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Real inventions are not on Shark Tank

Mon, 02/27/2017 - 12:32

On Tuesday evening, I went to a “shark tank” event at TechNexus in Chicago. Thanks to my friend and colleague Nancy Fallon-Houle, the startup business lawyer, for inviting me. Here’s what I’ve learned about inventions and Shark Tank. If you’d like to know more about how to profit from your inventions, this article is for you.

Before I go further in reporting on Tuesday’s event, let me hasten to say that neither the host Caerus Investments nor the startup business incubator TechNexus used the ABC-TV trademark “Shark Tank.” Instead, they used the mark “NotaPitch” (with hashtag) (“the sequel”).

I. Social apps are cool

At the shark event, there were about seven pitches, each followed by one minute of comments from each of five venture capitalists. Done in 60 minutes. The crowd—there was not a seat to be found in the 120-person room—was young, energetic, diverse, bright, and engaged.

The pitches were good. But they missed the mark.

These seven, like most startups, are trying to dream up “ideas” in a vacuum. Most of the ideas are for apps, usually social apps. Everybody wants to be the next LinkedIn. The odds are strongly against them. That train has left the station and it has a big head start.

One of the seven presenters was an engineer. He has an idea—probably pretty well developed, because that’s the way engineers work—for indoor use of drones. At least that idea could lead to a physical-and-software embodiment. But next to social apps, drones are probably among the obvious fields for would-be inventors. Good luck! Again, others have a head start.

II. Beware of Shark Tank and Kickstarter

By the way—and this is an important point—when you have an invention, don’t show it in public until you’ve filed a patent application. See my article, When to Patent. Shark Tank and Kickstarter are not your friends.

Returning to my report on the shark event, none of the seven presenters was trying to solve a real world problem; none was trying to fill an actual need. Which means that they’re almost certainly on the wrong track—one that will lead nowhere.

III. Real inventions solve real world problem

At the shark event, there was one kernel of wisdom displayed in a slide show: A software coder once said that if you want to succeed, find a backward industry and write a program that will help bring the industry into the modern age.

I’ve worked with many companies in many industries in my decades of experience as an engineer and patent lawyer. One of the things that continually surprises me is that many people are working on products that I’ve never taken time to think about.

Real inventions are not on Shark Tank.

IV. Plastic ketchup bottles—not cool but profitable

Some of the most useful and profitable inventions are in technologies like disposable plastic ketchup bottles, vehicle restraints, or sintered powder metals, to name three disparate fields.

Most people have no idea how difficult it is to make a Heinz plastic ketchup bottle, for example. The bottles are engineering marvels. If people knew how hard they are to make, they’d keep them and display them on their fireplace mantels as works of art. As stated in the closing scene of the classic movie The Graduate (1967), there is a great future in plastics.

Yes, there are people who devote their lives and careers to such technologies. They invent things. Useful things. They solve real world problems and fill actual needs. They’re the ones who should apply for patents. Sometimes they do file for patents, but paradoxically, highly skilled people often fail to recognize the novelty of their own inventions. They miss out on the opportunity for the exclusive, profitable rights afforded by the patent laws. They and their bosses think they’re Not Smart Enough.

V. Low-tech inventor of the year

A few years ago I nominated a successful product designer for the “Inventor of the Year” Award conferred by the Intellectual Property Law Association of Chicago. My nominee won the award.

While we were waiting for the award ceremony, the inventor, who designed a dozen patented products that each sold $10 billion or more, confessed to me that his inventions were “low tech.”

The award winner related a story of how he was once on a flight seated next to a man who asked, “What business are you in?”

My inventor friend replied that he designs nuts and bolts, and he returned the question, “What business are you in?”

The seatmate sniffed, “I’m in technology,” and he turned away, ending the conversation.

My friend told me (but refrained from telling his arrogant seatmate) that he cries all the way to the bank with his “low tech” inventions.

VI. Find fertile ground for inventions

If you have the urge to found a start-up, try starting this way. Go find a real problem to solve for a customer. Or find a latent need, like Steve Jobs did, and create a product like the iPhone that people didn’t even know they wanted.

(For more on the Who, What, Why and When of inventions, see my series on the 4 W’s of Patent.)

If you’re an engineer, or a coder, or a wannabe designer, try working for a real company—one that makes something, whether it’s a physical product or software or both. You’ll be assigned to a boring project to solve an intractable problem. Figure it out, and you’ll light up a small corner of the world.

Solve a problem and light up a corner of the world

When you’re that person—or if you’re that person now—patent your inventions. They might appear to be minor improvements. You and your company can ride those new products into profitable new territory.

 

 

When Presidents Signed Patents

Mon, 02/20/2017 - 12:41

On Presidents Day, it is my pleasure to share with you the Beem Presidential Patent Collection. The collection comprises historic original patents and an original copyright, dated between 1800 and 1843, signed by U.S. presidents (also British monarchs), U.S. secretaries of state, and U.S. attorneys general. Also in the collection are original letters signed by famous inventors between 1776 and 1907. Last but not least, the collection includes a historic patent model of a brick-making machine. The collection—all originals—is displayed in the offices of Beem Patent Law Firm, in the Monadnock Building (circa 1893), in Chicago, Illinois, USA.

To view the Beem Presidential items, select Patent Collection for a list of exhibits in the collection and to display images and information about each exhibit. Or, enter the Virtual Viewing Room for a 3-D tour of the exhibits and related information.

My colleagues and I hope you will enjoy viewing these historic exhibits, and that you will find the text helpful as a guide and a narrative of the exhibits and their historical context, including biographies of key signers such as John Adams, organized by their roles as U.S. Presidents (signers of exhibited patents include seven of the first eight persons who were or would become U.S. Presidents) or British Monarchs (King George III, at whose order one exhibited patent was printed, and Queen Victoria, who signed another), U.S. Secretaries of State (signers of exhibited patents include seven of the first thirteen persons who served as Secretaries), U.S. Attorneys General (signers of exhibited patents include eight of the first twelve Attorneys General), and famous inventors (signers of exhibited letters include James Watt, Samuel F.B. Morse, and Thomas Edison).

Consistent with the official practices of former times, but surprising to the modern eye, the exhibited patents are not numbered, i.e., with patent numbers. Insofar as I know, none of the exhibited patents reflect any revolutionary advances in technology. But together they are of historic interest, because they reflect the kinds of technologies that were of value to real-world inventors during the years between 1776 and 1907, and they show the great importance of inventions in the minds of the foremost leaders in government, beginning in England, traversing the ocean to the earliest foundations of the United States, and continuing in both these and other countries with sustained interest for decades and centuries.

It is an honor, which comes with a duty, to be the keeper for a time of historical manuscripts and things. The present ownership of the patent manuscripts and the patent model came about unexpectedly. Over a forty-year career, Arthur Seidel, one of Philadelphia’s leading patent attorneys, worked diligently, intelligently and selectively to find and assemble the items in the collection. On June 2, 2006, an Intellectual Property Owners (IPO) newsletter announced Mr. Seidel’s auction of the collection through Christie’s, the famous auctioneer of museum-quality art and manuscripts. I saw the IPO notice, looked into the presidential patent collection, participated by long distance telephone in the live auction at Rockefeller Center in New York City, and won the rights and responsibilities of ownership of the valuable and interesting collection.

The originals of the Beem Presidential Patent Collection are on display in the Chicago offices of Beem Patent Law Firm. Call us for an appointment to see the astounding originals with your own eyes.

Or better yet, become a part of history yourself by entering the patent system. Let us know whenever we can be of service.

East Texas Patent Litigation, Part 3: Essentials for Victory

Wed, 02/08/2017 - 10:24

In this third and final part of my current series on East Texas patent litigation, I will discuss essentials for victory in Texas intellectual property (IP) trials, again, based on my exclusive interview with noted blogger and Texas lawyer Michael C. Smith. Contrary to popular impression, the U.S. District Court for the Eastern District of Texas is not a backwoods court but a sophisticated trier of patent cases. Credibility, collegiality, advocacy, time limits, and predictability are essential characteristics of the venue. Local rules and standing orders must be observed. That all sounds easy, right? But read further for the essentials as applied in victory.

First, a recap. In Part 1, we discussed whether the “speed trap” image of East Texas is unfair, and we went beyond the popular image of the Court to consider the realities that corporate defendants usually prevail, and even when plaintiffs win, the damages are usually smaller than they might have wished.

In Part 2, we showed how to win patent cases in East Texas, starting with respect for the Court, and proceeding to addressing the jury at trial. Respect and courtesy are the hallmarks for success. Diversity of the trial team can be a big help, so long as it is real, just like every other aspect of the lawyer’s dealings with the Court.

Now, let’s get down to the business of winning patent cases in East Texas, focusing, as in Friday Night Lights, on the basics.

Essentials for East Texas

I asked Michael C. Smith what lawyers need to know about litigating in the Eastern District.

“There is very little in your case that the judge has not seen many times before, including every issue of patent law,” Smith replied. “That is different from other places, where judges’ dockets haven’t given them the opportunity to do deep dives into patent law.”

Smith also emphasized the Court and the bar are very collegial with one another. Judges and lawyers get along. “It’s expected,” said Smith.

Smith recalled the wisdom of Franklin Jones, a lawyer from Marshall, who said that “a trial is a race for credibility.” As an example, he related a story of a lawyer who wanted to file a motion that Smith thought would lose. The lawyer asked, “So what?”

“Why present a loser?” Smith responded. “We want to be the ones that the Court can trust when we say what the law is and what the outcome of an issue should be.”

Local judges expect local counsel to make sure that local standards are observed. If the Court sees unsportsmanlike conduct, it may think local counsel isn’t doing his or her job—or it may assume they’ve been “sidelined” and hold it against the trial team.

But that doesn’t mean the judges have a problem with lawyers raising legitimate issues. “Some lawyers don’t want to fight. They’re too eager to avoid taking an issue to the Court. If it’s a genuine dispute over an issue that matters, judges think that’s their job to decide. I never have a problem presenting a dispute that matters.”

Time Limits Help

Michael C. Smith has “never had a case in the Eastern District that didn’t have a timer on it.” And he likes it that way. “The side that uses less time usually wins,” he says.

In one case, the Court allowed 15 hours per side. “That’s actually a lot.” Smith’s team used less than 9 hours and won. “The other side used almost the whole time, and just floundered,” recalled Smith.

He remembers early in his career being surprised that a case that took two years to prepare was presented to a jury in three or four days. “We were just shoveling it in,” he remembers thinking. But the experience left an impression.

After the first case Smith tried alone, he remembered thinking that most of the things he’d worried about preparing ended up not mattering. “It all came down to three things that mattered to the jury.”

Since then, he just asks himself, “How are we going to use this at trial? If we aren’t going to use it, why are we fighting for it in discovery? If it won’t help the other side, why are we fighting to avoid producing it?”

“Old bulls who have tried a lot of cases know this stuff,” he observed. “Patent lawyers often don’t have the same experience, so they have a harder time knowing what’s important in discovery, and they also have trouble cutting it down for trial.”

Big Companies Defend in East Texas

I asked Michael C. Smith why house counsel for big companies attend the Eastern District Bench Bar Conference.

Smith said big defendants with house counsel know they’ll be sued in the Eastern District.

“And many big companies know not to be afraid.” He opined that the Eastern District offers a “high degree of predictability,” and even the trial outcomes regularly tilt towards defendants these days.

“If you have a good case and the other side doesn’t, nine times out of ten you’ll win. Just like anyplace else,” said Smith. That has manifested itself in a massive drop in the number of motions to transfer. The patent pilot program in most courts means you’ll get to trial relatively expeditiously anyway, and you will get an experienced judge in the patent pool.

So why not stay and defend in East Texas?

Venue and Reform

I asked Michael C. Smith about venue reform.

As of December 1, 2016 (well before the Supreme Court granted certiorari in TC Heartland on the issue of venue), Smith expected substantial resistance to patent reform. He thought that after the 2016 election, it had become a lower priority. After the first 100 days, he thought Congress might take it up, but given the drop in filings in the Eastern District—mostly by so-called “patent trolls”—there might be less appetite for venue reform than a year ago.

I asked Smith why, within the Eastern District, are so many patent cases filed in Marshall and Tyler.

Smith explained that cases are filed on a divisional basis. The judges in the Marshall and Texarkana Divisions, who jointly handle the Tyler patent docket as well, have opted to hear patent cases, and other divisions are swamped with criminal cases that can delay trial settings. Thus most cases are filed in those three divisions. “That may change when the three judicial vacancies are filled,” he noted, “but for the past fifteen years the docket has migrated between those three divisions.”

Local Rules and Standing Orders

Local rules, local patent rules, and judge-specific procedures, discovery orders and standing orders, are all posted on the Eastern District website, and are among the first things attorneys need to become familiar with.

On that note, Michael C. Smith excused himself for a conference call with the Court. “The other party didn’t read the Judge’s standing rules.”

>>>

A previous version of this three-part series was published as one article, R. Beem, An Interview with Michael C. Smith on Patent Litigation in East Texas by the State Bar of Texas, Intellectual Property Law Section, in its Tipsheet, Vol 11, No. 4 (Jan. 24, 2017).

 

 

East Texas Patent Litigation, Part 2: How to Win!

Mon, 02/06/2017 - 15:01

It takes skill to win a patent case. You must marshal the evidence so judge and jury will follow you to the right conclusion. See Abraham Lincoln School of Patent Litigation. Lincoln, born in Kentucky and called to the bar in Springfield, Illinois, knew how to try a case quickly. Juries could relate to him. He was real. Abraham Lincoln’s wisdom applies with equal force in East Texas, as the reader will see from my interview of modern day Texas jury trial lawyer Michael C. Smith.

How to win patent cases in East Texas

The State Bar of Texas asked me to write this patent litigation series after I attended and wrote a brief summary of a recent Eastern District of Texas Bench and Bar Conference.

This 3-part series on East Texas patent litigation is based on my exclusive interview with noted blogger and Texas lawyer Michael C. Smith.

In Part 1, Why Patent Defendants Hate East Texas, I contrasted the “speed trap” reputation of the Eastern District of Texas with the reality that defendants win most cases. When plaintiffs win, damages are usually smaller than they hoped, proving the truth that “pigs get fat, but hogs get slaughtered.”

Here, in Part 2, I’ll share Michael C. Smith’s advice on how to win patent cases in East Texas and elsewhere. Here’s what you need to know in a nutshell: (1) It’s a fast ride, (2) talk to your jury, (3) be a good Yankee, (4) practice real diversity, and (5) don’t fake it.

Now, let’s unpack these truths of East Texas patent litigation.

It’s a fast ride!

Most East Texas patent cases go to trial on a fairly predictable and relatively fast schedule, according to East Texas lawyer Michael C. Smith. In large part this is because there are few criminal cases to derail the scheduling of civil cases in the patent-heavy divisions of the District.

Michael C. Smith cites Parkinson’s law—the idea that the work expands to fill the time available—in observing that shorter schedules save parties money in preparing cases for trial. “If the lawyers have four years to prepare for trial, they’ll bill for four; if they have two years, they’ll only bill for two. Clients like that,” said Smith.

So why do some defendants try to avoid East Texas? Smith does not believe defendants are seeking a “better product” elsewhere. Rather, Smith believes they simply, in some cases, have “a tactical preference for delay,” either in the form of longer waits for trial or stays pending resolution of initial motions or proceedings at the Patent Office.

In contrast, Smith noted a “huge benefit for a plaintiff to simply get to trial on a reliable schedule.”

Talk to your jury

I asked Michael C. Smith about jury selection. “Voir dire is very important in the Eastern District,” he said. “Jury selection by lawyers is a tradition in federal court here. [Judges] view it as the lawyers’ case.” Voir dire gives the lawyers the opportunity to find out what the jury knows, what jurors think, and their backgrounds. “We don’t get much time,” he conceded, “but we generally have enough time to identify jurors who maybe shouldn’t sit on this particular jury, and to decide how to use our peremptory strikes.”

It’s better to be a Yankee than a jerk

I cross-examined Michael C. Smith, “Is it safe to be a Yankee in the Eastern District?”

The local attitude is not one of “knee jerk reaction” against Yankees or other big city lawyers, Smith said quickly. “It’s okay to have a funny accent.”

“The deadly mistake,” said Smith, “is to be discourteous. Don’t be a jerk to support staff or other lawyers. Just pretend your mother is sitting next to you. What would she think of your behavior?”

Smith also added that, given the size of the docket, it’s very helpful to have someone local. “We handle so many of these cases. We know the judge has seen a particular issue hundreds of times, and we can warn: Don’t file this or that motion. File this other motion instead. This is the way to make that issue or fact a winner for you.”

In addition, what local counsel in East Texas can provide is trial experience. “I had a case a while back with six lawyers on one side, and four or five on the other side. But I was the only one who had ever been to trial. I knew what was going to happen and when, what the court and the jury were expecting and would think, and I realized that there just wasn’t the knowledge of common mistakes that there was ten or twenty years ago. I felt like I was able to help my client get that win because of that.”

Practice real diversity

Sometimes trial teams “hire a woman or other member of a minority to sit there and do nothing. That’s very offensive to jurors,” Michael C. Smith says. “They have to play a role.”

But that’s an opportunity, he says. Smith recalled a trial team bringing in a minority lawyer shortly before trial, and he was concerned about what might happen. The lawyer wasn’t a placeholder and quickly showed a rapport with the jury that other members of the trial team couldn’t match. The trial team switched assignments during the trial and let the lawyer present closing, which jurors later confirmed was a key tactical decision.

“If that trial team had treated that lawyer as window dressing, they’d have lost that case,” Smith observed.

“If they’re at the table, the jury has to see them contribute to the team. And that doesn’t mean taking notes and handing up documents.”

Don’t be a fake

Sometimes parties pretend to be local. They put up a front in Tyler or Marshall. Nothing is surer to generate contempt.

“It’s okay to say ‘we’re a holding company,’” Michael C. Smith says. “Say ‘we own a patent and we’re here to enforce our property rights.’ But don’t pretend to be something you’re not. It’s the worst thing you can do.”

Smith recalled a trial early in his career when an expert for his client unintentionally testified to something that simply wasn’t true. “He had just gotten mixed up on some facts, and admitted as much later, but by then he was a dead man walking. The other side told the jury repeatedly that ‘if he’ll lie to you about that, he’ll lie to you about anything,’ and the jury apparently agreed. They had seen him appear just as sincere and truthful about something he later admitted was false as he was about his opinions in the case, and you just can’t survive that.”

In another case, a company president was on the stand. The company had rented office space in Marshall that looked like a research facility on their website. The company even had furniture delivered in boxes and crates. But on cross the president admitted that, not only had the company never unpacked the furniture, he’d never even been in the office. “The look on the jurors’ faces was something

I’ll never forget,” Smith said. “The case settled during trial.”

In yet another case, a plaintiff that shared a local address with a number of other entities and had been trying to portray itself as a local company put up a company logo during jury selection that Smith had never seen before. On cross, the plaintiff’s president cheerfully confirmed the first time he’d seen the logo was two days earlier and that it was prepared for trial. Smith was only halfway through his cross, but he closed his notes, told the judge he had no more questions, and sat down.

“I’d always wanted to do that,” Michel C. Smith confessed, “and this looked like the best opportunity I’d ever get.”

Three days later the Marshall jury found for Smith’s client, the defendant.

>>>

In the third and final part of this series on East Texas patent litigation, I’ll cover essentials for victory. (Subscribe to Beem on Patents so you don’t miss any of our practical patent blog posts.)

Why patent defendants hate East Texas (Part 1)

Tue, 01/31/2017 - 16:28

Why do patent defendants say such bad things about the U.S. District Court for the Eastern District of Texas?

I asked this question of Michael C. Smith, the noted lawyer and blogger from Marshall, Texas.

To prime the pump, I noted Texas Monthly calls his hometown “the intellectual property equivalent of a speed trap, a place where juries smack big companies with huge judgments.” See Patently Unfair (Oct. 2014).

“Man bites dog,” Smith replied. “It makes better news.”

Smith has nothing against Texas Monthly or other reporters covering the local patent docket. They frequently call him after reading about the docket on his blog.

He recalls being interviewed by Texas Lawyer after winning a defense verdict in a Marshall patent case the day before a patent plaintiff won a different case in the courtroom upstairs. But he noticed the same tendency to value the unusual over the usual. “Upstairs, the plaintiff won,” Smith explained, “and Texas Lawyer named the lawyer upstairs as their ‘Lawyer of the Week.’”

But defense verdicts? Texas Lawyer was uninterested, even though Smith’s defense verdict was the sixth in a row. “The news doesn’t report the 55,000 cars that went through the intersection without a wreck,” Smith observed. “The regular story is uninteresting.”

Patent Litigation in East Texas

Patent owners certainly like filing in the Eastern District, and the perception is that defendants are trapped there. But the reality, says Smith, is that motions to transfer out of East Texas are granted more often than not. “Defendants still just don’t like being here,” Smith admits.

Cases in East Texas are subject to judicial management. “Judges hold the parties’ feet to the fire, and East Texas judges are not intimidated by complex intellectual property cases,” says Smith. Generally the parties have to go forward.

And the Eastern District is less likely than most courts to grant summary judgment. According to Smith, the Court has a “well developed sense” of what a jury should decide. “Eastern District of Texas judges have a great deal of respect for the jury’s role under the Seventh Amendment, and if there’s a genuine factual dispute, they send it to the jury.” As a result, cases tend to go to trial.

Big Numbers or Small?

Contrary to popular belief, “awards tend to be on the low side,” says Smith. In patent cases, damages are usually not high “unless the sales numbers are high,” Smith explains. He recalls being in multiple cases in which “the plaintiff got 10% of what it asked for,” which isn’t an uncommon outcome.

Smith compared awards in typical patent cases with personal injury verdicts, in which even death or permanent disability still tends to result in a low number from local juries. “That’s not the conventional wisdom or what a lot of lawyers tell their clients,” he admitted, “but that’s what I’ve seen, over and over.”

Large damages awards might be seen in cases against Apple or Microsoft, or if the case involves a medical device. Such cases can generate big damages numbers simply because of the size of the damages “base,” meaning the dollar value of the products sold.

According to Smith, it is actually worth something to a defendant to have the plaintiff put a big number up. “As the saying goes, ‘pigs get fat, but hogs get slaughtered,’” he says. “Plaintiffs lose a lot of credibility when they ask for a number that’s easy to portray as excessive. If the defendant is reasonable, the jury will often be much closer to the defendant’s numbers.

While it is hard to generalize, Michael C. Smith referenced trials where the jury might come in at two to four times the defendant’s number, which might be 10% of the plaintiff’s number. But there are fewer data points on damages than there used to be, he noted, because these days most defendants win on non-infringement and/or invalidity. Therefore, there are fewer damages awards to examine.

Hold On For a Fast Ride!

Most cases go to trial on a fairly…

>>>

Now that we’ve named and eased your fears of East Texas patent litigation, turn to Part 2, How to Win. Don’t miss my next blog post: Subscribe to Beem on Patents.

About Michael C. Smith: The partner in charge of the Marshall office of Siebman, Burg, Phillips & Smith, a former Eastern District law clerk, Smith has appeared as counsel of record in over 800 cases in the Eastern District of Texas. He authors EDTexweblog.com, a blog devoted to federal court practice in the Eastern District of Texas.

Author’s Note: This article was finalized before the Supreme Court’s recent grant of certiorari in TC Heartland v. Kraft Foods on the issue of venue in patent cases. That case will bear watching in the coming months.

A version of this article was published by the State Bar of Texas, Section of Intellectual Property Law, in a “tipsheet” distributed recently to Section members.

The author thanks Michael C. Smith, the State Bar of Texas IP Section, and Section leaders George W. Jordan III and Michael D. Paul for their helpful input and edits. The author is responsible for any errors or omissions. Comments are invited.

Triumph of Genius

Fri, 12/23/2016 - 15:19

If you’re an inventor, engineer, or programmer—if you’re an entrepreneur, owner, or prime mover in a business—if you use technology to make better products for your customers—

Here’s a toast to you!

More than a toast, my gift to you today is one of inspiration—the true story of Edwin Land, Polaroid, and the Kodak patent war. It’s all written for us in the substantial book by Ronald K. Fierstein titled Triumph of Genius (2015). My gift, more modest in price than a book or a camera, is this article, essentially, a book review with valuable tips for inventors and business owners.

The story of Edwin Land is that of the invention and success of instant photography before there was digital. No one who saw the magic of Polaroid in, say, 1970, will ever forget seeing a photographic print emerge from a camera box and develop right in front of their very eyes. It’s still magic today, though, in one of many ironies, Polaroid has exited the business in favor of Fujifilm (see accompanying illustration) and the aptly named Impossible Project, which are competing to sell millions of new and refurbished instant cameras.

What did Edwin Land and his patented inventions accomplish? Polaroid Corporation had peak employment of 21,000 workers in 1978. Its peak revenues reached $3 billion in 1991. Today, after repeated bankruptcies, it is a shadow of its former self, as digital photography and smartphone cameras have relegated instant film to the status of a curiosity. The Impossible Project and Fujifilm are left to carry the torch, or, should I say, the light of instant photography.

The one-time giant Kodak has had its rise and fall, too. Founded by George Eastman in 1888, Kodak led the photographic film industry for the entire 20th century, hitting $16 billion in annual sales in 1996 before it was decimated first by foreign competition and then by the same digital technology that felled Polaroid.

Author Ronald Fierstein knows whereof he writes. He was one of the Three Musketeers, as he dubbed them at page 539 of Triumph, who supported patent trial lawyer Herb Schwartz in the trenches of Fish & Neave in litigating Polaroid v. Kodak.

The story of Edwin Land and Polaroid is almost literally incredible. Mr. Land was indeed a genius. For him to imagine and then to invent a film that developed itself was nothing short of astonishing. He patented that instant film technology, too, in the same way that George Eastman before him patented basic inventions in photography.

There are warnings here, too. There’s the danger of the upstart Polaroid going to the established Kodak for assistance and supplies. There’s the danger of being the established company and trying to crush the upstart only to be held fully accountable by the courts.

Accountable: On September 13, 1985, U.S. District Judge Rya Zobel held Kodak liable for infringing Polaroid’s patents. See Polaroid v. Kodak (D. Mass.).

I was there, in the U.S. Court of Appeals for the Federal Circuit, on January 6, 1986, when Francis Carr of Kenyon & Kenyon and Herb Schwartz of Fish & Neave presented their oral arguments in the appeal in Polaroid v. Kodak.

I was there in my capacity as law clerk to the Hon. Edward S. Smith, Circuit Judge, who with the Hon. Pauline Newman, flanked Chief Judge Howard T. Markey on the bench.

I read closely the appellate briefs submitted after the 74-day trial. I studied the several Polaroid patents held to be valid and infringed by Kodak. I saw the Federal Circuit uphold the district court’s injunction, which instantly (no pun intended) rendered useless the millions of Kodak instant cameras that had already been sold as well as the large inventories on the shelves of retail stores.

I read the newspapers and their suggestions of what Kodak should do with millions of now-useless Kodak instant cameras. One suggestion that still lingers in my memory was that Kodak should build a giant totem pole of plastic cameras in front of its headquarters in Rochester, New York.

The Federal Circuit’s subsequently issued opinion on the merits affirmed the appealed portions of the district court’s judgment in all respects.

I later watched the news unfold as the district court ordered Kodak to pay Polaroid over $900 million in damages. Yes, more than $900 million was actually paid by Kodak to Polaroid to avoid yet another appeal. See Triumph, page 504. (Even now, Merck is gunning for an even bigger payday.) Kodak incurred additional actual costs of the larger part of another billion dollars in removing instant cameras and film from shelves, shutting down factory operations, and settling class actions filed by unhappy customers. Id. at 501.

The irony of course is that instant photography and the two businesses that fought the war all ended up on the scrap heap. Id. at 515. (Who’d have guessed even two years ago that phoenixes would be rising from those ashes.)

Here are three lessons from Polaroid:

  1. Invent something,
  2. Patent it, and
  3. Make and sell it for profit.

See three steps to patent success.

One lesson from Kodak: Trample on your upstart competitor’s patents at your own peril!

Another lesson, from instant photography: Keep your eye out for the new, new thing.

May you have much success in your acts of inventing, patenting, and making and selling for profit.

 

 

Of patents and prizes, or are your engineers smart enough to invent?

Fri, 12/16/2016 - 11:56

Let’s say you own a business that makes something, whether it’s a software product or a hardware device. Your success depends on filling your customers’ needs better than anyone else. You innovate to make your products better, faster, cheaper. You solve your customers’ problems. That’s what your engineers and coders do. But you’re stuck on a plateau. Your sales are flat. Your new product pipeline is dry. Your competitors are stealing your customers with new, low-priced products.

Where will your help come from?

Three possibilities.

I.

Many business owners look outside, hoping the grass will be greener, that others are smarter, more creative.

You could offer a prize! This is the Wall Street Journal’s latest and greatest way to jump-start a moribund business. See “Facing an Idea Deficit, Companies Splurge on Prizes,” WSJ p. A1 (Dec. 10-11, 2016).

Perhaps the most famous example in history of a prizewinning invention, unmentioned by the Journal (maybe too long ago to be relevant), was the “sea clock” or marine chronometer invented by John Harrison in the 1700s. The prize was worth millions in today’s dollars. The only thing is that it took Harrison most of his life to complete and prove the invention to a skeptical Board of Longitude. King George III and Parliament had to step in to reward Harrison. A chronometer industry ultimately emerged. The fascinating story is told in the bestselling book Longitude, by Dava Sobel.

Crowdsourcing is a current fad in the category of prizes. Good luck with that. Aside from the messiness of IP and other issues, the fact is that the “crowd” knows very little about your industry and your customers’ needs. Maybe that’s why the Journal concludes that there is “little evidence that crowdsourcing” has done anything to alter the “innovation landscape.”

II.

Where can you find outsiders smarter than the crowd? Remember: They have to know your industry and your customers’ needs.

Ah, they work for your competitors! Go ahead, ask your competitors if they’d like to sell their patented technologies to you. I have made this ask, and with some success, believe it or not. But I can tell you from experience that most competitors are not friendly to such overtures.

You could hire their smart people to duplicate their products in your shop. Be careful: That’s a good way to get sued. I’ve handled these kinds of cases in court. Do yourself a favor and talk with me before you make the hire. There are better ways and worse ways to make job offers. Sometimes you’re better off to take a pass. Or if you don’t mind a good fight, at least be ready for it.

III.

That leaves your engineers and coders. Yes, I know, they’re not the smartest people in the world. They’re not inventors. Just ask them.

No, not me, they’ll say. I just solve customers’ problems. I just use what I learned in engineering school, or in coding, to solve the problem in front of me. Nothing new about that. I’m not an inventor. I don’t want to blow my own horn.

Before you give up on your own people, consider this: Your engineers and coders know your industry. They know the state of the art. They know your technologies. They know your products. They know your customers’ needs. And they know how to solve those problems.

That, my friends, is invention. And it might be patentable, which is a good way to protect your innovation, market leadership, sales, profits, and capital valuation.

For more on the sparsity of “big ideas” and the secret to spurring invention, see my article Patent Incentives, Innovation and Profits, published at Beem on Patents.

You can make your company so valuable that a bigger company will pay you handsomely to buy you. Or you can operate your company for a profit.

What better prize could you ask?

Patent Incentives, Innovation and Profits

Wed, 12/14/2016 - 20:02

“We’ve run out of big ideas,” the Wall Street Journal wails. The voice of Corporate America paints a bleak picture without offering any path forward. In this article, I will provide a simple formula for innovation, market leadership, sales and profits.

The Journal Complains of Complacency

The Wall Street Journal has published a series of stories in its Innovation Series (subscription may be required) as follows:

  • We’re Out of Big Ideas;
  • Silicon Valley Stumbles in World Beyond Software;
  • Big Pharma Outsources Science;
  • China Invents Again; and
  • Facing Idea Deficit, Companies Splurge on Prizes.

In “Big Ideas,” the Journal shows that today the U.S. has more technically trained people than ever before, with about 4% of the workforce now engaged in science and engineering jobs. Patents are “piling up.” Yet we’re gaining only slowly in productivity.

In its next story, the Journal trots out the accepted wisdom that Silicon Valley, namely, Google, Facebook and Amazon, can do everything imaginable in software, but it notes that real world applications like delivery drones are literally harder to launch. (Hint to the Journal: For hardware solutions, look at companies that make hardware, and you’ll find lots of innovative products that work, along with substantial patent portfolios.)

The Journal goes on, in another story, to explain that Big Pharma is having a hard time inventing new blockbusters, so they’re outsourcing the science to university researchers and small companies that are more nimble and more motivated to invent. But guess what? It’s hard to get agreement on who will own the “rights,” as the Journal says. Patent rights, I might add. That’s what separates a billion dollar brand drug from a generic that will sell 20 years later for 1/20th the price.

Then again, the Journal recognizes that China is inventing and patenting, even while it dismisses “many of these patents” as “virtually worthless.” (Personally, I wouldn’t be so quick to dismiss the Chinese or their patents.)

In its recent article on the “Idea Deficit,” the Journal says there are prizes galore for inventors. Unfortunately, as the Journal admits deep in the story, the prizes aren’t doing much good. Investment of $477 billion a year in U.S. R&D isn’t cutting it, “despite steady growth in new patents.”

The Secret to Spurring Innovation

The Government offers substantial prizes for corporate innovation. They’re called patents, and they fulfill the Constitutional mandate to promote the progress of technology and commerce by granting to the inventor the exclusive rights to the claimed invention for a term of 20 years from the filing date.

A patent on a worthy invention confers market leadership, revenues, and margins. If your company employs engineers or coders to make better products, you’re already well-positioned to innovate for customers and to patent those inventions.

I have seen companies that despair of inventions from their own ranks. Don’t underestimate your own people. They know far more about your industry than you’ll ever find through crowdsourcing. Your engineers and coders may not think of themselves as inventors, but they do invent better products for your customers, and they can do more with the right kinds of encouragement and guidance.

The key, of course, is to fill customers’ needs. This requires that incentives and rewards should be put in place to fill those needs with innovative new, improved products and to get patents to protect the company’s investments.

(If you’re wondering whether patent investments are right for your company, what to patent, why, and when, see my series on the 4 W’s of Patent.)

Leaders from Henry Ford (who demanded and got the V-8) to Steve Jobs have cast visions and molded their workforces to deliver the needed products.

But how are engineers measured and rewarded? They’re paid good salaries and given annual raises for cost of living. But salary compression hurts. There is not a lot of room at the top. Nor is there much reward for rocking the boat. They’re told to fill out mind-numbing invention disclosure forms, which they are asked to painstakingly complete and submit, perhaps never to hear anything back. Meanwhile, the message is, don’t let the current engineering project stall. And what’s in it for them? Just a lot of trouble for nothing.

How are in-house patent attorneys measured and rewarded? If they got X patents last year for Y dollars, this year they should get X-plus-one patents for Y-minus-one dollars. That’s a successful year.

No wonder Big Pharma farms out the science. In smaller companies, everyone has a stake in making innovation succeed, and they’re paid for the successes.

Here’s the secret for your company’s success: Knock yourself out to deliver new improved products to meet customers’ needs. Solve their problems. Provide incentives and rewards for your salespeople and engineers to make that happen. And patent the inventions that you intend to practice for profit.

If you’re serious about putting a real patent incentive program in place, let me know. I’ve trained the Army and other organizations, and I can help your company.

Grow your business by amending your company agreement

Mon, 12/05/2016 - 15:00

Business people: If you are regrouping to take your business to the next level, your form of legal entity and your company documents can be a help or a hindrance. This may be a good time for a check-up, and perhaps a tune-up, of your business structure and operating agreement.

This article is based on real world situations that I see confronting businesses in Illinois and in Texas. The businesses typically are organized as limited liability companies (LLC), a good business structure for small and mid-size companies. Many of the same principles apply to other forms of business entities and in other states.

Small and mid-size companies need IP and business

We represent many small and mid-size businesses that actually make and sell a product, which can range from industrial goods to consumer products to software. They typically employ engineers or coders to invent still better products to satisfy customers’ needs. They often come to us for intellectual property (IP) protection that will help them gain and keep market leadership, sales, and profits. The IP assets—patents, trademarks, trade secrets, copyrights—add to their capital valuation and attract investors and sometimes buy-outs.

IP is important but it isn’t everything. Business clients come to us for IP and they stay for a broader range of business-oriented legal services. What we find is that many companies need attention to their basic legal set-up and documents. In this article, I will focus on the LLC operating agreement and leading reasons for amendment. Other business agreements also are important and they often can benefit from legal review and revision.

Business success and growing pains

You might see yourself and your business in in this situation. You’re innovating. You and your product are better than the competition. You have revenues and cash flow. That’s all good!

Now, to take and keep the lead in your industry, you must make your product even better. It’s time for version 2.0. And this time you want to patent the improvement. That takes money.

So you’re negotiating to bring in another investor. Or a key salesperson.

But there’s a catch. They want a stake in the business: ownership (if they invest) or a share of the profits (if they grow the business).

Your company agreement might need some work

One might think that most people have set up their businesses properly. Not so! Mistakes are common.

The good news is that the sooner issues are identified, the sooner they can be fixed.

A limited liability company (LLC) is often a good choice of business structure from startup through maturity. It’s fairly simple and flexible and it can provide for favorable tax treatment. If set up properly, it can make the business attractive to investors and key personnel. Other structures can be considered, such as a sole proprietorship or an S or C corporation.

Let’s say you formed an LLC some time ago. Do you have a good operating (or “company”) agreement in place?

The operating agreement can and should set ground rules for ownership and management. It’s tempting to gloss over those words, but let’s dig a little deeper. By ownership, I’m talking about investment. If it’s your company, you have invested money, blood, sweat and tears, and you’d like to protect that investment and see it grow. You also may want to attract other investors and key personnel. Your current LLC operating agreement should, but may not, be a good vehicle for those valid purposes. As for management, well, somebody has to run the company, and that somebody might be you. Does your operating agreement give you the authority to run the business?

The operating agreement also can provide for accounting and tax considerations. It can set the rules for how a member withdraws, e.g., whether, how, and to whom they can sell their shares. It can insulate LLC members from some financial liabilities. It also can provide the terms for how amendments are to be made.

Operating agreements are commonly amended. Just as businesses find it necessary to change direction, so should agreements be amended to keep up with the current reality and to provide for intended growth.

From a growth perspective, a good operating agreement can help make your business attractive to investors and key employees. And if amendment of the agreement will help you accomplish your goals, amendment should be considered.

Two common oversights in LLC setup

Among other issues in the setup of an LLC, these two are common:

  1. Picking the right company name and clearing and protecting it as a trademark; and
  2. Choosing the right form of management for the company.

We’ll address each of these issues in turn.

1. Selecting the right company name/mark

When you started your business, one of your first choices was to pick a name for the company. You are not alone if you made a less-than-optimal choice of company name. In fairness, there’s more involved than first meets the eye, and it take a combination of business, legal, and IP thinking and action to select and protect a good name for the company.

Most startups pick a name that isn’t distinctive. Or one that fails to suggest their line of business and their unique selling proposition. The former error makes the company name hard to protect; the latter can make the name less valuable to your business than it otherwise might be.

Many business owners think that just because the Secretary of State (in your state) agreed to register the company name, it must be cleared and protected, i.e., as a trade name or trademark. That’s logical, but incorrect.

A company name is a trade name, and it’s usually also used as a trademark or service mark. Marks should be cleared before they’re used, and federal registration in the U.S. Patent and Trademark Office should be strongly considered for several reasons including deterrence of knock-offs.

Most likely, your business has evolved into something different from what you first planned, so the company name might need tweaking anyway.

Now may be an opportune time to clear a company name/mark properly, and to file for a federal trademark registration. If you select a new name, that should be reflected in an amended operating agreement and the State may need to be informed.

2. Choosing between member control and manager control

When you started up your business, you faced this question: Who runs the business?

A common choice is a member-managed LLC. That’s usually the default under the laws of most states. But management by all the members is difficult to accomplish. It can be hard to get everyone together to make decisions, let alone to reach consensus. Quarrels can occur, and the business can suffer from paralysis.

A manager-managed LLC sometimes works better. It’s especially appropriate when one person puts in most of the capital and takes most of the responsibility for running the company. It also tends to be the reality. Even if other investors own the majority of the stock, someone—often one person, and it might be you—needs to run the company, and especially to make the day to day decisions. (Under the terms of the typical agreement, owners also can change the manager.)

If you’re the manager, does your operating agreement give you the power to hire and fire? Does it give you the authority to negotiate and enter into business agreements with customers and vendors? Does it allow you to buy and sell equipment and furniture? To pay the bills?

Here’s what often happens. The LLC operating agreement might say that the members (or some majority of them) have to agree on everything. The reality often is that a manager just does what needs to be done. This is a recipe for conflict, either now or down the road.

The choice of control—typically either by the members or by a designated manager—along with many other choices in the setup and operation of the LLC—should be documented in the operating agreement. If the agreement doesn’t match the reality, one or the other should be amended. (A legal agreement may be relatively easy to revise, as compared to changing the reality of the way a business operates.)

Put agreements in writing, get them signed, amend as needed

Some people try to make the operating agreement do too much of the work. Some of the details are better left to employment agreements, buy-sell agreements and the like. Covenants not to compete might be appropriate, depending on the situation and the state. Non-disclosure agreements (NDAs) and other provisions concerning intellectual property ownership and assignments can be critical to the health of the company. Purchase orders and purchase-and-supply agreements all have the power to bolster or to detract from your bottom line and your assets.

Benjamin Franklin, who retired from business at the age of 50 to devote the rest of his life to science and government, attributed much of his success to clear written agreements with business partners. He had an out-of-state partner before the advent of the Internet. If he could document and conduct a national business, you can too.

Do your legal documents match the reality of what your business has become? Your documents should reflect how the company is actually owned and managed.

Does your LLC operating agreement provide the flexibility needed for your current and anticipated needs? If there is a gap, it might be appropriate to amend the documents to match the reality and the intended direction of the company.

In the absence of good, written, signed agreements, disputes between members can create a crisis, and the result might be determined by defaulting to your state’s laws. Such determinations can be imposed by a court. And that might not be pretty.

Why it matters

Well thought-out and carefully tailored agreements can help your business succeed, attract and keep investors and key employees, and minimize squabbles now and down the road. If your business has changed, or if you are planning to change, you might benefit from review and amendment of your documents including your LLC operating agreement.


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