Monday, March 22, 2010

To Patent or Not to Patent?

Inventors and innovative business owners ask me this all the time. My response is this:

Are you even ready to ask this question?

Far from a dodge, I believe this is the correct process that produces the best, most cost-effective outcome in the long run. Too often the question of whether and how to patent is regarded as the central issue around which the entire project revolves. I believe this is a mistake.

Your Intellectual Property (IP) strategy, once it is formed, may or may not include patents, copyrights, trademarks, registered designs, trade secrets, moving targets and other tactics. The decision to patent is just one little component of an overall IP strategy.

Your IP strategy is in turn just one little component of your complete Business Plan. The Business Plan must summarize and outline how exactly the idea or invention is going to bring money in the door. How much money? From where and from whom? For how long? When you have realistic answers projected for these questions, you are now prepared to think critically about the IP strategy. How does the inventive step actually contribute to the business' income and how critical is it? How long does the novel element of the product need to be protected?

Once these questions have been addressed in your written IP strategy, you can think about how to accomplish those objectives. Consulting with a patent attorney is a good step. Be aware that many are qualified to advise you on whether or not the IP is patentable, but not necessarily on whether or not you should do it. Usually they can advise you on what form the protection will take and whether a given form of protection will meet your known IP objectives. The better you know your own business objectives, the better the patent attorney will be able to help you.

That is why I suggest that you start with a business plan, develop the IP requirements, and only then are you and your patent attorney prepared to answer the original question.

One major misunderstanding of patents was summarized in a question asked by a backyard inventor: "I now have a patent, so when does the government start paying me for it?"

Oooh. Sorry to burst your bubble, mate. A patent is not a golden ticket to wealth. Only a successful new business resembles that vision, and only faintly. Patents are not enforced by governments, but by YOU the patent holder, and your team of lawyers. It will be your responsibility to be on the watch for, to seek out, track down and prosecute any infringers in civil courts. It will also be your responsibility to defend your patent against others who claim it infringes on THEIR patents. These kinds of lawsuits are common, and many are nuisance threats hoping for a quick easy payout from you. But each one costs you money in the form of billable hours every time your attorney takes your phone call or responds to an email.

Is it possible to manage without patents? Yes, I know of instances, and some very successful ones. If the product's innovative step can be concealed, or is actually part of the manufacturing process that someone purchasing the product would never see, then you can simply keep it a secret. It will take competitors a few years to work out how you do it, but by then you're onto something else and improving your process further still.

It is also possible to be first to market and establish a respected brand image. Cheap imitations will crop up, but there will still be a market for higher-margin original products. Consider Swiss watches, for example. A high quality mechanical watch can fetch tens of thousands of dollars, even though a cheap $2 digital watch is actually far more accurate. Establishing such a desirable brand can take decades, however.

Or, why not simply make money on a new product for the 6 - 12 months it takes for cheap copies to show up, then switch to the next innovative product, or offer your customers some new innovative advantage? If a product's total return on investment over the life cycle is not significantly larger than the cost of obtaining and defending a properly-written patent, then it's simply not worth doing. My estimate is that you should initially set aside $200,000 for your patent attorney should you choose to patent.

To patent or not is the wrong question to start from. First ask, "How exactly will this invention make money, and how much?"

Sunday, March 21, 2010

A Nuclear-Powered Argument

On 4 March 2010 the WA Business News published an opinion piece I wrote about the hidden costs of nuclear energy to the taxpayer, and about whether nuclear energy was a good choice for Western Australia.

I received a very rude email from a politician who had taken great offence at my stance on the issue. Among the hidden costs I highlighted was the cost of decommissioning a nuclear plant at the end of its service life. The cheapest way is to simply lock the doors and go away. But even that strategy is expensive, usually to the taxpayer, because SOMEONE has to maintain the site, and SOMEONE ends up owning the property without the possibility of doing anything useful with it for quite some time to come.

Dr. Dennis Jensen, MP, was outraged and reminded me that many old nuclear sites have been rehabilitated over the years. Well, duh! I don't disagree with you, Dennis. There most certainly are many more expensive ways to decommission a nuclear plant besides just locking the doors. The point is that it costs money, and it's a cost usually borne by the unsuspecting taxpayer.

Dennis provided ample data to support his belief that nuclear power is actually quite cheap. The data comes courtesy of the manufacturers of nuclear power plants, so we know they aren't biased or anything.

Cheap for who? For the energy companies, maybe. But not for the taxpayer. The costings based on best-case scenarios do not include the cost of financing, overseeing, administering, providing security, building infrastructure and a host of other functions that governments habitually do in relation to nuclear energy. Interestingly, Dr. Jensen had nothing to say on that subject.

But the real point ignored and sidestepped, in typical politician fashion, is whether nuclear energy is a good fit for Western Australia.

WA is a state of around 2 million people with a land area of about 2.5 million square kilometers. That's about 1.7% of the Earth's land area, with less than 0.03% of the population. Half of that population is centered around Perth, leaving large swaths of the rest of the state virtually uninhabited.

WA does not have a large industrial base, and is by no means a "24-hour economy," since most businesses including large supermarkets must, by some ludicrous outdated law, close by 6 PM nightly. There are many mine sites are spread out around the state, and most do not have access to the integrated electricity network. They often rely on diesel generators.

Nuclear energy is primarily a baseload supplier of electricity. The economics of nuclear energy rely on scaling up. In other words, it's more affordable when you build the biggest power plant that you possibly can. As long as you're going through all the expense of making a nuclear reactor anyway, you may as well make it huge so it can pay down the mortgage faster.

WA's energy consumption consists of mainly peak power with a relatively low baseload requirement. Why, then, should WA consider installing massive baseload electricity generation capacity in the form of massive nuclear generators? Even if it were cheap, it would be a bad idea.

Another essential factor is geography. Nuclear power economics rely on the ability to sell excess electricity on an open energy market at a spot rate. On a large interconnected grid system,there will always be some energy provider somewhere having a problem meeting their own needs and will effectively have to buy electricity for their customers elsewhere.

In WA, there is only one energy retailer. WA doesn't have any close neighbors to whom it can sell electricity. The WA electricity network is tiny by international standards, and is completely stand-alone. It therefore has no capacity to buy or sell electricity, but must use all it can make and make all it can use. Nuclear energy just doesn't make sense for a market like that.

I am neither pro-nuclear nor anti-nuclear. It might be right in some situations, it might not be in others. Some technologies and reactor designs might be safe, others might not be. But the factors that help make nuclear power cheapER are objectively absent in Western Australia. For WA then, nuclear energy would be an expensive and wasteful exercise. Of this, there is little doubt.