Intellectual Property Directions

While it’s not quite true that there’s “nothing new under the sun”, it is generally true that most technology developments are built on the foundations of prior art. For the inventor or product developer, this prior-art dependency has serious implications. No matter how innovative you are, no matter how carefully you consider your freedom to operate, the chances are that someone out there has a patent that arguably relates to your work. And argue they will if you represent a threat.

Consider the situation of Nova Biomedical. As described by Joe Kalinowski of Trilogy Associates in his enewsletter, Trilogy Tidings, Nova is getting beat over the head by the patent attorneys from the big guys, Abbott, Roche and Medtronic. Here’s the story as Joe describes it:

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Forbes.com recently published the fascinating story of Nova Biomedical. That company, a supplier of benchtop clinical lab analyzers and personal blood-glucose meters, has been in a fight for survival since 2003 when they were threatened by multiple lawsuits dealing with patent infringement and trade-secret appropriation by the likes of Abbott, Roche and Medtronic.

I was in the business, developing new products for Corning Medical (now part of Siemens Diagnostics), when Nova Biomedical came into being. From the start the company was very innovative, a disruptive force in the market for sure. Great scientists and engineers. Savvy marketers. Today the company’s sales revenues are about $165 million.

The trouble started when Nova invented and brought to market a blood-glucose meter and associated disposable test strip with performance superior to the incumbents in that $8 billion market. The incumbents did not take kindly to this upstart and unleashed their lawyer tribes, peppering the firm with multiple lawsuits. The good news for Nova is that they have prevailed in every instance in court and with the USPTO so far. The bad news? The owners of the firm have so far spent $31 million, laid off 60 employees, and taken out $15 million in bank loans defending the company. You have to admire their dedication, but some might question their sanity. Will it all be worth it in the end? Who knows?

One can second-guess Nova management’s decisions all day long. Should they have caved in, settled and partnered up much sooner? Should they have taken some short money early on and gone ahead to invent and commercialize other stuff? Should they have avoided such a large market with powerful competitors in the first place? Should they have been more considerate of their employees? The answer to every one of these questions might be yes.

Then there’s the principle of the thing! What would you have done?

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Yeah, Joe, good questions. What would/should one do in that situation.

I’m not much of a seamstress, so I can’t testify to how many stitches are saved by repairing a tear as soon as it happens, but I do know that investing in a prior art search can easily save you from wasting ten or more times as much on an application for an un-patentable invention. And the ROI can be much much greater if prior art search saves you from infringing someone’s broad but not widely known patent.

In the past couple of weeks I’ve had essentially identical discussions with two clients. In both cases my clients had the foresight (okay, at my urging) to have me do a prior art search to see what was out there BEFORE we started pulling together patent disclosure to send to the patent attorney. In both cases I discovered some prior art that would have made getting a patent difficult at best and, if allowed, would have been quite limited in scope. In both cases we concluded that the business value of such a limited patent, three of four years from now, did not justify the investment today.

 When should you initiate a prior art search? The different circumstances of my two clients may help you make that decision. One client – Client “X” – recognized a need in the marketplace, identified a solution and was hoping to develop a product to meet that need. He asked me to take a quick look at the patent prior art, since he wanted to feel comfortable that he had the freedom to build the type of device he imagined, and a second, deeper look to see if there was prior art of any sort that would limit his ability to obtain a reasonably broad patent to protect his market. The good news/bad news is that I found a recently published patent application that disclosed most, if not all, of what he wanted to do. Whether or not that application ever turns into a patent, its prior publication meant that my client would not be able to get a patent to protect his device and he dropped the project (and the patent work for me!). Bad news: no product and no patent; good news: saving the cost of filing a patent application that would probably never give him a return on investment.

The second client – Client “Y” – had already developed a novel image processing approach as an off-shoot of his main business thrust. He wanted to get a patent on the invention to increase its potential licensing value, since he does not need the invention in his core business. Again, as a preliminary step to preparing a patent disclosure, I did a prior art search, extending the search beyond the areas for which Client “Y” had developed the technology. Again the good news/bad news is that I uncovered a large collection of academic papers that disclosed perhaps 95% of my client’s approach. Together we decided that, at best, we might be able to get a narrow patent covering that last 5%; that competitors could probably work around that 5% anyway; and that it would be a long and painful fight with the examiner to surmount the certain-to-come obviousness objection. And of course we would not know if the patent would issue for 3 years or more. And the whole of the invention would be made public. So we decided that he would be better off pursuing license agreements based on keeping his approach as a trade secret. At least he saved the cost of trying to obtain the patent.

So are you like these clients – willing and wanting to invest in a prior art search to save an order of magnitude more money if the patent would not make sense? Or are you doing so well that you’ll throw money down the drain?

“Do you know of low cost ways to develop Freedom to Operate opinions? I have heard that there are companies in India who do this at a fraction of the price in the US. Any ideas or suggestions“? These questions were posed to me recently and my reaction was “Do you also want a cheap way to have brain surgery?”

Realizing that a formal FTO opinion may cost you $10,000 to $30,000 or more, it’s natural to look for a lower cost solution. But it’s important to realize that a FTO opinion may save your company from ruin, so getting it right is more important than getting it cheap.

Why is the FTO opinion so important? When you are looking for a FTO opinion you are trying to find out if you are putting your company in jeopardy of infringing someone else’s IP, and you are doing it because, for a small company, investing in bringing a product to market is “betting the company”. If there is no ROI (when you are enjoined by the patent holder) on that investment you might go out of business. In that light, paying for a FTO opinion might be the best investment you make.

On the other hand, if you can’t afford a capital “O” formal opinion by a qualified patent attorney, then less expensive, less reassuring opinions are available. Any search for pertinent patents is better than nothing. However, as I warned my correspondent, I certainly would worry about outsourcing this work to individuals you can’t meet (and evaluate), to individuals who do not speak English as their native language, to individuals who are not trained and experienced in US Patent matters, or to someone who does not come with a golden reference from someone you trust.

I wasn’t commenting on the quality of the work from an Indian resource, per se. I was pointing out the [perhaps] obvious point that if you are trying to get a legal opinion about US patents that you should be skeptical of hiring someone you have not properly vetted. You wouldn’t let a surgeon picked from the yellow pages operate on you and you shouldn’t put you company’s future in the low bidder’s hands.

These criteria apply to US citizens as well as foreign nationals but are obviously less likely to be met by someone half way around the world, working as part of outsourcing legal services shop as opposed to working at a firm currently practicing IP law in the US.