K2CO3Patents can be valuable – but most are a waste of resources. On the anniversary of the USPTO opening its doors, let’s discuss the real costs – and risks.

On July 31, 1970, the US Patent Office opened its doors for the first time. The very first patent was issued to Samuel Hopkins of Vermont for a new method of making Potassium carbonate in the form of pearlash (or pearl ash) and potash. The patent also has the distinction of being signed by both George Washington and Thomas Jefferson. Besides being the first patent, it was important because Potassium carbonate is used in the manufacture of soap and glass – two important early industries in the United States.

In 2013, there were 302,948 patents granted and 609,052 patents applications. Since it can take several years to be awarded a patent, there is no relationship between the number of patents granted and applied for in a given year. By the way, 2013 had more patents applied for and granted than any year previous.

Patents are important for businesses whether they are established or startups. A patent grants a government approved monopoly to the winner for a period of 20 years – that means that if you get a patent, you can sent nasty letters to anyone you think is violating your patent for as long as 20 years. And in extreme cases you can sue them.

Of course, that takes money – usually a lot of money.

Many entrepreneurs and business people think that getting a patent is important – and it can be. But getting a patent should be a business decision.

Consider the costs involved:

  • Development of the technology
  • Drawing up the patent application
  • Explaining to (Arguing with) the patent examiner
  • Maintenance of the patent, if awarded
  • Legal fees for all the above
  • Legal fees for sending nasty letters
  • Legal fees, if you sue
  • Penalties, if you lose.

In short, a patent can cost $10,000 to $50,000 or more, so your patented idea better be able to make you a lot of money just to break even.

Which is why the vast majority of patents are never profitable. I mean northward of 90% of all patents never make any money. Because most patents are for small ideas – a modification on an existing patent or a design patent (requires only 10% change from an existing design usually to qualify) – they will never spawn a new industry or market – they’re tweaks.

But there is a new way to make money with patents and it has created a new creature to inhabit the nightmares of entrepreneurs – the patent troll.

Patent trolls are legal entities that buy up lots of patents, usually at low cost, and then exploit businesses’ desire to avoid ligation by threatening to sue if the intended target doesn’t pay a licensing fee. Most businesses will pay the “licensing” fee rather than pay the legal fees to fight the allegations of patent violation. In the business sense, it’s cheaper to give in than to fight.

We had a client that wanted to get a patent on a software project. The project involved no really new technology – just a new application of what others had done. Because there was an extensive collection of patents in the area, I pointed out that any patent would be extremely limited in scope and therefore not very valuable as a defense against someone else creating a similar project. I suggested that they treat the software design and code as a trade secret instead. This would also have the advantage of keeping the patent trolls from learning what the software was specifically doing – something that you must disclose if you file for a patent. My advice was ignored and resulted in expenses that were of no help to the company and was one of the reasons why it failed.

If you would like more information about the business case for patents, email me for my paper, Can I Get a Patent? Should I Get a Patent?

A physicist by trade, author by choice, a born teacher, a retired veteran, and an adamant problem solver, Frank has helped the White House, federal agencies, military offices, historical museums, manufacturers, and over 250 technology startups get stuff done, communicate effectively, and find practical solutions that work for them. In his spare time, he makes sawdust and watches Godzilla movies.