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?"

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.

How to Avoid another Firepower

The backstory here is a complex web of companies known collectively as Firepower which has, for at least the last 10 years, been claiming they have a "fuel pill" technology that decreases a car's fuel consumption, decreases emissions and increases performance. No credible proof of these claims has ever been tabled, while hundreds of investors cluelessly shelled out up to $120 million Australian dollars.

The following is a synopsis of a Guest Column published in the Jan 28, 2010 issue of the WA Business News.

How to Avoid another Firepower

The Firepower story was possibly the first Australian newspaper article I read upon arriving on these shores nine years ago this March. I was deeply annoyed by it then, and continue to be so today.

Hadn’t we learned from the Dot-Com bubble and the Enron disaster that a business based on fiction is simply never a good investment at any price? Aren't such businesses and their claims worthy of harsher scrutiny in the press?

Without individual “sophisticated” investors handing over at least $120 million to fast-talking promoters without any proof that the product actually worked, there never would have been a first Firepower.

Properly-conducted tests that would demonstrate conclusively whether the product worked could easily have been performed, and should have been insisted upon by investors. In one week and for $3000, we could have tested two identical hire cars using two drivers, locking fuel caps, and a properly-designed double-blind experiment. But for investors to realize that this is both necessary and possible, they must possess at least some basic science literacy.

Then, for the work to be carried out, a person is needed who has the right training, experience, and understanding of the basics of commercial research.

When science has a more prominent place in our everyday social discourse, then fewer people are taken in by jargon, wild claims, or fishy statistics. It’s not a matter of being super brainy, either. We can easily agree on what constitutes a fair and conclusive sports contest, but are unaccountably fuzzy on what constitutes a fair and conclusive scientific test. There’s really not that much difference.

Another consequence of greater scientific literacy in the community would have been less media indulgence of Firepower’s claims without proof. Newspapers balk at printing anything even remotely technical-sounding for fear of alienating their readership. Yet in their pages we regularly read quite sophisticated financial, legal and political information that is just as demanding intellectually. If that irrational fear of science were set aside and if editors and reporters were themselves more scientifically literate, then patent rubbish like perpetual motion, cars that run entirely on water, and magic fuel pills (not to mention a whole host of health-related mumbo-jumbo) would not be reported as though it were factual.

When the public reads those sorts of naively credulous articles in print without expert comment or mention of proven facts, the unchallenged claims become endowed with authority and legitimacy that are undeserved. As a result, the public becomes even more confused about the facts of nature, and even more money gets wasted on nonsense.

But who can the media turn to for reliable information? Who can perform the kind of independent testing investors need? In places where more businesses have the foresight to invest in their own internal R&D operations, reporters, managers and investors have closer relationships with experienced research specialists. Engineers and scientists who are especially trained in for-profit commercial research and product development are available to respond to questions with straight, plain-English answers. One such question might have been, “Does this fuel pill thing have Buckley’s chance of actually working?”

Universities and the business community are worlds apart in terms of culture, goals and incentive structures. This means that technology research expertise is not always well integrated into the business and investing community.

Because of this, businesses and investors may remain unfamiliar with ideas which are standard best practice in R&D. An example is the R&D third-party review (see an earlier post). Someone who is neither the customer nor the vendor and who possesses the relevant expertise provides an independent, confidential assessment of R&D plans, progress and results. Where I come from, managers and investors absolutely insist on having these at regular intervals. They do it because in the long run it’s cheaper than not doing it.

Far from being unique, Firepower is only the latest case of money lost on a fictitious product wholly unable to back its claims. In the 1970’s, an investor friend of mine lost a lot of money to a man who claimed his special device could produce unlimited free energy. When I explained to him in detail why that sort of thing doesn’t work in this universe, he said after a few choice words, “Where were you in 1975? You would have saved me $300,000.”

Sadly, this sort of scam will almost certainly happen again. Rather than more laws and greater policing by the State, I suggest that a higher level of science literacy in the community would go a long ways towards protecting the life savings of everyday mums, dads and grandparents. It begins with an earnest investment in science education in schools at all levels, and is helped along by greater acceptance of science and its language in the news media.

If the ultimate outcome of the Firepower saga is that we learn these lessons, then it may have been money well invested, after all.

Can't we just switch to solar power now?

A friend recently asked my opinion of an idea he had for obtaining some otherwise unusable land at little or no cost.

"...then I'll cover the entire property with solar panels. What do you think? Pretty smart, eh?"

He assumed, as many do, that land is the primary cost of solar electricity generation. You need lots of it, true. Huge amounts. However, setting aside the cost of real estate entirely, solar electricity is still the second most expensive form of energy known to Man. What's number one? Nuclear, of course.

What makes it so expensive? Energy from the sun is free, isn't it? No coal or gas to buy? Sure, but all energy is free. You only need to dig it up or pump it out of the ground. The cost is all in collecting it, storing, transporting, and converting it into something we can use. The price on the other hand is determined by the market.

Solar panels for making electricity are still expensive. It's not a question of efficiency, either. You can get more efficient panels, but doubling the efficiency right now more than doubles the price of the panel. Laboratories are developing more efficient panels as we speak, and I can all but guarantee they will be more expensive, too. Will mass production reduce the cost of panels? It hasn't happened yet. Hopefully it will. Supply helps bring prices down, but demand can push them right up again.

When you buy solar panels, you also need voltage regulators and current converters (DC to AC), plus other bits and pieces. Add up all that, then work out how many kilowatt-hours the equipment will return over its service life (typically 20 years). You'll get 5 or 6 hours of peak output per day unless you pay even more for movable panels, increasing the cost even further. You'll still get at most 8 hours of output near the rated capacity. We're even ignoring the possibility of cloudy days! Now that's optimistic.

Therefore for at least 16 hours out of every 24, for the entire lifetime of this considerable investment, you are getting zero return. Nothing! Idle capacity.

When I work out the cost of the energy produced, I get unreasonably optimistic figures around $0.50 per kWh. Don't even think about maintenance costs, business overhead, transmission costs, land costs, or leasing the space on buildings. And forget about decommissioning and disposal - that's somebody else's problem, right? In addition to having invested all your money in solar panels, you'll still need some other way to make electricity at night.

Wind? That's gonna cost you, and it will STILL be intermittent. Batteries? You've got to be joking. The cost of batteries compared to their short service life makes that unthinkable. And don't get me started on the environmental impacts of battery manufacture and disposal.

When we consider the complete picture of Global Warming and Peak Oil, here's what I tell people to do to get themselves ready. Take your electricity bill, your water bill, heating fuel (gas or oil), and the cost of filling up your car. Throw your grocery bill in there, too. Now double each of them. Done that? Good. Now put another zero on the end of each figure.

That's what you'll be paying in another 20 or 30 years. When all resources taken together are that expensive, then solar electricity will start to look good by comparison. And, you might want to start now figuring out ways to heat and cool your home without electricity or fossil fuels. Building smarter buildings is a good start. Insulation. Double-paned glass! Thermal mass. Get used to it.

If I were to invest in solar panels, I certainly wouldn't leave them out in a vacant block. Too much opportunity for vandalism and theft. Put them on the roofs of buildings! The extra shade they provide will be welcome in a few years.

The Value of Third Party Reviews

When I learned the art of R&D from experienced masters, they spoke little on the subject of Third Party Reviews (TPRs). They said little, but they always insisted on having them!

Actions speak louder than words.

The first-party review is when the engineer or researcher checks his or her own work. A second party is either a co-worker, a boss, or the customer, who looks over the work and approves or critiques it.

A Third-Party Review is when an independent outsider with no direct involvement has a look and points out the obvious that the others were too close to the problem to see. It's a matter of perspective!

A TPR is very useful for gaining confidence in the direction that a project is taking. In management, the TPR is recognised as a best-practice. It may even be mandatory before releasing additional project funding or at other key gateways.

TPRs are also valuable for picking up errors that were too obvious to be noticeable to those making them. Cross-pollination with other disciplines is another benefit, and tapping into the creativity and experience of someone outside the immediate field is a third. For these reasons, TPRs are also an Engineering best-practice, apart from management requirements. Even if the boss didn't insist on one, many highly experienced and highly qualified engineers rely on them.

TPRs can encompass an engineering design, analysis, recommendation, or a finding. They can also be useful for checking the validity of a test design, procedure, or data analysis especially if those involved in doing the work are not particularly trained experts in testing.

I did not realize the full value of TPRs until I came in contact with businesses who did not use them routinely. Only then did I see how much time and money they can save, as businesses who did without found themselves struggling and failing at R&D. Is it possible that a technique that is universally accepted and valued is still unknown in some parts of the world?

How to choose a good TPR provider:

It may be someone in the same company with suitable qualifications, but working in a different department.

Retired engineers are often good, if they have kept in touch with current technology.

Engineers from an allied company that is neither a vendor nor a customer nor a competitor can perform the role quite well.

Engineerng consultants usually fill the gap when no other suitable person can be found. But Buyer Beware! Choose a consulting engineer who is highly qualified, highly experienced, and a very good communicator.

And (ahem) humble, too.

But isn't it expensive? Won't the company go broke paying for consultants? Ask someone whose company went broke because they couldn't get R&D results in time. Was the few dollars they saved trying to do it all themselves worth the business? They would be totally embarrassed to know how little money they "saved" by not getting the assistance that might have saved the company. Ask me how much I charge. Go on, ask.

Specialist Project Management for Research

We understand that Project Management is necessarily a distinct activity from Business Management. One is concerned with executing regular business activity in an effective, sustained manner, and the other is concerned with completing projects that have a beginning, a middle and (hopefully) an end. One of these tries to maintain and improve an activity indefinitely, the other tries to bring an activity to a close, hopefully before the deadline and within budget. Although it isn't explicit in the title, excellent Project Management is nothing without excellent Project Leadership as well.

Are there different kinds of Project Management? Yes. Every kind of project whether it be building construction, transport, oil & gas, power generation, resources, or smaller projects like product development, launching a new business or publishing a book each requires a unique kind of project management and leadership.

Here's one that not many people have heard of: Research Project Management. This is an important one not to miss. Project managers who are very good at the other kinds of projects in which the final product is a physical object, a road, bridge, office tower, power plant, uranium mine or latest model automobile, often have difficulty adapting to research where the final product is knowledge.

Research Project Management is a unique discipline compared to the rest. It requires specialized training that other kinds of management or even project management do not receive. It also requires more experience, general knowledge, technical knowledge, insight and communication skills.

Symptoms of a failing R&D project include lack of progress, an endless chain of failed prototypes, vague direction, unexpected setbacks, a poorly understood technology, a frustrated technical team, or an inventor who keeps heading off in new directions.

If you detect any signs of weakness in an R&D project, it may be because the right kind of project management is not involved. The solution does not necessarily require a complete change in leadership, but more often needs only advisement input from someone with the right experience in Research Project Management.

Bursting the Bubble

In this line of work I am occasionally forced to burst someone's bubble when they come to me for an evaluation of an invention. I try to be kind. A few days ago, however, my blundering burst someone's bubble so dramatically and so suddenly that you could almost hear the *POP* and a low hissss as the inventor's ego slowly deflated.

While participating in a panel of evaluators (and under a signed confidentiality agreement), we listened to a budding inventor describe his new idea. Only about 5 seconds into the description I piped up, "Oh, I have one of those at home!" Another panelist reached into his bag and produced something very similar to what the inventor was describing.

He sat in stunned silence (except for the aforementioned *POP* and hisssssss), then he said, "Wow. I've never seen one of these before. Honestly." There was a discernible lack of confidence in the way he walked out of the room, and I felt responsible.

For a moment, at least. Then I remembered that his experience was created in his own mind and by his own actions or omissions. No different from everyone else on the planet.

Why do inventors fear to take that vital first step? Are they afraid of what they will find 9 times out of 10? When an inventor has a new idea, the first thing to do is google it and get a feel for what's already out there. This has several advantages.

1. It saves you from re-inventing the wheel or other similar items that already widely known.

2. Filling a gap in the marketplace is far easier when you know the marketplace.

3. No inventor ever has just one idea, but many have only one idea at a time. The sooner you disposition your present idea, the sooner the next (possibly better) one will come.

Therefore, do not delay in evaluating your idea! Search the internet for it, and you don't find it, begin evaluating its commercial potential. The following document can help:

Invention Evaluation Checklist (pdf, 64 kB)

Getting an independent expert opinion is helpful, too. But be careful of "experts" who will tell you only what you want to hear in order to get you to spend more money. Invention development businesses can be useful for some people, but they are none to discriminating about whose money they take. I have seen some truly pointless inventions come out of these businesses (at the inventor's expense) that will never return the investment.

I would rather burst someone's bubble in the short term and help them move on to something worthwhile than either stand by or actively participate in that person going broke on a bad idea.

So, friend, if I ever need to give you bad news about your invention, I hope you understand that it's because I care.