A famous song entitled “When You Believe” by Mariah Carey and Whitney Houston is about believing in yourself and not losing hope. When you are working on a new idea and blazing a new trail, your self-belief and your passion drive you forward, and inspire you and others around you.
Passion is required, but passion alone is not enough. True passion will make you get up early in the morning, stay up late at night, or work for free. However, in addition to pursuing the ideas that you are passionate about, it’s equally important to take steps to protect your ideas. In a recent post, “Doesn’t #NFC Stand for National Football Conference?,” I wrote about our early entry into mobile payments. I shared that, “In addition to taking action, risks and being customer focused, we also invested heavily in IP.”
Investing in IP is especially valuable when you are early in a market. It’s a mixed blessing though. On the one hand, it gives one an opportunity to file patents with broad claims, which is great for those who recognize the value in that strategy. For example, one of our early investors and board members was Chuck Russell who was one of the first CEO’s of Visa and reminded me of John Wayne. He was a great guy – very smart, charismatic, and honest. When I gave him a presentation on my company, which included one slide on the patents that we had filed, he asked, “Young lady have you ever heard of VHS and BETA?” I replied of course. He then went on to tell me that while VHS won the video tape war, because BETA had a patent on the technology, they were able to close their office and set up a PO box to collect monthly royalty checks. Chuck explained that I could do the same if I wanted. Based on the fact that I had filed patents in mobile payments, he made a significant investment in my company and joined our Board Of Directors.
One should not get complacent because patents have been filed. The challenge in being early in a market is that you have to spend time and resources to help others to understand what you are working on. In fact, so little was known about NFC at the time we were starting in 2005 (thus, the reason people mistakenly thought NFC stood for National Football Conference and title of my last blog) that it took us 5 years to get our first NFC patent, The application was rejected about 6 times because it was perceived to be equivalent to infrared, Bluetooth, or other well-know technologies. In contrast, the average successful patent grant takes 48 months (or 4 years) according to recent statistics.
Because it took so long for us to get our first patent, it became a problem for us as a small, self-funded startup. As we waited for the patent to be granted, the NFC mobile payment market started to increase in activity. Big companies and well-funded startups began “embracing” our ideas. In fact, several sold cloned copies of our NFC sticker to our customers, resulting in significant lost revenue. Remember, we had no patents granted at that time to protect our IP. The problems we experienced in trying to protect our IP are not new or unique. The Hollywood film, Flash Of Genius, tells the story of Robert Kearns’ struggle with the automobile industry to get credit for his invention of the intermittent windshield wiper in the 1960s.
When I consulted a patent licensing attorney, he suggested a few things. First, he said that after reading the rejections from the patent office, it was clear that they didn’t understand NFC. His first suggestion was that I schedule an in-person interview with the patent office and explain NFC in-person, rather than continuing to send in written responses, which were not effective for explaining something so new. Secondly, he suggested I suspend all business activity, and personally focus on getting our patents granted so that we could position the company better to protect our ideas. He was exactly right. Six months after my visit to the patent office we received our first NFC patent, which was almost 5 years after we filed it.
My visit to the patent office was eye opening. To be honest, after receiving so many rejections due to the “obviousness;” (a line of reasoning that is typical in patent rejections) that NFC was clearly the same as Bluetooth, infrared, and other existing technologies, I was really intimated about going to the patent office by myself. My attorney at the time participated via conference call so we could minimize travel costs. I had this image that the Patent Examiners were very intimidating and critical people.
After meeting with 4 Patent Examiners to cover 7 of our patent applications in one day, I was pleasantly surprised to find that thy were real people who were genuinely concerned about understanding how our NFC invention differed from prior art such as Bluetooth, infrared, and others. One of the Patent Examiners even looks like a well-known musician; not one of the ones I referenced earlier. I was so startled when I saw him that I got confused for a minute about whether I was going to a concert or going to talk about patents. Just kidding, of course.
I digress. All of the Patent Examiners shared with me that explaining the concept in person helped a lot. For me, it was awesome to see them connecting the dots and smiling. Interestingly, several of the Patent Examiners indicated that most inventors don’t come into the patent office and those that do, don’t even have a product but simply want a patent. They complimented me on having a real-world product and explaining it so they could understand it, as most had never heard of NFC.
One of the Patent Examiners was surprised that I was there by myself and asked why I didn’t have an “army” of attorneys with me, as I was from Silicon Valley. I noted that not all startups are well funded like Facebook or Google. I went on to explain that well-funded startups and large companies were copying our ideas, cloning our products, selling to our customers and costing us revenue. Because of the increasing competition in NFC mobile payments, I was also having problems getting funding. I even explained how we had to downsize and put product development on hold. That was a new revelation for the Patent Examiner, who was surprised.
Therefore, I have experienced first hand the challenges innovators face in regards to IP protection that Gene Quinn described in an article titled, “The Destruction of a High Tech Economy” in which he states, “When innovators cannot get protection they cannot get funding, they do not form companies, jobs are not created and pretty soon there won’t be anything left for the copycats to copy”. Furthermore, “IP-intensive industries contribute $5 trillion in economic activity to the American economy every year and are responsible for 40 million jobs, nearly half of private sector employment in the U.S.” As PAI explained, this is a tragic reality that slows innovation and hurts our national economy.
Fast-forward to 2014, and we have 30 patents granted (see picture below) and over 120 more pending. I recommend to all entrepreneurs to do whatever it takes to patent one’s ideas. If you can’t afford a patent attorney and not able to barter in exchange for stock, Legal Zoom and similar organizations, provide a cost effective way to file your patent. For example, I paid $860 to file my first 3 provisional NFC mobile payment patents using Legal Zoom in 2005. In contrast, an attorney might charge $3,500-$10,000 per US patent application not including USPTO fees.
I have great attorneys helping me now and I have gotten so deeply involved with writing claims and patents myself to keep our costs down that my attorneys suggest I go to law school to become a patent attorney. I appreciate their compliments, but product development and making consumers excited about technology are my true loves.
Overcoming the hurdle of getting our first patent was not easy. Now, we are faced with the challenge of addressing the recent Supreme Court decision in Alice vs CLS Bank. In its simplest form, Alice states that an idea is not patentable if a computer is used to replace well-understood, routine, and conventional activities previously known or offline activities related to a fundamental economic practice, human process, etc. According to Bart Eppenauer who was quoted in recent article by Jeff Wild, “Let’s at least be clear about one thing – not all software patents are “just math” and therefore abstract and invalid”. When it comes to NFC, its not clear if Alice even applies because the offline equivalent of NFC would be a person waiving their hand at the point-of-sale terminal to pay for their goods.
More than 150 years before the Alice vs CLS Bank decision, there was a famous book called, Alice’s Adventures in Wonderland. According to Wikipedia,
“Alice‘s Adventures in Wonderland (commonly shortened to Alice in Wonderland) is an 1865 novel written by English author, Charles Lutwidge Dodgson, under the pseudonym Lewis Carroll. It tells of a girl named Alice who falls down a rabbit hole into a fantasy world populated by peculiar, anthropomorphic creatures. The tale plays with logic, giving the story lasting popularity with adults as well as with children. It is considered to be one of the best examples of the literary nonsense genre”
Some might argue that the Alice vs CLS Bank decision has put all of us inventors into a rabbit hole where we now fantasize about getting patents granted. When our first set of patents were filed between the years 2005 – 2007, we couldn’t have anticipated Alice, and its impact on the patent system. It’s a little frustrating that we are now being penalized for coming up with innovative ideas. As Mr. Quinn states, “Yet, we are at a place and time when true innovators are being vilified.” In his article, “Improving Innovation Climate Critical to US Economic Future,” Quinn explains that, “On top of the anti-patent climate that is making it extremely difficult, if not impossible, for innovative start-ups to raise capital. These developments, if true, are also not good for innovation. “
Even worse, are the prospects that the playing field is not level, and that it is tipped in favor of large corporations. Steve Brachmann (@Steve_Brachmann) in his recent article, “Is There a Double Standard? Big Banks Get Software Patents Despite Alice,” questions whether or not there is a double standard that enables big banks to be granted patents, while startups and smaller companies are denied patents.
The Alice decision is still too fresh for anyone to draw a definitive conclusion on its impact on technology patents and small, medium or large companies. Some like, Jeff Wild writes in, “Big US tech companies face major patent losses in the post-Alice world, IAM research reveals” of the potential “havoc” created for America’s largest tech companies, as over 70% of their patents are impacted by Alice.
Bart Eppenauer, on the other hand indicates that, “the doomsday predictions about Alice’s impacts on tech patents are overstated, and that everyone should take a more measured approach to whatever trends Alice will produce.”
Fortunately, we have been able to overcome the increased scrutiny that the Alice decision has brought upon the patent process. To date, we have had 3 patents granted post-Alice. Nevertheless, we still have an uphill battle, and I am confident in our ability to meet whatever challenges we face. I encourage all innovators to continue to believe in yourselves, but most of all, I encourage you to protect your ideas!