financing patents...competitor’s product strategy, you have a powerful negotiating tool. •...

Financing PatentsChanging the way patents are procured.

Aligning interests.Getting Business-Centric patents.

Russ Krajec, CEO, BlueIron IP

Presentation Overview

• Who am I?

• The Patent Financing Business Model and How It Changes Everything.• The Checklist for Evaluating Inventions.• Patent Worthiness.

• Design Around Analysis.• Internal Business Value.• External Business Value.

• Examples.

Investing In Patents

• Much of what we cover today comes from the book “Investing In Patents.”

• Available on Amazon.com.

Patent Leasing

• Patents go into a holding company.

• Client gets exclusive license with a buyout option.

• We pay all patent costs.

• Cost of capital for startups is extremely high – 30-50%/year.

• Realigns the interests of attorney and client.

Attorney CANNOT Give Business Advice

Liability of “Go get a patent”• $60,000 (average cost of a US

patent)

• Can buy malpractice insurance.

Liability of “Don’t get a patent”• All your lost profits.

• In every country of the world.• For the next 17 years.

• Don’t ask the barber if you need a haircut.

Aligning Interests

• Attorney is completely aligned with success of the client.

• The collateralized patent MUST have value to secure the lease.

• Attorney is in the best position to evaluate IP value.

• Leasing company NEEDS client to prove that the product works and that the market needs it.

• If client is successful, the leasing company is successful.

• Not the case with conventional attorney relationship.

How Do We Select Investable Inventions?

• The BlueIron checklist evaluates inventions for the basics prior to financing.

• Used by management to make sure inventions are worth pursuing.

• Used by inventors to make sure there is a business reason for the invention.

• Download at http://blueironip.com or http://ip.education.

Do not use the Checklist Badly

• The checklist is just a tool – a guide.

• Do not overthink the elements. The checklist oversimplifies lots of factors.

• There are always exceptions to the rules.• It is not a substitute for solid business judgment.

Standardize Decision Making

Make Decisions Objectively• Objective criteria remove

individual biases.

• Unify decision making across groups.

• Consolidate corporate knowledge into a reusable tool.

Make Decisions Less Stressful• Objective criteria reduce decision

making burden.

• Increase confidence in decision.• Leverage other people’s wisdom.

Reducing the Risk

Patents are Risky• Very expensive ($60K average

cost for a US patent).

• You give up your trade secrets.• Company makes big decisions

thinking they are “protected.”

• Most patents (90%+) are worthless.

These Decisions are Hard• The patent process is a black

hole of time, money, and hope.

• Very uncertain process – will you even get a patent?

• Lots of strong emotions involved.

The Checklist is About Inventing

• “Laziness is the mother of invention.”

• Inventing is about finding the BEST solution to a problem.

• The Checklist adds a couple more elements for the inventor to optimize.

TRIZICS by Gordon Cameron

One of the Best Books on Inventing• The novelty scale was derived

from G. S. Alshuller’s analysis for TRIZ.

Novelty

• Level 5: New scientific phenomena are applied (less than 1%).

• Level 4: Improvement uses science that is new to the industry or technology (4%).

• Level 3: Applies engineering knowledge from other industries or technologies (18%).

• Level 2: Solution not well known in industry, requires creative thinking (45%).

• Level 1: Obvious, routine solution (32%).

Level 132%

Level 245%

Level 318%

Level 4 4%

Level 51%

Detectability

• This can kill your invention.

• If someone can use your invention without you knowing – you cannot enforce your patent.

• Undetectable inventions are best left as trade secrets.

The Quid Pro Quo

• You must give up your trade secrets in exchange for the patent.

• Is this a good bargain?

Example of a Bad Bargain

Tropicana’s Orange Juice Patent• Before this invention, all orange

juice was concentrated.• “Fresh Squeezed” orange juice is

very difficult.• What is the difficulty?

• Different varieties of oranges ripen at different times.

• Each variety has a different color, sugar, and acid content.

How They Solved The Problem• Tropicana analyzed growing cycles,

sugar content, color factors.

• They developed a complex way of harvesting and mixing different varieties to achieve consistent, high quality juice.

• Fresh squeezed, not-from-concentrate now dominates orange juice.

Tropicana US 6,143,347

Tropicana US 6,143,347 – Can This Ever Be Detected?

Detectability

• Level 5: Detectable through casual inspection/competitor advertising.

• Level 4: Detectable through inference based on observation.• Level 3: Detectable through targeted investigation and

experimentation.• Level 2: Detectable through experimentation by subject matter

experts.

• Level 1: Undetectable without specific knowledge about implementation.

Software Patents Are Notoriously Undetectable

Undetectable• Algorithms.

• Things that happen inside the code.

• Internally facing software.• Code used for testing.

Detectable• User interface components.

• APIs.• Anything exposed to a user.• Commercial benefits that are

derived from the software.

How To Deal With Undetectable Inventions?

• Focus on the physical attributes of the final product – especially those that have customer benefit.

• Look for “markers” of undetectable processes.• For software, look at the interfaces.

• User interface.• Administrator interface.• SAAS/API interface.

• Focus on the CUSTOMER BENEFIT to find meaningful inventions.

Design Around AnalysisTry to find alternatives to your invention.• What are people currently doing

to solve the problem?

• What would they do after they saw your solution?

Measure the differences.• Feature differences.

• Performance differences.• Economic differences.

Look At The Invention Harshly

Find alternatives to your invention.• How else can this problem be

solved?

• Would the product be different if you had unlimited time/money?

• How could I solve this problem if a competitor owned this patent?

Measure the differences.• The differences between your

invention and the competitor may be slim.

• Compare the “mechanical” elements of the invention.

• Compare the business value of the invention.

Measure The Performance Value

• How would someone do this differently?

• What would you do if someone else owned this patent?

• How would you design around the invention?

• Try to quantify the performance advantage.

• Level 5 - Invention has 10x performance advantage over best alternative.

• Level 4 - Invention has 4x performance advantage over best alternative.

• Level 3 - Best design around alternative is missing important features of invention.

• Level 2 - Best design around alternative is equivalent to invention in cost/performance.

• Level 1 - Best design around alternative is superior in cost/performance to invention.

Internal and External Business Value

• The patent only has value when it is used.

• The first user is often an internal use – with our products.• The real value, however, comes when we can license the technology to

other companies – either competitors or non-competitors.

Internal Business Value

Internal Product Fit• Level 5: The invention is

committed to ship.• Level 4: The invention is likely to

ship in the next product cycle.• Level 3: Resources devoted to

implementation.• Level 2: Feasibility stage only.• Level 1: No resources assigned to

invention.

This factor helps mitigate risk.• The closer an invention is to

shipping, the more we know about it.

• We have worked through more technical issues.

• And more market acceptance issues.

Internal Business Value

Relative value of invention• Evaluate the value of the patent

to our business plan.

• We want to protect the critical parts.

Internal Product Importance• Level 5: Key element of a

product strategy or roadmap.• Level 4: Important aspect of

product strategy.• Level 3: Key feature of product.• Level 2: Improvement to product.• Level 1: Supplemental aspect of

product.

Competitor Product Fit

• Blocking patents are very valuable in business.

• If you own a key aspect of a competitor’s product strategy, you have a powerful negotiating tool.

• Patents only have value when *competitors* want to use them.

• Level 5: Addresses a direct need of a competitor’s product and strategy.

• Level 4: Addresses a shortcoming of competitor’s product in a substantial manner.

• Level 3: Addresses a shortcoming of competitor’s product that a third party might implement.

• Level 2: Solid improvement to competitor’s product where different solutions exist.

• Level 1: No known or expected competitor activity.

Outbound Licensing Potential

• The most overlooked use of patents.

• Microsoft makes billions licensing their cell phone patents.

• Standards essential patents are the holy grail of patents.

• Level 5: Invention has significant value and is a key element of a licensable product.

• Level 4: Invention has high value in other markets.

• Level 3: Invention has good value in other markets.

• Level 2: Invention could be licensed as part of a package with other inventions.

• Level 1: No expected licensing potential.

Russ Krajecruss.krajec@blueironip.com

“Investing In Patents” available on AmazonDownload the Invention Checklist on http://ip.education

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