American Innovation Cycle: Challenges and Phases (IPR era)

American Innovation Cycle: Challenges and Phases (IPR era)

Download PDF

American Innovation Cycle : Challenges and Phases / IPR Era

An Inventor’s Perspective

The new American Innovation Cycle has changed how Innovation is produced and will be created in America. It takes brains, sweat, and tears to innovate, specially technology when you count with limited resources and advanced technological innovations. Inventions do not come easy as many would think and the amount of work and sacrifice to create an new idea is only achieved by a combination of persistence, talent, and creativity. After all this effort, the United States Patent Office (USPTO) may grant that inventor exclusive rights to that intellectual capital in the forms of a patent. Moreover, in this new era of IPRs/PTAB, the  innovation cycle is more challenging and what the inventor thought it was of his  exclusive right, could be taken away by a group of individuals without a jury.

It’s clear that besides intelligence or necessity,  the innovation process requires a great amount of research, many hours of testing, and solving problems that may have never been solved before. and then as a result, the creation of a clever solution or a technological breakthrough  that may leads to a brand new product, gadget, or drug.

∴   “The cure for Apple is not cost-cutting. The cure for Apple is to innovate its way out of its current predicament.”” — Steve Jobs

Technological Innovations are things  that has never been done or invented before, and there is where the challenge relies, fighting with the unknown. Some innovators work alone, while some others work as a team and it all depends on the field of the invention.  Notwithstanding, the thought process, experimentation, and brain capacity required to change the world is significant. As a consequence, innovators put their own reputation on the line when thoughts, ideas, or breakthroughs challenge current trends or ways of doing things.

In my personal experience and many others, their discoveries were a product of a PhD dissertation, after academic research or a Post-Doc position. Clearly, graduate school involves a ton of effort and your peers generally offer a great amount of scrutiny to your findings, creating the perfect environment for innovation, patents, and the creation of intellectual property (IP) wealth.

 “The National Science Foundation keeps the US on the cutting edge of discovery. This government agency funds science and engineering research and education programs. ” — NSF Website

One of the organizations financing research is the NSF (National Science Foundation), in some other cases  private grants fund and help graduate school research.

However,  when you are a private inventor or a small business, this innovation process is even more challenging.  Small businesses enter mercy waters as risk intensifies when the inventor’s own savings are on the line.

An inventor, thru his small business, or an entrepreneur with limited resources may account with an income of 100–200K/year. I would bet the average inventor  would allocate an R&D budget of 10–20% of that capital, so his/her idea can materialize. In other words, 10-30k may be required for a private inventor or entrepreneur to conceive an idea to practice. Obviously, these amounts are far less smaller than many R&D budgets of mid-size enterprises, and may be insignificant for a corporation such as Apple or Google.

∴ “Google’s R&D spending will rise 16% in 2016 to $14.3 billion, BMO Capital Markets estimates” — BMO Capital Report.

I am an inventor and have personally been involved for the past 20+ years in software and electrical engineering projects and have been awarded with 10 issued patents.  For the last 7 years,  I have also been  immersed into the world of intellectual property as an Expert Witness. Additionally, I have been to the courtroom fighting my own patent battles, licensing my inventions to corporations, and working as an expert witness helping big and small corporations, and other innovators in IP litigation cases.

Moreover, I have been part of an incubator/accelerator,  and just recently formed my own technology incubator “EGLAVATOR,”.  Hence, I perfectly understand and have personally witnessed passionate inventors and entrepreneurs succeed and fail.  Besides that, I have been advising startups and entrepreneurs with their intellectual property strategies from implementation of software to patents.

The Phases of the American Innovation Cycle

I can summarize in the following chart the Innovation Cycle in America, as of 2017, identifying 4 phases:

  • The Prototype : First inventors create an exciting new idea, or prototype, this is first of the “Innovation cycle”,
  • Am I Rich Phase :   Teams are formed, early-stage capita, and people believe in the “American Dream” as Edison, Musk, Larry Page, and others have preceded them,
  • Try Again Phase:  Promoting that  patent or technological product was  full of hurdles, and problems, and,
  • Fighting Phase:   Many times, you may give up as your innovation could have been taken by major corporations. It is tiime to fight back

 

Phase I: Your Prototype

Congratulations, you have completed that prototype and  have successfully closed an R&D cycle. All your findings are promising and are able to get some cash to file for a patent. As an inventor, you may be excited to have that prototype built and working with your innovation in your garage, your small office, or even under your 3D-printer. A new functional product may require additional effort to perfect, but the core of your minimally viable product has been completed.

MobileCAD Parts – Prototype GSM

Now it is time to get your investment back and hopefully some additional return to your time, ingenuity, and investment made.

US 7231330 Patent
US 7231330 Patent

In Phase 1 or the initial stage, can be identified when the inventor is excited to find out that after a couple of years of work and waiting for the patent office response, his invention has been granted with a patent. All inventors feel happy, safer, and more confident then to share with others their final product or intellectual property creation.

The inventor  may even find some additional dollars for a continuation patent or a divisional that your friendly patent attorney has offered for another set of payments.  Then and within this excitement, the inventor believes that his valuable creation can help company A or company B, and Inventors can forecast good faith sales, royalties, or a revenue shared agreements with those companies.  In this phase, the inventor may draft or someone may help him draft a business plan.  This is a very common process in academic and research institutions, where their intellectual property is being commercialized and often needs a business plan attached to it.

As an example, the University of Florida Research Foundation receives an assignment to the patents created by students or professors while at the university, and many spinoff companies are created from many inventions and intellectual property created in Gainesville.

As time progresses, the inventor is almost sure that relinquishing 60% to 80% of the value of his IP, in exchange for business help has certain value, obviously when you multiply $yM by 60%, is still a much larger number than a 100K+ salary.

In this initial stage of his invention, the now nascent entrepreneur has a “startup” venture. However, an inventor should be aware that 1 out of 200 startups may succeed, and no PhD will suffice or exclude you from the probability.

Phase 2: Am I rich Phase?

During a second phase, that we call Phase 2, inventors believe that their invention is worth millions and why not billions, and in order to get paid, the world needs to know about it and licensing deals need to take place.

In this phase, a process of idea exchange is initiated with the world.  In some cases, inventors may start this phase even without a patent issued, but with a patent filed or “patent pending” status.  As this stage, Inventors believe that they are protected by their patent or multiple patents, some even may use an NDA to cover their IP a bit more. Inventors and entrepreneurs start sharing “decks” with their IP with others.

Some companies may proceed with more due diligence steps, after an initial presentation, which may take a few weeks that may  include the disclosure of your finances, a term sheet prepared to license, partner, or sell the IP with a major player, your new customer.   As such, term sheets may include 5%, 0.5%, or even 0.05% may represent 10x to 1000x what the inventor invested or what a 401K would contain after 30 years of savings.

At this stage, some inventors may think about Kearns and Ford’s case with the windshield wiper, or more recently Home Depot vs Powell patent win, or in some cases a multimillion dollar settlement between Carnegie Mellon and Marvell, Inc.

Personally, I have met many engineers at trade shows, conferences, meetings, and in general when I worked for corporate America, many engineers and directors would say phrases like “We can do that ourselves, why do we need them?,” or “We did that already, isn’t that we had in a prototype before?”. That mentality is not conducive to licensing deals, in fact, many engineers would think they are not infringing that idea or may indeed have done a similar thing without filing for a patent.

Obviously. the AIA (American Innovation Act) is not at play here, it is a fair game and inventors in good faith exchange the ins and outs of their technology, and probably more than they actually have protected with their patent and their claims.  AIA changes the rules to who filed first, and that may benefit the inventor, but not for long.

At this stage, you cannot guarantee any NDA or outcome from sharing your invention, prototype, and trade secrets to third parties.  Your potential payout has maybe, inadvertently zeroed, as you have shared details to a corporation that had no desire to pay a penny to begin with.

Obviously, if you were convincing enough or had a 1 a billion invention, you might hit the jackpot, at 1/10th of the value or even at 1/100th of the value perceived by you. Good for you!!! You don’t have to go thru Phase 3 and 4.

 

Phase 3: Try Again

After weeks or months of “marketing” and sales, there are no more responses to that presentation, and the excitement is gone, and you try it again with another party.  In some cases, a corporation may say “Send your claim chart,” “if you think I am infringing your invention, say that clearly.” In many cases, these are tactics designed to defuse your value, and get that idea or innovation for free without paying.

The inventor and his parties are now part of the “Try Again” phase, and very few corporations will actually pay or offer to pay a fair deal to the inventor or the entrepreneur.  May corporations understand that a fair deal is 0% royalty for them or a rev share that will make them billions and thousands to the inventor, they think they may even try to hire the inventor to work for them.  Obviously, not that many inventors had a father like Donald Trump with a $1M dollar loan, in many cases inventors are using their time and own capital to fund their dream, many even quit their jobs, and are sacrificing their families so they can move out of their garages or co-working spaces.

This is where when the nightmare starts, as you have disclosed to Corporation A, Corporation B, and C your deepest secrets. You assume that your NDA (that could be just downloaded form a free site) will cover you, and the answers is no. Sounds like bad news? Maybe you are better of working under the radar or move to the “Try Again” phase.

Instead, don’t feel discourage and be prepared to gain some market share from Corporate A, B, and C and get leverage, gain momentum for your product, get customers and generate revenue. In many cases, this may not be even possible and if that is not an option, this is the perfect time to think about selling or auctioning your IP.

It is also possible that as you contact more companies, maybe no phone calls are returned and you might get emails stating things like “We moved in a different direction….” Or “We will get back to you in the future,” or “If you think we are infringing say so.”  In other words, the “little guy” just wasted months of his/her time waiting and sharing all their knowledge, training for free several groups of engineers.

” It could be also a communication problem, hire a good sales person. Inventors might confuse and use too much jargon, confusing a potential buyer”

Maybe if you are in this situation, and you are planning to file a lawsuit, stop right here and think. If nobody wants to pay for your invention or innovation,  or offers little to pay for your invention, there are two reasons:

  • Your invention is not valuable as you think it is, or
  • Your invention is very valuable and they think you cannot fight back

Get some validation from the marketplace and  offer some licenses at reasonable prices, get paid small amounts. Assuming,  you can reach two or three licensing agreements, you may use some of the funds to move into Phase 4.

‘Good artists copy; great artists steal’ – Steve Jobs

Phase 4: Give up or Fighting Back Phase

 

At this point , you have decided to continue the fight and that’s what I will call the “Fighting back” phase, in this phase you have :

  • Legal or Litigation
  • Compete in the marketplace, go on offense

We wil address the first option as the second option is more than obvious.  if you choose to fight back legally, it is going to cost money and a ton of effort.

In my experience, corporations are banking on a simple fact:

“you are poor and cannot afford to fight back.”

An inventor will run out of money and will not be able to afford a firm like  “Foley and Lardner,” or “Fish & Richardson,” Instead, most inventors, hire a John Smith, P.A,, a guy at the co-working space that will settle a licensing deal for a 25K offer because he can make easy ½ of that without inventing a thing.

Many other inventors won’t give up that easy, and after the past 2-3 years of efforts and, after dumping 300k – 1M of their own capital that will not make your 401k anymore decide to act on a different strategy, sell the asset.  Maybe at this point the cost of opportunity is not that high, and the inventor has not given up entirely for all these stories to become part of another “Thanksgiving dinner chatter” story.

It is advisable that inventors find an intellectual property investor and sell their assets to them, after all that hard work, maybe someone can make some money. Many of these patent acquisition firms are called as “Patent Trolls” and will likely review your case and take a risk by enforcing your intellectual property.

The last group of inventors and entrepreneurs, the lucky set in Phase 4.  have most likely no family to worry about, or have a wife with a 7-digit salary, and in general have a cushion of cash that has kept them afloat.

Even these few inventors have to face retainers from boutique firms requiring $300k for an IPR defense. IPR stands for Inter-partiers Review which is a technique/trial coined as part of the AIA and used by the PTAB or “Patent Trial and Appeal Board.” to determine grounds of unpatentability or obviousness of a patent.  This process and all  other litigation require  thousands of dollars to retain experts at $300-$700/hr in the fields of damages, telecom, electronics, and computer engineering. Some may say that a patent lawsuit needs a budget of $1M to $3M to be safe.

Once you are at this stage, you may have to have a wealthy business partner, where your business plan is your intellectual property, and your strategy is to take them to court as you have no other option left.

At this stage, the inventor has no choice but to create a corporation that carries out one function and one only purpose, litigate your patents with some leverage to fight back, the same leverage your infringers will have. The inventor is unfortunately now facing another cut in his IP value, 30-50% perhaps plus the attorney’s fees.

Corporations like Unified Patents and others are in the business of invalidating patents, they claim that they are looking after “startups” when we know that “Trolls” or patent investors don’t waste their time with startups that can barely make payroll.  Unified Patents is in the business of protecting the big donors and their big corporate members, as an example I wrote an article in my blog https://edwinhernandez.com/2016/03/05/unified-patents-ipr-for-8886308-patent/

At this stage, the fight is not easy and after meeting maybe 20 to 100 law firms, you may find a match, and have an investor to cover your patent and IPR litigation costs, and there you go, your first litigation.

Be were that IPRs are very hard to win, and the PTAB is invalidating patents using the “broadest interpretation of the claims” which I still don’t know what broad means, and what aspects of innovation are hence decided by a board of people that will obviously make mistakes. It is much easier to kill a patent than say why it is valid.  In fact, 90% of the patents will be invalidated in an IPR.

Conclusions

Obviously, if your IP is invalid and non-enforceable, you have no need to worry, don’t try to play a patent stunt. If you have not invested time and money with reputable attorneys, you will fail, you cannot fool the system, you need a strong patent with good “claims.” Hire a good Patent Attorney to handle this for you.

On the other hand, the US Government must create an environment and laws, or extend the current laws to protect the many inventors that are facing gigantic multi-billion dollar corporations that are not interested in fostering innovation and paying their fair share to private inventors but instead are greedy and rather make their attorneys richer.

Current invalidation processes and all the litigation roadblocks that are placed to protect corporations from “Patent Trolls” are simply unjust and unfair. The invention is not the victimizer, it is the victim. The current process incites and motivates large companies to simply steal and take the inventors to the cleaners via an IPR or just take IP with the agreement “see you in court.” Corporations are abusing the system and avoiding fair payment to small and independent inventors, this simply hinders innovation and halts private research made by small corporations, which brings to add as one of the “American Innovation Cycle” phases described in this articled.

In my opinion, corporations should be penalized and award the total amount of fees paid to their attorneys plus what is paid to the inventor’s attorneys, if in fact and in bad faith an invention was taken. Specially, after fishing valuable information from the inventor. A recent case lost by Huawei shows how major corporation would not allow even a picture taken of one of their assets (T-Mobile vs Huawei – $4.8M Award)  Maybe, this will discourage illegal use of Intellectual Property (IP).

An inventor has to remember that most corporations will pay millions to law firms and will offer thousands to the inventor, even if that invention is valuable. Hence, my recommendation is:

  • Create a business model and substantiate your invention, be prepared with enough cash to protect your IP wisely and very well,
  • Don’t save in attorney’s fees and look for attorneys that their patents have not been invalidated,
  • Keep your options open and file a continuation, even if you have your patent issued.
  • Be ready to fight back, send a letter to your congressman,
  • Talk to other inventors, inventors are often shy and hermits, speak up
  • If one of your inventions was stolen, well you are a creative kind, learn and create a new one!!!

Obviously, inventors are move vulnerable at trade show as many do not understand or don’t know what the consequences of an email badly written, or whey they act emotionally sending a threatening letter or triggering a “Docket” action, meaning a lawsuit filed against them. Be careful and think before you act!

What worries me is that innovation is getting monopolized by big corporations that can afford a litigation system. Any major corporation, specially those that you contacted and signed NDAs with yo, would rather hire a law-firm than pay you a dime. A major corporation with deep pockets will not be hesitant to allocate and pay to any law-firm $3M to $6M to defend their business form you. The corporation will try to find a a way to invalidate your patents, and fight the inventor that is perceived as the “little guy,” after all, you are just an annoying thing going on in their radar. The sad part is that. a corporation and its management team  will not even offer the inventor a low-ball 7 to 8-digit licensing deal even when you presented your invention or technology in good faith and in a non-threatening way.

My company EGLA has its own intellectual property and we manage a technology incubator (“EGLA INCUBATOR”). At my company, we represent innovative ideas and  we want to meet corporations with interest in helping themselves and help innovators with our patents and software.

Part of our IP can be found here:

Disclaimer: Nothing here represents a legal advice, I am not an attorney and if you need one contact, your yellow pages or a friend may be your best referral. I bet there is a good IP/Patent attorney nearby. Hence,  you have to make your own decisions about any intellectual property matters.