This is the forth 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 second post, you will know a few basics about patents that everyone should know. In my third post, I discussed a few of the preventable, organizational reasons that over 97% of patents are worthless.
Now it’s time to discuss the less preventable reasons that over 97% of patents are worthless, even though about 80% of patents are filed by large, sophisticated businesses.
Prospecting For Patent Gold
Legend has it that a well-known chain of bookstores hired consultants to tell them how to maximize their profits. The consultants carefully analyzed all the sales and expenses of the bookstores and noticed a pattern. The bookstores were spending about 80% of their money and shelf space on books that were not selling. However, they made over 80% of their sales from the less than 20% of books that outsold all the rest, the “best sellers.” The advice of the consultants was that the bookstore should reduce their overhead by only stocking the bestsellers.
The bookstores were stunned to say the least. How were they supposed to figure out which books were going to be bestsellers without selling them? Who would have guessed that teen books about witches or vampires would sell as well as the Twilight series and the Harry Potter series? Who could have predicted the success of Fifty Shades of Gray or The Hunger Games?
Worse, many bestsellers do not become instant bestsellers. The bookstores found that they often had to sell the book for years before its sales took off.
The bookstores realized that there was no way to avoid taking chances on hundreds of books a year that may never become bestsellers. However, the bookstores did find one expense they could save. They fired the consultants.
Pharmaceuticals, Chemistry, and Biotechnology: The Unpredictable Arts
As discussed in my third post, many patents are worthless because due to competing agendas. However, another contributing factor in the pharmaceutical, chemical, and biotechnology areas is the unpredictability of the compounds themselves. Businesses and universities in these fields routinely obtain patents on molecules without knowing if the molecules will have any desired properties.
For example, a small molecule may selectively kill cancer cells in a Petri dish. However, it costs pharmaceutical companies several years and billions of dollars to take that molecule although through FDA testing. At any point, the properties of the molecule could have an unforeseen interaction with the body of animals or humans that will prevent that molecule from obtaining FDA approval.
In practice, this means that many businesses and universities in the pharmaceutical, chemical, and biotechnology areas are forced to obtain patents for thousands of molecules that may never sell. Then again, one of these patents may end up protecting a drug that is worth a billion dollars per year.
If you are interested in obtaining a patent in this field, this is the chance that you will have to take. The most you can do is make sure that every patent application adequately covers a possible winner.
Market Trends: Trying To Predict What Will Sell
Another source of useless patents or patents of diminished value is the unpredictability of the market place. One purpose of obtaining a patent is to protect a competitive advantage in the market place. However, from the Stock Market Crash of 2008 to the Oil Crash of 2014, a drastic change in the market place can easily change all of the market analysis that would have made your product or process profitable.
The value of a patent or patent application rises and falls with the market value of the product or process that it protects. The most you can do is make sure that every patent application adequately covers a product or process that you plan to bring to market.
Tech Trends: Trying To Invent The Future
Everyone loves to talk about disruptive technologies. Usually, the people who gush over disruptive technologies picture themselves as the disruptors. It’s not as much fun when it’s your technology that’s being disrupted.
Many businesses develop and patent innovative technologies only to find that a later technical innovation renders their technology obsolete or place it at a competitive disadvantage. Again, the value of a patent or patent application rises and falls with the market value of the product or process that it protects.
This source of patent devaluation is of particular importance to the software and microelectronic industries. On average patents take years to obtain, years to litigate, and have a patent term of, generally, 20 years from the date of filing. That is a problem because most innovators in the software and microelectronic industries know that their innovations will be obsolete within 2 to 4 years. That means that these companies will probably obtain patents that will be worth millions for a few years and then nothing at all. However, the cost of not getting a patent may be that their competitors can copy their innovations so fast that the innovators never really establish an edge in the marketplace.
Court Trends: The Perfect Storm
As of this posting, there is a lot of turbulence in patent law. There is a long-standing tradition of hostility and ignorance surrounding patent law due to the complexity of technology and the nature of patent law.
However, the America Invents Act (AIA) was recently enacted, which introduces an ocean of uncertainty. Wait, it gets worse. The Supreme Court of the United States has taken up about two patent cases per year and frequently overturns long-standing precedents with little regard for settled business expectations. Recent court decisions have rendered billion dollar patent portfolios completely worthless. And there is no end in sight.
Based on my experience, there is no way to ensure that your patent will protect a valuable innovation. However, scientific, legal, and marketing research can maximize the possibility of a patent turning into a valuable investment.
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 “Practicing Your Invention.” To find the next post in this series, please click here.