10 Reasons To Start A Patent War




“In the tech sector, it is quite possible that nearly every major company is now violating someone’s patent.” Only Lawyers Win in Patent Wars, Bloomberg BusinessWeek

Patent wars have been part of the intellectual property landscape since the middle of the 19th-century and the frenetic innovation of the early days of the industrial revolution. Many of modern history’s most famous inventors were central figures, and their fortunes based on fortuitous legal decisions that concurred with their oral arguments and written claims.

Most of Thomas Edison’s fortune and renown came from success in a saga of 600+ lawsuits associated with the incandescent light bulb. Alexander Graham Bell would have not gained “Father of the Telephone” fame without victory in a series of telephony and telecommunications lawsuits – both as litigant and defender – in the 1880s. In the ensuing 125 years, announcements of new technologies and the creation of new product categories have kept patent litigators busy arguing about the originality of automobiles, airplanes, radio, lasers, medical stents, disposable diapers, smartphone and biomedical innovations.

While new markets worth tens of billions of dollars are difficult to ignore, it’s worth noting that all patent wars have commonalities.

In this article we synthesize some history and some of the wisdom of leading Silicon Valley intellectual property leaders — some customers, some colleagues — on the virtues or otherwise of patent wars.

One: Patent wars are expensive

Patent wars aren’t cheap. According to 2013 data from the American Intellectual Property Law Association, the median costs for each each party in a litigation regarding patents worth < $1 million is $700,000. For patents valued at more $25 million, the costs can increase up to $5.5 million.

Recent disclosures (CRISPR patent fight: The legal bills are soaring) by sides in the CRISPR patent war, a fight for control of a promising and high-profile genome editing technology, illustrate the table stakes when the outcome will likely be monopolization of a multi-billion dollar market. By August 2016, the costs of litigating the war had reached almost $20M.

Two: Patent war outcomes are unpredictable

Study the portfolio of any large company employing a professionally managed IP department and you’ll probably find a patent portfolio of sufficient size and breadth that they could probably sue almost every important competitor.

Why don’t they? Patent infringement lawsuits are risky endeavors. They can scale out of control very quickly. Outcomes in terms of current product sales, future product development, distribution and market access are often unpredictable. The risk of damages and injunctions can be high. The law of unintended consequences can be both sobering and financially humbling.

Caveat Three: Getting the timing right is hard

If you’re a potential aggressor, the decision to start a war is challenging. Much of the impetus will likely arise from macroeconomic trends such as the rise and fall of technology categories, as well as microeconomic realities such as shrinking product sales or the portent of something everyone will want in the next 24 months.

Are you a dinosaur or disrupter? Are you the newcomer ready to shake up today’s status quo en route to becoming tomorrow’s standard? Do you understand how your company makes money? What technological and industry trends are affecting your revenue streams? Are your markets mature? Is there growth potential or is market growth flat? Are you, like American cell phone carriers, resigned to enticing the customers of your competitors however you can.

While there’s no patent war blueprint, and warring parties on both sides are usually large companies that operate with rational deliberation, here are 10 reason to start a patent war.

  1. Protecting Market Share

A company that has invested a lot to develop a profitable revenue stream is likely to invest a lot to ensure it keeps flowing. Common solutions are to protect complementary products and alternative manufacturing processes for the short-term future and even longer. Companies will often protect inventions in areas they have no plans to develop. If a market is growing but your share of it is shrinking, someone is growing faster than you. As the incumbent leader, what can you do to check their success, slow their growth or possible increase their costs?

Note: Recent Jawbone/Fitbit litigation is a good example of a war pitting a company (Jawbone) with declining share of an existing market (audio devices) looking to expand into new market opportunities (health tracking) and running into a well-funded and entrenched competitor (Fitbit).

  1. Protecting Product Features and Exclusivity

If your product category requires certain key features or narrow functionalities, you could protect (you probably should have already protected) their exclusivity. This is often the case when there is a leap forward, such as we’ve seen since the 1990s in technology and telecom (3G and 4G cellular, for example). If you can convince others in the industry to agree to your terms, and potentially prevent or delay copycats, you’ve entered a state of licensing bliss (see Microsoft Android reference below). If not, litigation may be your best route.

  1. Increase Competitors Costs

Yahoo’s March 2012 patent infringement lawsuit against Facebook is an example of the “do whatever you can to increase your competitor’s costs” approach. Yahoo alleged that its longtime business partner infringed ten Yahoo patents related to advertising, privacy, customization, messaging and social networking. Facebook’s response was to buy 750 patents from IBM and then countersue Yahoo for infringement. Within four months, the fight was over, and a new partnership accord had been reached.

  1. Slow a Competitor Down

Your company hasn’t had a hit product in three years. The CEO wants to know what the IP department can do. You reply to the CEO that you can pursue an injunction and perhaps create time the R&D department needs to catch up and reach parity with the competitor’s offerings. As with #2, you could try and argue that some of the claims and patents cover very specific features and that an injunction is an appropriate judgement in your favor. Another option is to go for the kill. If the competitor’s fortunes are in the other direction, it’s really struggling and resource-poor, you could even try and put it out of business. Alternately, you could try and force it to make changes favorable to your fortunes and priorities.

  1. Create Distraction

A distraction can be anything that forces a competitor to adjust its priorities, reallocate resources or even compensate you for halting litigation. Sometimes you don’t have to win your case; your objective by asserting your IP rights may just be to cast a cloud of uncertainty over a competitor and affect its stock price, or potentially destabilize an important one-time event like an IPO.

On the eve of its 2004 IPO, Google paid off Yahoo to end its lawsuit alleging that Google’s search technology, its revenue foundation, infringed on patents Yahoo had obtained from acquiring Overture. Ten days before going public, Google agreed to grant Yahoo millions of additional shares.

  1. Tax Competitor’s Success

When companies know they’ve lost, have resigned themselves to second-tier status, or envisaged a long, maximally profitable decline, they may want to extract a “success commission” from the leader. Probably the simplest method is licensing revenue. Yahoo’s 2010 Facebook lawsuit could be viewed as an attempt by then-CEO Scott Thompson to secure some easy revenue this way.

Another way to piggyback on a competitor’s success is to threaten their revenue streams by targeting high-dollar revenue silos. If you’re a smaller company considering taking on a much larger competitor, they have a lot more at risk if they lose. Both sides will know this and the risk management downside in your favor can give you the upper hand in negotiating a “mutually beneficial” outcome.  

  1. Generate Licensing Revenue

Cross-licensing is probably the most common outcome of patent litigation. Once the early euphoria has diminished, and the realities and legal costs of drawn-out trench warfare are clearer, licensing agreements are often the quickest and cheapest ways to return to normal. Licensing revenue is also a favored solution for established companies that have seen their market share decline while still possessing significant patent portfolios, and the revenue model for most NPEs.

Note: Microsoft didn’t need a massive patent battle to generate a licensing cash cow from its Android patent portfolio. In recent years, Microsoft has received billions in royalties from licensing agreements signed with Android device manufacturers such as Samsung, which has sent several billion dollars to Redmond, WA. Unfortunately, the market has changed; manufacturers are now selling far more low-cost Android phones. Microsoft attributed a 26% decrease in licensing revenue in the most recent quarter to a decline in licensed unit sales and license revenue per unit.

  1. Influencing or Controlling New Markets

If you operate in an industry where the market’s viability depends on standards that everyone can or must adopt, then the IP tends to become very relevant and valuable. We’re in the early days of this kind of maneuvering as far as the Internet of Things (IoT). There are so many parts necessary to create a massive network of millions and millions of IoT-connected things that there will be much jockeying and entreaties exchanged among those with relevant IP. A similar reality exists in terms of the IP necessary to create, control and grow ecosystems such as Amazon Marketplace in etail, Apple iTunes and Netflix in media distribution.

  1. Dissuasion

How do you demonstrate that you’re not a soft target? You can set a precedent by moving first to preempt or discourage similar future claims against you, or send a particular message to others about you. Setting a precedent that you aren’t a pushover or will not be coerced into rolling over in a spurious dispute may be the most important reason for you to choose litigation.

  1. Revenge

“We have always seen litigation as a last resort, and we work hard to avoid lawsuits. But BT has brought several meritless patent claims against Google and our customers—and they’ve also been arming patent trolls.”

This was Google spokeswoman Niki Fenwick’s version of “revenge is a dish best served cold” in February 2013 to explain why her company sued British Telecom. Sometimes, it just comes down to companies wanting to flex their muscles and smack somebody.

Patent Wars and the Upside of the Downside

Patent violations do not inevitably lead to litigation. Nor does litigation inevitably expand from individual case to a full-blown patent war. Often, the risk management analysis concludes that licensing at a royalty rate that prospective partners will find reasonable is optimal for everyone. Deals are then announced in press releases and the subsequent years are a quiet exchange of documents and wire transfers from one company to the other.

The alternative is publicity, hyperbole, uncapped legal fees and the unknown. For some companies, the upside of this downside is worth it. An impulsive factor can be the CEO. If s/he is determined to make a stand (see the Yahoo and Apple litigation examples above), litigation is probably unavoidable, and it’s “prepare for battle” time.

“I will spend my last dying breath if I need to, and I will spend every penny of Apple’s $40 billion in the bank, to right this wrong. I’m going to destroy Android, because it’s a stolen product. I’m willing to go thermonuclear war on this.” Why Steve Jobs Went ‘Thermonuclear’ Over Android

How Many Patents Do You Need? Logitech’s Kevin McLintock Tells Us

Kevin McLintock blog banner header


Director of Worldwide IP Strategy Kevin McLintock developed the IP strategy at Logitech in 2011 on a guiding principle of “establishing a strong freedom to operate platform.”

He’s translated it into a tactical program that has completely overhauled priorities, program management, budget allocation, and patent filing activities. Informing his short and long-term decisions in the last five years has been the always present need to ”build the right patent portfolio.”

The right number will probably be more than you thought, and much more than your CFO expected. It’s typically expensive in terms of R&D investment and IP protection. It’s not simply, however, answering “How many patents do you need?” as a quantitiave exercise.

What’s more important is creating the right balance in the portfolio. “Getting it right” – more realistically, as close to right as you can – is critical because the consequences of “getting it wrong” are enormous.

Kevin spends a lot of time on his portfolio because Logitech’s future rests on invention and innovation in highly competitive and dynamic areas such as digital music and virtual reality.

Here is his process for optimizing the size and balance of his patent portfolio.

How many patents do you need at Logitech?

Q: Why is getting the number and balance so important for in-house counsel like yourself?

Kevin: Getting the portfolio right is one of the most significant parts of my job. The risks are very material. In literal terms, if somebody were to sue us, we may have nothing to countersue or to defend ourselves with. If we are entering a new product category or market, we want to have the groundwork of a portfolio already established to provide flexibility in how we move forward.

Q: Is there a right number?

Kevin: Arriving at the right number is especially difficult for a company of Logitech’s size, with such a diverse product portfolio. There’s no standard playbook I can just copy. I know we don’t have the right number of patents at Logitech right now, but I also can’t tell you what that number is. More importantly, I don’t dwell on it either.

Don’t focus on questions you can’t answer. Far more relevant is actionable information so I focus on the question that does matter: “Do I have the right portfolio to support Logitech’s business goals?” I could have a very large portfolio in one category, but they may be of little strategic value. A smaller portfolio of highly strategic patents would be of much greater value to us, and be more than sufficient to support our objectives.  

A Deeper Dive Into Technology

Q: How do you answer the “right portfolio for our business” question?

Kevin: I repeat the process I used to create our overall IP strategy, but go deeper into the underlying technology. A lot more time spent with Logitech engineers and scientists helps me balance patent numbers with our portfolio needs. I look at:

  1. Current Products and Markets

We need the right number of patents to cover our current products and protect current revenues. We file patents, utility applications to cover the basics of what we’re doing, design patents for very specific products, and foreign patents to address manufacturing or market issues in specific geos.

  1. Forward-Looking Opportunities

We then look to the future. What do we think we will need in forward-looking areas? We may not be doing something now, but it could be different in 3-5 years. Do we have some seed IP that will open up these areas for us?  

  1. Future Markets Where We May Not be Active

How many patents will we need to have a meaningful presence in future areas that we may not even want to formally operate in? Look at this very closely. The answer could be interesting to both competitors and future partners. If you believe your seed technology is notable, and strategically significant to competitors, protect it.

  1. Future Enforcement

Looking at each product category from an enforcement standpoint. Do we have enough, either to take action against someone else, or to defend ourselves if someone takes action against us?  The number will vary based on the strength of the IP and the type of entity we are targeting.

Q: What do you do next?

Kevin: Put my objective thinking hat on. Who are the significant competitors in each business area? Who do we think could become one? Identify and aggregate the overlaps, then calculate the number of patents I think we need. I recommend you do the same; start at the end, then work backwards to your current portfolio. Identify the gaps, then decide on a granular level what needs to change.

Building a Portfolio is a Group Effort

Q: Clearly, this isn’t a solitary job. Whom do you work with on this? I assume you work closely with strategic planning, sales, and the Head of R&D?

Kevin: I recommend another four-step process:

Step One is the big picture. Map your operational future. Talk with everyone to understand where the business is and where it is going. Which markets do you think are important? What manufacturing locations are important? Who do you compete against now, and what competitors do you expect to exist at some time in the future? Sit down with unit leaders to understand the goals for each business unit and product categories. You probably did a lot of this work when creating your overall IP strategy so reuse what you can.

Step Two is figuring out the portfolio’s ideal composition. With the information you learned and the data you collected from Step One, an IP professional’s next step is figure out ideal composition in terms of protecting future products and supporting operations in relevant countries.

Look at the strength of your current portfolio. Are there concentrations in different technology areas, or different product categories? This is a very “today” thing. In certain strategically important areas, you might conclude that you’re doing well.

It’s a rigorous intellectual exercise with few rules, many hypotheses and even more unknowns. Here is an example: “We have a good history of developing IP in this area. We’ve got a horde of patents already filed in this particular area. We’re clearly on track. If something were to happen today, however, if we were concerned about certain competitors, or regions, would we be in good shape or not? What would happen if the same scenario played out in two years? You consider and juggle many, many scenarios.

Step Three is the engineering reality check. I usually start with the VP of Engineering. We map what should comprise our portfolio against the company’s actual level of innovation. Then we objectively determine whether we can realistically achieve our goals.

Step Four is financial. I compare what we want to do with the budget. Can we afford to do all of the wonderful things that we’d like to do to support these goals? Do “what we want to do” and “what we can afford to do” align? Usually, the answers and alignment are not as hopeful as you’d like. Then it is time to prioritize.

You Can’t Do Everything

Q: How do you organize and prioritize everything that you’ve learned?

Kevin: Organization is on me. Prioritization is a group activity. I return to the business group leads. We discuss the information I gathered and the previously discussed priorities. It’s usually pretty obvious that we can’t do everything, so I typically recommend adjustments, including focussing on areas where we can maximize portfolio effectiveness.

I work with business leaders to determine which trade-offs they’re willing to make. If they’re unwilling, you have to adjust. Can you get more budget? Can you raise the innovation level within a business group? If there’s consensus on the business side at Logitech to prioritize certain things, then we can usually focus the brilliance of our engineering team to deliver. If we can’t, we have to prioritize differently or alter our portfolio development plans.

Q: Developing the portfolio roadmap appears very similar to developing an IP strategy?

Kevin: It is. The difference is big picture vs. tactical implementation. A common need with both, though, is visibility. Visibility among business unit heads is vital. You’re balancing risks and rewards now and in the future. You’re trying to figure out how many patents do you need. Their consensus and implementation support helps a lot. I coordinate these discussions and ensure everyone has the right information. Once we provide those details, we agree on a strategy to go out and file the right patents on as many quality inventions as we can.

Thanks Kevin for the fantastic advice. For younger IP professionals finding their sea legs, perhaps overseeing a corporate IP program for the first time, it’s vital to create and nurture lines of communication throughout the company.

Work hard to create and raise visibility for IP in your organization, because it will make it far easier to collaborate with everyone you need on your side to be successful.

Partnering With Salesforce to Deliver IP Management in the Cloud

Eighteen months ago, we published a two-part series, “Why the Legal Industry is Embracing the Cloud.” (If you missed it, read Part One and Part Two). In detailing the many advantages and benefits that our early customers were seeing, we addressed some important concerns and answered many questions about using cloud-based technology to manage IP programs.

Since then, our sales have tripled as cloud computing and Software-as-a-Service enthusiasts have become far more common inside corporate legal departments.

The release earlier this week of the IDC Salesforce Ecosystem report illustrates that our experience as a fast-growing software vendor isn’t unique. Many other companies have similarly built their technology and revenue streams by partnering with Salesforce.

The report’s authors at International Data Corp. crunched a lot of data to estimate what all this sales activity means now, and what future opportunities may look like. It’s a pretty rosy view.

The Numbers

AppExchange 4 million installs - IPfolio.com

We have certainly seen some important shifts in the readiness of legal and IP leaders to embrace the cloud. Salesforce has obviously seen similar buying behavior in other verticals.

Overall, while public cloud computing accounts for less than 5% of IT spend, growth is much faster; since 2009, cloud growth has been 4.5X higher than IT spending rates. This number is expected to rise to 6X through 2020. Granted, this growth is expansion of a small share of the $2 trillion IT market, but the future is clearly upwards and to the right. Salesforce customers have also installed more than 4 million apps from the Salesforce AppExchange.

This mirrors what we’ve seen with the trajectory of IPfolio.

IPfolio: Member of the Salesforce Economy Since 2012

We’ve been with Salesforce since IPfolio’s birth.

At a company level, we identified an opportunity to save the IP industry from the tyranny of traditional, slow, inflexible and maintenance-heavy on-premise deployments.

Our “Fresh new approach to IP management” vision rejected the world of legacy system maintenance and the inevitability of inefficient on-premise software upgrades. Translating this into a product roadmap, we wanted to deliver a customer and user experience that emphasized ease-of-use, accessibility, efficiency, flexibility, and scalability.

A Software-as-a-Service delivery model built on the cloud was the obvious choice. The most effective cloud option was clearly the Salesforce ecosystem. We were confident that by partnering with Salesforce we would minimize development time and engineering requirements, while maximizing our Go-to-Market opportunity.

From the perspective of a fledgling startup with aspirations as an industry change agent, we couldn’t ask for anything more.

Partnering With Salesforce = One of the Best Decisions We Made

Well, here we are almost five years later. We haven’t been fledgling in a long time, and look forward to celebrating our five-year anniversary in April 2017.

IPfolio has evolved into a well-respected, very competitive, enterprise-grade product. Our customers range from hot startups in renewable energy to multinationals and global brands. They include a Global Top Ten financial institution, two of the 10 most valuable companies in the world, one of Canada’s largest energy companies, and a German multinational with over 400,000 employees.

It is easy to attribute much of this success to the fact that our partner is the world’s fifth-largest and fastest-growing enterprise software company. Salesforce handles what they’re really good at while we stick to what we know.

By focussing on domain expertise – our team’s decades of legal/IP industry experience – while effectively outsourcing much of our IT overhead such as hosting and security to category experts, we’ve been able to stay lean and agile. We have been able to dream big, while retaining a corporate culture where we’re still “young, scrappy and hungry.” (Shoutout to the musical Hamilton).

Evangelizing the Cloud to the Intellectual Property Community

Since 2012, we’ve been preaching the merits of the cloud in terms of robust, reliable, scalable and secure applications. We’ve spent a lot of time at industry conferences talking about them.

Frankly, we’ve punched well above our weight in terms of industry thought leadership, evangelizing the new world of application delivery, and inviting everyone to take a close and objective look at cloud-based IP Management.

Every IPfolio customer has heard us tout the advantages of true cloud-based solutions:

  • Total Cost of Ownership (TOC)
  • Anywhere productivity: Log on, log in and start working
  • Streamlined Process and Ease-of-Communication: Locally and globally
  • Time-to-Value

Software TOC On-premise vs. cloud

They’ve also heard us lay out the benefits specific to intellectual property management:

  • Increasing Strategic Visibility: Connecting IP assets to products, geographies, markets, and revenue streams to ensure alignment with business strategy
  • Data Integrity and Accuracy: Efficient reporting, inventor awards administration, and tracking of prosecution milestones and costs
  • Simplified Access for External Parties: Total control and management of external access to online IP records
  • Idea Tracking: Inventor Portals and Review Boards to track and monitor evolution of IP assets from invention to outcome

Happy Customers: Alignment of Expectations and Experience

A source of great satisfaction has been the alignment between what we say when speaking with prospects and their later experience as customers.

You know you are emphasizing the right things when customer feedback mirrors your marketing messages. Customer reviews of IPfolio on the Salesforce AppExchange universally confirm this. Here are a few:

“Perfect IP Management Tool”

“Customizing fields and layout just wasn’t possible with our large, clunky docketing system. From a data management standpoint, the idea of being able to set up a clean, user-friendly interface, and make workflow and UI modifications on the fly made switching to this product a no-brainer.”
Kelly Simpson, Patent Paralegal Manager at Facebook

“Great IP Management Tool”

“IPfolio is a fabulous tool. It is customizable, user friendly, and the reporting capabilities are great. It meets all our IT security guidelines, it is modern and has greatly enhanced our productivity and organization.”
Jodi Rappe, Intellectual Property Specialist at NuScale Power

“The Right Tool for Managing Your IP Portfolio”

“We needed a tool for managing our IP from conception to commercialisation; a tool that would allow us to produce the reports we wanted and to adapt as our IP workflow changes. We got exactly that and more with IPfolio. It is an intuitive tool to use, with excellent technical and customer support.”
Wayne Jaggernauth, Intellectual Property Officer at Nikon Metrology

“Customized to Fit”

“The flexibility to configure our data and the integration with PAIR information was a selling point. However, it was the ability to create an active dashboard with a unique workflow that sealed the deal. Implementation has been the easiest part of the entire process.”
Shelley Smith, IP Operations Specialist and Paralegal at a Big Data company

Moving Forward

The benefits of Salesforce enabled us to execute on our initial business plan and iterate our product roadmap much more effectively than any other route. Phase Two is even more exciting.

Although it wasn’t part of our original plan, the flexibility of the Salesforce Ecosystem enabled us to evolve IPfolio into an entire IP-centric business platform emphasizing Automation, Collaboration and Connected Services. We’ve already begun evolving IPfolio by partnering with complementary IP-related technologies and service providers.

It’s definitely an exciting time to be part of the Salesforce Ecosystem!

IP for Startups: What to Do When You’ve Already Gone Viral

 Image result for pokemon go gameplay

The viral PokemonGo phenomenon this summer and Jet.com’s meteoric rise and brief independence illustrate that, despite the “overnight success 10 years in the making” path characteristic of most startups, success can come unexpectedly quickly.

This is both good and bad. While a hockey stick revenue curve is often celebrated by the CFO, growth can be very challenging from an intellectual property management perspective.

For the latest installment of our IP Answers series, we reached out to John Chandler, an Associate with the Toler Law Group in Austin, Texas. During an eclectic 12-year IP career, John has helped scores of entrepreneurs and companies create and evolve IP strategies and plans. He’s a perfect resource to discuss IP for startups, IP management priorities for young companies, and “Fire Drill IP Management” when growth suddenly jumps far beyond initial projections.

Note: John’s comments are his personal views, and are not representative of those of the members of the Toler Law Group. His statements should not be relied upon for legal advice in any particular circumstance or situation.

Background: IP Watch Dog recently published a review of the patent portfolio consisting of three location-based gaming patents of PokemonGo developer Niantic. Thirteen months after ecommerce titan Marc Lore launched Jet.com to compete against Amazon.com and other discount retailers, Wal-Mart acquired Jet.com and its ‘gain sharing’ retailing technology for $3.3 B. The patents of Jet.com are aready involved in patent infringement litigation.

Q: Thanks for joining us John. Most companies launch with the expectation that the road to success will be long, so a common belief is that there will be time to take care of the IP down the road.


A: First, it is really important to understand that surprising success – I’m not just talking about Pokemon apps or high-growth VC-funded Silicon Valley companies – can happen to even small companies.


One of my clients, a mostly-service franchise in the U.S., recently and very unexpectedly, took off in Great Britain. With the opportunity to protect a potential future franchise network in Britain, we looked at everything based on what she would need in the U.K., when she might need it, and what she could afford. We initially filed a PCT patent application in the US with a view toward seeking patent protection in the UK, and have planned a second patent application to be filed later this year.


We also did a UK trademark clearance search and researched co.uk domain name options connected with her business name. In the next year, I also expect we’ll have to find a local in-country attorney to handle business and franchise documents. None of this work or the expense figured in her 2015 business plan but the need arose very rapidly.


Q: What’s your role with a client like this?


A: When something really gets rolling, people too often forget to sit down and take a look at how to create protection in front of the business and the IP. This is my role as a business and legal counselor — to anticipate legal needs before clients see a need. A little investment up front can save many legal dollars just a few weeks or months later.


Especially with first-time entrepreneurs, I’ll spend a couple of hours with new clients to put out fires that they don’t know are burning. Next, I’ll identify potential business assets, and put them into what I call “Boxes.” For me, Boxes represent a legal protection available under the law. Each Box typically comes with a price tag, a deadline and action items. Clients can then easily prioritize which Box is right for their situation and budget. Also, clients can more easily understand what does not fit within any Box. If the business asset doesn’t fit within a Box, I can’t put a legal protection on it. Some Boxes are out of reach or don’t strongly fit the focus of the company.


In my client interviews, I first look at IP through the lens of how people and customers find my client. If you are already a viral success, people have obviously already figured out how to find you. Usually, though, I’m working with pre-viral companies, many of which don’t have any marketing experience or plan.

A domain name related to how people know you is step one. I think the domain name is really critical for a startup. It is a good lead-in to trademark protection. You want to be found often and you want people to quote you. The recent and huge expansion of available Top Level Domains means that you should be able to find a domain name that aligns with your marketing strategy and business name. If your app is called Fire, getfire.co can work. If you don’t have a really good domain name, you can instantly reserve one. Grab it before it is gone.


In terms of trademarks, I’ll start by looking at everything from protecting the brand and domain name, to hashtags and slogans. Understanding that trademark registration can take 5 months or more, some of these are on a slow burn, and some need immediate action for protection. It is best to commit to just a few terms initially, and use them consistently and properly over time.


Q: What comes next?


A: In terms of IP categories, it’s domain name, trademarks, then patents. The order is based on both time, or time-to-result, as well as money. Can we create any patent assets? Perhaps, but they take the longest and cost the most.


For patents, even taking and paying for the expedited option, getting a patent takes a year minimum. As far as cost, if the cost of a utility patent is out of reach, a workaround is a design patent. Design protection is too often overlooked, but it can be very useful if your startup is more on the creative, expressive side. If a company has something unique about their customer facing website or mobile app, I’ll look at how we can perhaps protect the user interface. This is especially useful when the computer back-end processing is not totally ironed out, new or the interesting part of the business.



Q: Do you always look at patenting in terms of product or service protection?


A: In my experience, there is almost always some kind of technology involved in the business that you can protect, particularly for companies that blow up. Often, the unexpected commercial success and urgency to maintain customer satisfaction can draw your attention away from protecting the core value in the underlying technology. The tech might not be 100% relevant to whatever has made your suddenly hot right now, but it may have long-term value, which is part of the pitch when seeking funding and thinking exit strategy.


Although a pending patent application doesn’t offer any protection until the patent issues, pending status can help during fundraising and marketing. Some tech investors are really leery of investing if they haven’t had a chance to determine whether something is patentable and could create value 5, 10 or 15 years down the road. In addition to this, if your exit strategy is a merger, or acquisition by a larger company, patents need to be part of your roadmap.


Q: Thinking about the relationship between a company and its customers, it is usually defined in the tech or media sectors by Terms of Service (TOS) or Terms of Use (TOU). How does IP then align with a startup’s sales model?


A: TOS and TOU documents are very important for categories such as software, SaaS and social media. In them, you define the boundaries of your relationships so that people understand what you do, and what you will and will not accept in terms of responsibility – yours and theirs. The obvious example is Facebook whose TOS basically say that Facebook is free to use anything uploaded to the site.


By way of example, if your business enables people to post and share content, warnings such as, “Don’t post stuff that’s copyrighted by a movie studio,” are standard. If you offer an API, you need to spell out limitations and expectations. Limitations in the TOS/TOU should include guidance on use of your trademarks and lots of other things. Don’t write your TOS/TOU just for litigation purposes. Think about setting expectations and shaping perceptions of your company in your TOS/TOU, along with detailing what you consider your IP and what you consider protected. If use of your website generates money for you and your end users, include details on how money is made, affiliate marketing, duration of data retention, and on and on. At least clearly define who owns what, when and how. Often, the TOS/TOU is an after thought. No one makes time to review that when your company is blowing up.


Q: PokemanGo was almost instantly global. How does geography fit in?


A: You can seek legal protections in other countries but the price quickly mushrooms. If you aren’t sure now about where you may need future protection down the road, you can do an initial filing with the US patent office under the patent cooperation treaty or PCT. It bookmarks your place worldwide at first. I’ve done it many times to provide my clients with flexibility. Later, you can identify where the business has really taken off and narrow down the countries where you want the long-term patent protection.


Trademarks are less time-sensitive, but can be started early if the revenue is there. I recommend that you let the revenue guide you on a country-by-country basis. You can built up world-wide trademark protection a little at a time. Of course, expand your domain name portfolio and add other languages on your UI on a weekly basis if possible.


Q: What is your advice on employment contracts and IP assignment?


A: IP assignment is a good segue into something I haven’t mentioned yet, which is nonetheless absolutely critical. This is the formation document. Before you even think of employment contracts, you need to make sure that IP protections are defined in the bylaws of incorporation or the operating agreement of the LLC.


There may only be four of you in a garage moonlighting on weekends, but everybody should be obligated to sign over their contribution – whether it’s the trademarks, the technology to be patented, media content, cash or time commitment.


Personality conflicts and evolving priorities among founding team members are common, and founders can sour on each other. Suppose two of the four want to leave. This scenario and succession steps need to be spelled out very carefully in the operating agreement or the bylaws of the corporation – not in a term sheet or napkin scribbles. If someone leaves, how do you value the company? What do they get to keep? If she is the technical lead or chief developer, does she have an obligation to assign over the source code? Is she entitled to a copy? Is it under password protection on a server she can still access? Does she have any rights at all to it? Will she publish the secret sauce later as part of her research? What are the pre-existing obligations?

Something aspiring entrepreneurs often overlook, as well, is the economic value of what you create regardless of commercial success. While you may have failed to create a viable company, you may may have something really valuable that you can either open source or sell as an asset. Your corporate documents must cover these scenarios.


Q: The employment contract and assignment language address these points for employees and contractors?


A: Exactly. In the rush to hire and get some revenue in the door, companies often overlook what’s in their employment agreements. Look in your contracts to ensure they include confidentiality, invention assignment, and non-compete language and clauses. Lock these down so you know that the creative aspects will remain with your startup, and former employees can’t leverage your innovation, business processes and customer databases. Or, if you want to be open and informal in the relationship, spell that out in writing so that everyone has confidence in the venture. Don’t overlook copyright assignment, either.


If you don’t include details in contracts, you will not have ownership and control of what employees and contractors created on your dime. I have seen this far too many times, and spoken with too many frustrated CEOs, to think it is uncommon.

Q: OK, let’s circle back to the PokemonGo example. It may not equate to the viral hit of Summer 2016, but let’s assume that my app blew up last week. I haven’t done any of the startup IP best practices you just laid out. What should I do now? What is my priority list?


A: First, sudden growth doesn’t always require virality. The “secret” can simply be a lot of funding. If you land enough VC funding, the road from a small scrappy team of 10 to, say, an org-chart of 100 can be a very fast ride. Whatever the cause, my catch-up IP management blueprint would be something like this: 


  1. Domain Registration

Review and register domain names related to your existing brands and related trademarks. Review where all domains point.


  1. Trademark Clearance

Update your trademark clearance results for your current and expected markets.


  1. Trademark Registration

Register relevant trademarks in use or soon-to-be-used with the appropriate authorities. Review proper use of trademarks throughout the company.


  1. Usage Contracts

Terms of Service and Terms of Use (“TOS”) define what you provide and how people use your service. Make sure the TOS, other legal notices and the functionality of your website, app, product or service comply with local and country requirements and restrictions. Privacy and data use restrictions vary widely across countries. Is a click-through mechanism needed for aspects of your website?


  1. Restrictions

Review import/export restrictions for the countries in which you operate. Review your existing contracts with vendors, contractors, etc. for their contractual restrictions.


6. Employment Contracts

Ensure that your rights are not compromised by incomplete or absent contract provisions. Make sure new employment contracts harmonize with corporate values and corporate documents. Re-sign existing employees to a new contract if the old contract won’t work. Ensure assets remain with the company.


7. Patent Protection

Depending on your budget, uniqueness of technology and innovations, definitely look at pursuing patent protection. Don’t hesitate to contact a professional because patent deadlines are unforgiving. There are ways to delay the relatively high expenses involved.


  1. Physical and Electronic Security

Review existing mechanisms to safeguard the business documents, legal documents, innovations, business reputation and financial assets. Would a quick computer security audit and operational practices review be beneficial?


  1. Corporate Culture

At least start with a short meeting to get all employees on the same page in terms of expectations of how you value everyone’s contributions and IP. Explain the steps being taken to protect the IP. Explain the basics of your corporate expectations of business conduct, computer use, and operating and security procedures. A quarterly update can go far to show strong leadership and vision.


Q: Is there anything else that a startup should think about?


A: In an early-stage company, don’t underestimate the basic bread and butter legal provisions or permissions. IP for startups doesn’t have to be convoluted. Have someone experienced review your documents and policies to ensure there is nothing that can lead to an easily avoidable, crushing liability or lengthy legal dispute. Don’t let a legal conflict distract the business operations. A little attention early can go a long way toward avoiding big problems later.

A big thank you to John for his time and expertise. You can reach the Toler Law Group offices at http://www.tlgiplaw.com/.

Cultivating Patent Innovation: the Case of Financial Services

Blog financial


Traditionally intellectual property (IP) creation was not viewed as central to the financial services sector as some others, but that has changed significantly.

At a recent conference* intellectual property leaders at well-known financial institutions discussed developing intellectual property as a strategic imperative. Their discussion touches on creating a culture of innovation, educating inventors, setting up invention disclosure programs and rewarding invention in the era of Alice.

In full disclosure, one or more of the companies mentioned is a client of IPfolio and uses our IP management software.

Innovation culture & starting an invention program

For Visa a key threshold issue was determining what patent strategy would support the lines of business (LOB) — offensive, defensive or revenue generation. Encouraging invention disclosure had to work within that overarching framework.

Royal Bank of Canada (RBC) realized they needed to foster a culture of innovation and knowledge protection to create employee engagement or any invention disclosure process would flounder.  The invention culture starts day one during employee onboarding. Initially there was resistance, some stakeholders felt other priorities were more important than intellectual property.  It took time but now RBC talks about innovation and intellectual property as part of their brand, which allows them to attract talent. USAA’s new IP group also realized a few years back that they needed to foster culture of innovation with reward and recognition (R&R) programs.

As of five or six years ago, Mastercard was not filing many patent applications. A few technologists were motivated but most engineers were not submitting invention disclosures. But a new CEO directed the head of IP to make an innovation program happen and then they found a budget. Mastercard consulted widely with other companies about developing an innovation program.

TD Bank runs a lean IP operation and in the company there were proportionally few scientists and engineers as potential inventors. For their new invention reward program to develop their portfolio, TD also retained some sophisticated consultants to help them design the program rather than following a home grown route.

Education, reward and recognition

The speakers agreed that the balance between recognition as a reward for invention and financial rewards is always challenging.

TD Bank was advised that recognition of invention was generally better than financial reward. Initially TD went the other way toward financial reward, resulting in a high volume of weak invention submissions. Even if some were patentable often they were not aligned to TD’s business strategy.

When TD Bank switched emphasis to recognition they developed a stronger level of engagement from a smaller population who were true inventors. The most motivating recognition was the opportunity to share ideas with senior leaders in the LOBs. “True innovation is invention plus commercial application;” inventors wanted to see their idea recognized high up and then implemented.

USAA has a relatively new IP group and like RBC developed a multi-faceted program starting with new employee orientation.  They use an inventor portal for all employee’s submissions then an initial review by the IP group to see if an idea is viable, usually followed by a request for more work from the inventor.  At this point they may have to address Alice and adjust the focus from a business method to some technology attached to it. There are tiered money rewards at each stage including filing a patent. If the patent issues the inventor gets a prize and recognition from a listing on a prominent company-wide patent tree.

USAA located a generational issue with reward: younger employees wanted primarily recognition, older employees wanted money. Today, the reach of the program is broad and one of USAA’s most prolific inventors is a security guard.  They give innovation classes on a regular basis but avoid too much legal training. For example, they urge inventors not to act as attorneys and perform patent searches on their own. In contrast, Visa uses the smart phones patent wars as a more detailed training tool and find engineers really engage with the story.

Mastercard also concluded that focus on company wide recognition was vital, from inclusion on the public invention website to giving out awards at a CEO dinner. They found the kind of recognition that works varies culturally. So in one country money was such a motivator the result was a big spike in weaker invention submissions. Rewards were reduced and local committees established to review invention disclosures earlier. Mastercard also found that giving stock options “can cause people to give up their day jobs” so rewards can go too far.

The invention website has information about inventions, top inventors and patent applications as part of a multi-faceted recognition program that includes money.  Every employee can look into the portal and look up whatever inventions there are. Mastercard carries out varied educational efforts included events at eight offices around the world. The program has increased patent filings tenfold at Mastercard.

For Mastercard, like RBC, the issue is patent quality, relevance to the business and avoiding business method filings that collide with Alice. Visa pointed out though, you often don’t know what quality is for years, so quantity can be a good thing. There is value in `setting out traffic lights and seeing who drives through them.’

The belief at Visa is you can you recognize great ideas even if they are not patentable. They think of an innovation pyramid where some ideas at the highest pinnacle will become patentable, other ideas are not patentable but highly valuable to the bank. Consequently, Visa created two types of inventor rewards schemes accordingly.

USAA concurs and also has two separate reward programs. On the non-patentable innovation side, great ideas are uploaded into website accessible to all employees who can vote on which ones go forward.  This helps overcome inventor frustration when ideas do not go all the way to patent filing.

Harvesting & mining invention

Visa observed that financial services may not have a formal R&D process like other industries and instead ideas “just bubble up” and this may be inefficient.

Consequently, the focus today is toward ‘harvesting’ or `mining’ invention — much more proactive and complex than just creating an environment for invention disclosures.  Methods vary, RBC, for example, holds formal regular invention sessions with open office attorney hours for key groups who are doing innovative work.

For USAA, harvesting sessions now create most of what they file, not the inventor portal. The harvesting program uses seven separate tools, for example, problem statements.  USAA legal also engages with internal research and development teams dedicated to disruptive projects including ones LOBs have passed on to them. LOBs can also brainstorm with R&D to look at a particular business area. This can sometimes result in a broad concept requiring legal to follow up and help narrow it down to a useable idea.

Mastercard similarly offers challenges that pose a particular business problem and employees and employee teams submit solutions to win awards up to $150K.

Visa found a passive Recognition and Reward (R & R) program was not sufficient, their needed to be some push as well as pull. The fundamental building block at Visa is invention disclosures by LOBs and metrics around what is expected from each LOB. TD Bank finds its LOBs are now encouraged to compete against each other in innovation.  MasterCard tries to set goals and targets for LOBs but it can be challenging.  Organizing budget from each LOB for the innovation program is another area that needs careful handling.

According to Visa, cost control and accountability concerns are particularly acute at financial institutions, as one might expect. Cost per issued patent is by far the most vital metric and the prosecution budget is always under scrutiny by internal stakeholders. You need sound defensible arguments behind the program for the senior level finance people.

All identified the issue of paying for these programs and patent filings and that this is usually shared with LOBs. International patent filings in particular become expensive. However, TD Bank found LOBs actually become competitive with each other and even ask to give more money to the patent program.

Alice considerations in inventor programs

While some education about patent law is essential for their inventor community, a dilemma for all these companies is how deep to delve into the challenges around patents for business methods and Alice without deterring or confusing inventors.

TD Bank does standard patent law and section 101 training for LOBs. TD warns, however, that if employees learn too much law they can start being their own attorneys, edit themselves prematurely and not submit inventions.  MasterCard used to give a general Section 101 training widely, but now less so. Instead they give a more advanced training for technologists at innovation units around the world, like the MasterCard labs. RBC also does some minimal section 101 training just to targeted groups of likely innovators.

The speakers concurred that a central job of in-house IP Counsel is to translate invention into what is patentable.  Visa, tries to identify Alice problems early in the invention disclosure review stage and go back to inventors to try to resolve the challenges.

In the era of Alice the speakers agreed you generally need to add as much technology around or instead of the business method. Business processes are still patentable if you can integrate technological components in the inventions. Focus on technical improvements and put that in spec so you can cite it to the USPTO. To succeed, avoid broad claims and get inventors focused on developing and disclosing the four or five ways of doing something to help support independent claims.

If claiming technology improvements, it is key to have IT involved as well as product people because you need the right expertise and information to follow through to a patent application. On the other hand, while TD found technologists submit more inventions sometimes these can be incremental. General employees can be more adventurous, sometimes more business relevant and the results more valuable.

On the whole there needs to be a bigger, internal multi-stakeholder discussion now around invention disclosures because of Alice.

Regardless of the challenges, encouraging innovation and invention is vital to the business of modern financial institutions.


*13th Annual Patents for Financial Services Summit, New York.