Patents have come under attack recently. A recent report by Booz Allen Hamilton (discussed in a previous post) indicates that patents have no value to corporations anymore and have produced comments that perhaps patents are no longer valuable. On top of this, the RIM-NTP debacle, also discussed here and here, has shone a light for the general public onto the dark and brutal patent underworld in which companies compete in an arena where customers are nowhere to be seen.
I've told many people over the years that the most surprising aspect of my move from academia to industry was my discovery of the enormous effort that companies expend towards IP, and how lucrative or damaging patents can be. A well-written patent can protect the value of a company's technology or it can force other companies to "pay to play" if they want to sell similar technology.
As an aside, you are probably wondering why any company would license a patent to their competitor and thereby enable them to compete. The reason is a pragmatic one: the claims of most patents are not air-tight and if a company tries hard enought it can figure out a workaround, although they still risk litigation. Often, the easiest solution is for both companies to come to an agreement where the patent owner licenses the patent to its competitor for an amount both sides can live with. A common strategy for large companies is to trade patent portfolios with their competitors: Nokia with Samsung, Philips with Sony. These large companies usually all have patents that could tie each other up in courts for years and grind their whole industry into a litigious standstill. Better to trade and allow each other to compete in the marketplace rather than decend into a mutually-assured destruction scenario. Guess what happens, though, to a company that doesn't have any patents to trade. And if that poor company is a publicly traded one, their stockholders will not be amused.
Therin lies one of my many difficulties with statements that patents have no valuable impact on a company. BAH's report looked at the relationship between number of patents filed and a company's financial success and found no correlation. This has been interpreted by many as meaning that patents have no value to a company and that they should stop wasting their time with any patent strategy. I bet, however, that you could walk into any popular lunch spot in Palo Alto and find several people whose companies have either significantly benefited or been hurt financially because of patent issues.
So why did BAH find little or no correlation? I believe that the proper interpretation of their data is simply that focusing on the number of patents filed is the wrong approach to success. Throwing money at developing a patent portfolio does not in itself add value to a company. Patents must be developed strategically and thoughtfully. A little luck doesn't hurt either.
In my experience, the least valuable patents often emanate from the most prolific patent filer: for them, the slightest notion of novelty (to them) is enough to generate 43 claims. But these patents have received little deep thought and produce little value. Just because an author has published a huge number of books does not mean that they are a great author, and there is probably little correlation between the number of books an author has published and the winning of a Pulitzer/Nobel/Booker Prize. But, this lack of correlation does not mean that there is no merit to writing books.
In general, innovators like to invent, to see their ideas developed. They often have to be forced at gunpoint to work on writing a patent application--there's very little fun to be had in that activity. Additionally, the most brilliant innovators often fail to see why their ideas could be patented at all--the inventions seem too obvious to them to be patentable.
So, back to my the point that I originally wanted to make. I've already pointed out that patents are valuable for trading. Patents are also highly valuable to startup companies. I was at a startup where we filed close to two dozen patents in our first two years. Having a phat portfolio bought us a lot of milage with the Sand Hill Roadsters and allowed them to cross off a gating item for funding from their VC Checklist. And if anyone is wondering if patents can be valuable, feel free to send your question to the CEO of RIM, whose company was recently thought to be in danger of going under and Blackberry service shutting down thanks to patent litigation.
Yes, the patent office is vastly understaffed right now (with 400,000 applications filed last year), and the vast majority of patents issued have no value whatsoever (thus the BAH result: more patents does not equate with greater value). But meaningful patents protect a company's right to sell technology, prevents others from selling that technology, can be sold and traded, and provide a level of comfort to external investors and analysts. Ignoring wise patent development is done at a company's peril.