Patents are a Bad Metric of Innovation

I ran across another article this weekend touting a region’s innovation as measured by their huge patent per capita number (the number of issued patents divided by the population in the region).  I am reminded of the adage that just because something is easy to measure, that doesn’t mean it is a useful metric.  Patents are used as a metric of innovation primarily because it is some of the only public innovation data we really have available.  There are correlative studies showing some relationship, but there is a big difference between a rough correlation and a conclusion about a region or company’s actual innovative output.

I am reminded of a large company event where the company’s General Counsel was presenting patent filing numbers and making pronouncements about what that meant about the creative output of the company’s R&D efforts (and employee inventors).  I was sitting in the back watching.  The engineers were agitated, deciding that the GC was clueless or, worse, getting angry and offended about patent numbers being used to judge their contribution to the company in such a public way.  The backlash from that meeting in the engineering community was not pleasant.  The engineers knew what every in-house patent manager knows.  Patent output in any given company is more closely tied to staffing levels, incentives for patents, budgets, and the patent culture in the company than specifically with “innovation”.

Those engineers saw the drop in patent numbers as correlating to increasing product delivery pressure from thinly staffed teams.  The innovations were still in the products, but there was no way they were using their evenings and weekends to fill out patent forms.  Worse, the patent team had had its budget slashed and could only afford fewer patent filings, so even if engineers submitted ideas, the patent team wasn’t filing on most of them.  The invention rejection had created a downward spiral in idea submissions.  No one likes rejection.

For a mature technology company, the number of patent filings is really just a choice about resources.  Very few have the goal of truly maximizing patent numbers–the system has gotten too expensive with too low return on incremental patent investments.  Yes, you need to have a baseline of technically creative people coming up with new stuff to file for patents, but most technology companies have that since it is the lifeblood of their products.  Deciding what to actually spend on patents is about allocating money that could otherwise be spent on many other corporate priorities.  Increasingly, that money is much better spent keeping dangerous patents out of the hands of patent trolls.  That doesn’t make large companies less innovative, it just means a change in their budgeting priorities.

Similar rules apply in universities and other pure research organizations.  Every dollar spent on patents is a dollar not spent on research (or a new building).  There was a “more is better” movement for a while in some (well-funded) organizations hoping to score big in the licensing lottery while giving leaders an easy success metric to tout.  But it wasn’t sustainable.  Now, the question is how few patents can translate into the most commercialization deals.  Once you can get a private company (licensee) on the hook for the costs, it is great to pump up the patent filings.  But until then, who can afford it?

Which brings us to startups and independent inventors.  Their biggest reason for filing or not filing is generally money, closely followed by personal or business philosophy on whether patents are a good idea in the first place.  Venture funded companies may have the best correlation, just because they are usually encouraged to get a few patents if they can (with the resources to do it), but few investors want a small company spending too much time and attention on patents.  But some of the most innovative companies out there, don’t pursue patents because they distract from execution and are viewed as too slow to be relevant.  And of the patents that are filed, a lot of the “inventions” coming out of independent inventors, startups, universities, and established companies are worthless–representing no real innovation at all.  Some studies put the ratio of worthless patents around 80%–pretty substantial noise for any metric.

Patent numbers are interesting.  But like all metrics, you need to really understand the system behind them and be careful about your assumptions.  Don’t believe the hype about patents making one region or company more innovative than another without more data.

FUD and Patents

FUD = Fear, Uncertainty & Doubt

Wikipedia identifies FUD as “a tactic used in sales, marketing, public relations, politics, and propaganda.”  While this is probably accurate, it is also an unintended consequence of system complexity and human perception–which might explain why it is such an effective tactic.

I was recently reading through a comment thread related to a news story about the patent industry.  The story did not paint patents in a very favorable light.  One of the commenters called out the authors of the story, calling it something like “the worst patent FUD” the commenter had ever seen.

First, this is unfair in that I suspect the author was in earnest, trying to expose some legitimate weaknesses and concerns about the patent industry.  The story may have caused fear, uncertainty, and/or doubt, but patents aren’t really sexy enough for journalists to intentionally use sensationalist tactics on.

But even making some allowance for hyperbole, I wonder whether the commenter understood the full ridiculousness of the comment.  The patent industry is largely fueled by FUD.   FUD is the stock in trade of patent attorneys (and attorneys generally).  The basic purpose of the profession is to help fearful and uncertain people deal with a complex system that cannot be navigated without legal training and years of experience–all of it based on a doubtful understanding of the technology, markets, and actors in an ever-changing innovation ecosystem.   When it comes to marketing patent services and advising patent clients, your only options are really FUD or completely unrealistic promises of wealth and predictable outcomes.  I do not believe that any reasonable assessment of the U.S. patent system and the industry it has spawned can escape the FUD inherent in it.   Short of outright lying, I don’t know that any critic of the system could be guilty of encouraging more FUD than the system itself does.

I will address the many layers of uncertainty and why they should fuel fear and doubt in a future post.  In the meantime, you should consider your appetite for risk and uncertainty.  Yes, there are many strategies, tactics, and practices that can mitigate, assess, and manage patent risk.  I hope to share as many of them with you as I can.  But in the end, it is a complex and imperfect system, struggling with dispute resolution, technology, and economics at the edge of our understanding.  Dealing with patents requires the ability to see past the fear, manage the uncertainty, and keep doubt from undermining your commitment to patents as business tools.

When Patents Attack! Review

Back in July of last year, NPR ran an episode of This American Life about patents.  I found out about it after it inspired an infographic on FrugalDad.  It’s an enjoyable listen and popular coverage of patents is important to consider when you are managing a patent portfolio and the invention culture within a company.  Here is the link if you missed it:

http://www.thisamericanlife.org/radio-archives/episode/441/when-patents-attack

It opens with the classic tale of a startup that is the victim of a patent shakedown.  After that, it is pretty much investigative reporting about Intellectual Ventures and the implications of their business model and that of Patent Trolls/NPEs.  Even as a patent expert who knows all of the caveats about the fundamental value of the system and the unfairness of anecdotal analysis, the report left me feeling bad about the patent industry and where it is at this moment in history.

If you are responsible for patents in your company, you need to understand this perspective.  It is also worth investigating Intellectual Ventures.  As a patent aggregator, they can be an appealing route for monetizing unused patents.  If you believe in the value of your patents and what they have contributed to the state of the art, then there should be no shame or hesitation in using an agent to license others to productize your invention.  But there is a sense that it isn’t what IV or other Patent Trolls are really doing.

The Problem with Patents (Infographic) Review

If you have any interest in managing patents for your business, it is important to be aware of popular perception of patents and how the world thinks and communicates about patents.  I posted “The Problem with Patents (Infographic)” from FrugalDad on Monday.   Here are my thoughts on why it is amazing.

First, I am amazed that a blog on “Insights on Money, Career, and Coupons” would actually produce such a thing.  The money in patents is isolated to a pretty small group and the careers even more so.  I’m not aware of any patent coupons (though there have been some fairly striking patents and lawsuits related to domination of online patents–but that is old news).  The infographic isn’t entirely accurate, but it fairly represents a perception of the patent system and patents more generally.

Even more amazing to me was that it was actually inspired by an NPR piece.  Now while I realize that NPR is probably not the most popular media outlet in the world–it is big, influential, and has great reach among certain demographics.  That NPR would do a patent exposé was intriguing.  My plan is to review that piece next, but back to the infographic.  So, what does the infographic actually communicate?

The title says it.  Patents are a problem.  I think it would be more accurate to say the U.S. patent system and the business of patents are a problem, but can forgive the desire to simplify.  Taken point-by-point:

#1. There are a lot of patents.  The infomercial demonstration is pretty cool, though suggesting the one patent per product fallacy.  In the end, the real point being made is that there is a lot of waste in patents.  The MCAM quote on 30% redundancy is a nice tidbit.  I have worked with the MCAM folks and their analytical technology is interesting.  They don’t detect actual redundancy, but there is a legitimate claim to conceptual overlap.  By most analysis, the level of waste is much higher than 30%, probably closer to 80%.

#2. Patents cover fundamental technologies (particularly online).  The seems to be intended as an indictment, but why? There is little doubt that the internet is the biggest source of innovation in the last decade or two and, if you think something is worth patenting, it really should be fundamental.  But the point that it is now a huge problem for companies to navigate the intenet patent thicket is well taken.

#3. Intellectual Ventures is big, scary and of ambiguous intent and value.  There is a lot that is pretty damning about the way IV operates and it exposes many of the problems with the patent business.

#4. Patent lawsuits are big, expensive, and growing and they favor non-practicing entities.  Profit destruction may be an unfair characterization of patent judgements, unless they really are all shakedowns, which they aren’t.

#5. The Selfless Inventor is an interesting close.  Is the point that we would be better off without any patent system at all?  I think a more appropriate point would be that inventors have a choice about how they protect and commercialize their invention.  Giving it away is an option and, as the open source movement shows, can have its benefits.  But it doesn’t work for everything.

So, what should tech executives take away from this?  First, that the pain of dealing with patent risk is known and widely shared.  Second, that even within your company there is likely to be some hostility to patents and how they are used.  Make sure that your use of patents is for the right reason–to support innovation and the delivery of products to market.