and fairness to the developers and inventors (we are not, we are only serious about making richer people who are already rich way beyond enough)

I appreciate you apology but it is hard to me to believe that the patent/legal system works for fairness, justice or progress. From my personal experience with the judicial systems only lawyers can win anything; plaintiffs, defenders .. they almost always loose in the balance.

I understand that we all need to survive in the circumstances we found ourselves in, but I can also call a spade, a spade.

Doug Limbach, JD
Patent Attorney at Shay Glenn, LLP
Bogdan, I apologize, I did not appreciate how that sound byte would come across with my using it out of context. Director Kappos did much during his tenure to improve the patent system for small companies and independent inventors . He did not make the statement cavalierly, but was just calling a spade a spade.

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