Patent Fever Rushing to join the patent stampede? Hold on and take a closer look at your business. Smart dotcommers put their patents on one leg at a time.
Opinions expressed by Entrepreneur contributors are their own.
In case you haven't noticed, patent fever has taken over thedotcom world. not long ago, Amazon.com made headlines when it wasawarded a patent for its "One-Click" technology, aprocess that allows online shoppers to purchase goods with a singlemouse click. With patent in hand, Amazon.com can now prohibitcompetitors and others from using the technology-or cancharge them to do so.
Amazon.com's not the only one doing it.Corporateintelligence.com, a Web site based in New York City thatoffers information about intellectual property issues, estimates 57percent more new Internet-related U.S. patents were granted in 2000than in 1997 and 1998 combined.
Patents can make fortunes for companies, as they give theirholders the right to preclude others from making, using or sellingtheir inventions. When it comes to the Net biz, patents can applyto everything from technologies and products to businessprocesses-or all the above in a single patent.
The Benefits Of A Patent
When companies first learned about Amazon.com's patent, manybegan rushing to see if their business processes could also bepatented-and they did so in droves. In fact, e-commerce- andsoftware-related business-method patent applications doubled from1998 to 1999, according to the U.S. Patent and Trademark Office(PTO), the federal agency that administers patent laws, examinespatent applications and determines who will get patents.
For dotcoms, there are numerous competitive advantages to owningpatents, ranging from royalties to good public relations."Having a patent helps the patent owner maintain an edge overcompetitors because it can prevent those competitors from using itstechnology to their benefit," says Joshua Bressler, anattorney with law firm Schulte Roth & Zabel LLP in New YorkCity who specializes in intellectual property, e-commerce andtechnology law. "In addition, a patent can provide substantialrevenues generated from the licensing of rights under it."
Bressler says start-up companies in particular can benefitgreatly from patents. "If you're a start-up looking forearly-round financing, or if you're planning to gopublic," he says, "investors like to see aggressiveprotection of proprietary business methods and other intellectualproperty, particularly because they've gotten so much presslately."
One start-up that understands the benefits of patents isTradeAccess Inc., a Cambridge, Massachusetts, company that sellsB2B e-commerce software that automates the process of negotiatedbuying and selling. It received a Notice of Allowance from the PTOfor a soon-to-be-issued technology and business method patent forits B2B e-commerce negotiation process. The company's founderbelieves so strongly in patents that he applied some of his lastremaining capital to the patent process.
"Given the invention revolution that's going on nowaround the Internet, I felt having strong intellectual propertywould really help the company distinguish itself and protect theinvestments that everyone's made here, vis-à-vis thecompetition," says Jeffrey M. Conklin, 45, founder and CEO ofTradeAccess. "I felt it could be money very well spent and itwould provide returns."
Conklin says the patent has already played a major role inattracting premier partners and customers. For example, it'shelped the company form a global strategic alliance with AndersenConsulting, a leading global management and technology consultingfirm. Says Conklin, "A big piece of why they wanted to dobusiness with us was because of the patent allowance on oursystem."
Now TradeAccess is looking forward to licensing its applicationto e-market-makers and corporations, and to licensing itstechnology to technology vendors.
How To Get A Patent
Although getting a patent may seem like a great idea, keep inmind that obtaining one is a long and tedious process. First,you'll have to determine whether your technology or businessmethod is even eligible for a patent. According to a PTO statute,inventions-business processes or otherwise-have to benew, useful and non-obvious.
The best way to determine whether your invention meets thoserequirements is to contact a registered patent attorney, who can,among other things, help you determine whether someone else hasalready patented your invention or obtained a federal registrationfor a trademark on goods or services similar to what you'vedeveloped.
Your lawyers should check prior art-which includesinformation such as patents, inventions or scholarly articles thatshow the same or similar inventions-before filing. If thereare no other inventions just like yours, you'll be able toapply for a patent through the PTO. Have your lawyer write thepatent application to avoid mistakes. Along with your application,you'll have to submit all instances of prior art of whichyou're aware describing the invention, which can be used toinvalidate all or part of an infringement claim. Above all,remember that applying for a patent is an ambitious undertakingthat requires knowledge of patent law, agency regulations andexaminer procedures as well as a draftsperson's steadyhand.
If you need help finding a patent attorney, try the PTO Web site. The agencymaintains a roster of attorneys and patent agents who areregistered to work with the patent office. Only attorneys or agentswho are registered to practice before the office are permitted tofile and prosecute patent applications on behalf of others. Thisroster includes listings by geographical area.
After filing, the waiting game begins. Experts say the averagetime to receive approval on a patent generally ranges from two tothree years. Once a patent wins approval, however, the work is farfrom done. You must police the market to make sure no one infringeson your patent. As part of their licensing programs, many companieswith patented business processes or technologies hire lawyers oruse an in-house staff employee to contact and seek payment from anycompanies that may be infringing on their patents.
"It takes a lot of time, effort and expertise to policeyour patent and get royalties from infringers," says LynnTellefsen, vice president of marketing forCorporateIntelligence.com. Now that dotcoms are actively monitoringtheir patents for possible infringements, the lawsuits aremounting. Last year, for example, a federal judge orderedbarnesandnoble.com to stop using Amazon.com's patentedOne-Click technology.
To Do List
Don't even think about filing for a patent until you do thefollowing:
2. File a priority application. And file it as soon asyou can, Tellefsen says. The whole process can take a long time,but if you get started as soon as possible, you'll be able toget a jump on any competitors who may file for a similarpatent.
3. Train your attorney to think like a businessperson.Explain to your attorney why you're different and what theproblem is that you're solving. "If you don't givethem the business insight with strategy, they'll tend to try topatent what's cool, not what's important," warns KevinG. Rivette, co-author of Rembrandts in the Attic: Unlocking the HiddenValue of Patents (Harvard Business School Press) and CEOand founder of Aurigin Systems, a Cupertino, California,intellectual property management software company. "Youshouldn't care about what's cool. You should care aboutwhat's important to your company and what will give you asustainable business advantage."
4. Consider global patent protection. While you probablyaren't thinking about selling your product overseas right now,"if your technology is hot, you might want to market itoverseas, so file for a patent there as well," says Tellefsen.In addition, she says, you should check the international patentdatabases when applying for a patent because, unlike the PTOdatabase, which only reveals patents that have already beengranted, international databases show you the most recentapplications filed.
5. Plan a licensing ROI chart. Figure out what return oninvestment you could receive from companies that will want tolicense your technology or business-process patent-keeping in mindcross-licensing opportunities. Tellefsen says cross-licensing isimportant because your patent might be used in a completelydifferent industry than the one you're in.
The Risks Of The Patent Process
You should know that many dotcoms believe winning patentsisn't all it's cracked up to be. Even successful companiessay licensing patents can distract a start-up from running itsbusiness.
One such company is Gigex.com, an application service providerin San Francisco. In 1998, the company, which offers Internetdelivery, distribution and marketing services for publishers ofgame and software demos, won a technology and business methodpatent for a "push" technology it developed. Its newpatent also covers a scrolling ticker for Web sites that'supdated in real time, similar to a stock ticker.
"We are actually kind of patent skeptics," says MarkFriedler, 36, founder and CEO of the 12-person Gigex.com."While patents are great to get, and everyone's impressedby them, their actual value in terms of generating revenue for acompany is not clear."
Friedler says the patent process is time-consuming, expensiveand of questionable value. During the past three years, he'sspent more than $30,000 in legal, maintenance and filing fees toobtain and maintain his patent. (Experts say most patentapplication filing fees cost between $15,000 and $30,000.)
Friedler also says his patent had nothing to do with his abilityto attract investors, even though some patent proponents insisthaving a patent can be a key ingredient in getting necessaryfunding. "While investors often ask if you have any type ofpatent advantage, I don't think they're eager to have youspend your money going around suing people to try and get licensingfees," Friedler says. "Our patent didn't add anyvalue in our venture rounds-our investors were most concernedabout our business plan, not our patent."
But, of course, there are those who disagree. Patent proponentssay both the process and the patent you may receive as a result canbe invaluable. "While the patent process is rigorous, it wasextremely useful for helping us to clarify a lot of aspects of ourbusiness, especially in terms of getting our applicationtogether," says Conklin. "The process helped us definewhat our core competency is and what it is that's new anddifferent about us. All of that translates into a value propositionfor our customers."
Too Much, TooSoon?
Skeptics question whether the rush to patent dotcom methods is agood thing.
Following Amazon.com's lead, many dotcoms are rushing tofile for business-method patents-leading some intellectualproperty gurus and lawyers to question whether the growth inpatents is a good thing.
These skeptics believe many business-method patents are toobroadly defined and cover obvious and widespread technology. Theysay an influx of patents could eventually harm the growth ofe-commerce by hindering start-ups that fear violating existingpatents.
They may have a point. After Amazon.com won its One-Clickpatent, it was also awarded a patent for its affiliate programtechnology and its recommendation service technology. Critics blamethe U.S. Patent and Trademark Office (PTO) for this growth inseemingly frivolous patents. They say the patent office doesn'thave enough information about previous Web innovations, so itgrants patents for claims that aren't new.
The PTO is taking action in response to this criticism. Earlierthis year, Q. Todd Dickinson, the undersecretary of commerce forintellectual property and director of the PTO, announced aninitiative to beef up efforts to uncover prior art and incorporatechecks and balances.
Highlights of this action plan include a new, formal customerpartnership with the software, e-commerce and Internet industries,as well as the banking and insurance industries; enhanced trainingof patent examiners; a new second-level review of allbusiness-method patent applications; and the convening of around-table forum with stakeholders on the issues surrounding thistechnology area.
In his announcement, Dickinson said e-commerce is an extremelyimportant component of today's booming economy and that theneed to ensure quality in the patent process has never beengreater.
Melissa Campanelli is Entrepreneur's "NetProfits" columnist.
Contact Sources
- Schulte Roth & Zabel LLP, (212) 756-2000, joshua.bressler@SRZ.com
- TradeAccess, (617) 583-8250, www.tradeaccess.com
