USPTO process does no favors for tech companies

Cyndy Aleo-Carreira — Mon, 25 Aug 2008 06:25:41 -0700

It's already clear that the U.S. Patent and Trademark Office (USPTO) is broken. The problems are manifold. It's an overwhelmed agency. Abuse of the system is widespread, most notably patent trolling. Some companies will apply for patents or trademarks no matter how dubious the claim. These issues seem to be forcing a complete overhaul of our current system in the U.S. for protection of intellectual property.

At some point, patents seemed to change focus from the traditional understanding of "inventions" to include less tangible ideas, including business processes as well as software processes. Having grown up with an inventor grandfather who never made a dime off his inventions due to others rushing to patent his ideas, I was curious to see if the current shift was having an impact on companies as well as the USPTO.

The closest personal experience that I had with the USPTO was a patent that my husband's name appears on: a "method and system for processing transactions." Like many patents, it was for a business process driving a software methodology. Filed for in 2001 after months of red tape, the final patent was issued in April 2005, after my husband left the company, and not long after the company was merged with another start-up and finally sold off, the patent most likely being sold along with other assets. The four-year process wasn't that long based on typical process times seen. Some patents are in the system for upwards of six years by the time they are finally issued. Three other patent holders had experiences that note a disturbing trend: by the time many business or software patents are granted, companies are no longer in business. Device patents seem to have better luck, and take much less time.

I spoke with Jay Mari of Techrigy about a patent he and Techrigy CEO Aaron Newman were granted. Taking slightly over five years to process, the patent details a cryptographic infrastructure for encrypting a database:

"I don't think it had much impact on the company at the time, or even currently. I think at the time we wanted to protect the work we were doing (database encryption). Then our view changed, we thought maybe having it will make us or the product attractive for an acquisition. The company had changed focus during that time, but not because of the patent process. It changed because of the market. I think if we were to stay focused in the database encryption market the patent would have been viewed differently.

"Do I feel it's worth it? I think for a company it might be, but I can't imagine a private individual going through this process. Even for a company, unless you are doing something regarding a new media compression algorithm, a new encryption algorithm, or something really low level like that, I don't think it would be worth it for a company. There are other faster and better ways to protect your Intellectual Property. For example, with a company like Techrigy, we can provide access to our data and Ranking algorithms through our web app, or an API, which we have 100% control over... the whole USPTO in regards to technology is old and outdated."

Anthony Citrano describes a similar experience, with patent applications that were eventually abandoned:

"[The patents] were brilliant, if I might say so myself, and are now being used for billions of dollars in transactions annually. (USA Today story for some background)

"The process was abandoned for two reasons: [first], the company felt the competition was developing too fast and that by the time patents were granted and could be defended, the market would have already shaken out dramatically. We'd either be a top player or long dead by that time. Second, the company was dealing with some internal issues, and that caused some shifting priorities.

"As an aside, I advise a lot of entrepreneurs and generally tell them (especially if it's a software or method patent) go ahead and file a brief provisional if it makes you feel better... come back to flesh it out later. But "patent pending" -- which is what you're likely to be for the entire life of your startup -- offers you almost nothing in the way of marketplace protection. There's an obscure argument to be made in the way of 'IP portfolio' if you're looking to be acquired but suitors care far more about your base. So, in the meantime, focus on development, execution, and getting out there. Because at the end of the day that's what's going to matter. Do people use it? Do they love it? Are they telling other people about it? etc. The patent system is so slow and broken that an obsession with it is a major handicap to any entrepreneur."

Dan Brown of LoggerHead Tools, however, has had a different experience in patenting his unique tools:

"My experience has ranged from a little over one year to three to four years. Basically the time depends on a few factors:

Novelty of your invention, the more novelty the less time it will take for the examiner to do his work, and the greater the chance you will receive a patent.

Broadness of your claims, the broader the claim the more potential for prior art conflict, thus the more time the examiner and your attorney must address the claim in the context of the existing body of art.

Amount of Art in your invention area, in a crowded area it will take more time to distinguish your novelty from the body of available prior art.

Quality of your patent, and the thoroughness of your application. If the application is not prepared properly, or is lacking required information, you will consume time in getting it into the proper form for the examiner to do his work.

Experience of the examiner within the art. An experienced examiner is more knowledgeable of the existing art and can draw upon that experience to get the job done quicker.

Backlog in the area your patent is being reviewed in. Simply you have to wait your turn in line.

"In an entrepreneurial setting the Patent process is drain on cash flow, and if your product does not succeed in the market all of the Patent and Commercialization expenses are lost. The burden of the Intellectual Property expenses at the front end of an entrepreneurial effort drains needed cash that could be used to commercialize the product, thus often further reducing the chance of commercial success in cash strapped startups. But a commercial product success without the patents to protect your investment will result in fast following competitors copying you in the market and cannibalizing your opportunity. Thus pioneering a new product in the marketplace is an expensive and very difficult challenge, but without the risk protection a good patent offers, there would be little or no drive for entrepreneurs to pioneer new innovative products. The reality is that entrepreneurial pioneering efforts have a high chance of failure. "

In the world of tech start-ups, patent approval within the life of a start-up is growing more and more rare. With software and business processes, the amount of examination by the USPTO can take years to determine the validity of the patent application, and by the time a patent is approved, odds are against the company still existing in the form it did when the application was submitted. In a four-, five-, or even six-year timeframe, most start-ups are acquired or have failed. Unless the USPTO goes through a complete overhaul, it may not be worth the time, energy, and money involved in patenting intellectual property for those companies.

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