Reasons Why Most Patents Are Worthless
This is the third post in my series entitled “How To Make Money With A Patent: My Guide For Determining If You Should Patent Your Idea.” If you read my first post If you read my here, you will know that I suggest thinking about a patent as an investment. If you read my second post, you will know the seven basics that everyone should know about patents.
Now it’s time to discuss why over 97% patents are worthless, and how you can avoid wasting your money on a worthless patent.
Legend has it that a photocopier company had just come out with a new photocopier that was much better than any photocopier on the market. It would also be priced about the same as their old copier. They expected it to be an instant bestseller.
This created a problem.
The company had a large inventory of the old copier, which represented a substantial financial investment. However, the new copier was so much better than the old copier that management didn’t know how they were going to sell off their inventory of the old copier.
Management’s solution was simple: they offered their salesforce double the normal commission for convincing customers to buy the old copier.
After three months, management was shocked by the quarterly sales results. No one was buying the new copier! Fortunately, the old copier was selling better than ever. Management couldn’t figure out why their customers weren’t interesting in buying the new copier. It had all the latest improvements for the same price. In a panic, management called up a few of their largest clients and asked why they chose to buy the old copier when the new copier was clearly better.
The customers’ response was: “What new copier?”
It turns out that the sales people weren’t telling the customers about the new copier because they wanted the double commission for selling the old copier.
In my experience, most patents are worthless due to this sort of preventable organizational failure. It’s no secret that the vast majority of patents are filed by large businesses and universities. For example, about 80% of U.S. patents are filed and owned by corporations, and yet over 97% of patents are worthless.
The critical question is: will the patent add value?
However, it’s often the case that one or more people inside the organization do not care if the patent adds value to the organization. They have their own competing agendas. Those competing agendas can create perverse incentives that have the unintended consequence of churning out worthless patents.
Most Patents Are Needlessly Worthless Due To Competing Agendas
- Publish or Perish — Professors at universities and colleges are often required by their contacts to submit invention disclosures for their scientific or engineering advances. However, in my experience, the agenda of most professors is to publish as quickly as possible. Many professors do not care about patenting their invention. They do not want to wait a week or a month to file a patent application, even one that will add value to the university. In the rush to publish, the patent application doesn’t get filed or is severely weakened by a rush job or an unintended prior art disclosure.
- Profit or Perish — The promotions and raises for researchers and manufacturers are often linked to increased profits from their department. They can be in such a hurry to start using an innovation to increase profits that they do not want to wait for a week or month to file a patent application. This means they may not be able to protect their most commercially profitable innovations. However, they usually do not mind these delays when the invention will only produce a modest improvement. Therefore, they tend to avoid patenting highly profitable inventions and tend to patent unprofitable ones.
- Chasing Bonuses — Many companies want to encourage their researchers to innovate as much as possible, so they may give the researchers bonuses, raises, or prizes based on the number of patent applications they file. Much like the salespeople in my story, the researcher now has a financial incentive to file as many invention disclosures as possible, and then try to convince everyone that the invention will be profitable.
- Patent Quotas — Many companies and universities want to be seen as innovators. Patents are seen as published indicators of innovation. Therefore, the companies order their in-house counsel to file a quota of, say, 100 patent applications per year. Hopefully, ordering in-house counsel to file patent applications forces them to seek out and file disclosures on every invention worth patenting. However, the incentive was not to come up with 100 inventions that would add value. The incentive was to find 100 developments they can reasonably base a patent application on. These perverse incentives are sometimes called “autometrics,” “volumetrics,” or “performance metrics.” Regardless, this perverse incentive causes professionals to patent worthless inventions along with the useful ones.
- Vanity Patents — Many scientists and engineers in large businesses and universities like the prestige of having one or more patents. They have the agenda of filing a patent application and then convincing someone that the innovation will be profitable.
- Patent Hostility — Many people do not like patents. For example, many researchers at universities and in businesses feel that patents stifle innovation or burden the consumers. However, their organizations obligate them to submit invention disclosures. I have had the misfortune of working with inventors who clearly did not want to disclose their invention. They did everything they could reasonably get away with to sabotage the process. It’s painful, but it happens.
- Love Struck Inventors — Sometimes an inventor simply falls in love with their invention. They are convinced that the invention is such a great idea that it must be profitable enough to patent. They see any questioning of whether their idea should be patented as an attack on them or their idea. They have an incentive to convince everyone, including themselves, that their idea should be patented.
None of the above competing agendas have anything to do with the complexities of technology or patent law. They have nothing to do with finding a competent, honest patent attorney to draft and prosecute patent applications. Each is a competing agenda within the organization that results in patent applications being filed that were never designed to add value to the organization.
This problem is a management problem and like most management problems it can be difficult to fix. Many organizations try to overcome this challenge by tasking the in-house counsel or technology transfer officer with ensuring that all of the patent applications being filed are designed to add value to the organization.
However, this creates a problem. The in-house counsel may not know if the patent application will add value. For example, most in-house counsel are not marketing experts so they do not know if a potential product would be profitable. Also, the in-house counsel probably will not understand the technology as well as the inventors. When there is a conflict, this situation can create a cage-match between the inventors and the in-house counsel. The in-house counsel will often agree to file a patent application just to avoid the conflict.
One solution is educating the inventors. If someone can educate the inventors, then it may be possible to reduce the hostility to patents. It may also take the inventor’s ego out of the equation by helping them understand that great ideas are not necessarily patentable or profitable.
A second solution is to correct perverse incentives. It might be wise to incentivize inventors and in-house counsel based on the number of issued patents that cover a product relative to the number of patent applications that are filed. This incentive could encourage less random filing and more profit driven filing. Similarly, universities and colleges may want to incentivize professors based on patent publications and money earned through licenses instead of just publications.
A third solution is to create a patent oversight committee that asks the question of whether the patent application will add value to the organization. It’s a lot easier for a committee to stand up against a rouge inventor or department head than a lone in-house attorney. This committee could include technical, marketing, and business personnel to help make more informed decisions. However, the challenge of any such committee to avoid the delays of bureaucracy and turf wars. The longer the delay in the decision-making, the more professors and researchers will want to avoid the process.
A fourth solution is to empower in-house counsel or technology transfer officers. This empowerment would include supporting their decisions, giving them the time to teach others about patents, and keeping them in constant contact with the business and marketing sides of the organization so that they have an idea of which patent applications might add value to the organization.
The next post in my “How To Make Money With A Patent: My Guide For Determining If You Should Patent Your Idea” series will cover “Prospecting For Patent Gold.” To find the next post in this series, please click here.