The Crossroads of Patents, Copyrights, Trademarks, Technology, and Business

Frequently I hear the misstatement that one can just submit some notes and pictures of one’s product in a provisional patent application. People think this is so because the application is “informal” and will not be examined by the patent office. Unfortunately, I have seen multiple situations where an entrepreneur had an inadequate disclosure because “Someone said I could just submit my notes and sketches and I’m covered.” WRONG! Even though provisional patent applications are not directly examined by the patent office, the provisional should be thought of as a “patent-lite” and prepared diligently.

The goals of a provisional patent application include securing a filing date, which is a critical date in the process. Sufficient technical disclosure should include enough detail to disclose any sold or publicly used versions of the product, support the claims and description of the future nonprovisional application, and support arguments which distinguish the product from the prior art. Failure to disclose adequate information can place the filing date or the scope of patent protection in jeopardy.

Imagine the following scenario:

1. Inventor creates a product on 1/1/10.
2. Inventor publicly demonstrates the product on 6/30/10 to promote the product, thus starting a one year period in which the inventor must have a filing date.
3. Inventor files an insufficient provisional patent file on 1/1/11.
4. Inventor files a thorough nonprovisional patent application on 1/1/12.
5. The patent office reviews the nonprovisional patent application  on 1/1/14 (it is common for a couple of years to pass before examination) and determines that the invention as claimed in the nonprovisional patent application is not supported by the provisional patent application.

One possible result is that the effective filing date is now the filing date of the nonprovisional patent application, which is 1/1/12. That filing date is more than one year after the inventor publicly used the product, thus the inventor is barred from receiving a patent (Even if the bar to patenting did not exist, any relevant technology created between the filing date of the provisional and the nonprovisional can now be prior art). Another possible result is that the issued patent is limited in scope to what was sufficiently disclosed in the provisional, thus it has less less value.

Don’t fall prey to the myth and take great care in the preparation of your provisional patent application.

It is tough to sit across the desk from someone and tell them that I think someone took advantage of them, especially when that money could have been better used to help them with prototyping or other steps in their business plan. When I have spoken with people who have used inventor assistance outfits, it appeared they spent a lot of money and received little value in return. In one situation, an inventor and his/her associates paid about $20,000 to an inventor assistance outfit. From what I could tell, they were delivered the following:

1. the filing receipt for a submitted provisional application (they did not have the actual submitted application).
2. the filing receipt for a later filed nonprovisional application (they did not have the actual submitted application).
3. a five to ten page marketing presentation for their product with illustrations, advantages of the product, and other information.
4. about 200 addresses for companies that might be interested in purchasing the product (the addresses were general and not directed to a specific person at the company).

For argument, let’s assume a value of $5000 – $10,000 for the preparation and filing of the patent applications, which may or may not be fair given the product at issue. That leaves a range of $10,000 to $15,000 for the remainder of the deliverables. That value for those deliverables  seems very questionable. Moreover, the inventor assistance company was still marketing further “services”  to the inventor and associates (for additional fees or royalties, of course).

Make no mistake, the invention and entrepreneurial process can be difficult, expense, and time-consuming. Furthermore, it is rare that an individual will possess all of the skills, time, and money necessary for the complete invention and commercialization process. Thus it is tempting to fall prey to an outfit that markets “one stop shopping” support and relief to the time and stress involved in the process.

I am not sure why such low value was delivered, as the above $10,000 – $15,000 is enough to deliver higher value deliverables and still have a good profit margin. Nonetheless, the situation is fairly typical of what I have seen from inventor assistance companies. For this reason, I suggest talking to other inventors, business counselors, intellectual property attorneys, business attorneys, or others to seek professionals to help you in your invention and entrepreneurial process.

When working with an inventor or  startup, a frequent question is whether it is financially prudent to proceed with a patent application. More often than not, I am not in a position to concisely answer the question, as the question may hinge more on economics than intellectual property. A patent search may shed some light on the prudence of moving forward from an intellectual property standpoint, but it doesn’t help answer whether the cost and effort involved in a patent application are worth it. For people at some large business entities or educational institutions, the value may be easier to determine. Moving forward with the process may increase that person’s salary or credibility. For an individual inventor, startup, or small business, the choice is not that simple.

For the startup or individual inventor, a patent should be thought of as an asset. The goal for a patent application should not be a certificate to hang from the wall. In other words, what will moving forward do for your business. You purchased a computer to easily enter, store, search, and communicate data (reducing labor and storage expense). You purchased hosting services for your website to inform others of your product or service (increase revenue) and to enhance your other marketing efforts (reduce expense). You worked with a product designer to optimize the experience of your product for your customers (increase revenue). Even though you probably did not formally analyze purchases for the above, you at least made a “gut level” feel as to how the purchases were beneficial.

There are several formal methods of patent valuation, such as the cost approach, the market approach, and the income approach (the dominant approach for intellectual property). Typically, those approaches may require the expense and effort equal to the cost of moving forward in the patent process. Thus they may not be suitable at this stage of the process. Some questions that might give a “gut level” feel as to whether to move forward to not include:

• How does your idea help increase revenue or decrease expense?
• Will a patent application help investors better understand and evaluate the concept?
• Is the idea in a new field of technology?
• Is your idea operable only as an improvement to another product or can it be sold independently as a complete product?
• How large is the total market for your idea (or a related market)?
• What percentage of the market can your idea help you gain?
• How many related products exist as your competition?
• How fast is the industry changing?
• What are the alternatives to your idea?
• How much does it cost to manufacture your product?
• Is the idea in a growing, stable, or declining industry?

Those questions may not lead to a definitive answers,  but they should provide guidance on the decision as to whether to proceed towards a patent. When you made the decision to purchase (or not purchase) a computer, hosting services, or other products and services, you analyzed how it would help your business. You should do the same in deciding to move forward in the patenting process.

I know that you have heard it a million times, but I have to say it once more: Write it down! Entity agreements (of which a portion may include intellectual property issues) for the startup should be written down.  By now, you’ve read about the Crunchpad lawsuit, where its looks like the Crunchpad is no more and one of the founders is seeking to create a similar product (the JooJoo) in a new startup. The lawsuit did not mention a signed agreement and it is unclear what each party’s rights are in the involved intellectual property. Some background information can be found in the below links:

http://www.techcrunch.com/2009/11/30/crunchpad-end/

http://mixergy.com/joojoo-crunchpad-chandrasekar-rathakrishnan/

Unfortunately, startups come and go all the time. Fortunately, new potentially successful startups can rise from the pieces of a failed startup. Some of the desirable leftover assets include the  people and the intellectual property.  However, there will be questions on both. What happens with the people and the IP on failure? Are the departing people immediately free to work in the same space as the failed startup? Who has what  rights in the IP?

These issues should be addressed at formation of the startup, not when a failure or dispute occurs. Having the deal documented makes it easier to start making products and minimizes litigation potential and scope in the case of a failed business. Some issues relevant to this dispute often addressed in an intellectual property agreement include:

• What intellectual property is being contributed to the startup? This should be a detailed description, not just a general intellectual property transfer. It appears that the Crunchpad included hardware, operating system, and application components. Did all of those exist and were they transferred to the startup?

• What happens to rights on IP derived from the contributed IP? There were some reports that a Crunchpad prototype was the contribution to the startup? Assuming those reports are accurate, who has rights in the IP derived from the prototype. It is possible that the hardware, operating, system, and/or application components were further developed during the operation of the startup. Who has rights in those improvements?

• What happens to the IP upon the failure of the new formed business or departure of its contributor? Does the IP remain with the startup? Do all rights revert to the contributor? Does the startup retain any rights?

Answering those and other questions at formation can minimize later problems with the intellectual property of a failed business. Failure to address the questions could lead to questions of ownership, unwilling investors,  and product (read: income) delays.