How to Control Inventions and Patents Resulting from Joint Development

“…each coowner [of a patent] is ‘at the mercy’ of its other co-owners.” – Federal Circuit Court of Appeals.

STC.UNM (the licensing arm of University of New Mexico) was at the mercy of Sandia Corp. regarding STC’s patent.

STC sued Intel Corporation for infringement of U.S. Patent No. 6,042,998 (the ‘998 patent) in the case of STC.UNM v. Intel Corp., No. 2013-1241 (Fed. Cir. 2014). STC and Sandia co-owned the ‘998 patent.

But, Sandia refused to join the lawsuit against Intel, “prefer[ring] to take a neutral position with respect to this matter.” This led the court to dismiss the infringement suit against Intel.

STC was at the mercy of Sandia’s refusal to join the lawsuit. Maybe this lawsuit against Intel could have resulted a large money judgement for STC. But, Sandia’s neutrality was the end of STC’s enforcement of ‘998 patent was against Intel.

All Patent Co-Owners Must Join A Patent Infringement Suit

“[A]ll coowners must ordinarily consent to join as plaintiffs in an infringement suit,” the Federal Circuit Court of Appeals said. “[O]ne co-owner has the right to impede the other co-owner’s ability to sue infringers by refusing to voluntarily join in such a suit.”

You may say this is not fair. If I’m an owner of a patent, why can’t I sue without the other co-owners?

The court says, “rule requiring in general the participation of all coowners safeguards against the possibility that each coowner would subject an accused infringer to a different infringement suit on the same patent.” In other words, the rule guards against Intel first being sued by STC and then being separately sued by Sandia on the same patent.

Why not just force co-owners to be involuntarily joined to the lawsuit? The court says allowing co-owners to refuse to join a lawsuit “protects, inter alia, a co-owner’s right to not be thrust into costly litigation where its patent is subject to potential invalidation.”

Do you want to be at the mercy of a coowner?

Co-Owners Can Exploit the Patent without Consent or Dividing of Profits

Not only can a co-owner thwart enforcement attempts of a coowner, but a joint owner of a patent can exploit the patented invention in the US without consent or accounting to the other joint owners.

In particular 35 U.S.C. 262 provides, “In the absence of any agreement to the contrary, each of the joint owners of a patent may make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owners.”

The Problems of Prospecting Without All Patent Co-Owners

The practical impact of section 262 is that if there is a falling out or disagreement between the joint owners, it will be very difficult any of the owners of the patent to license or obtain any benefit from the patent.

Let’s say that the joint owners of the patent are Adam and Bob. If the plan is to license the invention and not make and sell it, then Adam will have a difficult time finding a company to license the invention from Adam, when Bob is not a party to the license. The company will know that it will not have exclusive rights in the invention because Bob could license to the company’s competitors. Non-exclusive licenses are generally less valuable than exclusive licenses owing to the licensee’s need to compete with other licensees. Therefore, at the very least, Adam will not be able to obtain as favorable terms as would be the case if Bob was also involved.

Further, a sales approach of one owner without the other co-owner will be more difficult. A patent savvy potential licensee will inquire as to whether joint owner, Bob, will be a party to the license. And if not, the patent savvy potential licensee may inquire why joint owner Bob is not involved and what were the circumstances of the falling out between Adam and Bob. Then Adam may be in a difficult position of explaining the dirty laundry of the situation between Adam and Bob. And if the explanation is not sufficiently satisfactory, the potential licensee may be concerned that the license will get the licensee in the middle of a dispute between Adam and Bob. Coming to the table with less than all of the joint patent owners may be a deterrent to successful licensing of the patent.

The potential licensee will also be concerned over Adam’s inability to stop third party infringers even if Bob does no licensing or selling of the patented invention. This is because of the requirement, discussed above, that all joint owners of a patent are necessary parties to patent infringement litigation and patent litigation can’t proceed without all necessary parties.

Even a cease and desist or license demand letter short of litigation will be less effective if all patent owners are not on board with enforcement. The Federal Circuit recognized this stating, “Admittedly, a license demand may have less bite if STC cannot sue potential licensees if they refuse….”

Problems Going to Market Alone

In the case where either or both Adam and Bob want to be in the business of selling the patented invention themselves and not licensing, if both Adam and Bob are in the market, Adam will have to compete will Bob and vice versa. Even if only Adam is selling in the marketplace, Adam will be unable to stop infringing competitors if Bob refuses to join in any patent lawsuit/enforcement. If Bob refuses to join in the patent enforcement efforts, the patent is essentially worthless for stopping competitors, except as a scarecrow.

Agreement Options

As you can see there are many downsides to joint ownership of a patent under the default rule provided by section 262. So, I’ll list and discuss a number of possible alternative arrangements.

  1. One Sided. One party owns all the jointly developed subject matter, and the other party:
    1. has no rights in it,
    2. has restricted rights, e.g. can only purchase the subject matter from the owning party, or
    3. has permissive rights, e.g. has a license to the jointly develop subject matter and can go to third parties and permit them make or purchase the subject matter;
  2. Joint Ownership. The parties jointly own the jointly developed subject matter and:
    1. Exclusive Marriage – Work together exclusively regarding the protection and exploitation of the subject matter, and the enforcement and licensing of related IP,
    2. Free For All / Hands Off – Each party can do whatever they want with the jointly owned Patent related to subject matter without accounting, agreement, or interference of the other (this is the same effect as Section 262), or
    3. Somewhere in between 2(A) and 2(B); or,
  3. New entity. The parties form a new legal entity for owning and exploiting the IP. Each party controls the new entity according to the new entity’s operating agreement.

1(A) – One Sided, No Rights If one party owns all the rights and the other party has no rights, this is commonly a consulting situation. One party hires the other party to develop the subject matter. The hiring party pays the other party money. And the hiring party owns all the rights in the subject matter developed by the other. This is common when hiring consultants, such as developers, engineers, and other professional service providers.

This arrangement is not commonly thought of as joint development, but rather a consulting engagement, although in many cases joint development will occur because both the hiring party and the hired party will contribute to the conception and development of the subject matter. The agreement between the parties will have an assignment provision providing that the hiring party will own all the developments of the hired party. Here is a very simple example of assignment statement:

Consultant hereby assigns all right, title, and interest to the Owner in (a) the Work Product and (b) all intellectual property rights in the Work Product.

1(B)One Sided, Some Rights – The next option is that one party owns all the rights and the other party has certain restricted rights (via a non-exclusive license) in the jointly developed subject matter. Such restricted licensed rights could include the right of the non-owning party to make, sell, and/or use the products/services embodying the jointly developed subject matter. Such rights could also include the right to purchase or use the products/services embodying the jointly developed subject matter from the owning party at a preferred or discounted price. Here is an example:

Party A (Owner) grants Party B an irrevocable, perpetual, worldwide, royalty-free non-exclusive license to [list the rights, such as: use, make, offer for sale, sell, and import ] the Work Product (“Licensed Rights”). Party B has no right to sub-license any of the Licensed Rights.

Generally these restricted rights do not include the right to sublicense, e.g. allow third parties to make, use, or sell the jointly developed subject matter. If the non-owning party has an unrestricted right to sub-license, then the non-owning party can subvert the patent enforcement efforts of the owning party by granting a targeted infringer a license without the owning party’s consent. So while the owning party can sue without the licensee’s consent or participation, if the infringer can discover the licensee’s right to sublicense and convince the licensee to grant a sublicense, the licensee can subvert the owner’s ability to obtain ongoing royalties/damages and a injunction.

1(C) – One Sided, Generous Rights – The next option is that one party owns all of the rights and the other party has generous rights in the jointly developed subject matter. If such generous rights include the ability to sublicense, then you may run into the problems just described in section 1(B). Nonetheless, since one party owns all of the jointly developed, that party does not need permission from the other to sue third parties.

 2(A) – Joint Ownership, Exclusive Marriage – Under the joint ownership, exclusive marriage agreement, each party jointly owns all of the jointly developed subject matter and contractually agrees to work exclusively with each other in the development, commercialization of the jointly developed subject matter as well in the procurement and procurement of intellectual property rights in the jointly developed subject matter. The parties may agree that one of the parties will exclusively manufacture the products and the other party will exclusively purchase the product from the manufacturing party. The parties may agree that they will share equally in the cost of procurement and enforcement of intellectual property rights in the jointly developed property.

In the exclusive marriage arrangement, it will be critical that the agreement provide procedures to deal with circumstances where one party no longer wants to (1) contribute to the costs of procurement or enforcement of the intellectual property rights, (2) purchase the jointly developed product from the party manufacturing it, if any, (3) sell the jointly developed product, or (4) otherwise work with the other party.

In the case of a breakup of the parties, the agreement could provide that the party no longer wanting to contribute to the procurement or enforcement cost must assign all of that parties rights in the IP to the other party. The agreement could provide that assignment must happen without further consideration, or it could provide that the assignment party must be compensated in some manner at the time of assignment. If the assigning party must be compensated, it would be best to define the amount or a formula or determining the compensation upfront, otherwise the split could lead to litigation over the assignment/compensation, such that the IP rights can’t be enforced or properly procured during the pending litigation or dispute.

Another factor that is critical in the joint ownership arrangement, is to define each parties preexisting products and/or intellectual property. This is particularly important were each party will build on their prior products or intellectual property or will otherwise contribute some of their preexisting products or IP to the jointly developed subject matter. Therefore, the agreement should particularly define, the preexisting products or IP of each party, which are anticipated to be used or incorporated into the jointly developed subject matter.

Then the agreement should make clear, unless the parties intend otherwise, that each party retains their ownership rights in their respective preexisting products/IP. Therefore preexisting products/IP should be described or referenced in the agreement. The description of the preexisting products/inventions of the parties may be provided in the form of reference to a publicly available patent(s) or patent application(s), or by attaching technical descriptions and drawings to the agreement. When attaching technical descriptions and drawings, it is important to be clear as to the scope of what is covered. As in a patent application, the parties may want to broadly describe the prior products/inventions so as not to limit their preexisting rights, to the extent possible or desired. The strategy in each individual case will depend on the circumstances.

2(B) – Free For All / Hands Off.  When jointly developed subject matter is developed under an agreement that does not provide what rights each party has in the jointly developed subject matter, then with respect to patented inventions the default rule of 35 U.S.C. 262 will apply, with the attendant down sides discussed above. This might be called the free-for-all or hands-off approach.

However, note that section 262 applies to join owners of a patent. If the subject matter jointly developed is not eligible for patenting, then it would not apply. Further, even if the subject matter jointly developed is patentable, but a patent application is not filed, it may be doubtful that section 262 applies. If section 262 does not apply, then some other law would control the ownership and use of the jointly developed subject matter. Therefore, it is best to define the ownership and exploitation rules in a joint development agreement rather than relying on section 262–if you did prefer its provisions–to account for handling subject matter to which section 262 does not apply.

2(C) – Middle Ground

As is obvious, a jointed development agreement can be crafted somewhere in between an extremes of an exclusive marriage and a free-for-all.

3 – New Entity

Instead of one party or both parties owning the jointly developed subject matter, neither party can directly own the jointly subject matter. The parties can achieve this by forming a new entity (LLC, Corporation, partnership, etc.) and then can assign each of their respective rights in the jointly developed subject matter to the new entity.

Each party can own the new entity and the new entity’s operating documents can define how the parties will contribute to the development and exploitation of the jointly developed subject mater and related intellectual property. The operating agreement will also define how numerous situations will play out, such as how expenses are divided, how and when revenues are dispersed or reinvested, when one party doesn’t want to contribute further, what to do when one party wants out, and other situations typically accounted for when forming and operating an entity with multiple owners.

The benefit of forming a new entity is that (1) neither party can impede IP enforcement (except as provided in the operating document), (2) licensing and enforcement efforts are not hampered by the lack of all owners being involved, (3) each party “feels” good about co-owning the entity as compared to one-sided ownership arrangements. One downside for forming a new entity is the legal and other costs and time associated with forming and operating a legal entity.


The issues surrounding ownership, exploitation, and expenses related to jointly developed inventions should be address before the joint development effort beings. The default rule is that co-owners of a patent can exploit the patent without permission or accounting to the other co-owners, a situation that is often not desired.

They Have a Patent, Or Do They? Granted Patents & Published Applications

Published patent applications look similar to granted patents. So it is not unusual for a published patent application to be mistaken for a granted patent.

Not every patent application results in a granted patent. So even if a patent application publication exists, it doesn’t necessarily mean that the application will result in a patent.

In this post I’ll point out the differences between a patent application publication in a granted utility patent.

The following image is an excerpt from the front page of granted US Patent No. 8,000,000 (the ‘000 patent):


The following image is an excerpt of the front page of the Patent Application Publication No. US 2008/0262568 (the ‘568 application), which later became the granted patent above.


The patent application publication is not a granted patent. The patent application publication is simply a published application. In the example above, the ‘568 publication was published on October 23, 2008, but the ‘000 patent was not granted until August 16, 2011.

The patent application publication exists to let the public know of the contents of a patent application even if it doesn’t result in a patent. The contents of the patent application therefore become prior art based on the date it was published. If a patent doesn’t result, the public can benefit from the knowledge provided in the published patent application.


The first difference between a patent application publication and a granted patent is that the patent application publication provides “United States Patent Application Publication” in the upper left corner of the front page, but the granted patent provides “United States Patent” in the same area.

Number Format

Second, you should note that the number format is different between a patent application publication in a granted patent. A patent application publication generally begins with a year followed by a “/” and then a number. In the example above the year is 2008 followed by a slash followed by a sequential number 0262568.

In contrast the patent application number is usually represented as a unitary number with commas between the hundreds and the thousands portion, and between the thousands and the millions portion of the number. Beginning in 1912 utility patent numbers entered the millions. You can see a full list of the patent numbers by year here. Currently we are in the 8 million range for patent numbers.


Under the patent number on a granted utility patent “Date of Patent” is provided adjacent the date. In contrast, a patent application publication provides “Pub. Date” adjacent the date under the publication number.

Paragraph and Line Numbering

In a granted US utility patent, line numbers are provided in increments of five and are located between the first and second column of each page of text as shown here:


In a patent application publication line numbers are not provided, instead paragraph numbers proceed each paragraph as shown here:


These are some of the ways that you can distinguish between a patent application publication and a granted patent.

How to be a Disruptive Inventor: Lessons from Alexander Bell

TheMasterSwitch_TimWu[the inventor’s] significance is enormous…The inventors we remember are significant not so much as inventors, but as founders of “disruptive” industries, ones that shake up the technological status quo. Through circumstance or luck, they are exactly at the right distance both to imagine the future and to create an independent industry to exploit it.

On the same day in 1876 that Alexander Bell’s patent application on the telephone was filed, a patent application by Elisha Gray was filed on the same invention. Sixteen years before this, Johann Philip Reis of Germany presented a primitive telephone to a scientific group. And, Daniel Drawbaugh, a Pennsylvania electrician, claimed that by 1869 he had a working telephone in his house.

The story of the invention of the telephone is similar to other invention stories where multiple inventors independently invent the same or similar invention within a short period of time. Steve Johnson notes that this substantially simultaneous invention occurs because the invention becomes “an adjacent possible” once founding or necessary elements or parts are created, discovered, or otherwise available. Tim Wu, author of The Master Switch: The Rise and Fall of Information Empire, notes the same phenomenon. One might question whether a particular inventor’s act of inventing is ever significant, if the invention/discovery was bound to happen, by this or another inventor. Wu argues the inventor’s significant is very important for founding of disruptive information industries in a process he calls “the Cycle.”

In The Master Switch, Wu provides a look at the control and innovation in information industries, such as the industries involving the telegraph, telephone, entertainment, radio, TV, and the Internet. These information industries tend move from a freely accessible channel to a channel that is strictly controlled by one corporation or cartel.

Wu’s thesis is that the history of information industries shows that such industries oscillate from an open to closed state in what he calls, i.e. “the Cycle.” Based on this history, Wu predicts that the information industry of the Internet may move from an open platform (which it currently is) to a closed system. A separation principle is needed to protect the Internet from being turned into a closed system. The separations principle provides, in part, the following must be kept separate: those who develop information, those who own the network infrastructure on which it travels, and those who control the tools or venues of access.

The book provides a discussion of the development of the telephone industry as one example of (1) a birth of an information industry and (2) the characteristics of a disruptive inventor.

Inventor’s Enormous Value As Disruptor

Wu describes invention as making available the adjacent possible. The reality that there was no single inventors of the telephone “suggests that what we call invention, while not easy, is simply what happens once a technology’s development reaches a point where the next step become available to many people,” said Wu.  Wu notes that others had provided the tools for the adjacent possible telephone, e.g. others has invented wires, the telegraph, and discovered electricity and the basic principles of acoustics. Therefore the building blocks for the telephone were available and Bell had to put them together. Wu asserts, that “inventors are often more like craftsman than miracle workers.”

Given the regularity with which simultaneous discovery/invention occurs, should the lone inventor be accorded much significance? Wu says the inventor’s significance is still enormous:

…I would argue his significance is enormous; but not for the reasons usually imagined. The inventors we remember are significant not so much as inventors, but as founders of “disruptive” industries, ones that shake up the technological status quo. Through circumstance or luck, they are exactly at the right distance both to imagine the future and to create an independent industry to exploit it.

Bell build the telephone industry that eventually killed the prior communication industry, the telegraph industry dominated by Western Union. Bell’s patent turned out to be a critical asset for doing so.

Be an Outsider

Wu notes several conditions that help a disruptive innovator succeed. First, it is important for the inventor to be an outsider with some distance from the current industry:

Let’s focus, first, on the act of invention. The importance of the outsider here owes to his being at the right remove from the prevailing currents of thought about the problem at hand. That distance affords a perspective close enough to understand the problem, yet far enough for greater freedom of thought, freedom from, as it were, the cognitive distortion of what is as opposed to what could be. This innovative distance explains why so many of those who turn an industry upside down are outsiders, even outcasts.

Disruptive innovation supplants or destroys existing products or industries, and sustaining innovation provides incremental improvements. The outsider status of some inventors provides him/her the freedom of a disinterested party:

Another advantage of the outside inventor is less a matter of the imagination than of his being a disinterested party. Distance creates a freedom to develop inventions that might challenge or even destroy the business model of the dominant industry. The outsider is often the only one who can afford to scuttle a perfectly sound ship, to propose an industry that might challenge the business establishment or suggest a whole new business model. Those closer to—often at the trough of—existing industries face a remarkably constant pressure not to invent things that will ruin their employer. The outsider has nothing to lose.

Bell was an outsider. Bell was a professor, who taught the deaf, and amateur inventor. He worked out of the machine shop in his attic trying to transmit voice across wires. These early efforts are described by Wu as “mostly futile, and the bell company was little more than a typically hopeless startup.”

But not too Far Away

It is not any distance that will work. The right distance is needed because but too much distance from the industry or the adjacent possible puts you out of the game:

It may be that Daniel Drawbaugh actually did invent the telephone seven years before Bell. We may never know; but even if he did, it doesn’t really matter, because he didn’t do anything with it. He was doomed to remain an inventor, not a founder, for he was just too far away from the action to found a disruptive industry.

Wu credits Bell’s partnership with patent attorney, Gardiner Hubbard, a critic of the Telephgraph company, as placing Bell close enough to the industry. Hubbard formed Bell’s invention into a campaign to supplant Western Union as the dominate communications company. Here, like in the case of Telsa, the Bell brought on savvy partner to help with the commercialization efforts.

In contrast, Elisha Gray’s backer was Samuel White. White wanted Gray to focus on an acoustic telegraph. The acoustic telegraph appeared to be destined for large profits as compared to the unestablished telephone. Wu suggests that but for White’s opposition to Gray working on the telephone and Gray’s need to keep his work on the telephone secret, Gray might have developed a working telephone and patented it before Bell.

Don’t be Distracted by an Apparent Pot of Money for Incremental Invention 

Wu says, “The inability of Hubbard, White, and everyone else to recognize the promise of the telephone represented a pattern that recurs with a frequency embarrassing to the human race.” To a hammer, everything looks like a nail. Our minds are too lazy to seek out new ways of thinking when old ones will due.  “Nothing … concentrates the mind like piles of cash, and the obvious rewards awaiting any telegraph improver were a distraction for anyone even inclined to think about telephony, a fact that actually helped bell.” said Wu.


Wu says “through circumstance or luck” the disruptive inventor is at the right distance to disrupt an industry. However, you may be able to intentionally set yourself up for to be a disruptive inventor by exposing yourself to diverse ideas across disciplines to be in the position to recognize the adjacent possible, having some distance from the targeted industry, and not being distracted by the apparent financial gain available from incremental invention within the targeted industry.

Childhood Hands-on Play an Indicator of Furture Creativity

Play_StuartBrown“Unlike their elders, the young engineers couldn’t spot the key flaw in one of the complex systems they were working on, toss the problem around, break it down, pick it apart, tease out its critical elements, and rearrange them in innovative ways that led to a solution.”

Scientists and engineers at Cal Tech’s Jet Propulsion Laboratory (JPL) have over the years invented and designed major components of manned and unmanned space missions. In the 1990’s, JPL began replacing retiring engineers and scientist that started in the 1960’s. However, while the new hires came from top engineering schools, the new hires were not very good at certain types of problems solving that involved taking theory to practice. What were the new engineers missing?

Stuart Brown’s book Play: How it Shapes the Brain, Opens the Imagination, and Invigorates the Soul explores the important effect that play has on our lives.

Indicator of Future Creativity

One area that play positively effects is creativity. As Brown explains regarding JPL, the new hires had excellent grades from the best schools, but that was not enough. Nate Jones, owner of a machine shop specializing in racing tires, encountered the same problems as JPL did in hiring. Jones found that employees that had “worked and played with their hands as they were growing up were able to ‘see solutions’ that those who had not work with their hands could not.”

The managers at JPL found as similar pattern. They found the older employees, in their youth, had taken a part clock to see how they work, or made soapbox derby racers, build hi-fi stereos, or fixed appliances. The young engineers that had done the same thing–worked with their hands in their youth–were good at problem solving, but those who had not, were generally not. After making this discovery, JPL managers changed their interview process for new hires to ask applicants about projects and play they engaged in during their childhood.

In view of this Brown states, “The engineers that JPL found to be so adept were the one who had played [using] their hands in their youth…They performed well as adult engineers not because they had lots of practice working on watches, but because in a sense they were doing for work what they had always done for pure enjoyment.” This is along the same lines as  Paul Graham’s advice to hire programmers that write software in their free time.

Brown continues: “..there is a kind of magic in play. What might seem like a frivolous or even a childish pursuit is ultimately beneficial. It’s paradoxical that a little bit of ‘nonproductive’ activity can make one enormously more productive and invigorated in other aspects of life.”

Defining Play

Brown asserts that it is difficult to provide an all-inclusive definition of play, but provides that play generally has the following properties: (1) it is apparently purposeless and done for its own sake, (2)  it is done voluntary, (3) it has inherent attraction, (4) it provides freedom from time in that we can loose track of time in a state of flow, (5) it provides diminished self-consciousness, (6) it creates potential for improvisation, and (7) it creates a desire to continue doing it.

The examples provided by Brown may be anecdotal, but Brown is not the only one drawing the connection between childhood play and creativity.  If childhood hands-on play is, in fact, an indicator of future creativity, business owners and hiring managers may like to consider this factor when choosing employees or business partners.

Fending Off Competitors with Barriers to Entry: Hard Problems and Networks

BarriersToEntry_HardProblems“If you can develop technology that’s simply too hard for competitors to duplicate, you don’t need to rely on other defenses. Start by picking a hard problem, and then at every decision point, take the harder choice.” – Paul Graham

Patents are not the only barriers to entry. Sometimes the technology can’t be patented, sometimes patent deadlines are missed, sometimes there’s not yet enough money to pursue a patent, sometimes you’re not sufficiently certain whether the invention will be the next big thing so as to justify pursuing a patent. Sometimes your looking for protection instead of or in addition to patents and you already explored the legal alternatives to patenting. What other barriers are there?

Barriers to entry provide a competitive advantage in the market place. If it is too hard for your competitors to enter a market or solve the problems you are solving, then you will have less competition. With less competition, you will be able to charge a premium for your solution. Financial backers, such as venture capitalist, are often interested in barriers to entry related to your solution because those barriers protect the financer’s investment. Barriers to entry come in many forms. Below I look at the strategy of picking hard problems and building networks, among the many others that might apply.

Pick Hard Problems

Paul Graham explains why it is important to pick hard problems to solve.

Use difficulty as a guide not just in selecting the overall aim of your company, but also at decision points along the way. At Viaweb one of our rules of thumb was run upstairs. Suppose you are a little, nimble guy being chased by a big, fat, bully. You open a door and find yourself in a staircase. Do you go up or down? I say up. The bully can probably run downstairs as fast as you can. Going upstairs his bulk will be more of a disadvantage. Running upstairs is hard for you but even harder for him.

What this meant in practice was that we deliberately sought hard problems. If there were two features we could add to our software, both equally valuable in proportion to their difficulty, we’d always take the harder one. Not just because it was more valuable, but because it was harder. … I can remember times when we were just exhausted after wrestling all day with some horrible technical problem. And I’d be delighted, because something that was hard for us would be impossible for our competitors.

Seth Godin notes Ford’s advantage by taking on hard problems:

Henry Ford did the same thing [take on hard problems] with the relentless scale and efficiency he built at Ford. Others couldn’t imagine raising their own sheep to make their own wool to make their own seat fabric…

“How do we do something so difficult that others can’t imagine doing it?” is a fine question to ask today.

Build-in Network Effects

VC, Fred Wilson, notes another way to create a barrier to entry is to develop a product or service that features a network effect. Fred provides an illustrative story–read the whole story here–involving the dentist industry where the first entrant provides high priced software for managing a dental office. A second entrant run by two entrepreneurs develops a low priced version of the software with mobile apps which eat away at the first entrant’s market. Then an open source version of the software is developed, which kills the first and second entrant’s businesses. Fred concludes:

…software alone is a commodity. There is nothing stopping anyone from copying the feature set, making it better, cheaper, and faster. And they will do that. … we asked ourselves, ‘what will provide defensibility’ and the answer we came to was networks of users, transactions, or data inside the software. We felt that if an entrepreneur could include something other than features and functions in their software, something that was not a commodity, then their software would be more defensible. That led us to social media, to Delicious, Tumblr, and Twitter. And marketplaces like Etsy, Lending Club, and Kickstarter. And enterprise oriented networks like Workmarket, C2FO, and SiftScience….
[emphasis added]


When you build technology that requires a network of users and you gain a user base, it is hard for competitors to be successful because simply copying the software is not enough. The competitor needs users too. Getting users is (or at least can be) hard. So the “network effects” barrier to entry may simply be one type of “pick hard problems” barrier to entry.

Photo credit to flickr user Anton Steiner under this creative commons license.

Inventor of Pay-Per-Click and Ad Auction Fails to Patent, Google Profits


We were ready to go public and we’re on fire, revenues going through the roof and all that, and were getting our IP portfolio together for the bankers, and everybody was like, ‘What patents do we have?’ And we didn’t have too many. … All we could do was patent everything else we could think of, a bunch of obscure things like the way we accept bids. These were silly patents, but the real patents would have been worth billions. … we learned our lessons about patent protection.”

said Bill Gross, founder of GoTo, who developed the concept of pay-per-click online advertising and real time auctions for pay-per-click ads before Google. These two concepts were used by Google in its search engine and made Google one of the most profitable businesses in history. GoTo failed to patent its inventions related to these concepts and potentially lost a lot of money as is explained below. This is the second post about Google based on information from Steven Levy’s  book In The Plex: How Google Thinks, Works, and Shapes Our Lives. The first post is here.

Google’s Auction Based on Ad System from GoTo
In 2000, Google’s venture capitalists were pressuring Google to make more money. So, Google founders, Larry Page and Sergey Brin, instructed Google employee Salar Kamangar to look into ways to make more money with the ad system. Eric Veach and Kamangar decided to use auctions to sell ads next to search results. And they got this concept from a search competitor called GoTo.

GoTo was founded by Bill Gross. Gross implemented an auction to determine the price that an advertiser would pay placement when a given keyword was searched. The higher the bid, compared to other bidders, the higher on the page your advertisement would appear in the search results.

The difference between GoTo’s implementation and how Google implemented the auction was ad placement. Gross’ implementation intermingled ads with organic search results. Many people disliked the intermingling, including Page and Brin. Google provided ads on the right and at a block at the top of the page, but not intermingled in the list of organic search results.

In addition, Gross implemented pay-per-click advertising. Before pay-per-click, most ads were sold on a pay-per-impression basis. An impression is when a person saw the ad. So regardless of whether a person clicked on the ad, the advertiser was charged when a person saw the ad.

GoTo Waits Too Long to Apply for a Patent & Is Barred
In 2000, “We were ready to go public and were on fire, revenues going through the roof and all that, and were getting our IP portfolio together for the bankers, and everybody was like, ‘What patents do we have?’ And we didn’t have too many,” said Gross. GoTo missed the one-year bar.

A patent application generally must be filed within one year of an offer for sale, a sale, or a public disclosure of the invention. This is referred to in the U.S. as the one year bar. At the time GoTo realized it needed to file patent applications on its core features of real-time auctions and its pay-per-click ad system, the system had already been disclosed for more than one year. Therefore, GoTo was barred from filing patent application(s) on those features and lost the ability to protect those core features with a patent(s). All GoTo could do “was patent everything else we could think of, a bunch of obscure things like the way we accept bids. These were silly patents, but the real patents would have been worth billions” Gross said.

The one-year bar in the U.S. can be problematic for independent inventors, startups, and small businesses because often you will want to determine whether there is a market for the invention before spending money on the patent process, but patent law encourages you to file a patent application before you make your invention public and not to rely on the one-year grace period (if you are interested in foreign protection, many foreign countries provide no grace period).  Here, we don’t know the reason why GoTo missed the one year bar, maybe they didn’t think about patenting, maybe they didn’t realize the value of the core technology within one year, or maybe they didn’t have the resources, etc. Whatever the reason, the one year bar is a common problem, not only for GoTo, but for inventors and companies generally. Patent law encourages early patenting. This post provides ideas for patent protection based on the available financial resources.

Google Turns Down Goto’s Requests for Merger; Goes Alone
Later in 2001 Gross suggested to Page and Brin that GoTo and Google merge. But according to In The Plex, “Kamangar successfully argued against any kind of acquisition, saying that Google could do it alone.”

However, when Google implemented its own auction it implemented it as a generalized second-price auction, which is different from the direct auction the GoTo used.

Further the Goto’s (now named Overture) method required bidding for each slot on the page. So if you wanted to bid for the 1st position and the second position you had to place two bids, one for the first and one for the second. In Google’s system, you could place one bid and receive the  position that corresponded to that bid at the end of the auction. Also, the Google system factored not only the bid price but quality of the ad to determine the location of the ad on the page.

Improving on Other’s Work
So while the GoTo implementation was different in some ways from the system that Google built, it is possible that if GoTo had filed patent applications on the core features, that the resulting patents could have covered Google’s system and given GoTo better leverage in merger negotiations with Google. Who knows how much they would actually be worth, but Gross said, as quoted above, they would have been worth billions.

Some might argue that Google implemented a better system, with the second price auction, and therefore Goto should not be rewarded. But, Google started with GoTo’s invention and then improved upon it. The patent system does reward inventors when others use the invention regardless of whether its the original or an improvement. See the basic wheel v. spoked wheel example for more on this concept.

Lessons about Patent Protection
Later Goto (then called Overture) sued Google on the “silly patents.” And Yahoo eventually acquired Overture. Google settled those suits, but for much less than if Goto had patents on its core technologies.

According to In The Plex, Bill Gross was positive when addressing the fact that his ideas involving pay per click and ad auctions had made billionaires at Google, but not at his company. Gross said, “I feel we won…There was a satisfaction in braking the code. We originally invested $200,000 in GoTo, and when we sold Overture, we made $200 million. That’s a pretty good return. And we learned our lessons about patent protection.”

Risks of Waiting: Independent Invention & Google PageRank

InThePlexQuestions often arise about the risks of waiting. Waiting to get started, waiting to file a patent application, waiting to launch a product or service, etc. The risk is that someone else is independently working on the same problem or the same idea and beat you to the market or the patent office or both. What’s the chance of someone independently inventing in your space?  It is impossible to know for a particular circumstance, but we do know that independent invention around the same time happens. According to In The Plex: How Google Thinks, Works, and Shapes Our Lives, Larry Page of Google was not the only person in 1996 to recognized that the link structure of the internet was the basis for a powerful way to find information on the web. The resulting algorithm based on link information allowed Google’s search results to be much better than other search engines at the time it was introduced. Two others were working on this idea, but Google was the first to make it to market.

Adjacent Possible and Independent Invention
As Steve Johnson noted in his book Where Good Ideas Come From sometimes when a scientist or inventor comes up with a new idea or invention, they learn that one or more others have independently come up with the same invention at about the same time period, such as within a year. Johnson notes that this is because the invention becomes “an adjacent possible” once founding or necessary elements or parts are created, discovered, or otherwise available.

To demonstrate the idea of the adjacent possible, Johnson notes that if Youtube was created 10 years earlier in 1995 it would have failed. This is because in 1995 most web users were on slow dial-up connections and it could take an hour to download a standard Youtube clip. In 1995, Youtube’s innovation was not within the adjacent possible, but ten years later, with broadband internet and Adobe’s Flash technology, it was.

As In the Plex explains, Larry Page realized you can estimate the importance of a web page by considering the web pages that link to it. Page called his resulting algorithm based on linking “PageRank.” Page said, “In a way, how good you are is determined by who links to you and who you link to you determine how good you are…”Both the number of links and the quality of the links mattered. If a respected web page linked to a page, that link would be worth more than a link from a less well-known or respected website.

In addition to considering the number and nature of links, the anchor text used for the link is considered. Early search engines would provide results based on the content of a particular page. Therefore the results to a search for “newspaper” might not include the most relevant results, such as the New York Times website, if the New York Times did not say “I’m a newspaper” or otherwise use the word “newspaper” on its website. This caused search engine results to be poor and allowed the best result to be buried under relevant results. If a web page used the word “newspaper” to link to the the New York Times web site, then newspaper is the anchor text. And if enough and/or important websites link using that anchor text, then search results for “newspaper” would include the New York Times website. Page’s algorithm ranked each web page based on the incoming links, anchor text, and other factors. The resulting ranking of each page was used to determine which search results were returned for a particular web query, which vastly improved the relevance of search results as compared with other search engines at the time.

Others Independently Discovered Linked Based Ranking
Jon Kleinberg, a postdoctroal fellow at IBM’s research center, discovered that the link text, e.g. what a linking page said when linking to anther site and how many pages linked to a particular site, was useful in determining the relevance of a particular page. While having the same core idea, Kleinberg and Page each approached it differently. Kleinberg wanted to understand network behavior, Page wanted to build something that helped people in searching the web. Kleinberg said “all sorts of IBM vice presidents were trooping through Almaden to look at demos of this thing and trying to think about what they could do with it.” But they couldn’t figure out what to do with it.

Another person,Yanhong (Robin) Li, in 1996 saw the link between the ranking of scientific papers based on the number of other papers that cited them and ranking web pages in the same way. He came up with a search method that calculated relevance from both the frequency of links and the content of anchor text, which he called RankDex. Li described this to his bosses at Dow Jones, but they didn’t do anything with it. Li said, “I tried to convince  them [Dow Jones] it was important, but their business had nothing to do with Internet search, so they didn’t care.”

Li first filed a patent application himself in June 1996 after reading a self-help patent book. But then Dow Jones hired a patent attorney and filed another application on the same invention in February 1997, which resulted in US Patent No. 5,920,859. A patent application for Page’s Page Rank system was filed January 1997, which resulted in U.S. Patent 6,285,999. As you can see, the patent application were filed within about a month of each other. Li left Down Jones and eventually started Baidu in 2000, which is now the largest Chinese search engine.

These three individuals, Page, Kleinberg, and Li, were each independently working, without knowledge of the others, on one of the most important developments in improving internet search results, and in turn, improving the utility of the web. While it may be possible that you can sit on your ideas for years without consequence, waiting carries the risk that someone else is independently working on the same problem or invention as you. The patent office, and sometimes the market, rewards first movers.

Eric Waltmire Presenting on IP for Dupage’s REV3 Innovation Center

Rev3On March 11, 2014 at 6:30pm, REV3 Innovation Center of Dupage is hosting me for a presentation on Strategies for Protecting Intellectual Property: Innovation and Branding. Intellectual property plays a role in adding value to most businesses, whether through invention, branding, or the use of other creative works.

My presentation will help business owners, entrepreneurs, and inventors understand how patents and trademarks can be used to protect innovation and business branding. It will provide strategies for protecting intellectual property rights under various scenarios and funding circumstances. Sign up here to attend.

Particularly the presentation will cover the following.

Patents and Invention Protection:

  • What is patentable
  • Patent Searching
  • The U.S. Patent Application Process
  • When to maintain secrecy and when to publicize
  • Seeking Foreign Patent Protection
  • When not to seek a patent
  • When and how to rely on trade secret protection

Trademarks and Brand Protection:

  • Value of trademarks
  • Types of marks
  • Strategies for choosing legally strong marks
  • Proper trademark use
  • Strategies for relying on branding in the absence of patent protection

In addition, the presentation will discuss steps that are needed to obtain and maintain ownership over the intellectual property created by your company, its employees, and its contractors.

REV 3 Innovation Center
REV3 Innovation Center is an incubator and future co-working space in DuPage County. REV3 is focused on helping people and companies manufacture products, software, and technology to drive the third industrial revolution. One aim of REV3 is to provide facilities to allow companies to prototype, build, and assemble small and moderate scale product volumes.

If you are interested in getting involved with REV3, please contact me.

The presentation will be held at the Illinois Institute of Technology (IIT) – Rice Campus at 201 E. Loop Rd., Wheaton, IL 60189.

Please sign up to attend here:

Mercedes Successful Invalidating Driver Sleepiness Detection Patent

USPat6313749_Fig1The case of Ibormeith IP LLC v. Mercedes-Benz USA, LLC, Dkt. No. 2013-1007 (Fed. Cir. Oct. 22, 2013) is another case where means-plus-function claims were found invalid for lack of an adequate algorithm/structure disclosed in the description of the patent.

Ibormeith sued Mercedes alleging that Mercedes vehicles having an Attention Assist feature infringed U.S. Patent No. 6,313,749. The ‘749 patent is titled, “Sleepiness Detection for Vehicle Driver or Machine Operator.” The ‘749 patent is directed to monitoring conditions affecting or behavior reflecting a vehicle driver’s sleepiness. Then issuing a warning to the driver before driving is unduly impaired.

Sleepiness Warning
The patent discloses monitoring that takes into account sleepiness factors including, as summarized by the court, “natural body-clock (circadian rhythm), the magnitude and number of corrective steering action the driver is taking, the cabin temperature, the monotony of the road, and how long the driver has been driving.” The factors are “individually weighed, according to contributory importance, and combined in a computational decision algorithm or model, to provide a warning indication of sleepiness.”

Means Claims Language
Claim 1 provided this means clause: “…computational means for weighting the operational model according to time of day in relation to the driver or operator circadian rhythm pattern(s) and for deriving, from the weighted model, driver or operator sleepiness condition and producing an output determined thereby…” Claim 9 provided this means clause: “…computational means for computing steering transitions and weighing that computation according to time of day, to provide a warning indication of driver sleepiness…”

Lack of Structure In Specification
The court recited the rule for means-plus-function clauses: “For a claim to be definite, a recited algorithm, or other type of structure for a section 112(f) claim limitation, need not be so particularized as to eliminate the need for any implementation choices by a skilled artisan; but it must be sufficiently defined to render the bounds of the claim—declared by section 112(f) to cover the particular structure and its equivalents—understandable by the implementer.”

However the Federal Circuit found that these means clauses if the ‘749 were not tied to a structure or defined with sufficient particularity in the specification. As a result the requirements of 35 USC 112, sixth paragraph were not complied with and the claims were held invalid.

The specification provided a formula in table 10 that provided “sleep propensity algorithm – definition “S mod = S circ + S zerox + S rms + S light + S temp + S sleep + S road + Strip.” However, Ibormeith’s expert provided that the algorithm was not based on a simple adding of already weighted inputs. This approach was likely taken to insure that the claims were interpreted broadly enough to cover Mercedes vehicles.

The court recognized that under Ibormeith’s interpretation a person of ordinary skill in the art would need to devise his or her own method for determining driver drowsiness based on the factors. The court concluded that “[a] description of an algorithm that places no limitations on how values are calculated, combined, or weighted is insufficient to make the bounds of the claim understandable.”

Drafting Tips: Provide at Least one Non-Means-Plus-Function Claim Set
This is another in a string of cases where the court has found that means-plus-function claims are invalid in technology related patents where the description fails to provide a sufficiently detailed explanation of the algorithm/structure corresponding to the means clause in the patent. It is better to avoid means-plus-function based claim limitations in at least one claim set, if any. Drafting at least one claim or claim set not including a 112(f) or 112, sixth paragraph claim avoids indefiniteness problems associated with means-plus-function claiming.

Problems with Requiring an NDA Before Pitching Your Invention

At the outset of product / service development there is often a tension between the desire to keep the invention confidential and the desire to know whether there will be sufficient interest in the invention from customers or those who might make and sell it to customers. Therefore the issue arises as to how to protect an invention early in the product development, partnering, or sale process.

There are three ways of proceeding: (1) first file a patent application before any disclosures to third parties, (2) disclose to a third party only after obtaining a signed nondisclosure agreement (NDA), (3) disclose without an NDA or application filed and hope for the best. The first is the most preferred and the last approach is not recommended.

Difficulties with NDAs Before Sales Pitch
Disclosure of an idea to another party that is under a written obligation (e.g. NDA) to maintain that idea in secret, generally will not be considered a public disclosure that would negatively impact your patent rights. However, if you are attempting to approach a company to (1) convince them to make and sell your product and give you a royalty or (2) to sell a product you will make, it may be very difficult to get them to sign an NDA or other legal agreement before you tell them anything about your invention.

This is true because, unlike when you are approaching an engineering firm, here you are not offering to pay the other party any money. You are essentially saying, “I have a great product or service that will make you money, but before I tell you anything about it, I need you to sign this legal agreement.” This is a difficult selling approach.

If they sign that agreement and then find out that your product is very similar to something they are already working on this creates a problem because you may assert that when they come out with that product that they copied your invention. Or if they just don’t like the idea, they are still encumbered by the NDA for any further developments. It would seem that there’s little incentive for them to sign an NDA with you, especially if they receive many similar solicitations from other inventors or companies. Therefore, if your sales pitch starts by requiring the recipient to sign a legal agreement before further discussions, you may not have very many takers.

If you do get the other party to sign an NDA, you should know that NDA’s are not self enforcing. Therefore, if the other party breaches the NDA it will be necessary for you to spend money in the form of legal fees to enforce the agreement or to recover damages. As such, you should investigate the trustworthiness of the other party.

Patent Application Filed First
The first option, having a patent application filed first, is the safest approach. Patent law encourages early filing of patent applications. This assumes that the invention is develop sufficiently to support a patent application filing. See this article on whether your product needs further development before filing a patent application.

If your product needs further development and such development requires the assistance of outside engineers or product developers, then you should use a written nondisclosure agreement when engaging such outsiders to help develop the invention. Also, you should ensure that the terms of any engagement with such providers specifies that you will own any developments and inventions that they might create under the engagement. Outside engineers and product developers are generally more willing to sign an NDA, because you are usually paying them money in return for their services. Further, their business revolves around developing products and they should be used to signing such agreements.

Regarding marketing, if a patent application, preferably one drafted by a patent attorney, is filed that adequately covers your invention then from a patent perspective, you are no longer required to keep your idea secret. You may instead may go exploit your idea publicly. In fact, as it can take years to obtain a patent, inventions are usually commercialized and marketed after a patent application is filed but before a patent is granted.

It can be difficult to engage in a sales approach with another when your first request is to sign a legal agreement before providing information. Having a patent application filed before making a sales pitch is generally the best approach. Service providers, such as engineers and developers, are generally more likely to sign an NDA as they are being paid for their work and they may regularly assist in invention development.