The patent system as it relates to software and the web and mobile apps is broken. It doesn’t work. It doesn’t protect the right people and it’s being used by the wrong people for what amounts to extortion.
Oh, I’m sorry — you didn’t know that? Just my opinion, you say? Yes. My opinion. And I’m not an attorney, so what do I know. Ask me in person and I’ll tell you some stories of what I know. But not on this blog.
And I don’t know diddly about patents and patent situations regarding real inventions, formulas, drugs, manufactured hard goods, or any of that. Do those people have trolls too? I don’t know.
But I really liked this quick (5 minutes or so) true story that I found over the weekend, browsing TED.com
Irony: This post from about a year ago explains why you can’t sell an idea to a large company, and recommends not even trying. And dozens of reader comments ask how to do exactly what the post itself says they shouldn’t even try. And I get more comments all the time, plus emails on my ask me form, asking how to sell the idea to the big company.
So I give up: Please promise me you’ve read this post before you go on. Know what you’re up against. Don’t be naive. Selling an idea to a big company is a one-in-a-million shot. You are probably wasting your time. But if you insist, here are my suggestions.
Step 1: Develop idea ownership
Drill down on whether or not your idea is patentable. Patents are for inventions, not ideas. You either consult an attorney or do the research yourself. It’s a tough subject because it’s not what you think it should be, it’s what the real world and the beaurocrats do. And having a patent isn’t enough; it has to be a good patent, that protects against work-arounds, and will hold up in court. And a patent is something you can own. And sell or license.
If you can phrase your idea as a creative work then you can protect it with copywrite. That’s for books, songs, recorded performances, software products, films, television shows, paintings, and so forth. That’s protection, and ownership, but it doesn’t mean you can prevent people from copying you. If it’s good, they will.
The other way to own an idea is to build a company over it. We call this general are one of trade secrets. It’s like the classic secret sauce. You bottle it, sell it, and hope imitators can’t reproduce it. So you can approach that target big company as a business already selling something, instead of just an individual with an idea to sell. Yes, that takes work; but your odds of success are much better.
It won’t hurt to periodically write your idea down on paper, describe it as best you can, and mail it to yourself by certified mail. Do that whenever the idea changes. If you do, then at some future date, if you’re in a dispute, you can open that registered and sealed mail in front of a judge to prove what your idea was when. But don’t trust this protection very much: having an idea first doesn’t mean you own it.
Step 2: Get an attorney you trust
You need an attorney. (Note: I’m not an attorney; I can’t give you legal advice; I’m sharing my non-attorney experience as a business owner). Although non-disclosure (NDA) and confidentiality agreements are slim protection against big companies, it’s still better to have them than not to have the protection they offer. And an attorney you trust.
Step 3: Approaching the big company
I have to admit, I can’t tell you how to do this; I’ve never heard of anybody doing it successfully.
In theory, companies have some system for managing these contacts. Visit their website, call their main phone lines, investigate and explore. I do know that companies vary widely in how they deal with suggestions. Some have web forms. Some have employees. Some have a wall that’s hard to penetrate. And maybe there’s some that sift through ideas with interest and respect.
Often, finding the right person to talk to within a big company is like a reverse telephone tree. You start calling phone numbers available. With each call you make, you ask who’s the right person to talk to. With each new person who puts you off, you ask for another suggestion.
Step 4: The great beyond
If you find yourself actually dealing with that big company, pitching your idea, wow, I’m impressed; and you’ve already done the impossible. I hope you have a good attorney. I hope you succeed. My advice is be extremely skeptical and extremely cautious.
I’m really sorry to be the one to throw a bucket of cold reality splashing over inventors’ dreams. But darn, patents don’t mean what they once did, and businesses preying on patent hopefuls are not ethical businesses. These are shark-filled waters. Be careful.
What brings this up is this email I received last week through my ask-me form on my website:
We took a draft of an invention that would be something the everyday person could use and would be used on a daily basis. We went to an Arizona patent office and spoke with the director there. A few days later he called and said he had really great news for us. He and other people in his company wanted to patent it and try to market it, but with no guarantees. The process would take about 5 months and 13,ooo dollars to patent and to try to get it to market. Again, no promises, and if they can’t get it on the shelves it just wasn’t going to happen and they wouldn’t except it if they didn’t believe it would work. That is my life savings and i am nervous. I know to patent it my self would be cheaper, but i wouldn’t know how to market it.
Can you see what I worry about in that message? There are two clear alerts, danger signs, in this message.
The wolf-in-sheeps-clothing factor: The email calls it “an Arizona patent office” as if it were a government office or some kind of public sector agency. But it’s not, clearly, because it’s talking about applying for a patent and taking a product to market. And charging money for promising to do it. My guess is it showed up on the Google search in the paid search results, as in the illustration here.
The business proposal: “He … wanted to patent it and try to market it.” But “with no guarantees.” So what, precisely, is he really offering to do, besides take the money? The only real thing offered for $13,000 is to apply for a patent. That could be as little effort as filling in the forms and editing the formal description of the inventions. What recourse is there when if the patent application sits forever without action, or is rejected? Are they giving the money back? What if the supposed “market it” yields nothing? Isn’t then “sorry, we did our best but your product failed” with no money back and nothing lost by the vendor?
Skin in the game: Why aren’t they offering to do this for a percentage of revenues or profits, or, alternatively, asking you to take a royalty percent if they do it at their expense? Both of those would be more reasonable business models for a relationship between inventor and entrepreneur. They take no risk. They give no assurances.
The amount of the offer: $13,000 might reasonable buy legal advice and polishing and formatting information for an application. If it came from a reputable lawyer, I wouldn’t be surprised. I don’t know what this invention is so maybe I’m wrong; maybe it’s so good that it will sell itself, just from having the patent. But If it’s like 999,999 of every million ideas, then to go from invention to design to prototype to product and take that product to market for that little money is absurd. Many self-started single-person service businesses start with that little money, but not when it’s paid to a third-party provider. And product businesses, with patents, marketing inventions? No.
The division of labor, and expertise problem: Attorneys provide legal advice, not business building, not marketing and sales. Marketing and sales and business-building services don’t fill out patent applications. So what’s up with this? No self-respecting attorney would offer to take the product to market. (I’m not an attorney, but, attorneys reading this: am I right?). Yes there are plenty of competent and honest attorneys with patent or intellectual property specialty who could review the invention and offer advice about marketability and patentability. They would be explaining to this person the realities of applying for a patent. If the invention doesn’t lend itself to patenting and developing a business, then a good lawyer might give this person the bad news for just an hour or two of fees, probably less than $1,000. And if it is the one in a million, then a good lawyer will just do the legal for it, rather than pretending that one person can do the whole thing. In many cases — and I think this is one — the honest professional makes a clear distinction between the services they do and those they don’t.
My recommendation in this case is to find a good attorney to help. If you have no idea…
Contact your local Small Business Development Center, Womens Business Center, chamber of commerce, or business school in nearby college, university, or community college. Ask for help.
If you have friends or relatives in business, ask them for recommendations finding the right attorney. Check references. Be skeptical. But there are good ones around, for sure, and a lot of them.
And if an attorney you trust recommends it, then apply for the patent. And do it realizing how much more you have to do before you make money with it.
I recently read your article protect your ideas and I have an idea that I want to protect and want to pitch to a company. I don’t know if I can turn my idea into a business without the business I created it for. I have an idea for a new revenue model for Facebook that uses their current model but gets more advertising and more potential … But my model would only work on Facebook; I don’t think I could start up a social networking site and get the same results. So my questions is do I try to patent the idea then go to them or what? How do I approach a successful company and tell them “hey you could be making way more money and revolutionize social networking!
And my answer:
Find out about patents and whether or not your idea has a good chance of being patentable. I seriously doubt that your idea is patentable, but I don’t know what it is. Patents are for inventions, not ideas. There have been some business model patents issued, but to build a business around it you’d have to be able to not just have a patent but defend it. And you should worry that the patent system is no longer working, caught in a deluge of technology.
If there’s a reasonable chance of a good strong patent that would be defensible against Facebook, explore that option. Plan to spend tens of thousands of dollars, so be honest with yourself. Start by spending a thousand or so dollars with a patent attorney really good, and really honest, who can tell you what the odds are, and be prepared to end the project there.
If — my guess — the patent option isn’t realistic, then forget it. You’re wasting your time. Give it up. The following points are just so you understand why.
Jump into the shoes of Facebook for a few seconds. They live and breathe their business model. How likely is it that they’re going to invite you to tell them what they haven’t thought of? How likely is it that you’ve got something related to some direction they’re already studying? And how much to they want to deal with some stranger saying what they’re doing is an idea they copied.
To help you think of it this way, I’ll share that during the years I built Palo Alto Software I learned not to even respond to people who wanted to sell me an idea for my business. I learned it the hard way: every single time I listened, it was something we’d thought about, often something we tried, but didn’t work. In a couple of rare occasions it was something we were already working on, which led to “oh dear, now this guy’s going to think we did it because he suggested.”
And then, to make matters worse, there’s the problem of ownership: even if you did think up that great idea, originally, you don’t own it. You can’t legally own an idea. Patents protect inventions, not ideas (see points 1 and 2 above); copyright protects creative works; and trademark protects commercial communications. You can’t sell something you don’t own. Tell it to Facebook and they can run with it for free. They pay you only if they want to, out of the well-known goodness of their huge corporate heart.
Just to explain an apparent contradiction between points 4 and 6: legally the big company can take anybody’s idea and run with it, because nobody owns an idea; but big companies don’t want to deal with the accusation or even the bad karma of actually doing that. Who wants the negative press? It’s way better to just not ever respond to you.
So there you have it. Not what you wanted to hear, I’m sure, but if I save you a lot of wasted effort, then I’ve done you a favor.
For startups, patents are nice to have, but not if you trust them to really protect you. In that they’re like umbrellas. Good protection in a drizzle. False confidence in a downpour.
I write that because I’ve read about 50 real startup business plans in the last two months, and I’ve gone through at least two dozen pitch presentations, and I think it needs to be said.
Patents are usually better than nothing. I like it when a startup has a patent portfolio already issued, but also promises to keep trade secrets very tight and has a budget for patent defense. I like it more when they have a letter from a patent attorney talking about coverage and defensibility of the patents.
I hate it when the startup says a patent has been applied for, or there is a provisional patent, and says (or implies) that therefore their business is defensible.
Having a patent doesn’t mean much anymore. A provisional patent, less. And having applied for a patent, even less. The world of high tech is littered with fallen companies that were smashed to bits by a large company getting around, or violating, their patents. It happens all the time.
Sometimes I feel better with a strong trade secrets policy, a fast ramp-up, and great marketing, which I think offer the best real protection against copycats.
I suspect that the patent system is broken. Some bad patents that should never have been issued feed the coffers of patent trolls. And good patents are hard to find, slow to get, and hard to enforce. Sure, they’re good to have. But don’t trust ’em.
On sizing new markets, with startups looking for investors, Chris says:
The only way to understand and predict large new markets is through narratives. Some popular current narratives include: people are spending more and more time online and somehow brand advertisers will find a way to effectively influence them; social link sharing is becoming an increasingly significant source of website traffic and somehow will be monetized; mobile devices are becoming powerful enough to replace laptops for most tasks and will unleash a flood of new applications and business models.
That makes good sense to me. He adds:
For early-stage companies, you should never rely on quantitative analysis to estimate market size. Venture-style startups are bets on broad, secular trends. Good VCs understand this. Bad VCs don’t.
I’m with Chris on this (although I like to call them stories, instead of narratives; just a matter of style). Markets are future developments that haven’t happened yet, and stories picture the developments better than data.
But even as I write that I realize that as a frequent reader of business plans, for judging and investment purpose, I also like the numbers. I want to see how many buyers now, or how many people who meet those criteria, how much money now, a certain amount of numbers to give me a sense of size.
Which takes me back to the patents reference: I realize the best is having them but not believing them. I want entrepreneurs to realize their numbers are more background than data. Show me what it could be, but don’t think it proves anything. And with patents, well, here’s what I wrote about that last March, in 10 requests from your business plan reader:
Show me your patents if you have them but if you do, show me something about how defensible they are (if at all) and make sure your projections include legal expenses to defend them.
Does that make sense? Is there a parallel there? Both are good to have, but not to believe in? I wonder how much of business planning, entrepreneurship, and startups fit into that same basic category.