Not a day goes by, it seems, that I don't get an e-mail or phone call from an inventor asking if a particular invention promotion or sales company is fraudulent.
It is hard to answer specifically about a specific company for several reasons:
1. Companies change names on a regular basis to avoid bad reputations, so "Inventomatic Partners, Inc." might morph into "Gee-Whiz Inventco LLC" within a month or so.
2. The larger and more successful companies (in terms of making money for themselves, not you) tend to sue anyone who says anything negative about their company. So offering opinions about any particular company is just not worthwhile.
3. The nature and extent of the schemes they use vary and change over time. As authorities crack down on one type of activity, they morph their scheme to something which, while not against the law, is certainly not a good bargain.
4. Often what they are doing is merely overcharging for inferior services - which is not against the law in this country. If it were, GM would be bankrupt. OK, that is a bad example. But selling an inferior product or service for too-high a price is not illegal.
For that last reason, please note that when I say something is a "scam" or a "con", I mean that it is not necessarily illegal, but merely a bad bargain.
How can you protect yourself from invention scams? Well, using common sense is the first step. Don't let your enthusiasm for your invention blind you to obvious schemes. If it sounds too good to be true, it probably is.
How do you spot a come-on invention company? Well, first, understand how such schemes have worked in the past - often in many different arenas - and how they work today. It is an old con and used for many years in many different venues.
Invention Promotion and Invention Sales companies (and they are different, I'll explain later) have relied on the same model used to get people to part with their money over time - they promise to sell something you have, for what seems like a relatively small fee. You are eager to sell it, so you are blinded to the money aspect of the transaction. They make verbal promises and are very enthusiastic about your item. It all sounds too good to be true - and often is.
A Short History of Sales Scams:
Preying upon other people's dreams and hopes and wishes seems somewhat morally repugnant - and it is. But they do it - and they get filthy rich. And in most cases, it is not illegal.
For example, Grandma writes a biography of her life on the farm in Indiana. While it is a nice book, not many folks even in her home town want to read it. She isn't about to become the next Pulitzer Prize-winning author.
She sees an ad in a magazine from an impressive-sounding company that says that publishers are eager to find new authors! She sends them a letter with a Self-Addressed, Stamped Envelope asking for more information. A slick brochure (or letter on impressive letterhead) comes in the mail, and they offer to consider her manuscript, for a nominal fee of $100 (a lot of money in 1950).
She sends it in with her hard-earned savings and a week later they call her (or write) and say what a great book it is, and how it will make her rich, as readers across the nation will want to buy her biography of life in a small town. They can get a publisher for her - they know someone perfect for this material - if she will sign the enclosed contract and send in $500.
Well, you know the rest. She sends in the $500 and nothing happens. Well, they might send letters to publishing companies, just to make it appear legit. But the publishing companies know the score with these con-men and toss their letters in the trash. The publishing companies have their own editors, readers, and scouts, and they don't need, want, or use information from the outside.
Months or a year later, the company sends a letter to Grandma saying "Gee, we're sorry, but we could not get interest in your book (and thanks for the money, by the way)." Too late, Grandma realizes she has been had, a foolish old lady who has squandered away some of her savings to pursue a vanity project. She knows that if she mentions this to anyone in her small town, people will ridicule her and make comments behind her back. Her children will think she is becoming senile and perhaps put her in the home. No, it is better to bury her shame, and put "Life in Small Town Indiana" up in the attic or donate the manuscript to the local library.
The shame factor works to the advantage of these types of cons. There are basically two ways (well three, actually) to silence the victims of your cons. The first is to make the "Mark" believe that they are the ones doing the scamming (or doing something illegal). The Nigerian scammers use this one - getting their Marks to believe they are illegally laundering millions of dollars. Who would go to the Police after that? "Gee, Mr. Policeman, I was going to get in the money laundering business but got conned instead!"
The second, used by the invention promoters, is shame. Many inventors become euphoric about their inventions early on, and have an almost religious-like fervor about them. It is not hard to stoke these fires early on with encouraging advice. Later on, after years have passed and the invention has not succeeded, they may feel let down. And if they have handed over tens of thousands (or mere thousands) of dollars to an invention promoter, they feel too ashamed to admit it to others. The few people who do complain should be commended for their courage. But in reality, they are often mocked for their perceived stupidity.
The third way, of course is intimidation. Some invention promoters have made examples of people who post complaints on the Patent Office website or complain to the BBB or post anything online. They file frivolous and time-consuming lawsuits in an effort to silence the people raising the alarm. The effect is to scare people into silence - not only the people involved, but others as well.
As I noted earlier, there are two related scams with regard to Patents and intellectual property. The first is the SALES SCAM, which is a time-honored scam like the one outlined above, where the con artist offers to sell your intellectual property for an up-front fee. The second is more involved and includes Invention Promotion, Evaluation, and Patenting Services. The two are related, but I will address them separately.
SALES SCAMS: These generally ask you for money up front to sell an item. These cams have been around for a long time, and have morphed into new scams as of late. These are not the "big" rip-offs like the invention promoters, which I will discuss separately. They usually ask for less than $1000 and offer to sell something of yours. Here are some I am aware of:
1. The Book Publishing Scam: Outlined in the example above. We'll find a publisher for your book for a nominal fee. Send them money and nothing happens.
2. The Poetry Scam: Similar, but they tell Grandma her poem about kittens and flowers is so great it will be published in their national poetry book - if she agrees to buy 10 copies for herself and her friends for $50 a copy.
3. Time-Share Resale Scam: They ask for $500 to advertise your time-share or to find a buyer for it. They put an ad in a publication which may or may not get wide distribution. No one buys (Time-Shares are a ripoff to begin with) but they will keep the $500, thanks.
4. The Great Wall of Sound: See the movie by the same name. "Record Promoters" go from town to town, promising starry-eyed musicians a chance at the big time - if they pony up a few grand for "recording expenses". They take the money and then leave town.
5. License your Patent: You get a Patent, and your name and address are published in the electronic records of the USPTO. You start getting form letters from companies saying that for a few hundred dollars, they can sell or license your Patent. You send them money, they prepare and mail a brochure (or send you the brochures for you to mail yourself). Nothing comes of it, but they keep the money. You could create an mail your own brochure for far less.
6. Car/RV/Boat sales: NEW for 2009! This is an extension of this scam in time for the recession. Sales of used cars and particularly Boats and RVs have tanked in the last year. You put an ad on Craigslist or in Autotrader or Boattrader and you get an illegal robo-call from a company offering, for $500, to market your "vehicle". They claim that not only will they sell your vehicle, but get over book value for it - and line up financing for the buyer. Again, the marketing services are limited, the cost far over-valued, and no results come of it.
So you can see, these sales scams are not limited to Patents, but can be applied in any situation where someone has something they want to sell, but don't have the connections or means by which to sell it. Patent licensing is just one example of this trend.
Con-men? Fraudsters? Criminals? Not really. Just people selling services that I think are overpriced. In America, that is not illegal or even considered immoral. If it sounds too good to be true, it probably is, I'm afraid.
And overpricing things is not illegal. I use a virtual fax service, Maxemail, that costs me $16 a year. A competing service, eFax, charged nearly that much a month. Is eFax a scam? No, just wildly overpriced, in my opinion - by a factor of 13! They advertise more heavily and thus gain customers. Other services, that are harder to find, offer the same service for less money. You just have to know where to look - you have to educate yourself and not click on the first advertisement you see on Google.
How do these guys do it? I think perhaps that they may have started out as legitimate schemes, but then didn't work out. They realized, like the characters in Mel Brooks' The Producers, that there was more money to be made in failure than in success. Even though they rarely, if ever, successfully marketed an invention, sold a time-share, a car, a book, or whatever, they end up raking in money. In fact, a successful invention would be difficult for them, as they would not know how to go about the messy business of licensing or producing the product.
It is the same old, same old. They ask for money up front, promising to sell your invention/time-share/condo/book/poem whatever, and then promise to use "best efforts" to do so. Under the law, "best efforts" means nothing. Getting out of bed in the morning could be considered "best efforts". It is not an enforceable contract, in a practical sense - unless they use no efforts whatsoever.
In most cases, companies like this take a copy of the Patent and mass-mail it to a mailing list of companies and then say "Gee, no interest, sorry. But we'll keep the money." In some cases, they will call back near the end of the contract term and say "Gee, no interest yet, but we have some nibbles. Want to extend the contract for another 6 months/year/whatever?" and then they take a second bite at the apple. These types of companies prey upon inventors, who want to see their inventions succeed.
Few are legitimate. The only legitimate ones do not ask for money up front, but rather want only a percentage of royalties. And you are not likely to find them from a mass-mailing sent to you using data harvested from the USPTO website. You will not likely find them calling a 1-800 number from an ad in the newspaper or on TV.
Invention sales companies, like the other sales companies listed above, usually ask for only a few hundred dollars, so they are not hurting people in a big way. But they do rake in the dough, over time. The big money is in what some call Invention Promotion Companies. They differ from Invention Sales Companies as follows.
Invention Promotion Companies: Invention promotion companies are slightly different from the Patent sale or licensing companies. The Patent sale companies merely offer to prepare a brochure and mail it out - nothing illegal about that, they just charge a hefty fee to do it. Invention Promotion Companies tend to take the whole concept a step further - and charge a lot more money to do it. In this regard, they have run afoul of the law on occasion.
These companies offer to do invention evaluations and then offer to obtain Patents for their "clients". The evaluations are boilerplate (often from a form letter) that always conclude that the invention will be wildly successful. The Patent obtained is usually a worthless Design Patent or a narrow "Picture Claim" Utility Patent.
Unlike the licensing and sale companies, they ask for thousands (not hundreds) of dollars - often $5000, $10,00, $20,000 or more. By venturing into the legal field, they gave the authorities at the Patent Office and other agencies a foothold for prosecution.
But even then, prosecution of these companies has not been very successful. For every one company shut down, others pop up. For every Attorney suspended, another takes his place. They change their strategies and tactics to suit the attacks they are under. Like the Invention Sales people, much of what they do is not necessarily illegal - just wildly overpriced.
For example, one company I ran into offered invention evaluation services. For thousands of dollars, they offered various packages of invention evaluation, including determining your U.S. Census Bureau industry designation. Why this information is useful (to anyone outside the Census bureau) is beyond me. And you can find it free, online, on the Census bureau website.
A company licensing your Patent doesn't care what your Census Bureau industry designation is - and the information is hardly useful to you either. But for $1500, they'll tell you what you can find on a governmental website in 20 minutes.
The bottom line, is they charge a lot of money for services they pay little for, and pocket the difference. They rely on your lack of knowledge about Patenting and Licensing to take advantage of you.
How Can I Spot A Scam?
Well, the best way is to use your own Judgment. Anyone who asks you for money up front in a way you can't recover should be scrutinized. It is nearly impossible to recover, as a practical matter, using legal means (courts, lawsuits) amounts less than $50,000, particularly for an out-of-State entity. Thus, when you send money to someone for services, you had better have some way of getting it back if they don't perform. Once you send the money and they don't perform to your satisfaction, it may cost more to file suit than the amount of damages - and because of the nature of "best efforts" contracts, you likely won't win.
Here are some typical warning signs of an operation that is an overpriced scam:
1. The name "invent" or "invention" is in their company name: This is not determinative, of course, but most of these companies have catchy names with invention or innovation in them - or innovation or some variation.
2. They ask for lots of money up front: Here's the big deal. The really egregious companies charge thousands of dollars for "invention evaluation" services and also promise to obtain Patents and "market the invention to industry". The typical take is $10,000 to $20,0000 and they usually obtain worthless Design Patents or picture-claim Utility Patents.
3. Their prices are amazingly flexible: Can't afford $20,000? Suddenly a package is available at $10,000 - or $5000 or even $3000.
4. They can call you, you can't call them: They call you, usually in the evening. but it is hard if not impossible to call them back and reach anyone other than an answering machine or service. Where do you think this relationship is going down the road when you need to contact them?
5. They send unsolicited letters or make unsolicited phone calls, send SPAM e-mail, robo-calls, or other questionable, if not illegal forms of communication: In the case of the latter, do you expect the relationship to go uphill? Spam and junk mail are annoying. Letters faked up to look like official government documents are deceptive. Just say "no" to ANYONE who tries to start a business relationship through trickery.
6. They promise things on the phone verbally that are not written down in the contract: You should always read any contract you are asked to sign. If someone makes a verbal promise, ask where it is in the contract. If it ain't there, it ain't there, period. You have no one but yourself to blame for broken verbal promises.
7. The contract promises to use "best efforts" to promote the invention: As noted above, such clauses are not really enforceable unless they use no efforts whatsoever. Under the law, "best efforts" means nothing. Getting out of bed in the morning could be considered "best efforts". It is not an enforceable contract, in a practical sense - unless they use no efforts whatsoever.
8. They have a very slick-looking website that is actually very short on real content (lots of impressive sounding but vaguely worded paragraphs, slick graphics, etc.): Anyone can put together a website and throw in some fancy graphics. The key is to look for real content, not just generic boilerplate. Evasive language is a real tip-off. They tout success stories, but you try to find out more about them, but get no real hard data. If you can't distinguish between fact and fluff (many cannot!) you will get taken in a lot in life.
9. They advertise heavily on radio, TV and other media: Just because something is advertised on television does not mean that the network has investigated and vetted it. Don't fall into the trap of "it was advertised on TV, so it must be legit!" Many prestigious magazines and newspapers take ads from questionable sources. Have you seen the ads in the back of the Smithsonian for "collectibles"? It really is shameful. But it is your own fault if you can't figure out the "The Official Gov't Mint, Inc." is not part of the real U.S. Government or Mint.
10. They offer a money-back guarantee: This sounds like a good deal, but in reality it is just a way of trying to get you to part with your money. Such guarantees are nearly impossible to enforce. They risk nothing by offering it, so don't fall for it. To collect on such a guarantee, you'd have to sue them. A lawyer would charge you at least several thousand dollars just to file suit. Chances are they would just fold their tent and reincorporate elsewhere. Since it is a best efforts contract, your suit would likely fail anyway. Money back guarantees mean nothing at all.
There are other ways of investigating Invention Promotion or Sales companies. Ron Riley has a "watch list" of invention promoters, but I am not aware of what criterion he uses to put companies on this list. Some companies that I think should be on the list are not. Perhaps some on the list shouldn't be. I cannot endorse it one way or another. But it is a good research tool to get you to ask questions.
Magazines like Inventor's Digest generally (in the past) accepted ads only from "legitimate" invention marketers and Patent Agents and Attorneys. But since it is very hard to determine what constitutes "legitimate", an ad in that magazine (or any magazine, for that matter) is no guarantee of anything. The magazine recently changed owners.
Organizations like the United Inventors Association also provide endorsements for companies. But a company that provides Invention Selling services (but is never successful at it) could be endorsed by such organizations. A 0% success rate is nothing to write home about. For that reason, I am not sure it is possible for an inventor group to "police" such companies or certify them. I am no longer a member of UIA.
The Better Business Bureau, as I have noted in the past, is worse than worthless. While a laudable idea, it is funded by businesses themselves. If a company has a "no complaint" record, it is given a clean bill of health. This could mean that the company has reincorporated over and over again (and thus has no track record). It also could mean that that they have intimidated or forced people into settling complaints. It also could mean they are a good company. You really can't tell from their ratings. Also, some fraudulent companies will tout their record with the BBB, knowing it is horrible - and also knowing you'll never bother to check!
The Patent Office maintains a complaint site for people to post complaints about invention brokers. Again, many have been harassed for posting to the site. And the presence (or absence) of a complaint is not necessarily determinative. Note that many of the larger companies SUE people who speak out about invention promotion, so many folks do not complain or withdraw their complaints. Many more are cowed into silence.
But your best defense is your own skepticism. Ask pointed questions, and if you don't get straight answers, ask yourself - why?
For example, the Inventors Protection Act requires invention promoters to state their success rates. Most have success rates under 1% and cannot readily point to any specific success story. The fact that an invention was developed, marketed and sold is not a "secret", so don't believe it when they say they cannot tell you do to "confidentiality" concerns.
The invention SALES places claim not to be bound by the Inventors Protection Act, as they do not evaluate inventions. But again, you'd think they'd want to tout their success rate like all get-out, wouldn't you? After all, that is the best advertising there is, right? Yet strangely, many have no success stories at all on their website.
(And, just in case you are asking, I do have some success stories on my website. I cannot take credit for them, though. I just wrote the Patents and in some instances helped negotiate licenses. Patents I have written have been licensed, sold, or litigated by Corporations and Private Individuals for millions of dollars. Success or failure of an invention depends on the merits of the invention, however, and one reason my success rate is higher than 1% is that I try to turn away dreamers and people with unrealistic expectations).
Hey, but wait, Patent Attorneys ask for money "up front" (as retainers). Are they con-jobs as well?
Well, some Patent Attorneys have been known to go rogue and try to con people out of money. However, since a Patent Attorney is licensed both by the State and the United States Patent Office, they risk losing their livelihood if they "rip off" a customer.
Most Patent Attorneys do not ask for ALL the money up front, but merely a retainer. So you are not likely to be out as much. Legal debts are the hardest to collect, so if you run up a bill with a lawyer, they may have a hard time collecting from you.
You can also shop around and compare prices for attorneys - and you can change attorneys as well. You have a lot more flexibility and control over the process.
It costs little or nothing to file a complaint against an Attorney, either with the State or with the USPTO. But it can cost the Attorney a lot of time and money to answer such a complaint. You have a powerful weapon at your disposal, if you feel you have been wronged.
Invention companies do not have this weakness. Even if sued, they can simply declare bankruptcy and reopen under a new name in a new town. They have little in the way of attachable assets and have little to risk from the legal system.
A legitimate Patent Attorney will only promise to write and prosecute a Patent for you. He will not guarantee to get one for you as many invention brokers have done in the past (guaranteeing a legal result is a breach of State ethics rules). A good Patent Attorney should discourage you from even trying, frankly - or at least honestly assess you of the long odds. Invention Broker companies rarely do this and in fact play cheerleader for your invention, rather than provide a brutally honest evaluation, which a Patent Attorney (a legitimate one) should do.
Why Do People Become Invention Promoters?
The simple answer is MONEY and tons of it. You might not think it is that lucrative a deal, but you can make tens of millions of dollars at this.
For example, one company, when raided by the FBI, had over 3,000 worthless Design Patents pending at the time of the raid. They charged an average of $10,000 for their "services" which comprised a superficial search, a Design (not utility) Patent, and the bogus "marketing" - all of which cost them less than $1000 per client.
So $10,000 and 3,000 clients = 30 MILLION dollars. Not a bad haul. Think about it - they are charging the equivalent of the price of a new car, without actually doing anything other than generating a small amount of paperwork and making a few phone calls.
The Patent Sales people charge only $1000 per client. For 3,000 clients, this might amount to 3 million dollars. Still not a bad haul. Over 50 years, you could make a good living at it.
Why Haven't YOU Become an Invention Promoter?
I would have made a lot more money if I went over to "the dark side". In fact, I had more than one opportunity to do so. One firm I was with took on a secret representation of an invention promoter when they got into legal trouble. I served my notice then and started my own practice.
It is not hard to start an invention broker or sales scam. You hire a clerk and secretary to produce the "personalized" letters and do the advertising brochures. It becomes a machine that just cranks out money. Your only real expense is advertising.
It is a lucrative business. So why not do it? Well for me, there were numerous reasons, including this pesky morals thing. I like to sleep at night. Also, many of these shady characters end up in legal trouble (and many fight it and win). Some older players are, at this point, largely immune. Newcomers to the business end up getting hassled by the law - which in effect protects the older players in the business - ironic, isn't it?
It is interesting to see how many of the people in the invention broker or sales businesses seem to crave acceptance or recognition as legitimate businessmen. On one website, one touts his civic accomplishments. It is interesting to say the least. Perhaps the people at the Country Club still snub them? I think so.
People who have a desperate need to be successful - at all costs - often have troubled backgrounds. I have worked for such men, and they tend to follow a pattern - impoverished childhoods, being snubbed by society due to racism or other prejudice. Perhaps abuse at the hands of their parents. Becoming wildly successful and wealthy is a way, perhaps, of putting that all behind them and getting revenge. Perhaps. But what I've seen is that they are rarely, if every, happy once they get all that stuff. They sit alone in their mansions, their families shattered, their children not talking to them (or refusing to move out of the basement).
I've never been "jealous" of the rich, perhaps because I grew up in places with lots of wealthy people (Greenwich, Connecticut, Lake Forest, Illinois, Cazenovia, New York) and they all seemed to me to be very miserable people. Money does not equate to happiness, particularly when it is achieved at any cost. Now granted, the opposite is not true - poverty does not make one happy either.
Human beings are programmed (literally, our brains are little more than trained Neural Networks) to enjoy working. There is nothing more satisfying that working at a task which is difficult enough to be considered work, but not so hard to be unsolvable. You approach a task, find the problem, figure out a solution, and create something new. Whether it is repairing a car or figuring out a way around a 103 rejection, the reaction in the brain is the same. Your brain rewards itself when you work and do well. It punishes you (through depression) if you are just laying about.
Lottery winners are rarely happy. Laying around and doing nothing of value is fine for short periods of time (or as a reward for hard work), but over a lifetime, it could be damaging. The Invention Brokers of the world (and other con-men) might like to show off their acquired wealth and try to convince you they are successful and happy. but it is in the end, a hollow existence, and they know it.
And they may try to tell you otherwise, but don't believe it for a second.
So How Do I Spot an Invention Promoter? How Do I Protect Myself?
To some extent, you can't do either. Let's face it, if you are the kind of person who is inclined to get corralled into these types of cons, you are not going to listen to anything I've said here or be dissuaded from going with an invention broker.
I once had a potential client call me and ask about XYZINVENT company. I spent 20-30 minutes with them on the phone and discussed the invention with him, the pros and cons of Patenting, and the nature of invention brokers. While on the phone, I found a reference that was "spot on" to his invention and e-mailed it to him, free of charge.
P.T. Barnum was right, the Marks don't value something unless they pay for it.
He called me back the next week and said that XYZINVENT company told him his invention was great - and that he would get a Patent and make millions. He chided me for being "unduly pessimistic". He read me the riot act! I again explained to him how invention promotion companies worked and told him to be careful sending anyone that kind of money up front. He ignored my advice.
Two years later, he called me and said that XYZINVENT company had "ripped him off" and WHY DIDN'T I WARN HIM ABOUT THEM???
At that point, I stopped feeling "sorry" for people caught up in invention promotion schemes. You can't help them. In fact, trying to "help" people is something fraught with peril. It never pays to be altruistic, and in fact, there is something somewhat evil about altruism in general.
People should look after their own interests, period. Yes, if you see someone driving their car off a cliff, you should shout "hey, look out for the cliff!". But if in response, they give you the finger, well, nothing to do but watch them crash and burn. Bring marshmallows.
We all have to look out for our own interests, I'm afraid. You can try to warn people about scams and schemes but the fact is, there will always be someone falling for them and there is not a lot you can do to stop them.
Use your common sense,and Good Luck!
Post Script: I recently came across this link, which discusses how our friends, the Nigerians, are getting in on the act - posing as Japanese Patent investors who will buy your Patent for millions of dollars, provided you hand them over a $15,000 "processing fee". Do people really fall for this sort of thing? Apparently they do. A real licensing agreement is rarely paid in cash, rarely paid up front, and never asks YOU for money first.
Tuesday, December 15, 2009
Sunday, September 13, 2009
Outsourcing in IP work - changing the game?
I received an e-mail from a reader. I was surprised that people actually read my blog. After all, it isn't chock full of case cites or the type of thing you see in Law Review or some IP magazine. Just my musings on Patent Law and the Practice.
But his question was very relevant and related to my previous tirade about the end of the Patent business as we know it. How does IP outsourcing affect the Patent Business?
Good Question.
First of all, let me state that I am not against outsourcing of work, if it means that you can get better quality work at lower prices. Competition is a good thing, and the consumer (the Patent Applicant) wins, usually.
There are a number of levels of IP outsourcing going on at the present time. Everything from ancillary services to Patent Prosecution are being handled overseas, mostly in India, which has a large number of quality Engineers with little work to do. Litigation has yet to move offshore, but I would not be surprised if that happens as well, at least with regard to support services.
I presently use an Indian firm (Dextrasys) for Patent Searching and for Patent Drawings. Why? well they provide me with quality services at low prices in an area of my practice where my margins are slim. And they turn around work in a matter of days, sometimes hours, which makes my job a lot easier.
I have remarked on the nature of the search business in the past. In the old days, back when there was the Public Search Room, you'd find a good searcher, just starting out, and he'd do a great job at reasonable prices and turnaround the job in a day or two. So you started sending him more work and as word got around, other attorneys would send him work. Pretty soon, he'd be overwhelmed, and he'd subcontract out work to other, lesser searchers in the search room.
You'd hand him a $500 "full day" search, and he'd hand it to a friend for $250. That friend in turn would hand it over to some lower order searcher for $100, and so on, until it ended up being handed off to a homeless lady for $5 and a half-eaten hot dog. At times, I felt like Diogenes, looking for the last honest searcher.
And rates would go up, too. I remember one searcher raising his rates to $750 and then $1000, on the basis that his work was superior to others. Now bear in mind that this was over a decade ago - nearly two decades. Today, such prices seem almost dreamlike.
Of course, the Public Search Room is history now. But Americans, being the way they are, do not make the best searchers. Or assemblers of cars. Or workers, period. We all have, it seems, something better to do with our time. Like citizens of old Rome, we view leisure and a high standard of living as a birthright, even as the barbarians are at the gate.
I would contact my searcher and he would quote me $500 to do a search, and tell me he'd have results in 4-6 weeks. At the time, I thought this was the nature of the game. And the resultant search report was little more than a list of references. I had to download each reference, review it, and then prepare my own search report, which often took an hour or more. Searches became a "loss leader" for me, as oftentimes, I could not pass on all this expense to the client. Raising search prices for clients resulted in less searches being done. Most clients don't want to spend $1000 or $2000 on a search.
I was contacted by an Indian firm who asked me for search work. At first I was skeptical, as like many of you, I had spent far too much time on hold with call centers in India (you know, just once, I would love it if the person on the other end of the phone would tell me what his real name was, and how the weather was in Bangalore. But I guess that will never happen). But on the other hand, if you are a Patent Attorney, you know that a large number of Engineers here in America are from India, and they are very well educated and talented people. But even then, I resisted.
The clincher was when the Indian firm offered to do a first search for free, to see if I liked the quality of their work. I had a client who had ordered a search, and I had sent it to my U.S. Searcher, who did a fairly superficial job, sent me one of his incomprehensible search reports, and charged me a ton of money. My client was unhappy and wanted a more thorough search done, as many aspects of the invention were not searched. My U.S. Searcher was all too happy to expand on the scope of the search - for more money.
This seemed like a good opportunity to perform an experiment. I took up my Indian searcher on his offer and also had my U.S. Searcher perform the "expanded" search. The Indian searcher has results in about 2-3 days. I had to wait 2-3 weeks for the U.S. Searcher to get his work done. At this point, the U.S. Searcher has cost me over $1000 in fees as well.
The Indian search report found very relevant Prior Art that my U.S. searcher missed. The Indian search report was formatted so that I did not have to hold the Patents in one hand while reading the report in the other - excerpts and drawings from the relevant Patents were displayed in the body of the report. Not only that, but the report was formatted in a manner that I could send it to my client with only a cover letter analyzing the most relevant Patents. It save me a lot of time. The standard fee for such a search? $300.
Better results, better product, better pricing, faster turnaround. It was no contest, the Indians had the Americans beat. And I didn't have to worry about finding my searcher at the beginning of Fishing or Hunting season, or whatever excuse Americans always seem to have for not working.
Suddenly, searches were no longer a loss-leader, but a small profit center. Not only that, more clients were comfortable ordering them, as they cost only $500, instead of $1000, including my fees. Yea, yea, yea, I could pay more and "Buy American" - but all that would do is slowly bankrupt me and provide more expensive and shoddier service to my clients.
After using the Indian search firm for a few months, I had some Patent drawings I needed revised in a hurry. My U.S. Draftsman was falling into the same trap as my searcher. High costs, slow turnaround, and sloppy work. Not only that, but he charged for every revision to the drawings, even ones that were caused by his errors.
And even then, the U.S. Draftsmen were bitching that they were not making enough money. I had one draftsman quit the business entirely, complaining that the fees he was charging to do drawings were "not worth it" to him, as he could make more money doing web design and forensic animations.
Back in the day, when people were filing like mad and we were all making money, it was no big deal to tack on a few hundred dollars for draftsman's fees. But since the fees in the Patent Business have been stagnant for a decade or more, every dollar tacked on in ancillary services was a dollar that had to be cut out of the billing side.
Once again, the Indians cleaned our clock. The drawings were revised in a day or two and the charge was so small, that it was ridiculous. So, very quickly, I decided to outsource my drafting services overseas as well.
And after a year or so, it has worked out pretty well. I have better turnaround, lower costs, and higher quality. Only a fool would continue to use higher-cost services with slower turnaround and lower quality.
Now I know that there are going to be some searchers and draftspeople out there who will say "Well, for real quality, you can't beat American labor!" and I have heard this from some folks firsthand. But, like the folks who will sit there and argue with a straight face that a Chevy Impala is a better car than a Toyota Camry, they are full of horse hockey.
The secondary argument that such folks raise is, "Well, how would you like it if YOUR JOB was outsourced?"
And the answer is, "It probably will be, at least to some extent" and I know this because I've trained my replacement.
Early on in my practice, I made the mistake of hiring Associates. Not that they were bad Associates, but that having employees is about the worst way to go about making money there is. I made less money with three Associates working for me than I did working solo - and I worked harder than ever. In order to really make big bucks in this business, you have to have a high volume of work and an army of Associates, and be willing to exploit, harass, encourage, lead on, monitor, and ride herd on them, 24 hours a day. As most firms are discovering, hiring a young Associate into a firm is a "loss leader" not a profit center.
One of my associates was a very talented Indian Engineer and Patent Attorney. After a few years of working in the States, he went back to India and opened his own shop. Now HE is poised to make some money. He can hire very talented young Indian Engineers, who have a cost of living of next to nothing, and they will work hard cranking out work. Even at today's reduced rates, he can prosecute cases and still make a hefty profit.
And since many "high tech" firms these days are populated by folks from all around the world, there is less of a cultural barrier to using an Indian firm. In fact, having an "ethnic" background is now an advantage in this business, as more and more of the innovators are now offshore or from overseas.
So yes, offshore firms could take a larger and larger share of business from domestic Patent Attorneys. It hasn't happened yet, but it is a likely trend.
I have been approached by some Indian firms that have offered to ghostwrite cases and even prepare responses to Amendments for me. I have not investigated such arrangements, although I suspect others have. The situation is this, you send them a disclosure to write, and they write the application. You review and revise it, and then file it. Once an Office Action is received, you send it to them to write a response, and then you revise it and file it.
I am not sure such arrangements would work as well as simpler tasks such as searching and drawing preparation. Both searching and drawings are stand-alone tasks, that can be handed off and encapsulated. If you provide the searcher with a complete and concise description of the invention, he can search it. If you provide a draftsman with some informal drawings, he can prepare formals.
But Patent drafting is something that is a little more esoteric. You have to have a feel for the technology, and not only know how to write the case based on what is in the disclosure, but what isn't. You need to be able to project applications for the invention into other areas of art, and also be able to see how the invention can be rearranged into other configurations. Otherwise, a literal writing of the disclosure will result in a very narrow Patent.
For example, in one of the first cases I wrote relating to satellite television, the inventor disclosed that the decoding process took place first in the decoder and then in a removable module. When I wrote the case, I reversed the process, and the inventor pointed out that I had it backwards. I asked the inventor, "Well, couldn't it work both ways?" and he replied that it could, that the order was unimportant and that the overall inventive concept was the same.
So, we decided to write the application both ways. Guess which way our client's competitor ended up infringing? I learned early on that filing an application just on the literal disclosure was next to useless - you need to explore all the combinations and permutations of an invention, or you leave the "other guy" an easy design-around. Not only that, but with the Doctrine of Equivalents and "Means Plus Function" claims taking a beating, it pays to disclose such variations in the Specification.
But that is merely one problem with overseas Patent preparation. Data used for preparing an application may comprise a telephone interview, in-person interview, e-mail exchanges, or the like. Such data is hard to transfer to an overseas associate, where the language barrier may be an impediment (the call center effect, again).
For example, I used to work at a firm where my boss would fly to meet the client and then tape an interview with the inventor about the invention. He'd return with some sketches and the tapes and ask me to prepare the application. It was a maddening process, as he would ask the inventor all sorts of irrelevant questions and never admit (because of pride) when he didn't understand some basic concept of the invention. Oftentimes, asking the "stupid question" ends up being the key to understanding the overall invention.
Now imagine trying to do a "brain transplant" like that to someone in India. If you are sending them audio or video interviews, will they understand American accents and slang? I am not sure. Will they explore all the different aspects of the invention and try to project a few of their own? Most Indian firms I have dealt with are fairly literal and do not provide this creative edge.
But, I am a realist, and in many instances, I think Indian Patent Prosecution may work for some clients. I think the best chance of success is with Indian firms who have in-house U.S. Registered Patent Attorneys on staff. Heck, I could probably move to India, live like a God on $5000 a year, and have 20 people working for me. We live in a global economy - why not?
So yes, off-shore outsourcing will affect this business in the coming years, and in combination with the dramatic increase in the number of Registered Patent Attorneys and the decline or flattening of filings, will serve to further depress prices.
As an aside, I think the Indian outsourcing thing will work well for certain areas of practice. Simple mechanical inventions, solo inventors, and the like may be good candidates for outsourcing. Then again, there is always the specter of the Invention Broker as well. They pay very little for Patent services and such brokers may find outsourcing attractive.
As a second aside, I think some searchers and draftsmen in the United States are already outsourcing their work overseas, marking it up, and selling it as "made in the USA". As a long-term business model, I am not sure this will work, as eventually clients will go directly to the source.
So how does this answer the ultimate question that my reader submitted? For a person starting out in the Patent Business, what are the alternatives? What should you do?
As I have stated all along, in any business, you need to enjoy the work, or you will never be happy. If you were attracted to the Patent Business because you thought you'd make a pile of money, then find something else to do. There is no pile of money anymore, (and largely, there never was) and even if you find it, you'll never be happy. Seriously.
Every Patent Attorney I have ever met who has made "the big money" in Patents was a miserable excuse for a human being - and miserable as well. Mini-Mansions and Trophy Wives may seem like living the high life to folks on the outside, but as you get older, you realize that there is more to life than having a plastic mansion in an old cornfield and an attractive wife who resorts to greater and greater lengths to modify herself, paranoid that you will eventually dump her for some other young secretary. And what's the point of having a family if your kids hate you and you never see them? Money is a false God, and it takes most folks a lifetime to learn that.
If you want to make a "killing" in some business, good luck to you. I doubt you'll ever be happy. If you want to write Patents, there will always be jobs out there, but they won't pay a lot.
For a young person starting out, the question is, where to start? I started at the Patent Office, but I understand they have a hiring freeze in place (again). I think also that the Patent Office is less kindly to the idea of folks going to work there and then leaving after a few years for the private sector. And with the job market the way it is, they have a much better field to select from. A law degree may be a negative in applying for a job there, as they will view that as an indication you will leave later on.
If you come there with a law degree and already having worked at a firm, it will be rough for you. Some Examiners are intimidated by the law degree thing (let's face it, most Americans are) and may give you a hard time. In addition, working in a government bureaucracy takes a certain amount of patience and tolerance. If you have a boss or co-worker who doesn't like you, well, it can make life difficult.
I enjoyed working there until my boss got promoted and a temporary boss was installed. The temporary boss was a nice guy, but he wasn't cut out to be a boss. He never was comfortable relying on the work of others, and as a result, would never sign off on anything. Overnight, I went from 110% production and having received commendations for excellent work, to 80% production and working hours of free overtime trying to satisfy the needs of this temporary boss, who of course, was never happy. I saw the writing on the wall and left. Others will ride the bus off the cliff until they are fired for low production. And that's the way it works at the Patent Office. It can be a great job, or a nightmare, depending on who your SPE is.
Landing a job as an Associate in prosecution is tough. As I noted from my experience, it is very difficult to make money by hiring Associates to prosecute Patents. There is no money in it to begin with. And unfortunately, many young Associates think, "Hey, I got my law degree, where's my six figure salary, two-hour lunch and BMW?" Many law school graduates think that law school was "the hard part" and now it is just coasting for 5 years until they get the corner office and Partnership.
I've had people approach me about doing work virtually or online or whatever. The bottom line is, I don't have enough work to "farm out" and even if I did, it would be a loss-leader to me. I would spend hours reviewing and revising such work (it is, after all, my signature on the bottom line) and in the meantime, the "virtual Associate" would be expecting that big paycheck for his work. I'd be better off sending the work to India, where at least it would be cheap.
I have also been asked by some folks starting out whether they should start their own practice. My advice there is that you'd need at least four years of prosecution experience before even attempting this, and even then, you should have a good starter client. There is a LOT to the paperwork end of this business that most Associates don't learn at a firm.
I had one young Associate tell me, "Well, they do that all online now, right?"
Well, true, "They" do. And if you want to have your own practice, that "They" is YOU. If you don't have a clue how to file an application online with the USPTO and have safeguards in place not to mess it up, then you will make a lot of expensive mistakes trying to start out on your own.
So, hanging out your own shingle is not something that should be entered into lightly.
The only solution, as I see it, is if wages drop to the point where it is attractive for firms to hire people. But wages have been somewhat stagnant as of late, so I am not sure how far they can drop. It chagrins me to learn that the guidance counselor and the librarian at my local high school make $80,000 a year (albeit with seniority) and that an elementary school teacher in Brooklyn can make six figures (so much for the myth of the "underpaid teacher," at least in pro-union New York State).
The other solution is to wait out the market until it thins out more. Once the word spreads that there is no longer easy money in Patents, the number of folks entering the business will dwindle and demand will increase. But either way, the future of the Patent Business does not look as rosy as it did in the past.
Don't get me wrong. People will still file for Patents. People will still get Patents. Patents will still be litigated. But the idea that filings will continue to skyrocket and salaries climb and climb are something from the last Century, not this one.
In a way, the Patent Business reflects the overall legal climate. More and more young people have been going to law school every year and the number of graduates and practicing lawyers has increased dramatically. It was only a matter of time before supply caught up with demand. In non-Patent legal fields salaries have been depressed for some time now. At your next CLE law conference, ask the fellow next to you, who handles divorce cases or DUIs or whatever, how business is - and check out what kind of car he drives. Not many people are getting rich as lawyers anymore.
As high-paying manufacturing jobs have evaporated, more and more people are looking to education and the professions as a ticket to wealth, only to find that at best, it is a ticket to an upper-middle class lifestyle, if that.
I wish I had some better advice to give. For me personally, these trends cause me to consider my own future actions and lifestyle choices. I saw my Father lose his job at age 55, never to work again. As I approach that age myself, I think more and more that perhaps I should scale back my lifestyle such that I can be prepared to retire or work part time.
You could, I suppose, move to India..... Why not? That's where the jobs are.
Seriously. That could be the smart thing to do, if you are young Attorney starting out, and don't mind relocating overseas.
FWIW.
But his question was very relevant and related to my previous tirade about the end of the Patent business as we know it. How does IP outsourcing affect the Patent Business?
Good Question.
First of all, let me state that I am not against outsourcing of work, if it means that you can get better quality work at lower prices. Competition is a good thing, and the consumer (the Patent Applicant) wins, usually.
There are a number of levels of IP outsourcing going on at the present time. Everything from ancillary services to Patent Prosecution are being handled overseas, mostly in India, which has a large number of quality Engineers with little work to do. Litigation has yet to move offshore, but I would not be surprised if that happens as well, at least with regard to support services.
I presently use an Indian firm (Dextrasys) for Patent Searching and for Patent Drawings. Why? well they provide me with quality services at low prices in an area of my practice where my margins are slim. And they turn around work in a matter of days, sometimes hours, which makes my job a lot easier.
I have remarked on the nature of the search business in the past. In the old days, back when there was the Public Search Room, you'd find a good searcher, just starting out, and he'd do a great job at reasonable prices and turnaround the job in a day or two. So you started sending him more work and as word got around, other attorneys would send him work. Pretty soon, he'd be overwhelmed, and he'd subcontract out work to other, lesser searchers in the search room.
You'd hand him a $500 "full day" search, and he'd hand it to a friend for $250. That friend in turn would hand it over to some lower order searcher for $100, and so on, until it ended up being handed off to a homeless lady for $5 and a half-eaten hot dog. At times, I felt like Diogenes, looking for the last honest searcher.
And rates would go up, too. I remember one searcher raising his rates to $750 and then $1000, on the basis that his work was superior to others. Now bear in mind that this was over a decade ago - nearly two decades. Today, such prices seem almost dreamlike.
Of course, the Public Search Room is history now. But Americans, being the way they are, do not make the best searchers. Or assemblers of cars. Or workers, period. We all have, it seems, something better to do with our time. Like citizens of old Rome, we view leisure and a high standard of living as a birthright, even as the barbarians are at the gate.
I would contact my searcher and he would quote me $500 to do a search, and tell me he'd have results in 4-6 weeks. At the time, I thought this was the nature of the game. And the resultant search report was little more than a list of references. I had to download each reference, review it, and then prepare my own search report, which often took an hour or more. Searches became a "loss leader" for me, as oftentimes, I could not pass on all this expense to the client. Raising search prices for clients resulted in less searches being done. Most clients don't want to spend $1000 or $2000 on a search.
I was contacted by an Indian firm who asked me for search work. At first I was skeptical, as like many of you, I had spent far too much time on hold with call centers in India (you know, just once, I would love it if the person on the other end of the phone would tell me what his real name was, and how the weather was in Bangalore. But I guess that will never happen). But on the other hand, if you are a Patent Attorney, you know that a large number of Engineers here in America are from India, and they are very well educated and talented people. But even then, I resisted.
The clincher was when the Indian firm offered to do a first search for free, to see if I liked the quality of their work. I had a client who had ordered a search, and I had sent it to my U.S. Searcher, who did a fairly superficial job, sent me one of his incomprehensible search reports, and charged me a ton of money. My client was unhappy and wanted a more thorough search done, as many aspects of the invention were not searched. My U.S. Searcher was all too happy to expand on the scope of the search - for more money.
This seemed like a good opportunity to perform an experiment. I took up my Indian searcher on his offer and also had my U.S. Searcher perform the "expanded" search. The Indian searcher has results in about 2-3 days. I had to wait 2-3 weeks for the U.S. Searcher to get his work done. At this point, the U.S. Searcher has cost me over $1000 in fees as well.
The Indian search report found very relevant Prior Art that my U.S. searcher missed. The Indian search report was formatted so that I did not have to hold the Patents in one hand while reading the report in the other - excerpts and drawings from the relevant Patents were displayed in the body of the report. Not only that, but the report was formatted in a manner that I could send it to my client with only a cover letter analyzing the most relevant Patents. It save me a lot of time. The standard fee for such a search? $300.
Better results, better product, better pricing, faster turnaround. It was no contest, the Indians had the Americans beat. And I didn't have to worry about finding my searcher at the beginning of Fishing or Hunting season, or whatever excuse Americans always seem to have for not working.
Suddenly, searches were no longer a loss-leader, but a small profit center. Not only that, more clients were comfortable ordering them, as they cost only $500, instead of $1000, including my fees. Yea, yea, yea, I could pay more and "Buy American" - but all that would do is slowly bankrupt me and provide more expensive and shoddier service to my clients.
After using the Indian search firm for a few months, I had some Patent drawings I needed revised in a hurry. My U.S. Draftsman was falling into the same trap as my searcher. High costs, slow turnaround, and sloppy work. Not only that, but he charged for every revision to the drawings, even ones that were caused by his errors.
And even then, the U.S. Draftsmen were bitching that they were not making enough money. I had one draftsman quit the business entirely, complaining that the fees he was charging to do drawings were "not worth it" to him, as he could make more money doing web design and forensic animations.
Back in the day, when people were filing like mad and we were all making money, it was no big deal to tack on a few hundred dollars for draftsman's fees. But since the fees in the Patent Business have been stagnant for a decade or more, every dollar tacked on in ancillary services was a dollar that had to be cut out of the billing side.
Once again, the Indians cleaned our clock. The drawings were revised in a day or two and the charge was so small, that it was ridiculous. So, very quickly, I decided to outsource my drafting services overseas as well.
And after a year or so, it has worked out pretty well. I have better turnaround, lower costs, and higher quality. Only a fool would continue to use higher-cost services with slower turnaround and lower quality.
Now I know that there are going to be some searchers and draftspeople out there who will say "Well, for real quality, you can't beat American labor!" and I have heard this from some folks firsthand. But, like the folks who will sit there and argue with a straight face that a Chevy Impala is a better car than a Toyota Camry, they are full of horse hockey.
The secondary argument that such folks raise is, "Well, how would you like it if YOUR JOB was outsourced?"
And the answer is, "It probably will be, at least to some extent" and I know this because I've trained my replacement.
Early on in my practice, I made the mistake of hiring Associates. Not that they were bad Associates, but that having employees is about the worst way to go about making money there is. I made less money with three Associates working for me than I did working solo - and I worked harder than ever. In order to really make big bucks in this business, you have to have a high volume of work and an army of Associates, and be willing to exploit, harass, encourage, lead on, monitor, and ride herd on them, 24 hours a day. As most firms are discovering, hiring a young Associate into a firm is a "loss leader" not a profit center.
One of my associates was a very talented Indian Engineer and Patent Attorney. After a few years of working in the States, he went back to India and opened his own shop. Now HE is poised to make some money. He can hire very talented young Indian Engineers, who have a cost of living of next to nothing, and they will work hard cranking out work. Even at today's reduced rates, he can prosecute cases and still make a hefty profit.
And since many "high tech" firms these days are populated by folks from all around the world, there is less of a cultural barrier to using an Indian firm. In fact, having an "ethnic" background is now an advantage in this business, as more and more of the innovators are now offshore or from overseas.
So yes, offshore firms could take a larger and larger share of business from domestic Patent Attorneys. It hasn't happened yet, but it is a likely trend.
I have been approached by some Indian firms that have offered to ghostwrite cases and even prepare responses to Amendments for me. I have not investigated such arrangements, although I suspect others have. The situation is this, you send them a disclosure to write, and they write the application. You review and revise it, and then file it. Once an Office Action is received, you send it to them to write a response, and then you revise it and file it.
I am not sure such arrangements would work as well as simpler tasks such as searching and drawing preparation. Both searching and drawings are stand-alone tasks, that can be handed off and encapsulated. If you provide the searcher with a complete and concise description of the invention, he can search it. If you provide a draftsman with some informal drawings, he can prepare formals.
But Patent drafting is something that is a little more esoteric. You have to have a feel for the technology, and not only know how to write the case based on what is in the disclosure, but what isn't. You need to be able to project applications for the invention into other areas of art, and also be able to see how the invention can be rearranged into other configurations. Otherwise, a literal writing of the disclosure will result in a very narrow Patent.
For example, in one of the first cases I wrote relating to satellite television, the inventor disclosed that the decoding process took place first in the decoder and then in a removable module. When I wrote the case, I reversed the process, and the inventor pointed out that I had it backwards. I asked the inventor, "Well, couldn't it work both ways?" and he replied that it could, that the order was unimportant and that the overall inventive concept was the same.
So, we decided to write the application both ways. Guess which way our client's competitor ended up infringing? I learned early on that filing an application just on the literal disclosure was next to useless - you need to explore all the combinations and permutations of an invention, or you leave the "other guy" an easy design-around. Not only that, but with the Doctrine of Equivalents and "Means Plus Function" claims taking a beating, it pays to disclose such variations in the Specification.
But that is merely one problem with overseas Patent preparation. Data used for preparing an application may comprise a telephone interview, in-person interview, e-mail exchanges, or the like. Such data is hard to transfer to an overseas associate, where the language barrier may be an impediment (the call center effect, again).
For example, I used to work at a firm where my boss would fly to meet the client and then tape an interview with the inventor about the invention. He'd return with some sketches and the tapes and ask me to prepare the application. It was a maddening process, as he would ask the inventor all sorts of irrelevant questions and never admit (because of pride) when he didn't understand some basic concept of the invention. Oftentimes, asking the "stupid question" ends up being the key to understanding the overall invention.
Now imagine trying to do a "brain transplant" like that to someone in India. If you are sending them audio or video interviews, will they understand American accents and slang? I am not sure. Will they explore all the different aspects of the invention and try to project a few of their own? Most Indian firms I have dealt with are fairly literal and do not provide this creative edge.
But, I am a realist, and in many instances, I think Indian Patent Prosecution may work for some clients. I think the best chance of success is with Indian firms who have in-house U.S. Registered Patent Attorneys on staff. Heck, I could probably move to India, live like a God on $5000 a year, and have 20 people working for me. We live in a global economy - why not?
So yes, off-shore outsourcing will affect this business in the coming years, and in combination with the dramatic increase in the number of Registered Patent Attorneys and the decline or flattening of filings, will serve to further depress prices.
As an aside, I think the Indian outsourcing thing will work well for certain areas of practice. Simple mechanical inventions, solo inventors, and the like may be good candidates for outsourcing. Then again, there is always the specter of the Invention Broker as well. They pay very little for Patent services and such brokers may find outsourcing attractive.
As a second aside, I think some searchers and draftsmen in the United States are already outsourcing their work overseas, marking it up, and selling it as "made in the USA". As a long-term business model, I am not sure this will work, as eventually clients will go directly to the source.
So how does this answer the ultimate question that my reader submitted? For a person starting out in the Patent Business, what are the alternatives? What should you do?
As I have stated all along, in any business, you need to enjoy the work, or you will never be happy. If you were attracted to the Patent Business because you thought you'd make a pile of money, then find something else to do. There is no pile of money anymore, (and largely, there never was) and even if you find it, you'll never be happy. Seriously.
Every Patent Attorney I have ever met who has made "the big money" in Patents was a miserable excuse for a human being - and miserable as well. Mini-Mansions and Trophy Wives may seem like living the high life to folks on the outside, but as you get older, you realize that there is more to life than having a plastic mansion in an old cornfield and an attractive wife who resorts to greater and greater lengths to modify herself, paranoid that you will eventually dump her for some other young secretary. And what's the point of having a family if your kids hate you and you never see them? Money is a false God, and it takes most folks a lifetime to learn that.
If you want to make a "killing" in some business, good luck to you. I doubt you'll ever be happy. If you want to write Patents, there will always be jobs out there, but they won't pay a lot.
For a young person starting out, the question is, where to start? I started at the Patent Office, but I understand they have a hiring freeze in place (again). I think also that the Patent Office is less kindly to the idea of folks going to work there and then leaving after a few years for the private sector. And with the job market the way it is, they have a much better field to select from. A law degree may be a negative in applying for a job there, as they will view that as an indication you will leave later on.
If you come there with a law degree and already having worked at a firm, it will be rough for you. Some Examiners are intimidated by the law degree thing (let's face it, most Americans are) and may give you a hard time. In addition, working in a government bureaucracy takes a certain amount of patience and tolerance. If you have a boss or co-worker who doesn't like you, well, it can make life difficult.
I enjoyed working there until my boss got promoted and a temporary boss was installed. The temporary boss was a nice guy, but he wasn't cut out to be a boss. He never was comfortable relying on the work of others, and as a result, would never sign off on anything. Overnight, I went from 110% production and having received commendations for excellent work, to 80% production and working hours of free overtime trying to satisfy the needs of this temporary boss, who of course, was never happy. I saw the writing on the wall and left. Others will ride the bus off the cliff until they are fired for low production. And that's the way it works at the Patent Office. It can be a great job, or a nightmare, depending on who your SPE is.
Landing a job as an Associate in prosecution is tough. As I noted from my experience, it is very difficult to make money by hiring Associates to prosecute Patents. There is no money in it to begin with. And unfortunately, many young Associates think, "Hey, I got my law degree, where's my six figure salary, two-hour lunch and BMW?" Many law school graduates think that law school was "the hard part" and now it is just coasting for 5 years until they get the corner office and Partnership.
I've had people approach me about doing work virtually or online or whatever. The bottom line is, I don't have enough work to "farm out" and even if I did, it would be a loss-leader to me. I would spend hours reviewing and revising such work (it is, after all, my signature on the bottom line) and in the meantime, the "virtual Associate" would be expecting that big paycheck for his work. I'd be better off sending the work to India, where at least it would be cheap.
I have also been asked by some folks starting out whether they should start their own practice. My advice there is that you'd need at least four years of prosecution experience before even attempting this, and even then, you should have a good starter client. There is a LOT to the paperwork end of this business that most Associates don't learn at a firm.
I had one young Associate tell me, "Well, they do that all online now, right?"
Well, true, "They" do. And if you want to have your own practice, that "They" is YOU. If you don't have a clue how to file an application online with the USPTO and have safeguards in place not to mess it up, then you will make a lot of expensive mistakes trying to start out on your own.
So, hanging out your own shingle is not something that should be entered into lightly.
The only solution, as I see it, is if wages drop to the point where it is attractive for firms to hire people. But wages have been somewhat stagnant as of late, so I am not sure how far they can drop. It chagrins me to learn that the guidance counselor and the librarian at my local high school make $80,000 a year (albeit with seniority) and that an elementary school teacher in Brooklyn can make six figures (so much for the myth of the "underpaid teacher," at least in pro-union New York State).
The other solution is to wait out the market until it thins out more. Once the word spreads that there is no longer easy money in Patents, the number of folks entering the business will dwindle and demand will increase. But either way, the future of the Patent Business does not look as rosy as it did in the past.
Don't get me wrong. People will still file for Patents. People will still get Patents. Patents will still be litigated. But the idea that filings will continue to skyrocket and salaries climb and climb are something from the last Century, not this one.
In a way, the Patent Business reflects the overall legal climate. More and more young people have been going to law school every year and the number of graduates and practicing lawyers has increased dramatically. It was only a matter of time before supply caught up with demand. In non-Patent legal fields salaries have been depressed for some time now. At your next CLE law conference, ask the fellow next to you, who handles divorce cases or DUIs or whatever, how business is - and check out what kind of car he drives. Not many people are getting rich as lawyers anymore.
As high-paying manufacturing jobs have evaporated, more and more people are looking to education and the professions as a ticket to wealth, only to find that at best, it is a ticket to an upper-middle class lifestyle, if that.
I wish I had some better advice to give. For me personally, these trends cause me to consider my own future actions and lifestyle choices. I saw my Father lose his job at age 55, never to work again. As I approach that age myself, I think more and more that perhaps I should scale back my lifestyle such that I can be prepared to retire or work part time.
You could, I suppose, move to India..... Why not? That's where the jobs are.
Seriously. That could be the smart thing to do, if you are young Attorney starting out, and don't mind relocating overseas.
FWIW.
Friday, September 11, 2009
The End of the Patent Business as We Know It?
I received a disturbing phone call from a young man seeking employment in the Patent business. He had been laid off from a Patent firm and was struggling to find a job. Even the Patent Office is not hiring these days, it seems.
I asked around and the same thing is happening all over the country. Patent law firms are laying off Associates and paralegals for lack of work. Issue fees are going unpaid, as companies go bankrupt or reorganize their priorities.
It is too early to say, but I suspect that filings are down somewhat, or at least the rate of increase has declined. Is this the end of the Patent Business as we know it?
Many many years ago, the Patent Business was not like it is (or was) today. Patents were difficult, if not impossible to enforce, and most companies freely cross-licensed their portfolios or settled for nominal sums out of court.
When I was a kid in Rochester, New York, my Father was a young Vice President at ITEK. The joke around Rochester at the time was that ITEK stood for "I Took Eastman Kodak" as many of the young Engineers there were former Kodak Engineers, and ITEK was accused of borrowing some ideas from Kodak at the time.
A good friend of my Father was Frank Robbins, who was the in-house counsel at ITEK at the time, as I recall. I once told my Father that I had come up with a great idea and wanted to Patent it. My Dad said, at the time, "Don't bother, Patents aren't worth anything, as you can't enforce them, and nobody pays much for them." I remember him saying this, even though I was just a kid at the time.
At the time (1968) this was probably sound advice. Fast-forward 20 years and I am having lunch with Frank Robbins at the Lawyer's Club in downtown Washington DC. Frank had his own law firm then. "This is a helluva racket, Bobby," he said, "you oughta get in on it. Go to work for the Patent Office and call me in a couple of years. You'll have all the job offers you want!"
I took his advice and prospered. But what happened in the interim that took Patents from a "don't bother" category to a "must have" one? The answer can be found in two words: Federal Circuit. That, or Polaroid v. Kodak.
The Federal Circuit was founded around 1981 as the first subject-matter appeals court (Court of Appeals for the Federal Circuit). It was a bipartisan effort and the theory was that certain cases dealing with Federal Law should be heard by a Federal Appeals Court, not one of the regional Appeals Courts.
So the Court of Appeals for the Federal Circuit (sometimes called the CAFC) was born. The subject matter jurisdiction included Admiralty law, Federal Employment Law, and Patent, Trademark and Copyright Law. While one of the first Chiefs of that Bench, Judge Markey, was often fond of saying "The Federal Circuit is not just a Patent Court!" we Patent Attorneys knew better.
Perhaps there is some great piece of case law coming out of the CAFC dealing with Admiralty law or Federal Employment claims. I don't know. I've never heard of it. But in the Patent field, the CAFC changed the rules of the game overnight, and the case that shocked the world was Polaroid v. Kodak.
You may not recall Polaroid instant cameras, as they are now pretty much extinct, the coffin nails being pounded in by the digital camera. But at one time, they were fairly popular, and every grocery store had a display of cameras and film by the checkout register. Polaroid enjoyed a monopoly for ages until in the mid 1970's, Kodak decided that they should get in the game. Kodak counsel objected that Polaroid's Patents might be infringed, but in one famous memo, a Kodak executive famously scrawled across the legal memo, "Screw the Patents" - or words to that effect. Kodak, operating in the legal environment of the era, made what seemed like a sound business decision.
But the legal climate changed with the creation of the CAFC. Polaroid sued, and won, with the Federal Circuit upholding damages on appeal. Not only did Kodak have to pay Polaroid a record-breaking damages award (nearly one billion dollars), they were forced to withdraw their camera from the market, leaving hundreds of thousands of consumers with worthless cameras and no film for them.
Overnight, it seemed, Patents were valuable. And during the 1980's the number of Patents litigated soared. Companies scrambled to find Patent Attorneys and file Patents of their own. It was, as Mr. Robbins said, "a helluva racket".
I became a registered Patent Agent (later Attorney) around 1990, with my registration number of 34,546. That means that since the Patent Office started registering Agents, only 34, 546 people had been registered. At that time, the "old timers" in the business had numbers in the 20,000 range. The "old fossils" maybe in the mid-teens. So at that time, there were about maybe 20,000 registered Patent Attorneys practicing, and of that maybe 3/4 actively prosecuting Patents.
My young friend who called me the other day has a registration number over 61,000, which sort of made me feel like an "old timer". I suspect that most mature Patent Attorneys have registration numbers in the high 20,000 range to mid 30,000 range. The "old fossils" out there maybe in the high teens (rare) to low 20's. So the law of supply and demand in the Patent Business has caught up with us. There are probably 30,000 or more Registered Patent Attorneys out there, an increase of nearly 50% since I started in this business.
Not surprisingly, the cost of obtaining a Patent has remained relatively flat in the last 20 years. While some firms have tried to adventurously charge $30,000 or more just to file a Patent Application, most have trended downward in the last two decades, with the cost of filing a Patent dropping below $10,000, in many cases to $5,000 or less. These prices would probably be even lower if not for the fact that the number of filings has increased dramatically at the same time as the number of Attorneys practicing increased.
A friend of mine who is a partner at a large firm tells me the same story. Prosecution is highly unprofitable for large firms these days, and many are getting out of it, even firing clients in the process. Large companies with "must have" IP may be willing to pay their large firm prices, but smaller companies that are trying to get a "me too" portfolio on a budget simply are not profitable. And large companies that try to dictate pricing are simply a non-starter.
Solo practitioners like myself are getting work, albeit at reduced prices that reflect low overhead. The idea that you can make a lot of money in prosecution is a myth. While you can earn nearly every dollar you bill, the amount of billables is shrinking daily.
My young friend looking for a job is in a pickle. He needs a few years experience at a firm to really learn the business, but the large firms aren't hiring anyone, and the smaller firms want someone they can put to work right away, making money for them - someone who won't leave after a few years for greener pastures.
Compounding this problem are the changes to the Patent Laws, Rules, Case Law, and Procedures that are making it harder to get Patent Protection and even harder to enforce it. Now granted, when I started out in this business, there was a lot of abuses in the system, where folks with vague patents and clever lawyers could basically blackmail small and even large companies for a shake-down fee.
Many of the "reforms" implemented in the interceding 20 years were touted as stopping these "submarine patent" people. But they also had the effect of making it harder for legitimate folks to get and enforce their Patents.
The Doctrine of Equivalents has taken an beating at the Federal Circuit - to the point where it largely doesn't exist. Claims are now interpreted at a Markman Hearing without a Jury present, so a solo judge can effectively narrow the scope of a case before it begins - to the point where the Patent is unenforceable.
Mean-plus-function language, which Congress specifically provided for under 35 USC 112, sixth paragraph, is now being rejected under 35 USC 112, and what little slips by the Patent Office is narrowly construed by the courts as limited only to what is specifically disclosed in the Specification.
For a brief period, it appeared that the Federal Circuit was starting the party all over again, with its decision in State Street Bank, creating, in effect, an entirely new area of patentability - the business method. But since then, the Federal Circuit has reined in the monster it created, and now the Supreme Court in the Bilsky case appears poised to drive a stake through its heart. It was a nice ride while it lasted.
Business Method Patents filed during the heyday are now just starting to be examined - under a new set of rules than they were filed under. Attorneys have to shift gears to try to re-state claims in different terms - and hope the Specification supports them. In many cases, there is no way out, and the Patent will not likely be granted. And in many cases, the point is moot. Like the aftermath of the "dot com" era, the phone numbers for the clients in these matters are in many cases disconnected, and e-mails to the inventors bounce back with "domain not found".
We are heading, I am afraid, back to the pre-Federal Circuit era, where Patents were difficult to enforce with any breadth or scope. As Patents become harder to obtain and harder to enforce, their perceived value will drop. And as the perceived value of obtaining a Patent drops, the incentive to obtain one will wane as well. The demand for Patents - and Patent Attorneys - will dwindle.
Is this a good thing or bad thing? Perhaps in some respects, an era of normalcy and calm is needed in this field, if we are to progress in a digital age. Many industries are "stuck" at this moment in time, not because of technological limitations, but because of legal ones.
Distributing newspapers, magazines, music, video, and other media is clearly poised to change dramatically in the coming decade. Paper and physical CD's or other media are rapidly becoming obsolete. But the main hurdle to a fully digital era is not the hardware or even the software, but figuring out a means of licensing such media in a manner that is profitable and fair and also acceptable to consumers.
And it also remains a problem to figure out such a system in a manner that all consumers in the marketplace can participate on equal footing. While the CD and DVD were rapidly developed through a consortium of players all agreeing in advance on how to share the licensing of technology, the High definition DVD fell prey to the "greed factor" and two competing formats came out. The least likely format won (at least in my mind) and we finally have a single format (the oddly named and spelled Blu-Ray).
But to the victors go.... no spoils? Demand for Blu-Ray discs and players is not as strong as initially expected. People are not going to go out and buy their libraries of DVDs all over again in a new format. They've had enough of these format wars and format changes. They are, simply stated, format fatigued. And many more are "platform agnostics" - not caring whose technology they are using, provided it is cheap and it works.
And even if Blu-Ray becomes popular, its victory will be short-lived. You can already download movies on your computer as it is. Granted, it is primitive and the definition is not all that great. But it is only a matter of time before higher bandwidth connections allow people true "movies on demand" in high definition mode on their home HD-TV, without the need to buy any player or spend $20 on a Blu-Ray disc.
It is possible that a relaxation of Patent Laws may allow all of these things to happen - without some one party throwing a wrench in the works by claiming they "invented" it. But that remains to be seen.
One problem with the current trend, is that it will be harder for the start-up companies and designers and idea men to protect their ideas and thus get capital to build new technologies. Venture Capitalists are still out there and still looking for the "next big thing". But if the "next big thing" is not Patentable, one of two things could happen. First, the Venture Capitalists might just decide to take someone's idea without compensating them for it. That would be bad. Second, they might decide to forget funding a new project or product entirely. That would be worse.
If there is no exclusivity for an idea - even for a brief moment - then there is little incentive to invest millions in developing and marketing an invention - not if your competitor can "piggyback" off your idea and come to market second and cheaper (the second player in any market usually ends up the victor, historically, unless the first player has some unique and protectable technology).
Would Apple be making any money if the iPhone and iPod could be cheaply cloned and sold? Of course not. Competitors do sell knock-offs of both products, but they are "me too" products that cannot interface with the proprietary Apple software, and thus have limited market shares.
It is a double-edged sword. We would all benefit from open architecture and open formats for technology. But such formats would likely not be developed if you removed the profit motive from development.
On the whole, I'd say that we are swinging the pendulum too far in the anti-Patent direction. The short term results will likely be a downturn in the Patent business and a downturn in litigation. For some corporations, this may be welcome relief. But in the long-term, it may help further our transition from International Superpower into a third world country. As our technology becomes unprotectable, there will be little incentive to invest in new technology. Manufacturing will continue to move offshore, where the cost of labor will be the dominate factor, not the technological content. We will start to look abroad for technical innovations and solutions, and end up being a passive consumer of technology, not a creator of it.
I see a bleak future for the United States if this trend continues. As we become more concerned with tending to the needs of the poorest sectors of our economy, our tax base will continue to increase dramatically (as it has here in Central New York). Increased taxes and competition based on labor cost only will force more and more companies into bankruptcy or to move overseas. As domestic employment decreases (and more and more people retire) the working portion of the economy will continue to shrink. Like General Motors or Chrysler, each worker will have to support not only themselves, but two non-working retirees or laid-off workers as well.
And since innovation is not rewarded, there is little incentive to study Engineering or other Sciences. The majority of graduates from U.S. Engineering schools are mostly from overseas - they have come here to learn our technology and then take it back to their home countries. The centers for innovation are moving away from places like Silicon Valley and transitioning to India and China. As we graduate fewer and fewer Engineers, there will be less and less innovation as well.
Perhaps this is a bit alarmist, but I don't think it is. After World War II, manufacturing drove our economic engine. But manufacturing in a high cost of living country cannot be sustainable - if the competition is merely based on labor rates. Technology drove our economic engine for the last three decades. Innovation and new products created new jobs and entire industries which never existed mere years earlier.
We kill Patents, we kill Innovation, it is just that simple. Take away the incentives to innovate and no one will do it. In fact, those who innovate will be punished in the market for wasting resources on innovation rather than mere production cost-cutting and copying.
We kill Patents, we kill Innovation. We kill Innovation, we kill ourselves.
It was a nice ride, while it lasted.
POSTSCRIPT: Patent Application Data
I found this link:
www.uspto.gov/go/taf/us_stat.htm
Which includes filign statistics since 1963. As you can see, the Patent business was pretty static from about 1963 (85,000 applications filed, 45,000 issued) through 1983 (103,000 applications filed, 56,000 issued). Between those two decades, growth in Patent filings was nearly flat, which is interesting considering the population growth and growth of technology between 1963 and 1983.
Between 1983 and today, filings have jumped to about 456,000, more than quadruple the amount in 1983. The issue rate increased accordingly, tracking the '63-83 data (about 50% issued) until recent years. The issue rate peaked in 2006 at 173,000 Patents and dropped to 157,000 Patents since then.
Note that in the old days, a File Wrapper Continuation was counted as a "new" application. I am not sure whether this chart takes that into account. If not, then the numbers are even higher in relation to the older numbers, which would count FWCs and other Contiunations. This change in policy explains why we went through a "series"(09/, 10/, 11/) of Application Numbers every 3-4 years through the 1990s, but have been in the 12/ series of applications since 2004 (nearly 6 years).
What is interesting is that for the last three years, filings have flatted and settled at the 450,000 mark. It will be interesting to see the 2009 numbers and whether they show a decrease (my guess is YES).
What is also interesting to me is that the year I started in this business, 1987, the filing boom had hardly started. The real growth in filings didn't occur until well into the 1990's. And yet the 1980's were viewed as a boom period for this business.
Even at "only" 450,000 filings per year, there should be growth in this business, if the number of Attorneys and Agents has only increased by 50% as posited in my thesis. For some reason, though, fees have remained flat. Perhaps we Attorneys are cutting our throats by keeping fees down.
Low Patent fees result in more filings as well. So if the Patent Office wants to decrease filings of "frivolous" applications, increased Attorneys fees work in their favor. I think one reason why the Appeals format was so dramatically changed was to increase the cost of filing an Appeal for an applicant.
It is an interesting situation.
I asked around and the same thing is happening all over the country. Patent law firms are laying off Associates and paralegals for lack of work. Issue fees are going unpaid, as companies go bankrupt or reorganize their priorities.
It is too early to say, but I suspect that filings are down somewhat, or at least the rate of increase has declined. Is this the end of the Patent Business as we know it?
Many many years ago, the Patent Business was not like it is (or was) today. Patents were difficult, if not impossible to enforce, and most companies freely cross-licensed their portfolios or settled for nominal sums out of court.
When I was a kid in Rochester, New York, my Father was a young Vice President at ITEK. The joke around Rochester at the time was that ITEK stood for "I Took Eastman Kodak" as many of the young Engineers there were former Kodak Engineers, and ITEK was accused of borrowing some ideas from Kodak at the time.
A good friend of my Father was Frank Robbins, who was the in-house counsel at ITEK at the time, as I recall. I once told my Father that I had come up with a great idea and wanted to Patent it. My Dad said, at the time, "Don't bother, Patents aren't worth anything, as you can't enforce them, and nobody pays much for them." I remember him saying this, even though I was just a kid at the time.
At the time (1968) this was probably sound advice. Fast-forward 20 years and I am having lunch with Frank Robbins at the Lawyer's Club in downtown Washington DC. Frank had his own law firm then. "This is a helluva racket, Bobby," he said, "you oughta get in on it. Go to work for the Patent Office and call me in a couple of years. You'll have all the job offers you want!"
I took his advice and prospered. But what happened in the interim that took Patents from a "don't bother" category to a "must have" one? The answer can be found in two words: Federal Circuit. That, or Polaroid v. Kodak.
The Federal Circuit was founded around 1981 as the first subject-matter appeals court (Court of Appeals for the Federal Circuit). It was a bipartisan effort and the theory was that certain cases dealing with Federal Law should be heard by a Federal Appeals Court, not one of the regional Appeals Courts.
So the Court of Appeals for the Federal Circuit (sometimes called the CAFC) was born. The subject matter jurisdiction included Admiralty law, Federal Employment Law, and Patent, Trademark and Copyright Law. While one of the first Chiefs of that Bench, Judge Markey, was often fond of saying "The Federal Circuit is not just a Patent Court!" we Patent Attorneys knew better.
Perhaps there is some great piece of case law coming out of the CAFC dealing with Admiralty law or Federal Employment claims. I don't know. I've never heard of it. But in the Patent field, the CAFC changed the rules of the game overnight, and the case that shocked the world was Polaroid v. Kodak.
You may not recall Polaroid instant cameras, as they are now pretty much extinct, the coffin nails being pounded in by the digital camera. But at one time, they were fairly popular, and every grocery store had a display of cameras and film by the checkout register. Polaroid enjoyed a monopoly for ages until in the mid 1970's, Kodak decided that they should get in the game. Kodak counsel objected that Polaroid's Patents might be infringed, but in one famous memo, a Kodak executive famously scrawled across the legal memo, "Screw the Patents" - or words to that effect. Kodak, operating in the legal environment of the era, made what seemed like a sound business decision.
But the legal climate changed with the creation of the CAFC. Polaroid sued, and won, with the Federal Circuit upholding damages on appeal. Not only did Kodak have to pay Polaroid a record-breaking damages award (nearly one billion dollars), they were forced to withdraw their camera from the market, leaving hundreds of thousands of consumers with worthless cameras and no film for them.
Overnight, it seemed, Patents were valuable. And during the 1980's the number of Patents litigated soared. Companies scrambled to find Patent Attorneys and file Patents of their own. It was, as Mr. Robbins said, "a helluva racket".
I became a registered Patent Agent (later Attorney) around 1990, with my registration number of 34,546. That means that since the Patent Office started registering Agents, only 34, 546 people had been registered. At that time, the "old timers" in the business had numbers in the 20,000 range. The "old fossils" maybe in the mid-teens. So at that time, there were about maybe 20,000 registered Patent Attorneys practicing, and of that maybe 3/4 actively prosecuting Patents.
My young friend who called me the other day has a registration number over 61,000, which sort of made me feel like an "old timer". I suspect that most mature Patent Attorneys have registration numbers in the high 20,000 range to mid 30,000 range. The "old fossils" out there maybe in the high teens (rare) to low 20's. So the law of supply and demand in the Patent Business has caught up with us. There are probably 30,000 or more Registered Patent Attorneys out there, an increase of nearly 50% since I started in this business.
Not surprisingly, the cost of obtaining a Patent has remained relatively flat in the last 20 years. While some firms have tried to adventurously charge $30,000 or more just to file a Patent Application, most have trended downward in the last two decades, with the cost of filing a Patent dropping below $10,000, in many cases to $5,000 or less. These prices would probably be even lower if not for the fact that the number of filings has increased dramatically at the same time as the number of Attorneys practicing increased.
A friend of mine who is a partner at a large firm tells me the same story. Prosecution is highly unprofitable for large firms these days, and many are getting out of it, even firing clients in the process. Large companies with "must have" IP may be willing to pay their large firm prices, but smaller companies that are trying to get a "me too" portfolio on a budget simply are not profitable. And large companies that try to dictate pricing are simply a non-starter.
Solo practitioners like myself are getting work, albeit at reduced prices that reflect low overhead. The idea that you can make a lot of money in prosecution is a myth. While you can earn nearly every dollar you bill, the amount of billables is shrinking daily.
My young friend looking for a job is in a pickle. He needs a few years experience at a firm to really learn the business, but the large firms aren't hiring anyone, and the smaller firms want someone they can put to work right away, making money for them - someone who won't leave after a few years for greener pastures.
Compounding this problem are the changes to the Patent Laws, Rules, Case Law, and Procedures that are making it harder to get Patent Protection and even harder to enforce it. Now granted, when I started out in this business, there was a lot of abuses in the system, where folks with vague patents and clever lawyers could basically blackmail small and even large companies for a shake-down fee.
Many of the "reforms" implemented in the interceding 20 years were touted as stopping these "submarine patent" people. But they also had the effect of making it harder for legitimate folks to get and enforce their Patents.
The Doctrine of Equivalents has taken an beating at the Federal Circuit - to the point where it largely doesn't exist. Claims are now interpreted at a Markman Hearing without a Jury present, so a solo judge can effectively narrow the scope of a case before it begins - to the point where the Patent is unenforceable.
Mean-plus-function language, which Congress specifically provided for under 35 USC 112, sixth paragraph, is now being rejected under 35 USC 112, and what little slips by the Patent Office is narrowly construed by the courts as limited only to what is specifically disclosed in the Specification.
For a brief period, it appeared that the Federal Circuit was starting the party all over again, with its decision in State Street Bank, creating, in effect, an entirely new area of patentability - the business method. But since then, the Federal Circuit has reined in the monster it created, and now the Supreme Court in the Bilsky case appears poised to drive a stake through its heart. It was a nice ride while it lasted.
Business Method Patents filed during the heyday are now just starting to be examined - under a new set of rules than they were filed under. Attorneys have to shift gears to try to re-state claims in different terms - and hope the Specification supports them. In many cases, there is no way out, and the Patent will not likely be granted. And in many cases, the point is moot. Like the aftermath of the "dot com" era, the phone numbers for the clients in these matters are in many cases disconnected, and e-mails to the inventors bounce back with "domain not found".
We are heading, I am afraid, back to the pre-Federal Circuit era, where Patents were difficult to enforce with any breadth or scope. As Patents become harder to obtain and harder to enforce, their perceived value will drop. And as the perceived value of obtaining a Patent drops, the incentive to obtain one will wane as well. The demand for Patents - and Patent Attorneys - will dwindle.
Is this a good thing or bad thing? Perhaps in some respects, an era of normalcy and calm is needed in this field, if we are to progress in a digital age. Many industries are "stuck" at this moment in time, not because of technological limitations, but because of legal ones.
Distributing newspapers, magazines, music, video, and other media is clearly poised to change dramatically in the coming decade. Paper and physical CD's or other media are rapidly becoming obsolete. But the main hurdle to a fully digital era is not the hardware or even the software, but figuring out a means of licensing such media in a manner that is profitable and fair and also acceptable to consumers.
And it also remains a problem to figure out such a system in a manner that all consumers in the marketplace can participate on equal footing. While the CD and DVD were rapidly developed through a consortium of players all agreeing in advance on how to share the licensing of technology, the High definition DVD fell prey to the "greed factor" and two competing formats came out. The least likely format won (at least in my mind) and we finally have a single format (the oddly named and spelled Blu-Ray).
But to the victors go.... no spoils? Demand for Blu-Ray discs and players is not as strong as initially expected. People are not going to go out and buy their libraries of DVDs all over again in a new format. They've had enough of these format wars and format changes. They are, simply stated, format fatigued. And many more are "platform agnostics" - not caring whose technology they are using, provided it is cheap and it works.
And even if Blu-Ray becomes popular, its victory will be short-lived. You can already download movies on your computer as it is. Granted, it is primitive and the definition is not all that great. But it is only a matter of time before higher bandwidth connections allow people true "movies on demand" in high definition mode on their home HD-TV, without the need to buy any player or spend $20 on a Blu-Ray disc.
It is possible that a relaxation of Patent Laws may allow all of these things to happen - without some one party throwing a wrench in the works by claiming they "invented" it. But that remains to be seen.
One problem with the current trend, is that it will be harder for the start-up companies and designers and idea men to protect their ideas and thus get capital to build new technologies. Venture Capitalists are still out there and still looking for the "next big thing". But if the "next big thing" is not Patentable, one of two things could happen. First, the Venture Capitalists might just decide to take someone's idea without compensating them for it. That would be bad. Second, they might decide to forget funding a new project or product entirely. That would be worse.
If there is no exclusivity for an idea - even for a brief moment - then there is little incentive to invest millions in developing and marketing an invention - not if your competitor can "piggyback" off your idea and come to market second and cheaper (the second player in any market usually ends up the victor, historically, unless the first player has some unique and protectable technology).
Would Apple be making any money if the iPhone and iPod could be cheaply cloned and sold? Of course not. Competitors do sell knock-offs of both products, but they are "me too" products that cannot interface with the proprietary Apple software, and thus have limited market shares.
It is a double-edged sword. We would all benefit from open architecture and open formats for technology. But such formats would likely not be developed if you removed the profit motive from development.
On the whole, I'd say that we are swinging the pendulum too far in the anti-Patent direction. The short term results will likely be a downturn in the Patent business and a downturn in litigation. For some corporations, this may be welcome relief. But in the long-term, it may help further our transition from International Superpower into a third world country. As our technology becomes unprotectable, there will be little incentive to invest in new technology. Manufacturing will continue to move offshore, where the cost of labor will be the dominate factor, not the technological content. We will start to look abroad for technical innovations and solutions, and end up being a passive consumer of technology, not a creator of it.
I see a bleak future for the United States if this trend continues. As we become more concerned with tending to the needs of the poorest sectors of our economy, our tax base will continue to increase dramatically (as it has here in Central New York). Increased taxes and competition based on labor cost only will force more and more companies into bankruptcy or to move overseas. As domestic employment decreases (and more and more people retire) the working portion of the economy will continue to shrink. Like General Motors or Chrysler, each worker will have to support not only themselves, but two non-working retirees or laid-off workers as well.
And since innovation is not rewarded, there is little incentive to study Engineering or other Sciences. The majority of graduates from U.S. Engineering schools are mostly from overseas - they have come here to learn our technology and then take it back to their home countries. The centers for innovation are moving away from places like Silicon Valley and transitioning to India and China. As we graduate fewer and fewer Engineers, there will be less and less innovation as well.
Perhaps this is a bit alarmist, but I don't think it is. After World War II, manufacturing drove our economic engine. But manufacturing in a high cost of living country cannot be sustainable - if the competition is merely based on labor rates. Technology drove our economic engine for the last three decades. Innovation and new products created new jobs and entire industries which never existed mere years earlier.
We kill Patents, we kill Innovation, it is just that simple. Take away the incentives to innovate and no one will do it. In fact, those who innovate will be punished in the market for wasting resources on innovation rather than mere production cost-cutting and copying.
We kill Patents, we kill Innovation. We kill Innovation, we kill ourselves.
It was a nice ride, while it lasted.
POSTSCRIPT: Patent Application Data
I found this link:
www.uspto.gov/go/taf/us_stat.htm
Which includes filign statistics since 1963. As you can see, the Patent business was pretty static from about 1963 (85,000 applications filed, 45,000 issued) through 1983 (103,000 applications filed, 56,000 issued). Between those two decades, growth in Patent filings was nearly flat, which is interesting considering the population growth and growth of technology between 1963 and 1983.
Between 1983 and today, filings have jumped to about 456,000, more than quadruple the amount in 1983. The issue rate increased accordingly, tracking the '63-83 data (about 50% issued) until recent years. The issue rate peaked in 2006 at 173,000 Patents and dropped to 157,000 Patents since then.
Note that in the old days, a File Wrapper Continuation was counted as a "new" application. I am not sure whether this chart takes that into account. If not, then the numbers are even higher in relation to the older numbers, which would count FWCs and other Contiunations. This change in policy explains why we went through a "series"(09/, 10/, 11/) of Application Numbers every 3-4 years through the 1990s, but have been in the 12/ series of applications since 2004 (nearly 6 years).
What is interesting is that for the last three years, filings have flatted and settled at the 450,000 mark. It will be interesting to see the 2009 numbers and whether they show a decrease (my guess is YES).
What is also interesting to me is that the year I started in this business, 1987, the filing boom had hardly started. The real growth in filings didn't occur until well into the 1990's. And yet the 1980's were viewed as a boom period for this business.
Even at "only" 450,000 filings per year, there should be growth in this business, if the number of Attorneys and Agents has only increased by 50% as posited in my thesis. For some reason, though, fees have remained flat. Perhaps we Attorneys are cutting our throats by keeping fees down.
Low Patent fees result in more filings as well. So if the Patent Office wants to decrease filings of "frivolous" applications, increased Attorneys fees work in their favor. I think one reason why the Appeals format was so dramatically changed was to increase the cost of filing an Appeal for an applicant.
It is an interesting situation.
Friday, August 28, 2009
New SCAM letter from APTR CD-CTI Ltd.
In recent weeks, I have been getting about a dozen scam letters from Hong Kong from a company that calls itself the "American Patent & Trademark Register" or APTR and also bills itself as CD-CTI limited.
The letter looks very official, with all the data for your Patent on it, as well as mysterious looking codes and bar codes. The letter is is made to look like an invoice for "USD 2.489,46" which should tell you something right there (in the US, this would be printed as $2,489.46).
The letter states, in fine print, that for this fee, the APTR agrees to publish your Patent on a CD-ROM. Where this CD-ROM is or who it is distributed to or why is not made clear.
The letter also states that it is NOT an invoice and that they are NOT connected with the USPTO - but in a font much smaller than the remainder of the letter.
If you send money to this organization, it is lost for good, as they are in Hong Kong, and there is no way to get your money back. They are addressing these letters to address of record of published applications. For Pro Se applicants, this letter would be addressed to the applicant. For those using a lawyer, the letter would go to your attorney.
While it seems like an obvious and stupid scam (and it is), many pro se applicant's, not being familiar with the process, might think this is an invoice from the Patent Office for their Patent.
And once they send the money off, it is gone for good.
They are blanketing the US with these letters. If the response rate is even one in a thousand, they stand to make money at this.
If you ever get a letter from an official-sounding agency asking for money, be wary. The USPTO has only one name and address - United States Patent & Trademark Office in Alexandria, Virgina. Other names, such as "Official Maintenance Fee Payment Agency" are bogus. Do NOT send money to such organizations!
Contact your attorney or the USPTO before sending off any money to any organization with regard to your Patent. Once you send off this money, there is nothing anyone can do to get it back for you.
The letter looks very official, with all the data for your Patent on it, as well as mysterious looking codes and bar codes. The letter is is made to look like an invoice for "USD 2.489,46" which should tell you something right there (in the US, this would be printed as $2,489.46).
The letter states, in fine print, that for this fee, the APTR agrees to publish your Patent on a CD-ROM. Where this CD-ROM is or who it is distributed to or why is not made clear.
The letter also states that it is NOT an invoice and that they are NOT connected with the USPTO - but in a font much smaller than the remainder of the letter.
If you send money to this organization, it is lost for good, as they are in Hong Kong, and there is no way to get your money back. They are addressing these letters to address of record of published applications. For Pro Se applicants, this letter would be addressed to the applicant. For those using a lawyer, the letter would go to your attorney.
While it seems like an obvious and stupid scam (and it is), many pro se applicant's, not being familiar with the process, might think this is an invoice from the Patent Office for their Patent.
And once they send the money off, it is gone for good.
They are blanketing the US with these letters. If the response rate is even one in a thousand, they stand to make money at this.
If you ever get a letter from an official-sounding agency asking for money, be wary. The USPTO has only one name and address - United States Patent & Trademark Office in Alexandria, Virgina. Other names, such as "Official Maintenance Fee Payment Agency" are bogus. Do NOT send money to such organizations!
Contact your attorney or the USPTO before sending off any money to any organization with regard to your Patent. Once you send off this money, there is nothing anyone can do to get it back for you.
Friday, July 24, 2009
The Litigation Conundrum
While many decry the abuses in the litigation system as "proof" that the Patent system needs an "overhaul" or should be tossed out entirely, there is another problem at the other end of the spectrum as well.
In particular, there are inventors and small businessmen out there who have developed inventions - real inventions, not submarine Patents - who want to enforce their Patent rights, and find it difficult, if not impossible to do so.
While a "Patent Troll" can extract a few hundred thousand or even millions by suing a large company with a nuisance suit, it seems that many small companies and solo inventors cannot get even one dime for their valid U.S. Patents - for real inventions - that are infringed upon, and in some instances, even clearly stolen from them.
As I noted in another article, this is a Litigation problem, not a Patent problem.
Perhaps the analogy to Personal Injury cases I have made in the past is appropriate. A scamming plaintiff with a "setup" slip-and-fall injury case against a large company has a better chance of success than a real Plaintiff with serious injuries who has a case with messy facts. The "setup" cases are easier to litigate, as the plaintiff knows in advance how to create a fake injury scenario that is credible with the courts - and also how to target the right defendants (deep pockets with lots of insurance). But a person who is really injured in a car accident? Well, it was a dark and stormy night, as they say, and the skid marks were inconclusive and maybe the Defendant doesn't have a lot of readily attachable assets or insurance.
Like I said, it is the litigation system that needs fixing, not the Patent system. Often those least entitled to damages end up winning big, while those who have been truly wronged walk away with nothing.
For a solo inventor or small company, there are not a lot of choices when it comes to litigation. There are large firms, which are expensive. There are smaller firms, which are cheaper, but still cost money, and do not have the cache of the big firm. There are contingency fee firms, which will want a lion's share of the damages - and expect to see a lot of damages. And then there are the various Patent companies, sometimes derisively referred to as "Patent Trolls."
Litigation is an interesting conundrum. Hiring a large, downtown law firm can cost as much as $100,000 a month in litigation expenses, or at least it did back in 1992 when I worked for a large downtown firm. So there had better be millions in damages on the other side of the case if you want to proceed with it. Plus, you have to have enough money to fund the litigation for at least a year (e.g., a million bucks). If you run out of money halfway through the process, well, you're sunk. There are a number of large firms, such as Blakely Sokoloff in silicon valley. See: http://www.bstz.com/
Smaller firms might be more cost-effective, but they do not have the cache of the larger firm. Litigation is very psychological, and sometimes you can force settlement of a case if a competitor is cowed by the large law firm name. I had one client settle a case with his former business partner, merely by hiring the biggest, meanest law firm in his State. The former partner got a letter from that firm and quickly folded his tent - realizing he could not afford to go up against them. Like poker, a lot of litigation can involve bluffing.
But a smaller firm can cost a lot less to hire, and as a result, you can afford the litigation expenses. A friend of mine, David Voorhees, works for a small litigation shop in Alexandria, Virgina. He and his partner know their way around the courthouse, even if they are not a large shop. I am not sure if you can get jurisdiction there, although if infringement activities take place nationwide, it may be possible. The "Rocket Docket" in Alexandria can decide patent cases in as little as 18 months (as opposed to years and years elsewhere) and it is a popular venue. See: http://www.mbv-ip.com/attorney_bios.php
Then again, there are also contingency fee firms that handle such cases for a percentage of the damages. Most want to see at least a million bucks in potential damages, as well as an easily identifiable plaintiff, preferably with readily attachable assets. An offshore producer is probably not a good target for them. But a large US company might be. One of the most famous of these is Niro, Scavone, in Chicago. I have dealt with them in the past with the Internet Couponing case, and they are a formidable opponent. See: http://www.niroscavone.com/
There are other contingency fee companies out there, such as General Patent Corporation and the IP contingency consortium. These are a different animal, and are often accused of "Patent Trolling". I interviewed GPC for one client, and the references they offered were interesting. One fellow had an invention for a telephone voicemail type invention. The defendant was Coca-Cola. Rather than go after the maker of the product, they want after the end customer and extracted what some might say are nuisance settlement amounts. For an individual inventor, this may be an option, but for a small company interested in going after competitors, maybe not the correct solution.
The key question you need to answer before you start on any cause of action is to determine what your GOALS are with the Patent. There are several different strategies you can take:
1. Defensive - use your Patents to defend against infringement suits from competitors. A large company comes after you and says you are infringing their Patent, and you can counter-sue them with yours - and hopefully settle.
2. Offensive - use your Patents offensively to obtain royalties, damages, and monies from others. The only downside to this (other than the costs noted above) is that if you are in the business as well, expect the people you sue to do #1 above - that is to say, counter-sue you with their Patents. Make sure your opponent doesn't have something in their portfolio to hit you back with. You take a shot at someone, expect them to shoot back.
3. Exclude Others from the Marketplace - In theory, you can use a Patent to obtain a monopoly on your invention. That's what the law says. In theory. In reality, it is very hard to "exclude others from making, using, or selling" the invention. The Windshield Wiper case is a good example (this is out as a movie with Greg Kinnear, called "Flash of Genius", by the way). He tried to "exclude others" from making intermittent windshield wipers, turning down enormous sums of money, only to win smaller settlements later on in court. His dream of being the windshield wiper king never materialized.
4. As an Asset - If you ever decide to sell your company or go public or apply for a loan, a Patent or Patent portfolio can be useful as an asset. I have had several clients go this route - selling out to larger companies that were interested in the business, but also the Patent Portfolio and the potential for litigation damages. Larger corporations have the deep pockets to fund litigation (and opponents know this, making the threat of a lawsuit more credible).
Before contemplating litigation, I would suggest sitting down and figuring out what your ultimate goals are and then interviewing a number of firms. They may charge you a rather astounding amount of money just for a few hours of their time, but it may be worth it.
As with the question of "Should I Get a Patent?" (see my earlier article) you need to do a cost/benefit analysis as a businessman before proceeding. While the promise of millions in damages may sound inviting, if it costs you a million dollars in legal fees, and the outcome is uncertain, or the legal fees sink your company, perhaps it is not such a swell idea.
As in most legal endeavors, the real winners are usually the lawyers.
Early in my career, I was invoved in a multi-million dollar lawsuit between two major electronics firms. While both appeared to be "deep pockets" with lots of money to spend, the legal fees were topping a million dollars a year for each side. As the corporate counsel noted, this amounted to nearly 5% of their annual profits. "If we could increase our profits by even one percentage point, do you know what that would do to our stock price?"
After several years of a lawsuit and countersuit, the CEOs of each company did the unthinkable - they got together over a game of golf, and with no lawyers present, settled the case over the weekend. Both realized that the lawsuit game was getting them nowhere. They were not able to exclude the other from the marketplace, and the potential damages were little compared to the legal fees involved. Polaroid v Kodak type cases are a rarity, not the norm.
You can see why I concentrate on the Prosecution side of things. Litigation requires a critical mass of manpower and money to be successful. As a prosecuting attorney, I merely create causes of action for others.
NOTE: I have listed a number of law firms and Patent Companies that handle Patent litigation (or at least did at one time). I am not endorsing any of these entities, but merely using them as examples of the genre. However, I have no negative information on any of the cited entites, either. Which type is best for you is a fact-specific situation, too. There are many more out there, and you should search in your area, interview several, and consider the costs and benefits before proceeding.
In a perfect world, everyone would quickly realize who is entitled to royalties for a particular invention, and they would pay out in an efficient and cost-effective manner. And those who do not have a real cause of action would receive nothing. That is, if we lived in a perfect world.
Unfortunately, we live in a world that is far from perfect, and our system sometimes seems to work in a manner opposite to the way it was intended. However, in many cases, the proper people end up being rewarded for their efforts. It can and does happen on occasion!
In particular, there are inventors and small businessmen out there who have developed inventions - real inventions, not submarine Patents - who want to enforce their Patent rights, and find it difficult, if not impossible to do so.
While a "Patent Troll" can extract a few hundred thousand or even millions by suing a large company with a nuisance suit, it seems that many small companies and solo inventors cannot get even one dime for their valid U.S. Patents - for real inventions - that are infringed upon, and in some instances, even clearly stolen from them.
As I noted in another article, this is a Litigation problem, not a Patent problem.
Perhaps the analogy to Personal Injury cases I have made in the past is appropriate. A scamming plaintiff with a "setup" slip-and-fall injury case against a large company has a better chance of success than a real Plaintiff with serious injuries who has a case with messy facts. The "setup" cases are easier to litigate, as the plaintiff knows in advance how to create a fake injury scenario that is credible with the courts - and also how to target the right defendants (deep pockets with lots of insurance). But a person who is really injured in a car accident? Well, it was a dark and stormy night, as they say, and the skid marks were inconclusive and maybe the Defendant doesn't have a lot of readily attachable assets or insurance.
Like I said, it is the litigation system that needs fixing, not the Patent system. Often those least entitled to damages end up winning big, while those who have been truly wronged walk away with nothing.
For a solo inventor or small company, there are not a lot of choices when it comes to litigation. There are large firms, which are expensive. There are smaller firms, which are cheaper, but still cost money, and do not have the cache of the big firm. There are contingency fee firms, which will want a lion's share of the damages - and expect to see a lot of damages. And then there are the various Patent companies, sometimes derisively referred to as "Patent Trolls."
Litigation is an interesting conundrum. Hiring a large, downtown law firm can cost as much as $100,000 a month in litigation expenses, or at least it did back in 1992 when I worked for a large downtown firm. So there had better be millions in damages on the other side of the case if you want to proceed with it. Plus, you have to have enough money to fund the litigation for at least a year (e.g., a million bucks). If you run out of money halfway through the process, well, you're sunk. There are a number of large firms, such as Blakely Sokoloff in silicon valley. See: http://www.bstz.com/
Smaller firms might be more cost-effective, but they do not have the cache of the larger firm. Litigation is very psychological, and sometimes you can force settlement of a case if a competitor is cowed by the large law firm name. I had one client settle a case with his former business partner, merely by hiring the biggest, meanest law firm in his State. The former partner got a letter from that firm and quickly folded his tent - realizing he could not afford to go up against them. Like poker, a lot of litigation can involve bluffing.
But a smaller firm can cost a lot less to hire, and as a result, you can afford the litigation expenses. A friend of mine, David Voorhees, works for a small litigation shop in Alexandria, Virgina. He and his partner know their way around the courthouse, even if they are not a large shop. I am not sure if you can get jurisdiction there, although if infringement activities take place nationwide, it may be possible. The "Rocket Docket" in Alexandria can decide patent cases in as little as 18 months (as opposed to years and years elsewhere) and it is a popular venue. See: http://www.mbv-ip.com/attorney_bios.php
Then again, there are also contingency fee firms that handle such cases for a percentage of the damages. Most want to see at least a million bucks in potential damages, as well as an easily identifiable plaintiff, preferably with readily attachable assets. An offshore producer is probably not a good target for them. But a large US company might be. One of the most famous of these is Niro, Scavone, in Chicago. I have dealt with them in the past with the Internet Couponing case, and they are a formidable opponent. See: http://www.niroscavone.com/
There are other contingency fee companies out there, such as General Patent Corporation and the IP contingency consortium. These are a different animal, and are often accused of "Patent Trolling". I interviewed GPC for one client, and the references they offered were interesting. One fellow had an invention for a telephone voicemail type invention. The defendant was Coca-Cola. Rather than go after the maker of the product, they want after the end customer and extracted what some might say are nuisance settlement amounts. For an individual inventor, this may be an option, but for a small company interested in going after competitors, maybe not the correct solution.
The key question you need to answer before you start on any cause of action is to determine what your GOALS are with the Patent. There are several different strategies you can take:
1. Defensive - use your Patents to defend against infringement suits from competitors. A large company comes after you and says you are infringing their Patent, and you can counter-sue them with yours - and hopefully settle.
2. Offensive - use your Patents offensively to obtain royalties, damages, and monies from others. The only downside to this (other than the costs noted above) is that if you are in the business as well, expect the people you sue to do #1 above - that is to say, counter-sue you with their Patents. Make sure your opponent doesn't have something in their portfolio to hit you back with. You take a shot at someone, expect them to shoot back.
3. Exclude Others from the Marketplace - In theory, you can use a Patent to obtain a monopoly on your invention. That's what the law says. In theory. In reality, it is very hard to "exclude others from making, using, or selling" the invention. The Windshield Wiper case is a good example (this is out as a movie with Greg Kinnear, called "Flash of Genius", by the way). He tried to "exclude others" from making intermittent windshield wipers, turning down enormous sums of money, only to win smaller settlements later on in court. His dream of being the windshield wiper king never materialized.
4. As an Asset - If you ever decide to sell your company or go public or apply for a loan, a Patent or Patent portfolio can be useful as an asset. I have had several clients go this route - selling out to larger companies that were interested in the business, but also the Patent Portfolio and the potential for litigation damages. Larger corporations have the deep pockets to fund litigation (and opponents know this, making the threat of a lawsuit more credible).
Before contemplating litigation, I would suggest sitting down and figuring out what your ultimate goals are and then interviewing a number of firms. They may charge you a rather astounding amount of money just for a few hours of their time, but it may be worth it.
As with the question of "Should I Get a Patent?" (see my earlier article) you need to do a cost/benefit analysis as a businessman before proceeding. While the promise of millions in damages may sound inviting, if it costs you a million dollars in legal fees, and the outcome is uncertain, or the legal fees sink your company, perhaps it is not such a swell idea.
As in most legal endeavors, the real winners are usually the lawyers.
Early in my career, I was invoved in a multi-million dollar lawsuit between two major electronics firms. While both appeared to be "deep pockets" with lots of money to spend, the legal fees were topping a million dollars a year for each side. As the corporate counsel noted, this amounted to nearly 5% of their annual profits. "If we could increase our profits by even one percentage point, do you know what that would do to our stock price?"
After several years of a lawsuit and countersuit, the CEOs of each company did the unthinkable - they got together over a game of golf, and with no lawyers present, settled the case over the weekend. Both realized that the lawsuit game was getting them nowhere. They were not able to exclude the other from the marketplace, and the potential damages were little compared to the legal fees involved. Polaroid v Kodak type cases are a rarity, not the norm.
You can see why I concentrate on the Prosecution side of things. Litigation requires a critical mass of manpower and money to be successful. As a prosecuting attorney, I merely create causes of action for others.
NOTE: I have listed a number of law firms and Patent Companies that handle Patent litigation (or at least did at one time). I am not endorsing any of these entities, but merely using them as examples of the genre. However, I have no negative information on any of the cited entites, either. Which type is best for you is a fact-specific situation, too. There are many more out there, and you should search in your area, interview several, and consider the costs and benefits before proceeding.
In a perfect world, everyone would quickly realize who is entitled to royalties for a particular invention, and they would pay out in an efficient and cost-effective manner. And those who do not have a real cause of action would receive nothing. That is, if we lived in a perfect world.
Unfortunately, we live in a world that is far from perfect, and our system sometimes seems to work in a manner opposite to the way it was intended. However, in many cases, the proper people end up being rewarded for their efforts. It can and does happen on occasion!
Saturday, July 4, 2009
Future Trends
Future Trends
As a Patent Attorney, what I see for the near future.
Many of my friends are often surprised that I do not have a lot of the latest gadgets or get caught up in the latest fads. After all, as someone who makes a living from the latest technology, wouldn't I be a fan of it? But for the most part, I consider myself a techno-Luddite, adopting only those technologies which I really need and eschewing most of the trendy stuff.
Why is this? Well, the answer is simple. What may be the "latest and greatest" innovation to you was something I wrote a Patent Application on about ten years ago. The other day, someone was showing me the "latest feature" on their GPS system, which allowed them to monitor traffic conditions in real time and display them on a screen – coloring congested roads in red, mildly congested roads in yellow, and clear roads in green. He couldn't understand why I wasn't impressed with this bit of cutting edge technology, until I told him I wrote a Patent on it – back in 1992.
Oftentimes, the barriers to implementation of inventions reside less in the technological aspects, but in social aspects – either acceptance by the public, the need for a certain installed base of hardware, or due to laws or government regulations. Once a certain critical mass is achieved, change then occurs rapidly. The technology for real-time traffic monitoring existed back in 1992. However, it took an installed base of cheap $200 GPS systems, as well as the regulatory changes to gather and transmit such data, as well as the public's acceptance (and demand) for onboard GPS systems in order to make them readily available. All told, these "social" innovations took a decade or more. Innovating the tech part was easy, in retrospect.
The transition to CDs is another example which is easily understood by most people. In that instance, the regulatory hurdles were few. A consortium of companies banded together to develop a new standard (unlike the HD-DVD/BluRay fiasco) for digitally storing music and data on an optical disc. The hard part for that technology was getting an installed base of CD players into the marketplace. The early players costs hundreds of dollars (some over a thousand) and even well into the 1990's, CD players were not standard equipment on many cars (my 1997, 1999 and even 2002 BMWs have cassette decks in the dashboard standard, I kid you not!).
But, one day, you went to the record store, and suddenly, CDs were everywhere and there were no albums. Overnight, it seemed, the vinyl record was obsolete. Once a certain installed base of players existed, it made little or no sense to offer the latest recordings in three formats (Vinyl, Cassette tape, and CD) and the record companies dropped the old formats quickly. To be sure, there was a lot of grousing back then from folks who resisted the change and did not want to "upgrade" unwillingly to a new format. But since the technology was so superior to Vinyl in terms of sound quality and longevity, ease of use, and storage, it quickly took hold.
(To be sure, there are some "purists" who will argue that an analog vinyl recording, with pop and hiss and wow and flutter is better than the "digital sounding" CD recording. In any technology, however, there are always a few who will cling to the old ways, claiming they are best, regardless of the actual technical merits).
Today, we are poised for another series of "sea changes" in technology which will change the way we live and interact, and these changes will far more profound than the switch from analog to digital recording (although they are related). And as before, the technology for these changes has existed for years, even decades, but because of social and non-technical concerns (or because of cost reductions in technology) has only now become feasible. Many of these technical changes will solve some of the "problems" in our society.
And no, I am not talking about "Twitter" or the latest handheld gadget that is touted on the "tech" pages of CNN or some other website. Such things are merely the offshoots of the underlying technological changes occurring – the symptoms, not the causes. Focusing on social network sites and the latest iPod is examining the trees but missing the forest. The changes I am talking about are more far-reaching and may change our way of life dramatically.
While many are pessimistic about the future and blame technology for our problems, I believe that technology will also solve many of these problems. Frankly, at this point in our civilization, we have no choice. While it may be charming to think we can go back to a "sustainable" serf-like existence, it is not feasible for a planet populated with billions of people. But there are other answers that may produce real solutions.
1. The Death of Paper
With the introduction of the personal computer in the 1970's and the IBM-PC in the 1980's, a new era of computing was promised – one in which the flood of paperwork would be eliminated in favor of electronic data. Consider that before that time, most companies had small armies of accountants and clerks, armed with adding machines and ledgers, to keep track of data. The computer, it was promised, would eliminate that entire clerical class and all that paper, and produce neat and tidy electronic sums.
Word processing (a term yet to be invented) would also change. Instead of white-out and erasures, we could make changes to documents with a few keystrokes, or the click of something called a "mouse."
But a funny thing happened. Not only did paper consumption not decrease as predicted, it actually increased dramatically. Since we could produce multiple versions of a document on demand, we did. Before, when documents were typed, we were more careful in preparing them and accepted minor errors more readily. And since documents were expensive to prepare, we made them fairly short and simple. Once word processing came along, the two-page business letter supplanted the single-page business letter, often with the first page devoted mostly to elaborate letterhead and a salutation.
Environmentalists were alarmed. Consumption of paper products skyrocketed, and the resultant impact on the environment was predictable. What was good for Georgia Pacific was not necessarily good for America.
Even odder, after the introduction of the PC and the popularity of data networking, the amount of mailings increased. New "overnight" services such as FedEx proliferated (we have at least four now in competition, FedEx, UPS, USPS, and DHL).
But in the last year, something funny has happened. Nearly three decades after the introduction of the PC, the promise of a "paperless" office seems finally to be coming true. Granted, paper will never be entirely extinct, but consumption of paper products, at least in the traditional sense will decline dramatically in the next decade.
Why has this change occurred? The answer is multifold. The first reason is display technology. Inexpensive flat-panel displays have proliferated and gotten larger and larger. As a result, the idea of having a tiny display for your computer now seems antiquated. As I write this, I am using dual 24" flat panel displays, in portrait mode, which allows me to display entire pages of documents for viewing at a glance. While most visitors are amazed at the size of such displays, in future years, they will seem tiny and quaint.
The display factor, it turned out, was critical. Prior to the introduction of large flat panel displays, a user had to view the Internet or a document through the tiny peephole of a 15" CRT monitor. Imagine looking through the world through a cardboard paper towel roll tube (as a child often does, pretending it is a telescope) and you have an idea of how the Internet and how documents were viewed in the "bad old days" of only a year ago. To read even a single page of a document, one had to "scroll up" and "scroll down" constantly. To really look at or read a document, one had to print it out. Thus, printer technology exploded and paper consumption expanded rapidly.
I have two enormous photocopiers in my home offices, as well as laser printers. Every day, until about a year ago, I would go to my home office, crank up the printer and photocopier, and then go to work. All day long, the machines would crank out paper which I would then staple and punch, placing one copy in my file, sending one copy to the Patent Office (via Express Mail) and one copy to my client (via Priority Mail). Each day ended with a trip to the local Post Office before closing time.
My photocopier sits quiet and cold now. The Patent Office sends me documents by .pdf, which I in turn forward to my client and store on my hard drive. I rarely print anything out now, as I can display documents easily on my large flat panel displays. Like the introduction of the CD, it was a change that happened so quickly that I didn't even notice it until it happened. Suddenly, I was no longer buying paper and toner. (My fax machine went goodbye in a similar manner). I am using less electricity and paper as a result – and have less clutter, too. This change is a good thing for me, my clients, and the environment.
The second aspect of this sea change is social. Until a few years ago, the idea that an electronic document was "safe" was controversial. Many Lawyers and other professionals preferred to "FedEx" original documents rather than send them by e-mail. When closing on a home or other deal, for example, papers would be prepared at one office, and then "overnighted" or couriered (via bicycle courier, a quaint notion) to another office.
Part of the problem was technological. With so many different printers and formats for data, one could not insure that a document created in one word processing program would print properly in another or be formatted properly on a foreign printer. As de facto standards have evolved (e.g., Adobe .pdf), this has become less of a concern. Most business deals are routinely conducted by Internet now, and the idea of the "closing room" or the "closing table" seem almost antiquated. Print out the .pdfs, sign them and then scan them in and send back. Soon, digital signatures will replace even that (again, with the technology already largely in place, waiting for social adoption to take place).
And social adoption was probably the last hurdle (and remains) for paper. As with CDs, there are still folks who claim to prefer to have "something in their hand" to read, and such folks remain one of the few obstacles to electronic print. The e-paper revolution encompasses not only the business world, but the print media as well.
Again, the technology to distribute newspapers and books online has existed for decades. It was far easier to distribute text online than music or videos, and yet the latter two (which require much more bandwidth) are transitioning to electronic online formats faster than books, newspapers, and periodicals. Social adoption issues are causing the delays. Getting disparate publishers to agree on a standard format has been difficult.
Text publishers are concerned that their data will be pirated and refuse to allow access to online services such as Google and others. And yet, having the entire libraries of the world available online would clearly be a social good for all of mankind. Amazon has produced a primitive device called the Kindle, which succeeds the ill-fated Sony Reader. None has achieved widespread acceptance. Amazon, as a large content provider, seems poised to succeed where the Sony Reader has not.
Regardless, however, in order for the "e-book" or "e-paper" or "e-zine" to succeed, a standardization of formatting needs to occur, so that a user does not have to use different devices or formats to read different texts. Moreover, a better "reader" needs to be developed. Both the Sony Reader and Amazon Kindle have relatively tiny and hard to read screens. A larger format would lend itself to magazines and newspapers with graphic, as well as text content.
But these issues will be resolved, probably in the next decade, if not the next few years. Traditional magazine, newspaper, and book publishers have resisted technological innovation for fear it would diminish profits. An odd thing has occurred in the interim, however. Their business models have been shattered regardless of their resistance to technological innovation. Television and online "newspapers" (often merely extensions of television cable news channels) have supplanted the traditional daily paper. As a result, daily papers have died off in droves, as their business model of printing paper and distributing it on a mass scale has proven uneconomical in the new age.
Readership in general has declined, and no one in the publishing world seems to know what to do. Yet more and more people are spending time online reading and writing blogs, visiting websites, posting to discussion groups, and doing other things that fall under the umbrella of "reading." It is not that reading has died, but that people now read in a different way. It also means that publishing has changed as well. Just as a garage band can now upload their sings onto iTunes and forego the middleman record company, a publisher can "print" directly online, their thoughts and feelings. It took me mere minutes to "publish" this tract, for example. Of course, getting paid for it is another deal entirely.
But the Internet seems to be adapting to ways of finding "content providers" and rewarding them for content. Some sites, for example, reward providers by paying them in reward points, good for free access to features on a site. Others provide points based on hits which actually can be used to pay cash to the content provider. Sites with no content, or garbage content (e.g., nothing but flame wars) tend to wither and die, so a site operator, if he wants to generate traffic for his advertisers, will find ways to attract and compensate content providers. Online publishing is in its infancy, and for the time being, most content providers are making nothing from their contributions. But all this will probably change over time.
So what does this mean for you? Well, for starters, in the long term, I would short sell stocks for paper companies and overnight delivery services. We are already hearing of pain at the Post Office and for FedEx, UPS, and DHL. I suspect that one or more of the commerical services will die off or merge with the others. These companies will have to reinvent themselves as parcel delivery services, not paper delivery services. As we shall see below, home delivery of goods will be a growth area in the coming decades, and the company that can deliver GOODS (not just packets of documents) will succeed in the marketplace.
Similarly, paper products companies will find the demand for photocopy paper dropping off dramatically. Those who do not adapt to the new technology will suffer, and there will be some shakeouts in this area as well. However, demand for corrugated containers and shipping products will increase or remain flat, as more and more consumers stay home and wait for the world to be shipped to them. There will still be a need for paper products in packaging, particularly now that Styrofoam and the like are no longer in favor. Paper can be easily recycled and paper packaging thus still has a fairly bright future.
This trend probably does not bode well for printer and photocopier makers, either. HP and others have done their best to make the printer market as toxic as possible to their customers. Many printer companies give away printers (at low prices) and then attempt to pick up the profits on the back end by selling proprietary cartridges. By making the cost per page for printing very high, the printer makers have signed their own death warrant. It is cheaper to display family photos on an electronic picture frame (made from a cheap flat panel display) than it is to print them out on a color printer. Expect to see some severe consolidation in the printer and photocopier market, as demand for these machines declines dramatically. The companies that survive will find ways to make new products, or to use their products in creative ways for other purposes.
2. The Death of the Car-Based Economy
This next major trend will take longer to implement, as it is so far entrenched into our society. Americans, like most humans, love their cars, even if they hate traffic, pollution, the lack of parking spaces, death due to accidents, and the high cost of personal auto transportation.
And no, I am not some public transportation nutjob who thinks that buses, trollies, or "personal transportation pods" are going to replace the automobile anytime soon. However, I do think as a long term trend that the number of miles driven annually will decrease dramatically (perhaps by half) over time.
Telecommuting is the answer to most of our auto woes. It will not eliminate the car entirely, but it will change the way we think about work and the work environment. For the last few decades, most office workers in the country have left their homes, bright and early, to drive an hour or more to an office. The office was equipped with a computer, a photocopier, a fax machine, and a phone. Most of these office workers had left a home with a computer, a fax machine, a photocopier, and a phone. The question that even a child would ask is, "why would you drive 20 miles one-way to access equipment already in your home?"
And increasingly, the answer is, "You wouldn't." In the Washington DC area, more and more companies and Federal Agencies are resorting to telecommuting, at least part-time, as a way of cutting costs. The Trademark Office has long allowed Examiners (Examining Attorneys) to work from home. The Patent Office followed suit a few years ago. Many other Federal Agencies and private organizations are following suit.
Granted, most are still requiring that employees come into the "office" once a week or more. And for some private organizations, telecommuting is limited to one or two days a week, on a voluntary basis. But consider this: imagine the effect on Washington traffic or air quality if 10% of the commuting traffic suddenly disappeared. How about 20%? Or maybe even 50%?
The savings to organizations are driving this engine. The Patent Office, after building an ambitious new campus, realized that it was still too small for their rapid growth plans. Building new office space was not feasible. Telecommuting provided a cheap solution.
Again, the technology existed for years. But the proliferation of cheap computers, high-speed internet access, and larger homes (with space for a home office) combined to make the concept practical.
The concept can be taken even further. If there is no need to drive to an office, then why live in a crowded and polluted and expensive city? As I type this, I look out from my home in Central New York, at a beautiful lake. Houses in this area are nearly half the cost of housing in Washington DC, and the "quality of life" is much better. Once freed from the idea of having to BE in a particular place, many workers can move to where housing is cheap and taxes are low. This, in turn, will provide employment opportunities in support and retail in those depressed areas.
Take this idea even further - why live in the US at all? Many retirees are finding that their Social Security dollars are more than welcome in friendly foreign countries, such as Panama. If you can work anywhere in the world, why not work in a country where $20,000 a year gets you a house with a maid, a gardener, a car and a chauffeur? Why do you think Hemmingway lived in Cuba as opposed to Key West? Telecommuting can allow workers to move offshore as well as out of the city.
Of course, such work can be "outsourced" to anywhere in the world. Outsourcing presently has a bad name in this country, as chauvinistic Americans, convinced that their birthright entitles them to a certain standard of living, decry the trend. However, many services can be performed by others overseas for a fraction of the cost in the US, with a HIGHER quality. I presently use a draftsman and searcher in India for my Patent drawings and searches. Not only are they cheaper, the quality and turnaround is better than with my local "American" sources, which produced indifferent work, often with great delays and at high costs (and acted as though doing work was a great favor to you).
And yes, even my own job could be (and probably will be) "outsourced" to some extent. I trained an Indian Attorney in my employ, who is also a Registered Patent Attorney. He returned to India and started his own firm there. He will be able to hire Indian Engineers to draft applications for far less than I can and will likely be very successful in the marketplace. Good for him! And I have been approached by Indian agencies who have offered to write applications and even responses to Office Actions, for a fee. While I have turned away such offers, it is likely that there are others who will not. If the result is a better quality product at a lower price, then the consumer will be the ultimate winner.
But I suspect that these trends will be slow enough that I can safely make it to retirement with something of a career intact. Moreover, since my personal overhead has been reduced by telecommuting, I can keep my fees reasonable enough to compete with such offshore competition. And this is where this "new economy" has already taken hold. Many Patent firms are laying off Attorneys or even folding due to the downturn. And the effect is not limited to Patent Attorneys, but encompasses other types of transactional Attorneys as well.
Companies still want their Patents, they just see no need to pay $30,000 to $40,000 to get them on file with a "downtown" law firm, with its high overhead costs. When the economy turns around, it is likely that this trend will not reverse itself. Once you've gotten used to the idea of paying less and using a telecommuting Attorney, it will be hard to go back to paying the high prices of the big firms for essentially the same (or worse) service.
My neighbors are still part of the old car-based economy. I watch them drive up and down our private road, sometimes two or three times a day. Both husband and wife commute 20 miles each way to work. Their children drive to school. Often, they all come home, in a parade spaced apart by mere minutes, only to leave again to go "shopping" or go to dinner. One wonders why they own a house at all, given that the only time they spend in it is sleeping.
Their experience is typical of most Americans, who spend 2-3 hours a day in their cars, and drive a staggering average of 15,000 miles a year. Most Americans have "bought into" the idea that driving is a major part of your life, and that making car payments is a perpetual task, and that buying a new car every 3 or 4 years is "normal." This "car economy" has been one primary engine for American manufacturing in the last decades and it is suddenly changing.
Yes, the "downturn" in the car business is due, in part, to the decline in the car economy. The world has long had an overproduction capacity of 30% or more in automobile manufacturing. Every emerging economy views a car plant as a ticket out of "third world" status. America is a land of 330 million people and 360 million cars. For every American, there is more than one car available (I have six). We are literally drowning in a sea of cars.
Telecommuting is changing all of that. As an "early adopter" I can tell you it is somewhat disturbing at first, to go from the "car economy" lifestyle to the "work at home" lifestyle. Just as I suddenly noticed that I was no longer using my photocopier one day, I noticed that my car usage dropped off the map one day. The idea of not leaving home for days at a time is alien to most people. Many folks would consider this a sign of some sort of "disorder." But traditionally, mankind tended to function in this manner. Most farmers live on and worked the land. Most trades people made their homes above their shops. The idea of "commuting" came into being only with the development of the train and trolley, accelerated with the introduction of the automobile, but may be slated for extinction soon.
It is liberating not to have to drive an hour to work each day, and this means I can spend less time devoted to work as well as further cut my overhead. Since I hardly drive anymore, my cars last forever (Most are over 10 years old and have 30,000 to 70,000 miles on them). I tend to plan trips more carefully now, rather than just "jump in the car" on impulse and drive somewhere. Not only do I have more time, I make more efficient use of my time. A car trip is now a major event, planned to achieve a certain set of goals. The idea of "running errands" or "going to the convenience store to grab something" become alien.
And since the Internet has almost everything you could want to buy, I find I am using retail stores less and less as a source of goods. I can price shop online and get the best deals – and have them delivered to my door in a matter of days. Since I don't leave home as often as I used to, this turns out to be more convenient than before. Moreover, I find I no longer am "shopping" – buying things on impulse rather than based on need.
To be sure, I am probably on the leading edge of this trend. But like the CD, I think it is a trend that will spread rapidly, with some problems in social adoption. The first problem is what I call the "Homer Simpson" syndrome. Most American workers are like Homer Simpson, and need to be hounded constantly to get any work out of them. In the Simpson's episode where Homer works from home, he resorts to doing as little work as possible, goofing off full time.
Working from home requires a staggering amount of self-discipline, and few workers today have that level of self-control. It is all too tempting to goof off (or write a blog) when one should be working. And for this reason, many companies will offer telecommuting only for their most disciplined employees.
And of course, telecommuting will not be possible, at least right away, for most jobs. But necessity and a creative mind can find telecommuting opportunities where they might not seem to exist. McDonald's, for example, found that hiring workers in high-cost Hawaii was difficult. Order takers for the drive through would take orders over a speaker phone and then enter the data into a computer. Someone at McDonald's figured out that there was no reason that such employees had to reside in Hawaii, and instead hired workers in Texas to "telecommute" to the drive-through window in Honolulu.
As computer displays become larger and the bugs are worked out of "virtual presence", many more jobs may go "online" or disappear altogether. Visiting a retail store may be obsolete within a decade or more, if you can go online and view a wall-screen display of goods (or in virtual 3-D).
Of course, naysayers will argue that such claims are overreaching – that humans have a need to interact in person. And to some extent, they are right. I am not saying that computers will replace human interaction, merely supplant it for many ordinary transactions. People will still want to "go out" and interact with others and attend live events, go to restaurants, and the like. But people will probably expect such live interactions to be of a higher quality before they decide to leave home.
The death of mediocre restaurant chains, such as Bennigan's is probably no anomaly. In the car economy, stopping by such a place "on the way home from work" for a light beer and stuffed potato skins might have seemed a viable proposition. The time taken up by commuting, after all, makes meal preparation at home more difficult. But when one is at home and not traveling to begin with, the impetus to get in the car to drink bad beer and eat bad food is, well, lacking. If I am to go out to a restaurant, it had better be a compelling experience.
The death of the car economy will mean shocks for several industries, starting with the car companies. Participants in the car economy need and require a constant stream of new cars, and the car economy feeds on this need. "For your next car," an automobile ad proclaims, as if buying a new car is akin to buying new underwear. As I noted before, I hardly drive my cars anymore, and as such, have no need to replace them, no matter how desperate the U.S. auto industry is.
I have older BMWs, which while antiquated, were cutting edge at the time of their manufacture. They have turned out to be good choices for long-term car ownership, as they do not get "boring" within a year or two (can one say that about a Chevy Lumina or Ford Taurus?) and much of the "cutting edge" technology from 1997 is now just being adopted by mainstream manufacturers.
I may replace some of my vehicles someday (and perhaps consolidate a few). But in order to do so, like the restaurant scenario, I would need a compelling reason to do so. Since I do not drive all over the place anymore, I no longer view my social status in terms of what kind of cars I drive (and since most of my cars are hardly driven, they look like new and tend to be mistaken for newer cars anyway). Trading in a good car for this year's indifferently made piece 'o crap is simply not an option. If I am to keep a car for a decade or more, it has to be the right choice.
Thus a car that is a gas hog is not an option, as it is likely that over the next 10 years, gas prices will climb. Similarly, quality is paramount, as I will likely own the car long after the warranty has expired. All of these criteria spell trouble for General Motors and other makers of largely disposable cars. Even BMW may have trouble, as it moves away from traditional values to embrace trendy styling and "product cycles."
Long term, while owning an automobile will still be necessary for most Americans, it is likely that most Americans will keep their cars longer and drive them less. As a result, the manufacture of automobiles en masse may no longer be the backbone of industrial production in the US, or even the world.
3. Effect on Society and Environment
These trends will have both positive and negative effects on society and the environment. Less commuting and driving will mean less road construction, less traffic congestion, less pollution, and fewer junked cars. The death of paper will mean less papers in landfills and less pollution and related effects from the production of paper.
For rural areas, this will mean property values will increase, as highly paid professionals increasingly move to lower cots rural areas. Granted, some folks may prefer to live in cities or areas where good schools are available. But unchained from the daily commute, many folks will pick areas that at first glance, may seem odd choices.
Higher land values may generate some resentment from "locals" in rural areas. However, this new class of telecommuters will end up adding more monies to local economies in the long run.
I touched on social networking sites earlier as a symptom of changes, not the actual change itself. These social networking sites are a basic stop-gap in the trend toward interactive Internet experiences. Sites such as "Second Life" became briefly popular as a trend among computer geeks a few years back (and again, I wrote Patents on the concept of "avatars" in interactive 3-D experiences a decade before that, so it was no big surprise to me).
The use of social networking sites is an interesting trend, and it does fit neatly into the telecommuting world of tomorrow. I can go on Facebook and see what my friends are doing, and exchange a word to two, just as I used to do in the Office. One can chat as long as they'd like, or just wave and say "Hi." To some extent, this is more efficient than the old Office environment, where some co-worker could plant himself in your office for hours and bitch about his ex-wife. With Facebook, you can ignore him and still be polite. And unlike your office friends, on Facebook you can at least choose who to interact with.
The decline in retail stores will continue. There was never enough business to justify as many Bed, Bath and Beyond AND Linen's 'N Things outlets as existed, and it is no surprise that one would fold eventually. The business model of "outgrow the competition" was a costly one, and for the victor, there may be no spoils. A recent trip to a "Bed Bath" store is illustrative. My partner, desiring a new mixer, visits the store hoping to buy one. However, the store, to cut costs, does not stock them in all colors. So the salesperson goes on the Internet, using a store terminal, to order it – having it shipped directly to our home. What exactly was the point of that? We could have ordered the same mixer online ourselves.
Since most good like that can be ordered online, more and more retail stores are resorting to pushing impulse purchase items. The center aisles of Bed, Bath, and Beyond are crammed full of impulse items, while the staples (Linens and Bath items) are tucked to the sides, and increasingly the variety limited. There is a greater markup in these impulse items, but to sell them requires that the purchaser enter the store and be inclined to squander money. In the new economy, both are hard to come by. I predict that at least half the Bed, Bath, and Beyond stores will close in the next five years, as retail sales at brick and mortar stores drops off.
The new jobs are more likely to be in the service sector – delivering installing, maintaining, and troubleshooting equipment, as people rely more and more on the Internet and their computers to access their work and life environments. The retail "McJob" – operating a cash register and being rude to customers – will largely be a thing of the past.
Time-shifting is another aspect of this new economy that will come as a pleasant surprise to many. As I write this, on a rainy, cold, and cloudy 4th of July weekend, many a vacationer is huddling in their cottages down by the lake, disappointed that their annual vacation has been effectively ruined. For most Americans, the "weekend" is the only time they have to relax, other than a week or two of vacation during the year, along with a few holidays (Memorial Day, 4thof July, Labor day, etc.).
As a result, when most people go on vacation, everybody else is going on vacation, too. Most folks thus live in a crowded world – commuting when everyone else is commuting, working when everyone else is working, eating when everyone else is eating, and vacationing when everyone else is vacationing. To most Americans, restaurants are always crowded, roads are always congested, and beaches are always full.
But if you time-shift, even by a day or two, you'll find most of America deserted. The resort on the 4th of July maybe slammed with people. But a few days later, it is bereft of visitors. When you work from home and telecommute, you can get work done when you want to, not when others are working. That great idea you have a 3AM can now be put on paper instead of being forgotten in the morning. And that day at the Office when it seems like nothing can get done can be better spend down at the beach or restoring an old car. And your favorite restaurant can be visited on Thursday night, when it is quiet and you can get a table, as opposed to the noise and crowds of a Saturday night.
Time-shifting means that the world will appear as a less crowded place to you. When I started working from home, I started time-shifting. When I drove, I avoided rush hour and when I went out, I avoided busy nights. As a result, even though I was living near a major city (Washington, DC) my life had more of the flavor of life in a small town. Traffic, for me was always light, and stores and restaurants were never crowded. The few times we would get caught up in traffic or crowds would come as something of a shock, as we would say to ourselves, "Did we really used to live like this?" and "Why do people chose to live like this?"
To be sure, these changes will not be a cure-all for our social and other problems. However, they will change the nature of some of these problems. Moreover, they may change the way most of us live – for the better. As I said, I am optimistic that the world can still be a better place to live. But it will require some vision and hard work to make it happen.
As a Patent Attorney, what I see for the near future.
Many of my friends are often surprised that I do not have a lot of the latest gadgets or get caught up in the latest fads. After all, as someone who makes a living from the latest technology, wouldn't I be a fan of it? But for the most part, I consider myself a techno-Luddite, adopting only those technologies which I really need and eschewing most of the trendy stuff.
Why is this? Well, the answer is simple. What may be the "latest and greatest" innovation to you was something I wrote a Patent Application on about ten years ago. The other day, someone was showing me the "latest feature" on their GPS system, which allowed them to monitor traffic conditions in real time and display them on a screen – coloring congested roads in red, mildly congested roads in yellow, and clear roads in green. He couldn't understand why I wasn't impressed with this bit of cutting edge technology, until I told him I wrote a Patent on it – back in 1992.
Oftentimes, the barriers to implementation of inventions reside less in the technological aspects, but in social aspects – either acceptance by the public, the need for a certain installed base of hardware, or due to laws or government regulations. Once a certain critical mass is achieved, change then occurs rapidly. The technology for real-time traffic monitoring existed back in 1992. However, it took an installed base of cheap $200 GPS systems, as well as the regulatory changes to gather and transmit such data, as well as the public's acceptance (and demand) for onboard GPS systems in order to make them readily available. All told, these "social" innovations took a decade or more. Innovating the tech part was easy, in retrospect.
The transition to CDs is another example which is easily understood by most people. In that instance, the regulatory hurdles were few. A consortium of companies banded together to develop a new standard (unlike the HD-DVD/BluRay fiasco) for digitally storing music and data on an optical disc. The hard part for that technology was getting an installed base of CD players into the marketplace. The early players costs hundreds of dollars (some over a thousand) and even well into the 1990's, CD players were not standard equipment on many cars (my 1997, 1999 and even 2002 BMWs have cassette decks in the dashboard standard, I kid you not!).
But, one day, you went to the record store, and suddenly, CDs were everywhere and there were no albums. Overnight, it seemed, the vinyl record was obsolete. Once a certain installed base of players existed, it made little or no sense to offer the latest recordings in three formats (Vinyl, Cassette tape, and CD) and the record companies dropped the old formats quickly. To be sure, there was a lot of grousing back then from folks who resisted the change and did not want to "upgrade" unwillingly to a new format. But since the technology was so superior to Vinyl in terms of sound quality and longevity, ease of use, and storage, it quickly took hold.
(To be sure, there are some "purists" who will argue that an analog vinyl recording, with pop and hiss and wow and flutter is better than the "digital sounding" CD recording. In any technology, however, there are always a few who will cling to the old ways, claiming they are best, regardless of the actual technical merits).
Today, we are poised for another series of "sea changes" in technology which will change the way we live and interact, and these changes will far more profound than the switch from analog to digital recording (although they are related). And as before, the technology for these changes has existed for years, even decades, but because of social and non-technical concerns (or because of cost reductions in technology) has only now become feasible. Many of these technical changes will solve some of the "problems" in our society.
And no, I am not talking about "Twitter" or the latest handheld gadget that is touted on the "tech" pages of CNN or some other website. Such things are merely the offshoots of the underlying technological changes occurring – the symptoms, not the causes. Focusing on social network sites and the latest iPod is examining the trees but missing the forest. The changes I am talking about are more far-reaching and may change our way of life dramatically.
While many are pessimistic about the future and blame technology for our problems, I believe that technology will also solve many of these problems. Frankly, at this point in our civilization, we have no choice. While it may be charming to think we can go back to a "sustainable" serf-like existence, it is not feasible for a planet populated with billions of people. But there are other answers that may produce real solutions.
1. The Death of Paper
With the introduction of the personal computer in the 1970's and the IBM-PC in the 1980's, a new era of computing was promised – one in which the flood of paperwork would be eliminated in favor of electronic data. Consider that before that time, most companies had small armies of accountants and clerks, armed with adding machines and ledgers, to keep track of data. The computer, it was promised, would eliminate that entire clerical class and all that paper, and produce neat and tidy electronic sums.
Word processing (a term yet to be invented) would also change. Instead of white-out and erasures, we could make changes to documents with a few keystrokes, or the click of something called a "mouse."
But a funny thing happened. Not only did paper consumption not decrease as predicted, it actually increased dramatically. Since we could produce multiple versions of a document on demand, we did. Before, when documents were typed, we were more careful in preparing them and accepted minor errors more readily. And since documents were expensive to prepare, we made them fairly short and simple. Once word processing came along, the two-page business letter supplanted the single-page business letter, often with the first page devoted mostly to elaborate letterhead and a salutation.
Environmentalists were alarmed. Consumption of paper products skyrocketed, and the resultant impact on the environment was predictable. What was good for Georgia Pacific was not necessarily good for America.
Even odder, after the introduction of the PC and the popularity of data networking, the amount of mailings increased. New "overnight" services such as FedEx proliferated (we have at least four now in competition, FedEx, UPS, USPS, and DHL).
But in the last year, something funny has happened. Nearly three decades after the introduction of the PC, the promise of a "paperless" office seems finally to be coming true. Granted, paper will never be entirely extinct, but consumption of paper products, at least in the traditional sense will decline dramatically in the next decade.
Why has this change occurred? The answer is multifold. The first reason is display technology. Inexpensive flat-panel displays have proliferated and gotten larger and larger. As a result, the idea of having a tiny display for your computer now seems antiquated. As I write this, I am using dual 24" flat panel displays, in portrait mode, which allows me to display entire pages of documents for viewing at a glance. While most visitors are amazed at the size of such displays, in future years, they will seem tiny and quaint.
The display factor, it turned out, was critical. Prior to the introduction of large flat panel displays, a user had to view the Internet or a document through the tiny peephole of a 15" CRT monitor. Imagine looking through the world through a cardboard paper towel roll tube (as a child often does, pretending it is a telescope) and you have an idea of how the Internet and how documents were viewed in the "bad old days" of only a year ago. To read even a single page of a document, one had to "scroll up" and "scroll down" constantly. To really look at or read a document, one had to print it out. Thus, printer technology exploded and paper consumption expanded rapidly.
I have two enormous photocopiers in my home offices, as well as laser printers. Every day, until about a year ago, I would go to my home office, crank up the printer and photocopier, and then go to work. All day long, the machines would crank out paper which I would then staple and punch, placing one copy in my file, sending one copy to the Patent Office (via Express Mail) and one copy to my client (via Priority Mail). Each day ended with a trip to the local Post Office before closing time.
My photocopier sits quiet and cold now. The Patent Office sends me documents by .pdf, which I in turn forward to my client and store on my hard drive. I rarely print anything out now, as I can display documents easily on my large flat panel displays. Like the introduction of the CD, it was a change that happened so quickly that I didn't even notice it until it happened. Suddenly, I was no longer buying paper and toner. (My fax machine went goodbye in a similar manner). I am using less electricity and paper as a result – and have less clutter, too. This change is a good thing for me, my clients, and the environment.
The second aspect of this sea change is social. Until a few years ago, the idea that an electronic document was "safe" was controversial. Many Lawyers and other professionals preferred to "FedEx" original documents rather than send them by e-mail. When closing on a home or other deal, for example, papers would be prepared at one office, and then "overnighted" or couriered (via bicycle courier, a quaint notion) to another office.
Part of the problem was technological. With so many different printers and formats for data, one could not insure that a document created in one word processing program would print properly in another or be formatted properly on a foreign printer. As de facto standards have evolved (e.g., Adobe .pdf), this has become less of a concern. Most business deals are routinely conducted by Internet now, and the idea of the "closing room" or the "closing table" seem almost antiquated. Print out the .pdfs, sign them and then scan them in and send back. Soon, digital signatures will replace even that (again, with the technology already largely in place, waiting for social adoption to take place).
And social adoption was probably the last hurdle (and remains) for paper. As with CDs, there are still folks who claim to prefer to have "something in their hand" to read, and such folks remain one of the few obstacles to electronic print. The e-paper revolution encompasses not only the business world, but the print media as well.
Again, the technology to distribute newspapers and books online has existed for decades. It was far easier to distribute text online than music or videos, and yet the latter two (which require much more bandwidth) are transitioning to electronic online formats faster than books, newspapers, and periodicals. Social adoption issues are causing the delays. Getting disparate publishers to agree on a standard format has been difficult.
Text publishers are concerned that their data will be pirated and refuse to allow access to online services such as Google and others. And yet, having the entire libraries of the world available online would clearly be a social good for all of mankind. Amazon has produced a primitive device called the Kindle, which succeeds the ill-fated Sony Reader. None has achieved widespread acceptance. Amazon, as a large content provider, seems poised to succeed where the Sony Reader has not.
Regardless, however, in order for the "e-book" or "e-paper" or "e-zine" to succeed, a standardization of formatting needs to occur, so that a user does not have to use different devices or formats to read different texts. Moreover, a better "reader" needs to be developed. Both the Sony Reader and Amazon Kindle have relatively tiny and hard to read screens. A larger format would lend itself to magazines and newspapers with graphic, as well as text content.
But these issues will be resolved, probably in the next decade, if not the next few years. Traditional magazine, newspaper, and book publishers have resisted technological innovation for fear it would diminish profits. An odd thing has occurred in the interim, however. Their business models have been shattered regardless of their resistance to technological innovation. Television and online "newspapers" (often merely extensions of television cable news channels) have supplanted the traditional daily paper. As a result, daily papers have died off in droves, as their business model of printing paper and distributing it on a mass scale has proven uneconomical in the new age.
Readership in general has declined, and no one in the publishing world seems to know what to do. Yet more and more people are spending time online reading and writing blogs, visiting websites, posting to discussion groups, and doing other things that fall under the umbrella of "reading." It is not that reading has died, but that people now read in a different way. It also means that publishing has changed as well. Just as a garage band can now upload their sings onto iTunes and forego the middleman record company, a publisher can "print" directly online, their thoughts and feelings. It took me mere minutes to "publish" this tract, for example. Of course, getting paid for it is another deal entirely.
But the Internet seems to be adapting to ways of finding "content providers" and rewarding them for content. Some sites, for example, reward providers by paying them in reward points, good for free access to features on a site. Others provide points based on hits which actually can be used to pay cash to the content provider. Sites with no content, or garbage content (e.g., nothing but flame wars) tend to wither and die, so a site operator, if he wants to generate traffic for his advertisers, will find ways to attract and compensate content providers. Online publishing is in its infancy, and for the time being, most content providers are making nothing from their contributions. But all this will probably change over time.
So what does this mean for you? Well, for starters, in the long term, I would short sell stocks for paper companies and overnight delivery services. We are already hearing of pain at the Post Office and for FedEx, UPS, and DHL. I suspect that one or more of the commerical services will die off or merge with the others. These companies will have to reinvent themselves as parcel delivery services, not paper delivery services. As we shall see below, home delivery of goods will be a growth area in the coming decades, and the company that can deliver GOODS (not just packets of documents) will succeed in the marketplace.
Similarly, paper products companies will find the demand for photocopy paper dropping off dramatically. Those who do not adapt to the new technology will suffer, and there will be some shakeouts in this area as well. However, demand for corrugated containers and shipping products will increase or remain flat, as more and more consumers stay home and wait for the world to be shipped to them. There will still be a need for paper products in packaging, particularly now that Styrofoam and the like are no longer in favor. Paper can be easily recycled and paper packaging thus still has a fairly bright future.
This trend probably does not bode well for printer and photocopier makers, either. HP and others have done their best to make the printer market as toxic as possible to their customers. Many printer companies give away printers (at low prices) and then attempt to pick up the profits on the back end by selling proprietary cartridges. By making the cost per page for printing very high, the printer makers have signed their own death warrant. It is cheaper to display family photos on an electronic picture frame (made from a cheap flat panel display) than it is to print them out on a color printer. Expect to see some severe consolidation in the printer and photocopier market, as demand for these machines declines dramatically. The companies that survive will find ways to make new products, or to use their products in creative ways for other purposes.
2. The Death of the Car-Based Economy
This next major trend will take longer to implement, as it is so far entrenched into our society. Americans, like most humans, love their cars, even if they hate traffic, pollution, the lack of parking spaces, death due to accidents, and the high cost of personal auto transportation.
And no, I am not some public transportation nutjob who thinks that buses, trollies, or "personal transportation pods" are going to replace the automobile anytime soon. However, I do think as a long term trend that the number of miles driven annually will decrease dramatically (perhaps by half) over time.
Telecommuting is the answer to most of our auto woes. It will not eliminate the car entirely, but it will change the way we think about work and the work environment. For the last few decades, most office workers in the country have left their homes, bright and early, to drive an hour or more to an office. The office was equipped with a computer, a photocopier, a fax machine, and a phone. Most of these office workers had left a home with a computer, a fax machine, a photocopier, and a phone. The question that even a child would ask is, "why would you drive 20 miles one-way to access equipment already in your home?"
And increasingly, the answer is, "You wouldn't." In the Washington DC area, more and more companies and Federal Agencies are resorting to telecommuting, at least part-time, as a way of cutting costs. The Trademark Office has long allowed Examiners (Examining Attorneys) to work from home. The Patent Office followed suit a few years ago. Many other Federal Agencies and private organizations are following suit.
Granted, most are still requiring that employees come into the "office" once a week or more. And for some private organizations, telecommuting is limited to one or two days a week, on a voluntary basis. But consider this: imagine the effect on Washington traffic or air quality if 10% of the commuting traffic suddenly disappeared. How about 20%? Or maybe even 50%?
The savings to organizations are driving this engine. The Patent Office, after building an ambitious new campus, realized that it was still too small for their rapid growth plans. Building new office space was not feasible. Telecommuting provided a cheap solution.
Again, the technology existed for years. But the proliferation of cheap computers, high-speed internet access, and larger homes (with space for a home office) combined to make the concept practical.
The concept can be taken even further. If there is no need to drive to an office, then why live in a crowded and polluted and expensive city? As I type this, I look out from my home in Central New York, at a beautiful lake. Houses in this area are nearly half the cost of housing in Washington DC, and the "quality of life" is much better. Once freed from the idea of having to BE in a particular place, many workers can move to where housing is cheap and taxes are low. This, in turn, will provide employment opportunities in support and retail in those depressed areas.
Take this idea even further - why live in the US at all? Many retirees are finding that their Social Security dollars are more than welcome in friendly foreign countries, such as Panama. If you can work anywhere in the world, why not work in a country where $20,000 a year gets you a house with a maid, a gardener, a car and a chauffeur? Why do you think Hemmingway lived in Cuba as opposed to Key West? Telecommuting can allow workers to move offshore as well as out of the city.
Of course, such work can be "outsourced" to anywhere in the world. Outsourcing presently has a bad name in this country, as chauvinistic Americans, convinced that their birthright entitles them to a certain standard of living, decry the trend. However, many services can be performed by others overseas for a fraction of the cost in the US, with a HIGHER quality. I presently use a draftsman and searcher in India for my Patent drawings and searches. Not only are they cheaper, the quality and turnaround is better than with my local "American" sources, which produced indifferent work, often with great delays and at high costs (and acted as though doing work was a great favor to you).
And yes, even my own job could be (and probably will be) "outsourced" to some extent. I trained an Indian Attorney in my employ, who is also a Registered Patent Attorney. He returned to India and started his own firm there. He will be able to hire Indian Engineers to draft applications for far less than I can and will likely be very successful in the marketplace. Good for him! And I have been approached by Indian agencies who have offered to write applications and even responses to Office Actions, for a fee. While I have turned away such offers, it is likely that there are others who will not. If the result is a better quality product at a lower price, then the consumer will be the ultimate winner.
But I suspect that these trends will be slow enough that I can safely make it to retirement with something of a career intact. Moreover, since my personal overhead has been reduced by telecommuting, I can keep my fees reasonable enough to compete with such offshore competition. And this is where this "new economy" has already taken hold. Many Patent firms are laying off Attorneys or even folding due to the downturn. And the effect is not limited to Patent Attorneys, but encompasses other types of transactional Attorneys as well.
Companies still want their Patents, they just see no need to pay $30,000 to $40,000 to get them on file with a "downtown" law firm, with its high overhead costs. When the economy turns around, it is likely that this trend will not reverse itself. Once you've gotten used to the idea of paying less and using a telecommuting Attorney, it will be hard to go back to paying the high prices of the big firms for essentially the same (or worse) service.
My neighbors are still part of the old car-based economy. I watch them drive up and down our private road, sometimes two or three times a day. Both husband and wife commute 20 miles each way to work. Their children drive to school. Often, they all come home, in a parade spaced apart by mere minutes, only to leave again to go "shopping" or go to dinner. One wonders why they own a house at all, given that the only time they spend in it is sleeping.
Their experience is typical of most Americans, who spend 2-3 hours a day in their cars, and drive a staggering average of 15,000 miles a year. Most Americans have "bought into" the idea that driving is a major part of your life, and that making car payments is a perpetual task, and that buying a new car every 3 or 4 years is "normal." This "car economy" has been one primary engine for American manufacturing in the last decades and it is suddenly changing.
Yes, the "downturn" in the car business is due, in part, to the decline in the car economy. The world has long had an overproduction capacity of 30% or more in automobile manufacturing. Every emerging economy views a car plant as a ticket out of "third world" status. America is a land of 330 million people and 360 million cars. For every American, there is more than one car available (I have six). We are literally drowning in a sea of cars.
Telecommuting is changing all of that. As an "early adopter" I can tell you it is somewhat disturbing at first, to go from the "car economy" lifestyle to the "work at home" lifestyle. Just as I suddenly noticed that I was no longer using my photocopier one day, I noticed that my car usage dropped off the map one day. The idea of not leaving home for days at a time is alien to most people. Many folks would consider this a sign of some sort of "disorder." But traditionally, mankind tended to function in this manner. Most farmers live on and worked the land. Most trades people made their homes above their shops. The idea of "commuting" came into being only with the development of the train and trolley, accelerated with the introduction of the automobile, but may be slated for extinction soon.
It is liberating not to have to drive an hour to work each day, and this means I can spend less time devoted to work as well as further cut my overhead. Since I hardly drive anymore, my cars last forever (Most are over 10 years old and have 30,000 to 70,000 miles on them). I tend to plan trips more carefully now, rather than just "jump in the car" on impulse and drive somewhere. Not only do I have more time, I make more efficient use of my time. A car trip is now a major event, planned to achieve a certain set of goals. The idea of "running errands" or "going to the convenience store to grab something" become alien.
And since the Internet has almost everything you could want to buy, I find I am using retail stores less and less as a source of goods. I can price shop online and get the best deals – and have them delivered to my door in a matter of days. Since I don't leave home as often as I used to, this turns out to be more convenient than before. Moreover, I find I no longer am "shopping" – buying things on impulse rather than based on need.
To be sure, I am probably on the leading edge of this trend. But like the CD, I think it is a trend that will spread rapidly, with some problems in social adoption. The first problem is what I call the "Homer Simpson" syndrome. Most American workers are like Homer Simpson, and need to be hounded constantly to get any work out of them. In the Simpson's episode where Homer works from home, he resorts to doing as little work as possible, goofing off full time.
Working from home requires a staggering amount of self-discipline, and few workers today have that level of self-control. It is all too tempting to goof off (or write a blog) when one should be working. And for this reason, many companies will offer telecommuting only for their most disciplined employees.
And of course, telecommuting will not be possible, at least right away, for most jobs. But necessity and a creative mind can find telecommuting opportunities where they might not seem to exist. McDonald's, for example, found that hiring workers in high-cost Hawaii was difficult. Order takers for the drive through would take orders over a speaker phone and then enter the data into a computer. Someone at McDonald's figured out that there was no reason that such employees had to reside in Hawaii, and instead hired workers in Texas to "telecommute" to the drive-through window in Honolulu.
As computer displays become larger and the bugs are worked out of "virtual presence", many more jobs may go "online" or disappear altogether. Visiting a retail store may be obsolete within a decade or more, if you can go online and view a wall-screen display of goods (or in virtual 3-D).
Of course, naysayers will argue that such claims are overreaching – that humans have a need to interact in person. And to some extent, they are right. I am not saying that computers will replace human interaction, merely supplant it for many ordinary transactions. People will still want to "go out" and interact with others and attend live events, go to restaurants, and the like. But people will probably expect such live interactions to be of a higher quality before they decide to leave home.
The death of mediocre restaurant chains, such as Bennigan's is probably no anomaly. In the car economy, stopping by such a place "on the way home from work" for a light beer and stuffed potato skins might have seemed a viable proposition. The time taken up by commuting, after all, makes meal preparation at home more difficult. But when one is at home and not traveling to begin with, the impetus to get in the car to drink bad beer and eat bad food is, well, lacking. If I am to go out to a restaurant, it had better be a compelling experience.
The death of the car economy will mean shocks for several industries, starting with the car companies. Participants in the car economy need and require a constant stream of new cars, and the car economy feeds on this need. "For your next car," an automobile ad proclaims, as if buying a new car is akin to buying new underwear. As I noted before, I hardly drive my cars anymore, and as such, have no need to replace them, no matter how desperate the U.S. auto industry is.
I have older BMWs, which while antiquated, were cutting edge at the time of their manufacture. They have turned out to be good choices for long-term car ownership, as they do not get "boring" within a year or two (can one say that about a Chevy Lumina or Ford Taurus?) and much of the "cutting edge" technology from 1997 is now just being adopted by mainstream manufacturers.
I may replace some of my vehicles someday (and perhaps consolidate a few). But in order to do so, like the restaurant scenario, I would need a compelling reason to do so. Since I do not drive all over the place anymore, I no longer view my social status in terms of what kind of cars I drive (and since most of my cars are hardly driven, they look like new and tend to be mistaken for newer cars anyway). Trading in a good car for this year's indifferently made piece 'o crap is simply not an option. If I am to keep a car for a decade or more, it has to be the right choice.
Thus a car that is a gas hog is not an option, as it is likely that over the next 10 years, gas prices will climb. Similarly, quality is paramount, as I will likely own the car long after the warranty has expired. All of these criteria spell trouble for General Motors and other makers of largely disposable cars. Even BMW may have trouble, as it moves away from traditional values to embrace trendy styling and "product cycles."
Long term, while owning an automobile will still be necessary for most Americans, it is likely that most Americans will keep their cars longer and drive them less. As a result, the manufacture of automobiles en masse may no longer be the backbone of industrial production in the US, or even the world.
3. Effect on Society and Environment
These trends will have both positive and negative effects on society and the environment. Less commuting and driving will mean less road construction, less traffic congestion, less pollution, and fewer junked cars. The death of paper will mean less papers in landfills and less pollution and related effects from the production of paper.
For rural areas, this will mean property values will increase, as highly paid professionals increasingly move to lower cots rural areas. Granted, some folks may prefer to live in cities or areas where good schools are available. But unchained from the daily commute, many folks will pick areas that at first glance, may seem odd choices.
Higher land values may generate some resentment from "locals" in rural areas. However, this new class of telecommuters will end up adding more monies to local economies in the long run.
I touched on social networking sites earlier as a symptom of changes, not the actual change itself. These social networking sites are a basic stop-gap in the trend toward interactive Internet experiences. Sites such as "Second Life" became briefly popular as a trend among computer geeks a few years back (and again, I wrote Patents on the concept of "avatars" in interactive 3-D experiences a decade before that, so it was no big surprise to me).
The use of social networking sites is an interesting trend, and it does fit neatly into the telecommuting world of tomorrow. I can go on Facebook and see what my friends are doing, and exchange a word to two, just as I used to do in the Office. One can chat as long as they'd like, or just wave and say "Hi." To some extent, this is more efficient than the old Office environment, where some co-worker could plant himself in your office for hours and bitch about his ex-wife. With Facebook, you can ignore him and still be polite. And unlike your office friends, on Facebook you can at least choose who to interact with.
The decline in retail stores will continue. There was never enough business to justify as many Bed, Bath and Beyond AND Linen's 'N Things outlets as existed, and it is no surprise that one would fold eventually. The business model of "outgrow the competition" was a costly one, and for the victor, there may be no spoils. A recent trip to a "Bed Bath" store is illustrative. My partner, desiring a new mixer, visits the store hoping to buy one. However, the store, to cut costs, does not stock them in all colors. So the salesperson goes on the Internet, using a store terminal, to order it – having it shipped directly to our home. What exactly was the point of that? We could have ordered the same mixer online ourselves.
Since most good like that can be ordered online, more and more retail stores are resorting to pushing impulse purchase items. The center aisles of Bed, Bath, and Beyond are crammed full of impulse items, while the staples (Linens and Bath items) are tucked to the sides, and increasingly the variety limited. There is a greater markup in these impulse items, but to sell them requires that the purchaser enter the store and be inclined to squander money. In the new economy, both are hard to come by. I predict that at least half the Bed, Bath, and Beyond stores will close in the next five years, as retail sales at brick and mortar stores drops off.
The new jobs are more likely to be in the service sector – delivering installing, maintaining, and troubleshooting equipment, as people rely more and more on the Internet and their computers to access their work and life environments. The retail "McJob" – operating a cash register and being rude to customers – will largely be a thing of the past.
Time-shifting is another aspect of this new economy that will come as a pleasant surprise to many. As I write this, on a rainy, cold, and cloudy 4th of July weekend, many a vacationer is huddling in their cottages down by the lake, disappointed that their annual vacation has been effectively ruined. For most Americans, the "weekend" is the only time they have to relax, other than a week or two of vacation during the year, along with a few holidays (Memorial Day, 4thof July, Labor day, etc.).
As a result, when most people go on vacation, everybody else is going on vacation, too. Most folks thus live in a crowded world – commuting when everyone else is commuting, working when everyone else is working, eating when everyone else is eating, and vacationing when everyone else is vacationing. To most Americans, restaurants are always crowded, roads are always congested, and beaches are always full.
But if you time-shift, even by a day or two, you'll find most of America deserted. The resort on the 4th of July maybe slammed with people. But a few days later, it is bereft of visitors. When you work from home and telecommute, you can get work done when you want to, not when others are working. That great idea you have a 3AM can now be put on paper instead of being forgotten in the morning. And that day at the Office when it seems like nothing can get done can be better spend down at the beach or restoring an old car. And your favorite restaurant can be visited on Thursday night, when it is quiet and you can get a table, as opposed to the noise and crowds of a Saturday night.
Time-shifting means that the world will appear as a less crowded place to you. When I started working from home, I started time-shifting. When I drove, I avoided rush hour and when I went out, I avoided busy nights. As a result, even though I was living near a major city (Washington, DC) my life had more of the flavor of life in a small town. Traffic, for me was always light, and stores and restaurants were never crowded. The few times we would get caught up in traffic or crowds would come as something of a shock, as we would say to ourselves, "Did we really used to live like this?" and "Why do people chose to live like this?"
To be sure, these changes will not be a cure-all for our social and other problems. However, they will change the nature of some of these problems. Moreover, they may change the way most of us live – for the better. As I said, I am optimistic that the world can still be a better place to live. But it will require some vision and hard work to make it happen.
Monday, April 13, 2009
CONTINGENCY FEE PATENT PROSECUTION
CONTINGENCY FEE PATENT PROSECUTION
Why it is a bad idea
Why it doesn't work
Not a month goes by when I don't get an e-mail or phone call from an inventor who tells me he has the next "big thing" and if only had some money, he could get a Patent and be rich. Would I be interested in taking the case "on contingency" or for a percentage of the profits?
Unfortunately, I have to decline these requests, as contingency Patent Prosecution just doesn't work. The reasons why are varied and complex. The following is a summary of some of the reasons why it is a bad idea and why it won't work.
1. Most Inventions Fail
The sad fact of the matter is, perhaps 90 to 95% of all inventions never make any money for the inventor, and this number may be as high as 99%. Thus, the law of probability and simple mathematics dictates that if a practitioner takes on Patent cases for a contingency, chances are, he'll go broke. Even if one of those small minority of cases make money for the inventor, the Patent Attorney would have to take a huge percentage in order to compensate for all the other cases that went bust.
In litigation, the odds of success are much higher. A litigating Attorney can tell in advance the odds of a case winning – and each case has a nuisance value as well. So there is more like a 50/50 chance of a payout in a litigation matter. And, coincidentally, most litigation Attorneys demand 50% of the proceeds.
But for a Patent case, it is much harder to tell in advance if a Patent will be worth anything. Oftentimes the inventions that seem like "sure things" end up going bust, and the inventions that seem like "crazy ideas" take off. It is nearly impossible to gauge this in advance, unless the client has invented antigravity or something. And even then, getting a patent and making money from it are still difficult.
If you look at the track record of successful inventors, it is not a cheering prospect. Even some of the "great" successful inventors of the last century (Bell, Wrights, Edison) did not make a lot of money from their inventions - compared to the amounts made by investors. Most ended up living comfortable and moderately wealthy lives. Few, if any, became stinking rich. So there is little in the way of a "jackpot" to share with a contingency fee attorney.
2. Contingency Fee Cases Have Real Costs
Even if the Attorney is willing to take the case on contingency, there are real costs associated with Patent Prosecution. Patent fees are rising all the time, and it does not take much time before these fees run into the thousands of dollars. If the Attorney pays these fees, not only is he working for free, he is paying for the privilege of working.
In most jurisdictions, the Attorney cannot advance fees in litigation, as that is considered financing of litigation. It is less clear how this would work in a Patent Prosecution situation, but it may also be a violation of ethics rules as well.
Even if the inventor agrees to pay all the filing and Patent Office fees, there is still a real opportunity cost associated with taking a case on a contingency fee basis. A Patent Attorney has a finite amount of work output he can sell. If he takes a contingency fee case, he has to decline a cash-paying customer. So, until or when the contingency fee case pays out, he has decreased his income by the amount of the cash cases he is turning away.
While most people think Attorneys in general are all rich and make huge sums of money, it really isn't true. While lead partners in big law firms might make millions of dollars (doing some very, very bad things), the bulk of the lawyers out there merely make a good living, and many just scrape by.
The Patent Prosecution business has never been very lucrative. While litigating a Patent might generate hundreds of thousands of dollars in legal fees, the cost of preparing and filing a case might run only ten to twenty thousand dollars, on a good day. And prices in this business have been dropping, not rising, in recent years. For most Patent Prosecutors, there is little room on the docket for "free" Patent cases.
3. Ethics Rules & Conflict of Interest
While rules vary from jurisdiction to jurisdiction, in some instances, it is considered a breach of ethics for an Attorney to take a financial interest in a client's business. This creates a problem when an Attorney has agreed to take stock in exchange for legal work, or a percentage of the business or income from the Patent. For example, if I know a Patent is going to issue for a client, using this information to buy stock would be considered insider trading.
But these Rules are in place for other reasons as well. If an Attorney becomes an owner of the company or has an interest in the company, he now has a personal interest in the company separate from (and possibly adverse to) the inventor's. If a dispute arises on how the company should be run (e.g., a shareholder revolt) whose side is the Attorney on? His own, the inventors, the company's or the shareholders? There is a serious possibility of conflict of interest in such situations, and an Attorney has to tread carefully to avoid such difficulties.
Simply stated, if an Attorney takes on a contingency-fee case, he increases the risk of being sued for malpractice, and he increases his risk of an ethics complaint being filed against him. For most Attorneys, the slim possibility of a payout is not worth the risk.
Guaranteeing a legal result can also be grounds for an ethics complaint. If you are guaranteeing a Patent in exchange for a percentage of the client's business, are you not also guaranteeing a legal result?
4. Where Does It End?
Another problem that Attorneys don't think about, is where does the relationship end? Suppose your inventor comes to you with an invention that looks like a "sure fire" deal. You think, "Well, this seems like a good opportunity, and a good way to help the inventor make money from his invention."
So you file the case, and the Examiner rejects the claims – in view of some pretty good Prior Art you did not expect to find. What do you do now? Your client was expecting an enforceable Patent out of this deal, and for reasons not within your control, you can't get one. Are you still owed a percentage of his invention? After all, you DID do all that work, right?
Suppose the rejection isn't that good, but the Examiner refuses to allow the case. Do you have to Appeal? File a Request for Continued Examination? How far does your responsibility end in this case? Suppose you don’t think the case has any merit, but the inventor wants to push on and on? How do you end this relationship?
This may seem like an unlikely scenario, but it can happen. The Patent Office has been rather strict lately on 101 (Statutory Subject Matter) rejections. If your inventor has an Internet Method of Doing Business Patent Application, it will likely be rejected by the Examiner and even the Board of Appeals. What do you do then?
Another scenario is if, after filing the initial application, the inventor comes back to you with a second, related invention. Do you take on this case as part of the contingency fee arrangement? Arguably, it is in your best interests to do so, as the more Patents your inventor gets, the greater a chance you can license the technology. But suppose he brings you more and more inventions – some related, some not, some tangentially related. Who decides which cases get filed and which do not? It is a tricky situation, and a "simple" case can explode into a major headache in short order.
5. Suppose the Inventor Makes a Bad Business Decision?
As I have noted in other articles, I have seen inventors sabotage perfectly good licensing agreements and other business arrangements because they think the invention is worth millions of dollars, when in reality it may be worth thousands. The prospect of the inventor driving the whole she-bang off a cliff is not a remote possibility, but rather a likely one.
Suppose your inventor is offered a few million dollars for his invention, and he turns it down, saying that it is worth far more than that? This scenario plagued the Attorneys representing the inventor of the intermittent windshield wiper. He turned down cash offers, only to win far less in court. It is not an unlikely scenario – but rather a predictable outcome.
If the inventor turns down a reasonable offer, then what do you do? Oftentimes, those offers disappear after a while and there are no offers after that. The inventor making bad decisions puts you in the hot seat. As an investor in the project, you might pressure him to make a decision that results in a payout for you. Granted, it is probably in the inventor's best interest to take the deal, and even if you were not vested in the deal you'd advise him to do so. But if you advise him to take the deal, and he later on has regrets, he may argue that you unduly pressured him, etc. It's not worth it! This is the Conflict of Interest I referred to above. In addition, you are now giving him legal advice on business matters if you try to advise him in non-Patent issues. Does your malpractice insurance cover this scenario? Suppose you give him bad advice?
The answer is, you can't give any advice at all. If the inventor is the businessman, you have to limit your advice to Patent issues, lest you cross the line into Conflict of Interest or practicing outside your area of expertise. As a result, you might have to sit idly by and watch the inventor drive the whole enterprise off a cliff.
And guess what? Inventors are often the WORST businessmen in the world! They naturally think their inventions are the greatest thing since sliced bread, and want to charge huge prices for them, regardless of what market demand is. Moreover, they are not very likely to have any business or economics training whatsoever. In most cases where an inventor tries to run a business enterprise himself, it fails.
6. Suppose the Market Tanks?
This is an issue that is highly relevant today. During good times, taking a contingency fee case might seem like a good idea. People are buying and selling companies and Patents and inventions and everyone is making money at it. Why not you?
Then a few years later, the money dries up, and the boom times are over. Suddenly, no one is interested in buying startup companies or new inventions – they are more concerned with day-to-day survival. It happened in the mid 1990's with the "dot com" bust. One day, people with an idea and a website were becoming millionaires. The next day, they were on the unemployment line.
(And you know, more than one "dot com" company offered to pay me in stock. Sure, a lot of folks made money on those "dot com" stocks. But far more lost it all. I turned away such deals.)
The inventor's invention might not take off for reasons that are beyond your control and his control. What do you do then? You've spent an enormous amount of time and energy on a case, with little or no payout. You would have been better off taking cash cases for less.
In addition, the inventor may tend to view the disappointment with his invention as having nothing to do with the economy or the invention. People like to scapegoat, and chances are, the inventor will start looking at YOU as the source of difficulty. "If only we had broader patent protection" they will say, or "if only we had a better license agreement!" But the reality is, if an invention cannot succeed in the marketplace or the licensee goes bankrupt, you can't get money from a stone. These are real concerns today. Inventing is far from a sure-fire business in the best of times. In these times, even less so.
7. Suppose Somebody Decides to Infringe?
This is a tricky part as well. After your inventor has turned down a license agreement, the would-be licensee decides to just copy the invention and to heck with the inventor. If you do not get a Patent or your Patent is not strong, you are stuck.
But suppose you DO get a good Patent. What now? If you are not a litigating Attorney, you can't really help the inventor. He would have to hire a separate contingency fee Litigation Attorney to litigate the Patent. You would have to hope there are millions of dollars in royalties in the case, as by the time the Litigation Attorney takes his share, there might not be much left for you (and is your percentage of the top, or a percentage of what the inventor receives?).
Even if you can find this Litigation Attorney, and you have a strong case, and you get lots of damages, you can expect to wait years and years before you finally collect.
And the problem with this scenario is that the inventor will resist hiring a Litigation Attorney. Why bother, when he has you? So you will be pressured into writing "cease and desist" letters or doing other things outside your comfort level.
8. How Do You End the Relationship?
Again, this is tricky from an ethical standpoint, and you don't want a complaint filed against you. And you don't want to end up getting sued.
Suppose the cases are rejected – or some are allowed and some rejected, and the inventor's business has gone completely south. The inventions have not sold as expected, and even the ones that have sold have yet to turn a profit. The inventor has turned away lucrative business deals in favor of "going it alone" but now he has run out of money.
You've sent him bills for maintenance fees, issue fees, and other Patent Office fees, and he hasn't paid them. What do you do? Do you let the cases go abandoned, or advance him the fees?
In conventional representation, if a client doesn't pay your invoices, you Petition to Withdraw as Attorney of Record, simple as that. And if the client doesn’t pay, well, your Petition is granted, simple as that.
But what about a contingency fee case? The inventor cannot afford to get another Attorney, and the odds of him finding someone to take the case on contingency are slim. If you bail out on the project, you are leaving him high and dry. This might not be an ethical violation (after all, a paying customer is left in the same situation when he doesn't pay) but it may be a moral issue.
Granted, if the inventor has not paid you for the filing fees you invoiced, your Petition will be granted. You would, of course, have to surrender any interest you have in the Patents. So the entire project would be a horrendous write-off, to the tune of thousands of dollars in lost revenues and thousands more in cash expenses.
9. So, What Can You Do ?
The best thing to advise the inventor is to find investors for his invention to fund the Patent and also to fund prototyping, development and sales. He should get someone on board with business experience to run the enterprise and to market the invention. That someone is not you and not him.
If the inventor is paying cash money for Patent Prosecution, he will realize that each Patent has a cost/benefit analysis. Prolonged prosecution of cases where there is little likelihood of getting a useful Patent allowed make no sense, and he will see the light and pull the plug. If the prosecution is "free" he won't – he'll want to take each case to Appeal. Similarly, if the inventor is paying cash, the inventor will carefully pick and choose which cases to prosecute, rather than file on whatever whim catches his fancy.
Now, you might argue that it might be possible to draft an agreement with the inventor that would cover all these contingencies – and maybe such an agreement might be do-able. But I have only listed some areas I have thought of or experienced. There may be dozens more. How can you anticipate them all? The answer is, you simply can't.
The traditional techniques for billing clients for Patent Prosecution, and the traditional Attorney/Client relationship have evolved over decades, if not centuries of time. One reason such contingency-fee arrangements have been frowned upon for Patent Prosecution is that these arrangements have caused problems in the past. You are far better off following the "well-worn path" established by others than to attempt some new, untried arrangement, which could backfire on you in a big way.
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Why it is a bad idea
Why it doesn't work
Not a month goes by when I don't get an e-mail or phone call from an inventor who tells me he has the next "big thing" and if only had some money, he could get a Patent and be rich. Would I be interested in taking the case "on contingency" or for a percentage of the profits?
Unfortunately, I have to decline these requests, as contingency Patent Prosecution just doesn't work. The reasons why are varied and complex. The following is a summary of some of the reasons why it is a bad idea and why it won't work.
1. Most Inventions Fail
The sad fact of the matter is, perhaps 90 to 95% of all inventions never make any money for the inventor, and this number may be as high as 99%. Thus, the law of probability and simple mathematics dictates that if a practitioner takes on Patent cases for a contingency, chances are, he'll go broke. Even if one of those small minority of cases make money for the inventor, the Patent Attorney would have to take a huge percentage in order to compensate for all the other cases that went bust.
In litigation, the odds of success are much higher. A litigating Attorney can tell in advance the odds of a case winning – and each case has a nuisance value as well. So there is more like a 50/50 chance of a payout in a litigation matter. And, coincidentally, most litigation Attorneys demand 50% of the proceeds.
But for a Patent case, it is much harder to tell in advance if a Patent will be worth anything. Oftentimes the inventions that seem like "sure things" end up going bust, and the inventions that seem like "crazy ideas" take off. It is nearly impossible to gauge this in advance, unless the client has invented antigravity or something. And even then, getting a patent and making money from it are still difficult.
If you look at the track record of successful inventors, it is not a cheering prospect. Even some of the "great" successful inventors of the last century (Bell, Wrights, Edison) did not make a lot of money from their inventions - compared to the amounts made by investors. Most ended up living comfortable and moderately wealthy lives. Few, if any, became stinking rich. So there is little in the way of a "jackpot" to share with a contingency fee attorney.
2. Contingency Fee Cases Have Real Costs
Even if the Attorney is willing to take the case on contingency, there are real costs associated with Patent Prosecution. Patent fees are rising all the time, and it does not take much time before these fees run into the thousands of dollars. If the Attorney pays these fees, not only is he working for free, he is paying for the privilege of working.
In most jurisdictions, the Attorney cannot advance fees in litigation, as that is considered financing of litigation. It is less clear how this would work in a Patent Prosecution situation, but it may also be a violation of ethics rules as well.
Even if the inventor agrees to pay all the filing and Patent Office fees, there is still a real opportunity cost associated with taking a case on a contingency fee basis. A Patent Attorney has a finite amount of work output he can sell. If he takes a contingency fee case, he has to decline a cash-paying customer. So, until or when the contingency fee case pays out, he has decreased his income by the amount of the cash cases he is turning away.
While most people think Attorneys in general are all rich and make huge sums of money, it really isn't true. While lead partners in big law firms might make millions of dollars (doing some very, very bad things), the bulk of the lawyers out there merely make a good living, and many just scrape by.
The Patent Prosecution business has never been very lucrative. While litigating a Patent might generate hundreds of thousands of dollars in legal fees, the cost of preparing and filing a case might run only ten to twenty thousand dollars, on a good day. And prices in this business have been dropping, not rising, in recent years. For most Patent Prosecutors, there is little room on the docket for "free" Patent cases.
3. Ethics Rules & Conflict of Interest
While rules vary from jurisdiction to jurisdiction, in some instances, it is considered a breach of ethics for an Attorney to take a financial interest in a client's business. This creates a problem when an Attorney has agreed to take stock in exchange for legal work, or a percentage of the business or income from the Patent. For example, if I know a Patent is going to issue for a client, using this information to buy stock would be considered insider trading.
But these Rules are in place for other reasons as well. If an Attorney becomes an owner of the company or has an interest in the company, he now has a personal interest in the company separate from (and possibly adverse to) the inventor's. If a dispute arises on how the company should be run (e.g., a shareholder revolt) whose side is the Attorney on? His own, the inventors, the company's or the shareholders? There is a serious possibility of conflict of interest in such situations, and an Attorney has to tread carefully to avoid such difficulties.
Simply stated, if an Attorney takes on a contingency-fee case, he increases the risk of being sued for malpractice, and he increases his risk of an ethics complaint being filed against him. For most Attorneys, the slim possibility of a payout is not worth the risk.
Guaranteeing a legal result can also be grounds for an ethics complaint. If you are guaranteeing a Patent in exchange for a percentage of the client's business, are you not also guaranteeing a legal result?
4. Where Does It End?
Another problem that Attorneys don't think about, is where does the relationship end? Suppose your inventor comes to you with an invention that looks like a "sure fire" deal. You think, "Well, this seems like a good opportunity, and a good way to help the inventor make money from his invention."
So you file the case, and the Examiner rejects the claims – in view of some pretty good Prior Art you did not expect to find. What do you do now? Your client was expecting an enforceable Patent out of this deal, and for reasons not within your control, you can't get one. Are you still owed a percentage of his invention? After all, you DID do all that work, right?
Suppose the rejection isn't that good, but the Examiner refuses to allow the case. Do you have to Appeal? File a Request for Continued Examination? How far does your responsibility end in this case? Suppose you don’t think the case has any merit, but the inventor wants to push on and on? How do you end this relationship?
This may seem like an unlikely scenario, but it can happen. The Patent Office has been rather strict lately on 101 (Statutory Subject Matter) rejections. If your inventor has an Internet Method of Doing Business Patent Application, it will likely be rejected by the Examiner and even the Board of Appeals. What do you do then?
Another scenario is if, after filing the initial application, the inventor comes back to you with a second, related invention. Do you take on this case as part of the contingency fee arrangement? Arguably, it is in your best interests to do so, as the more Patents your inventor gets, the greater a chance you can license the technology. But suppose he brings you more and more inventions – some related, some not, some tangentially related. Who decides which cases get filed and which do not? It is a tricky situation, and a "simple" case can explode into a major headache in short order.
5. Suppose the Inventor Makes a Bad Business Decision?
As I have noted in other articles, I have seen inventors sabotage perfectly good licensing agreements and other business arrangements because they think the invention is worth millions of dollars, when in reality it may be worth thousands. The prospect of the inventor driving the whole she-bang off a cliff is not a remote possibility, but rather a likely one.
Suppose your inventor is offered a few million dollars for his invention, and he turns it down, saying that it is worth far more than that? This scenario plagued the Attorneys representing the inventor of the intermittent windshield wiper. He turned down cash offers, only to win far less in court. It is not an unlikely scenario – but rather a predictable outcome.
If the inventor turns down a reasonable offer, then what do you do? Oftentimes, those offers disappear after a while and there are no offers after that. The inventor making bad decisions puts you in the hot seat. As an investor in the project, you might pressure him to make a decision that results in a payout for you. Granted, it is probably in the inventor's best interest to take the deal, and even if you were not vested in the deal you'd advise him to do so. But if you advise him to take the deal, and he later on has regrets, he may argue that you unduly pressured him, etc. It's not worth it! This is the Conflict of Interest I referred to above. In addition, you are now giving him legal advice on business matters if you try to advise him in non-Patent issues. Does your malpractice insurance cover this scenario? Suppose you give him bad advice?
The answer is, you can't give any advice at all. If the inventor is the businessman, you have to limit your advice to Patent issues, lest you cross the line into Conflict of Interest or practicing outside your area of expertise. As a result, you might have to sit idly by and watch the inventor drive the whole enterprise off a cliff.
And guess what? Inventors are often the WORST businessmen in the world! They naturally think their inventions are the greatest thing since sliced bread, and want to charge huge prices for them, regardless of what market demand is. Moreover, they are not very likely to have any business or economics training whatsoever. In most cases where an inventor tries to run a business enterprise himself, it fails.
6. Suppose the Market Tanks?
This is an issue that is highly relevant today. During good times, taking a contingency fee case might seem like a good idea. People are buying and selling companies and Patents and inventions and everyone is making money at it. Why not you?
Then a few years later, the money dries up, and the boom times are over. Suddenly, no one is interested in buying startup companies or new inventions – they are more concerned with day-to-day survival. It happened in the mid 1990's with the "dot com" bust. One day, people with an idea and a website were becoming millionaires. The next day, they were on the unemployment line.
(And you know, more than one "dot com" company offered to pay me in stock. Sure, a lot of folks made money on those "dot com" stocks. But far more lost it all. I turned away such deals.)
The inventor's invention might not take off for reasons that are beyond your control and his control. What do you do then? You've spent an enormous amount of time and energy on a case, with little or no payout. You would have been better off taking cash cases for less.
In addition, the inventor may tend to view the disappointment with his invention as having nothing to do with the economy or the invention. People like to scapegoat, and chances are, the inventor will start looking at YOU as the source of difficulty. "If only we had broader patent protection" they will say, or "if only we had a better license agreement!" But the reality is, if an invention cannot succeed in the marketplace or the licensee goes bankrupt, you can't get money from a stone. These are real concerns today. Inventing is far from a sure-fire business in the best of times. In these times, even less so.
7. Suppose Somebody Decides to Infringe?
This is a tricky part as well. After your inventor has turned down a license agreement, the would-be licensee decides to just copy the invention and to heck with the inventor. If you do not get a Patent or your Patent is not strong, you are stuck.
But suppose you DO get a good Patent. What now? If you are not a litigating Attorney, you can't really help the inventor. He would have to hire a separate contingency fee Litigation Attorney to litigate the Patent. You would have to hope there are millions of dollars in royalties in the case, as by the time the Litigation Attorney takes his share, there might not be much left for you (and is your percentage of the top, or a percentage of what the inventor receives?).
Even if you can find this Litigation Attorney, and you have a strong case, and you get lots of damages, you can expect to wait years and years before you finally collect.
And the problem with this scenario is that the inventor will resist hiring a Litigation Attorney. Why bother, when he has you? So you will be pressured into writing "cease and desist" letters or doing other things outside your comfort level.
8. How Do You End the Relationship?
Again, this is tricky from an ethical standpoint, and you don't want a complaint filed against you. And you don't want to end up getting sued.
Suppose the cases are rejected – or some are allowed and some rejected, and the inventor's business has gone completely south. The inventions have not sold as expected, and even the ones that have sold have yet to turn a profit. The inventor has turned away lucrative business deals in favor of "going it alone" but now he has run out of money.
You've sent him bills for maintenance fees, issue fees, and other Patent Office fees, and he hasn't paid them. What do you do? Do you let the cases go abandoned, or advance him the fees?
In conventional representation, if a client doesn't pay your invoices, you Petition to Withdraw as Attorney of Record, simple as that. And if the client doesn’t pay, well, your Petition is granted, simple as that.
But what about a contingency fee case? The inventor cannot afford to get another Attorney, and the odds of him finding someone to take the case on contingency are slim. If you bail out on the project, you are leaving him high and dry. This might not be an ethical violation (after all, a paying customer is left in the same situation when he doesn't pay) but it may be a moral issue.
Granted, if the inventor has not paid you for the filing fees you invoiced, your Petition will be granted. You would, of course, have to surrender any interest you have in the Patents. So the entire project would be a horrendous write-off, to the tune of thousands of dollars in lost revenues and thousands more in cash expenses.
9. So, What Can You Do ?
The best thing to advise the inventor is to find investors for his invention to fund the Patent and also to fund prototyping, development and sales. He should get someone on board with business experience to run the enterprise and to market the invention. That someone is not you and not him.
If the inventor is paying cash money for Patent Prosecution, he will realize that each Patent has a cost/benefit analysis. Prolonged prosecution of cases where there is little likelihood of getting a useful Patent allowed make no sense, and he will see the light and pull the plug. If the prosecution is "free" he won't – he'll want to take each case to Appeal. Similarly, if the inventor is paying cash, the inventor will carefully pick and choose which cases to prosecute, rather than file on whatever whim catches his fancy.
Now, you might argue that it might be possible to draft an agreement with the inventor that would cover all these contingencies – and maybe such an agreement might be do-able. But I have only listed some areas I have thought of or experienced. There may be dozens more. How can you anticipate them all? The answer is, you simply can't.
The traditional techniques for billing clients for Patent Prosecution, and the traditional Attorney/Client relationship have evolved over decades, if not centuries of time. One reason such contingency-fee arrangements have been frowned upon for Patent Prosecution is that these arrangements have caused problems in the past. You are far better off following the "well-worn path" established by others than to attempt some new, untried arrangement, which could backfire on you in a big way.
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