Your Patent Has Issued – Now What?
Some things to remember and watch out for
Congratulations on receiving your U.S. Patent! It sure likes nice, all official-like with a ribbon and seal. After admiring it and showing it to your friends, you may wonder, “well, now what?”
As I have noted on my website, I prepare and prosecute Patent Applications before the Patent & Trademark Office. I am not an invention promoter, developer, or whatever – most of those folks are flat-out crooks.
I also am not a litigator. That takes a set of skills much different than Patent Prosecution. It also requires a lot of support staff and infrastructure.
So I can’t help you if you want to sue somebody or find a company to make and sell your invention. If you’ve been reading the materials on my website (See, “Should I Get a Patent?”) you’ll know my feelings on invention promotion – that the inventor is the best developer and promoter of his own invention.
However, there are some tips and suggestions I can offer to the solo inventor or small entity (small company, start-up).
1. Maintenance Fees: The Patent process is not entirely over at this point. If you do not pay your maintenance fees, your Patent will expire. I have an extensive article on this (See, “Understanding Maintenance Fees”) on my website. As I note in all my materials, I do not agree to docket and pay these for you, as this would be an 11+ year commitment on my part – a lot of liability, without a lot of reward. So review my article on Maintenance Fees and take appropriate measures.
2. Con Games: Once the Patent has issued, or even after it has been published, you may be contacted by a number of companies and individuals offering to help you. Most of these are outright crooks, but not necessarily all of them. Every once in a while, you do run across a legitimate licensee or party interested in licensing or buying your Patent. But the vast majority are frauds. Here are some things to watch out for:
A. Maintenance Fee Fraud: An official-sounding company offers to pay your maintenance fee for an absurdly low sum (e.g., $125). Since the lowest maintenance fee is $450, this is of course, impossible. If you read their post card or letter carefully, what they agree to do is send you the FORM to pay the fee, which of course, you can download free off the Internet. In fact, you can pay the fee online yourself with a credit card at www.uspto.GOV. Note I said “.GOV” and not dot com or some other extension. These fraudsters are tricky, so make sure you are on the right website!
B. Licensing Fraud: A caller from a company with an impressive-sounding name and a fancy website offers to license your Patent for you and tells you they have a licensee ready to sign, or implies they do. Or, they may imply they can find you a licensee and claim to have a great track record in doing this. The catch is, of course, they want $5,000 to $10,000 in up-front fees. They take these fees, from thousands and thousands of inventors and simply cash the checks – which makes them tens of millions of dollars per year. They do little in the way of licensing or marketing your invention, if indeed anything at all. You cannot do anything to get your money back, as it would cost more to sue them that it is worth.
C. Patent Plaques: This is not a fraud, but you will get letters offering to make your Patent into an attractive wall plaque. They are not bad looking (I had my first Patent made into a plaque). But they are not cheap, either. Shop around, as you might be able to find one for a lot less than you are quoted. Also, you can simply frame a good copy of the Patent, printed on fancy paper, for a whole lot less. Clean copies of your Patent can be downloaded from www.uspto.gov or in .pdf format at www.freepatentsonline.com.
3. License Agreements: Like I said, every once in a while, you might get a cold call from someone who really, really wants to license your Patent or buy it from you. I’ve had this happen to several clients in the 20-some years I have been in the Patent business. It is not common, but it does occur. So what do you do? I can help you negotiate the legal terms of a license agreement and help you review a proposed agreement, for fairly nominal fees.
But I prefer to let the client determine the basic terms (price, royalties) rather than interject myself into the process. I have found that Attorneys can sometimes destroy a deal by trying to be in the negotiation process.
What I advise clients to do is very simple. Sit down with a piece of paper and figure out what price you’d like to get for your Patent, in terms of sale, licensing royalties, or both, and write that number down. That would be your “dream” number – what you would like to get. Then write down the bare minimum of what you would be willing to begrudgingly accept.
If you can negotiate a deal between these two price numbers, then sign it. You have made your target and you should move on with no regrets. One problem I see with inventors is that they have no idea (or claim to have no idea) what their invention is worth, and after signing a perfectly good deal, have regrets that they sold “too cheaply”.
I have also seen inventors mess up perfectly good deals by insisting on ridiculous terms (i.e., demanding that all profits from the invention be paid to them). Figure out a reasonable price range, negotiate a deal in that range, and make the deal happen.
And have an Attorney look over the agreement. No licensing agreement is ever “perfect”, but you can protect yourself from some problems down the road by putting in some perfectly reasonable clauses into the agreement – and most licensees expect to see such clauses and would not reasonably object to them.
4. Developing your invention: As I noted above, I am not an expert in invention development. Taking an invention from prototype to marketable product takes a lot of expertise. For an inventor who has yet to make a prototype, this can be a daunting task.
As I have noted on my website, getting a Patent is often the easy part. The hard part is making and selling product. Selling product is ultimately what makes money for a patent holder – either by themselves, or through a licensee. No money can be made if the product is merely a paper idea.
Having prototypes made, traveling to China to have tooling and development work done (where most new inventions are built these days) and then purchasing and warehousing inventory are all expensive and capital-intensive tasks. And this does not even begin to address the efforts needed to market an invention – getting it in catalogs, on store shelves, and into the hands of consumers.
You either have these skills and contacts, or you don’t. Inventor’s groups, some books and magazines may be helpful. But since I don’t work in this line of business, I cannot be of much further help.
5. Infringement: You would think that a company making an infringing product would simply take a license and pay a reasonable royalty, rather than risk being sued for Patent Infringement. You’d think that, anyway! The reality is that a lot of companies take the attitude of “Oh yea, well MAKE ME!”
And this attitude keeps litigators busy.
Again, I am not a litigator, so I cannot sue someone for you. But I can offer the following tips if you are confronted with infringement:
A. DO NOT threaten to sue people: Sending out letters with wording like “you infringe” or “cease and desist” can be dangerous. An infringer can bring a Declaratory Judgment action against you in the court of his choosing, and you will have to scramble to find a lawyer to defend your Patent. If you fail to respond to such an action, your Patent could be held invalid and/or not infringed.
B. DO put people on Notice: There is no harm in sending out a letter stating that the Patent is available for license or sale. Such a letter puts the other party on notice of the existence of the Patent. And, in some instances, it may result in an offer to license or buy your Patent. Consult an Attorney for the specific wording of such a letter.
C. DO NOT discuss the validity or scope of your Patent: An infringer calls you or writes to you and says your Patent is invalid or not infringed – trying to get you to make an admission on the record about some aspect of your Patent, what a particular phrase in the claims means, or whatever. Don’t fall for that trap! Refer all questions about the scope and validity of your Patent to an Attorney. I have seen infringers call up an inventor, badger them about the Patent for hours on the phone, and record the phone call, trying to get the inventor to say something incriminating. Keep silent! Similarly, do not say anything in writing about the scope or validity of your Patent. Such matters are irrelevant to a licensing discussion anyway.
D. DO respond, through your Attorney, to written allegations: One other (perfectly legal) trick to do is to write back to a Patent holder and say “we don’t infringe your Patent because of X”. If you don’t respond to these arguments properly, they might be able to argue that you are estopped from raising infringement arguments later on, as they relied up your silence on the issue as an assent to the allegations of non-infringement. Such allegations need to be responded to carefully, to avoid such estoppel issues.
E. DO NOT be in a hurry: A client calls me on the phone in a panic – someone is making a product just like in his Patent! What is he to do? Well, don’t panic right away. You may be able to collect for infringement damages for up to seven years after the fact, so there is no big hurry to sue them when they are just hitting the market. In fact, sometimes going after an infringer prematurely can hurt more than it helps. If they are still in the prototype stage of development, they can redesign their product to try to avoid your Patent. However, if they have already tooled up for production, it is a lot more expensive to try to “design around” your invention. Putting the infringer on Notice and offering them a license might not be a bad idea, but don’t feel that you have to sue them right away. In fact, most law firms won’t be interested in suing someone, unless there are sufficient damages available to make it worthwhile.
6. Suing Someone (or Somebody): Sometimes you just have to sue someone to collect what is owed to you for your Patent. As I noted above, there are some folks out there who just won’t pay up unless you force them to. So what are you to do? The options are not pretty or simple. Here is a summary of what I know to be available:
A. Hire a Lawyer: If you were Bill Gates, this is a simple solution. Just call your lawyer and sue their pants off. Sure, it may cost anywhere from $50,000 to $200,000 per month to sustain a full-blown Patent Infringement action at a big downtown law firm. But hey, it’s only money, right? Chances are, if you are one of my clients, this is not even an option.
B. Contingency Fee Attorneys: This would seem to be a much cheaper alternative, and relatively speaking, it is. But it still isn’t free. Some firms, such as Niro, Scavone, in Chicago, and even small shops like Mereck, Vorhees, in Alexandria, Virginia, have taken on (or may take on) contingency fee cases. There are three caveats, however, when dealing with any contingency fee attorney:
i. There has to be a “there” there. No Attorney will take on a contingency fee case unless there are sufficient damages to make it worthwhile. The actual threshold will vary from firm to firm, but generally a half-million to a million dollars in damages are needed to make the effort worthwhile. If your invention is only going to generate $50,000 in royalties – then forgetaboutit!
iii. There are still “expenses”. Contingency fee attorneys will still charge you for expenses, which under State Bar Rules, they generally are not allowed to advance on your behalf. While this may sound fairly cheap, one Attorney tells me this can run $10,000 a month or more, for airfare, car rental, hotel rooms, court stenographers, expert witness fees ($300 and hour and up!), photocopying, postage, parking and of course, court fees. Preparing a case for trial often involves travel to depose witnesses, and these fees can add up!
iv. The Attorney usually wants the lion’s share of the proceeds. As noted above, a full-fledged lawsuit can run hundreds of thousands of dollars, if not into the millions, to litigate. So most contingency-fee Attorneys want 30 to 60% of the proceeds before they will consider a case. Most lean toward 60%. It is not that they are greedy (well, relatively speaking, anyway) but that they could make that much representing a cash-paying customer. So they can’t simply give their service away for free. Also, they are taking a huge risk that there might not be any money at all at the other end of this, so they are entitled to a “risk factor” bonus for taking the case.
C. Patent Companies: There are companies out there that will buy an interest in your Patent and then sue infringers and collect damages, splitting the proceeds with you. General Patent Corporation is one of the most famous of these, but there are others out there. Most of these companies want a huge cut of the Patent (a 30-60% ownership stake, again leaning toward 60% or more). In return, they will finance the lawsuit, usually through their own “in house” Attorneys, and collect royalties from licensing fees, and split the proceeds with you. I have never used such companies, but have investigated some on behalf of some clients. I have also talked to some customers of such companies. While some customers report receiving six-figure sums, they do report that it does take years to litigate these cases. Also, some Patent companies may try to charge “expenses” against overall profits – which may cut down your payoff considerably. On the other hand, they are taking big risks that the Patent may not pay off at all, and also are investing cash money in litigation expenses, so they entitled to some return on their investment. If you are totally broke and all you have is your Patent, these companies may be your only option, in some instances. My only advice is to read any such agreement very carefully before signing. And shop around for the best deal. Like I said, there are several of these companies out there, and if your Patent is worth anything, they will compete for the business.
D. Venture Capitalists: Sometimes called “Vulture Capitalists”, a “VC” as they are called, will sometimes agree to back a Patent or groups of Patents, to go after infringers. This is not unlike the Patent Companies cited above, except that they are not as well known and organized as these companies are. And generally speaking, a VC is only interested in really worthwhile Patents. VC’s have earned their reputation the hard way – they earned it. Like the contingency litigation Attorney and Patent Company, they will expect to receive a lion’s share of the proceeds in return for risking hundreds of thousands (if not millions) of their capital. How to go about contacting and selling a VC on your Patent is not easy. This is a business made through connections, and oftentimes you need to find someone who is connected to get one of these deals done. The problem here is that many people will claim to be “connected” but will in fact be only con artists. And given the nature of this business, it is oftentimes hard to tell them apart.
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As you can see, the options for exploiting your Patent are neither cheap nor easy. Perhaps now you understand why I try to discourage people from getting Patents, unless they understand the whole picture up-front. Getting the Patent is often the easy part. For some folks, however, an invention can be a ticket to at least some moderate success, but only after years of hard work and expense. While the Rockefellers, Carnegies, Morgans, and Gates have gone down in history as making millions (and billions) of dollars, these folks were not inventors, but marketers and money-men. It is the people with the dough who usually make the lion’s share of the cash to be had from an invention. The inventor usually ends up with a minority share in any enterprise. But even a minority share can still be quire lucrative.
Good Luck!
© 2006 Robert Platt Bell
