I considered holding this post off. Then I realized that my raw response to the circumstance that originated it may be a useful component of the lesson.
Background
Last week I met a college student intent in starting a new business and looking for help financing and marketing his venture. Admittedly I am a deal junky and cannot resist helping a startup along; here is the result.
Anatomy of a (lost?) deal
The young man I first met (P1) seemed quick thinking (+), amiable (+), articulate (+) and entrepreneurially flexible and opportunistic (+)
At our first meeting he gave me no means to contact him (-) but he followed up and contacted me (+) [if you want to appear like you can play, at least get some $5-precut-forms-inkjet-home-printed business card]
The business idea may have legs (+)
I have a lead into a potential customer and stated so (+)
The prospect, on my recommendation, may be willing to pay for a pilot test (+)
I asked for a follow up meeting specifying what I needed for my due diligence before pitching their deal to my prospect. To T-up the meeting I emailed that: i) I'd be willing to sign an NDA, ii) I need to know material costs to figure the financial commitment required to do a pilot (particularly if I and friends are to be angels), iii) I need to satisfy myself that there is a really working system capable of doing what is proposed, before I go put my good name on the line.
The meeting was scheduled but no information requested was sent ahead of time (-)
At the meeting I met Partner #2 (P2)
P2 from the outset displayed a surly and arrogant attitude apparently intent to require my demonstration of why I should be granted an audience (-)
P2 barely introduced himself [another one with no business cards] and gave no additional details about himself or his experience (-)
P2 pointedly asked whether I had a resume to demonstrate I deserved any attention (-)
P2 shoved in front of me an NDA of 4 pages (filled by hand with the company name), folded open to the signature page requesting I sign (apparently without reading it) before we continued (-)
After a few years experience with hyper-self-important student entrepreneurs, this was not a total surprise. Rewind to 1973 and probably there go I. I declined signing an NDA I could not review for lack of time. I proposed to limit the conversation to information not requiring NDA.
As expected, I got none of the information I sought (-)
P1 tried to mend fences offering whatever information he could without agitating P2 (+)
P2 spoke in roundabout ways of their IP, yet unfiled, unsearched, unsubstantiated (-)
At first sight P2 has little sense that his "idea" is unlikely to be defensible from competition (-), particularly because all components of hardware and software are readily commercially available (-) and the idea was already published by many including Steve Wosniak five or six years ago (-)
Speed to market is their ace, P1 gets it (+) P2 doesn't (-)
Conclusion
The odds that I will find the time and motivation to try again have dropped by 90% (-)
Lesson to be learned
Angels invest in people first.
Beware the partners you have and display in public. In a single session they can trash whatever you had carefully T'd-up. For student entrepreneurs there will be many more chances. Later in the career path you may be betting the house on a losing hand.
Marco Messina
Mobile Apps Development. Formerly Startup and Angel Pitch Mentoring
Friday, June 4, 2010
Thursday, June 3, 2010
Brevity, Impact and the "P&G 1 Page Memo"
Since I routinely recommend maximum brevity in communications with angel investors and with the world in general), I am often asked if this need for brevity is a result of the age of the Internet, of information overload, of shortened attentions spans, etc. It isn't. In what we now regard as the near-stone-age of the 1970's Proctor and Gamble became famous for its "1 Page Memo". Whatever you wanted to propose at P&G had to written to fit in a single page, and followed a fixed format. Its objective and value rested in the need to think very carefully all the aspects of whatever is proposed and summarize it clearly and effectively.
Dr Andrew Abela summarized it best as consisting of five parts.
1. The Idea. What are you proposing? This is typically one sentence.
2. Background. What conditions have arisen that led you to this recommendation? Only include facts and information that everyone agrees upon - this is the basis for discussion, so it needs to be non-debatable.
3. How it Works. The details. In addition to How, also What, Who, When, Where.
4. Key Benefits. This is the "Why?" There are usually three benefits: the recommended action is: i) on previously agreed strategy, ii) already proven (e.g. in test market or in another business unit), iii) will be profitable. You can think of these three in terms of the old Total Quality mantra of "doing right things right." The first (on strategy) means you're doing the right thing. The second and third mean you're doing things the right way, because you're being effective (proven to work) and efficient (profitable).
5. Next Steps. Who has to do what and by when for this to happen?
Clearly a 1 Page Memo is no easy task and neither was working at P&G. The outcome of that guideline was that off-the-cuff proposals were few, those made were thought through carefully, were clear and actionable. The old maxim of thinking before talking applies to writing too. Striving for brevity increases thinking and reduces fluff.
Dr Andrew Abela summarized it best as consisting of five parts.
1. The Idea. What are you proposing? This is typically one sentence.
2. Background. What conditions have arisen that led you to this recommendation? Only include facts and information that everyone agrees upon - this is the basis for discussion, so it needs to be non-debatable.
3. How it Works. The details. In addition to How, also What, Who, When, Where.
4. Key Benefits. This is the "Why?" There are usually three benefits: the recommended action is: i) on previously agreed strategy, ii) already proven (e.g. in test market or in another business unit), iii) will be profitable. You can think of these three in terms of the old Total Quality mantra of "doing right things right." The first (on strategy) means you're doing the right thing. The second and third mean you're doing things the right way, because you're being effective (proven to work) and efficient (profitable).
5. Next Steps. Who has to do what and by when for this to happen?
Clearly a 1 Page Memo is no easy task and neither was working at P&G. The outcome of that guideline was that off-the-cuff proposals were few, those made were thought through carefully, were clear and actionable. The old maxim of thinking before talking applies to writing too. Striving for brevity increases thinking and reduces fluff.
Saturday, May 29, 2010
Talking to Angels - The Executive Summary
I said it many times in these posts, but it is worth repeating. If you want to communicate to Angel Investors, your challenge is to be brief and exciting at the same time. Angels read dozens of plans and pitches a week, thus develop a short fuse stretched to its limit and a deja vu mindset. Every single word you use should be valued as an opportunity to break that fuse and lose your audience. Furthermore, the specific words used must strike a balance between creating "excitement, belief, opportunity-to-change-the-world, high expected returns" and projecting a perspective of "naive, smoke-and-mirrors, improbable deal, too-good-to-be-true".
Angelsoft is the software most angel groups now use to manage deal flow, presentations, investors collaboration, etc. They developed a great template for an executive summary. If you apply to present to a group that uses Angelsoft you'll end up supplying information in that format.
The same template, however is great for writing your executive summary of any deal regardless if presented to an angel group. Here it is
Angelsoft is the software most angel groups now use to manage deal flow, presentations, investors collaboration, etc. They developed a great template for an executive summary. If you apply to present to a group that uses Angelsoft you'll end up supplying information in that format.
The same template, however is great for writing your executive summary of any deal regardless if presented to an angel group. Here it is
Thursday, May 27, 2010
Learn from The Master
How to pitch to today's angels
Serial tech entrepreneur and renowned angel investor David S. Rose talks about the growth of angel investing, and offers advice on how to successfully pitch to potential investors
Wednesday, May 26, 2010
More "Talking to Angels" - The PowerPoint Slides
In a prior post Talking to Angels I described the guidelines the Arizona Angels recommend to produce PowerPoint slides for presentations to our screening committee and members. Since then I've been asked to provide concrete examples. Unfortunately most presentations are confidential and cannot be published here. Therefore I prepared a presentation for a fictitious company, albeit a little tongue in cheek, to provide the desired example. I hope it helps.
Saturday, May 15, 2010
The Myth of The Outsider
Innovators are by nature curious people with a strong desire to improve the world around them. Upon encountering a problem, an inconvenience, or a task too cumbersome, instinctively they seek to find a remedy for it. That drive has been at the foundation of innovation since the invention of the wheel, the first disruptive technology shaped by man (fire and stone tools were not invented, were "found" and nurtured).
Since then, innovators have nurtured the romantic idea that a single bright mind can find an answer to a vexing need and be recognized (financially or otherwise) for it. Over the centuries it has certainly occurred, but in modern day, that notion may not hold as well. I lost count of the many ventures I have seen presented whose business plan calls for commercializing Joe-Invenor's "idea or solution" the viability of which has was vetted only by Joe's friends and other supporters devoid of domain knowledge and experience.
Indeed, "people from outside the industry" have, occasionally, succeeded in seeing solutions insiders did not, but I believe those were the exceptions, or, more often, that conclusion was reached with incomplete information. For instance, in the popular culture many believe the myth of: "bright college drop out (Bill Gates) develops a computer operating system that mighty IBM could not, thereby creating a bright new world". The reality, however, is that Gates, due to a most unlikely coincidence, had over 10,000 hours of programming experience before going to college, was indeed very bright, and dropped out to make a microcomputer version of a programming language (BASIC) previously developed by others when Gates was 9, not an operating system. The staggering success that followed came thanks to a lot of hard work to be sure, but also more coincidences, personal and family connections, quick thinking and, in the end, the wisdom of assembling a team with the brightest industry experts. IBM conversely had all the resources and talents to make their own solution, but simply chose the buy vs. make route. Due to more coincidences it unwittingly helped a major competitor to be born. A similar review would correct the popular myths on the birth of Google or Netscape or Apple and others.
If we dig deep enough for details, there are very few demonstrable cases of successful innovation by an "outsider" blessed with "new eyes" vision. Invention is another matter since invention (including a patent) requires only a "novel idea" with no consideration to any practical implementation potential, let alone actual implementation. The world is covered with ideas. Most do not see even an attempt at implementation because that requires hard work well beyond "imagineering". A few ideas see implementation only to die early for lack of practical underpinnings, or of a value proposition that moves customers to act (these are the solutions in search of a problem).
Today, innovations cannot stand alone. They have to integrate in a complex web of interfaces, other products, services, regulations, business processes, cultures, vested interests, user habits, etc. On its own each "new idea" may be commendable, but, if its implementation requires changing the world all around it, it is probably dead on arrival. The same goes for creating new standards or modifying existing ones.
New eyes may appear to see new solutions, but, often, only because they do not see the reasons why the new idea cannot interface well enough with the reality around it. The only fix for that blind spot is to bring into the team the best domain experts available.
Experts are those that through practice had the opportunity to learn all the interfaces required for any system component to fit its ecosystem. Often they will show why "it" won't work. I those cases, be grateful: avoiding wasted time, which is even more important than avoiding wasted money. In the best cases the domain expert may suggest modifying the "new idea" and make it possible to be more than a flash in the pan.
Inventiveness creates ideas. Innovation creates results through inventiveness checked by practicality. Beware the single minded genius, particularly yourself.
Whether the entrepreneur or the an angel investor doing due diligence, involve domain experts if you are an outsider. It will lower your risk.
Marco Messina
Since then, innovators have nurtured the romantic idea that a single bright mind can find an answer to a vexing need and be recognized (financially or otherwise) for it. Over the centuries it has certainly occurred, but in modern day, that notion may not hold as well. I lost count of the many ventures I have seen presented whose business plan calls for commercializing Joe-Invenor's "idea or solution" the viability of which has was vetted only by Joe's friends and other supporters devoid of domain knowledge and experience.
Indeed, "people from outside the industry" have, occasionally, succeeded in seeing solutions insiders did not, but I believe those were the exceptions, or, more often, that conclusion was reached with incomplete information. For instance, in the popular culture many believe the myth of: "bright college drop out (Bill Gates) develops a computer operating system that mighty IBM could not, thereby creating a bright new world". The reality, however, is that Gates, due to a most unlikely coincidence, had over 10,000 hours of programming experience before going to college, was indeed very bright, and dropped out to make a microcomputer version of a programming language (BASIC) previously developed by others when Gates was 9, not an operating system. The staggering success that followed came thanks to a lot of hard work to be sure, but also more coincidences, personal and family connections, quick thinking and, in the end, the wisdom of assembling a team with the brightest industry experts. IBM conversely had all the resources and talents to make their own solution, but simply chose the buy vs. make route. Due to more coincidences it unwittingly helped a major competitor to be born. A similar review would correct the popular myths on the birth of Google or Netscape or Apple and others.
If we dig deep enough for details, there are very few demonstrable cases of successful innovation by an "outsider" blessed with "new eyes" vision. Invention is another matter since invention (including a patent) requires only a "novel idea" with no consideration to any practical implementation potential, let alone actual implementation. The world is covered with ideas. Most do not see even an attempt at implementation because that requires hard work well beyond "imagineering". A few ideas see implementation only to die early for lack of practical underpinnings, or of a value proposition that moves customers to act (these are the solutions in search of a problem).
Today, innovations cannot stand alone. They have to integrate in a complex web of interfaces, other products, services, regulations, business processes, cultures, vested interests, user habits, etc. On its own each "new idea" may be commendable, but, if its implementation requires changing the world all around it, it is probably dead on arrival. The same goes for creating new standards or modifying existing ones.
New eyes may appear to see new solutions, but, often, only because they do not see the reasons why the new idea cannot interface well enough with the reality around it. The only fix for that blind spot is to bring into the team the best domain experts available.
Experts are those that through practice had the opportunity to learn all the interfaces required for any system component to fit its ecosystem. Often they will show why "it" won't work. I those cases, be grateful: avoiding wasted time, which is even more important than avoiding wasted money. In the best cases the domain expert may suggest modifying the "new idea" and make it possible to be more than a flash in the pan.
Inventiveness creates ideas. Innovation creates results through inventiveness checked by practicality. Beware the single minded genius, particularly yourself.
Whether the entrepreneur or the an angel investor doing due diligence, involve domain experts if you are an outsider. It will lower your risk.
Marco Messina
Thursday, May 13, 2010
Be Mindful Of Your Audience
Entrepreneurs must be able to SELL. Selling, of course, involves all the steps leading to closing a deal such as: understanding the customer's need, presenting a solution, explaining features and benefits, articulating a value proposition, etc. Most entrepreneurs become quite skilled at selling their products and services.
Raising financing for the business, however, involves selling the idea and future prospects of the business to investors. The entrepreneur must sell a small piece of the company to outsiders to finance its growth. The process is similar, not the same and angel investors routinely confront skillful business owners who do a poor job of selling the investment deal.Why? I believe this happens because most often the seller is not mindful of his/her audience.
Let's look at the parameters of two "Acts" that occur in the "Play" of business building and financing:
Act 1: Entrepreneur E is pitching Product/service P to prospective Customer C
E understands C's problem well
C understands well and is painfully aware of his problem
C appreciates the difficulty of solving the problem (it is yet fully or partly unsolved)
E has put a lot of time, effort and creativity to find his proposed solution
E is particularly proud of the obstacles encountered and overcome along the way to create the solution being proposed, and explains them in detail to C who is interested in and understands the details and is impressed by E's competence
C is looking for reliable continuing long term performance and support in the solution he buys
E promises to be around forever to service C's needs in a continuing relationship
Note: Over time Act 1 is repeated regularly, frequently and profitably thereby creating a practiced habit which makes its performance easy and almost automatic.
Eventually when financing is needed to grow the business the Entrepreneur must perform in a new Act with little or no prior practice as follows:
Act 2 - Entrepreneur E pitches Business B to Investor Group IG
IG need a vehicle to invest their cash at as good a return as they can find
IG decided that buying a piece of a good business (B ?) run by a good operator (E ?) will give them good returns
E is expected to make his pitch to address the interests of IG.
E instead remains true to his well practiced past presentations:
E focuses on product minutiae that go right over IG's head - IG is confused and bored
E demonstrates his creativity by the complexity of the solution and all the things that went or could go wrong with it, that E had to master - IG is scared by complexities as opportunities to lose money
E is proud of his business plan to create a business that will grow, change the world and last forever - IG see their investment locked inside a business, never to be returned
This performance becomes the concluding Act of a "Tragedy of missed opportunities". Missed opportunities for both the Entrepreneur who gets no funding and for the Investors who were bored and scared away from a business that possibly had real potential.
The fix is for the Entrepreneur to learn about the Investors audience as diligently as he learned about his customers. Then speak to them on their own terms:
Mostly, practice KISS: know your audience, speak to them on their terms.
Marco Messina
Raising financing for the business, however, involves selling the idea and future prospects of the business to investors. The entrepreneur must sell a small piece of the company to outsiders to finance its growth. The process is similar, not the same and angel investors routinely confront skillful business owners who do a poor job of selling the investment deal.Why? I believe this happens because most often the seller is not mindful of his/her audience.
Let's look at the parameters of two "Acts" that occur in the "Play" of business building and financing:
Act 1: Entrepreneur E is pitching Product/service P to prospective Customer C
E understands C's problem well
C understands well and is painfully aware of his problem
C appreciates the difficulty of solving the problem (it is yet fully or partly unsolved)
E has put a lot of time, effort and creativity to find his proposed solution
E is particularly proud of the obstacles encountered and overcome along the way to create the solution being proposed, and explains them in detail to C who is interested in and understands the details and is impressed by E's competence
C is looking for reliable continuing long term performance and support in the solution he buys
E promises to be around forever to service C's needs in a continuing relationship
Note: Over time Act 1 is repeated regularly, frequently and profitably thereby creating a practiced habit which makes its performance easy and almost automatic.
Eventually when financing is needed to grow the business the Entrepreneur must perform in a new Act with little or no prior practice as follows:
Act 2 - Entrepreneur E pitches Business B to Investor Group IG
IG need a vehicle to invest their cash at as good a return as they can find
IG decided that buying a piece of a good business (B ?) run by a good operator (E ?) will give them good returns
IG, looking at business B, are focused on: how fast it will scale, how profitable it is, or will be, and how fast they get their money back, and how many times over
IG, in the first presentation, do not have, individually, the technical competence to assess or are interested in the minute details of business B's productsE is expected to make his pitch to address the interests of IG.
E instead remains true to his well practiced past presentations:
E focuses on product minutiae that go right over IG's head - IG is confused and bored
E demonstrates his creativity by the complexity of the solution and all the things that went or could go wrong with it, that E had to master - IG is scared by complexities as opportunities to lose money
E is proud of his business plan to create a business that will grow, change the world and last forever - IG see their investment locked inside a business, never to be returned
This performance becomes the concluding Act of a "Tragedy of missed opportunities". Missed opportunities for both the Entrepreneur who gets no funding and for the Investors who were bored and scared away from a business that possibly had real potential.
The fix is for the Entrepreneur to learn about the Investors audience as diligently as he learned about his customers. Then speak to them on their own terms:
- KISS - make complexity simple and brief (Elevator Speech and One Page Summary)
- The company is the object of the pitch not the products - Investors assume the products work, at least in the first presentation.
- Scalability is the key to big ROI - Convince, why it is possible and likely
- Specific parameters of profitability and scalability yield ROI and return multiples that interest angel investors Few types of businesses can do it (see AngelCalc post) at the right size of investment, do not waste your time otherwise.
- Business does not happen, a team (more than a founder) makes it happen. Sell the team, have a team that can be sold, evolve the team it if necessary.
- If there is no competition, you have not found it yet. Even if true, doing nothing is always an alternative. Investors are afraid of competition that has not yet been identified, so should you.
- Investors love simple solutions to serious painful immediate problems, are leery of solutions in search of a problem and markets needing years of gestation, or of new standards to be created to coerce the world to do it your way.
Mostly, practice KISS: know your audience, speak to them on their terms.
Marco Messina
Friday, April 30, 2010
Patents - What do they mean to you?
If you are interested in this subject you probably fit one of the following classes:
What does a US patent give the inventor?
In simple terms, the RECOGNITION by the US government that he/she is PRESUMABLY the inventor of a certain concept, product or process and therefore has the EXCLUSIVE RIGHT to practice the invention for a certain period of time (e.g. 17 years) without competition. Note that contrary to public perception it does not give the inventor any real protection (with one exception) unless (s)he takes steps to enforce that right. The exception is that the Customs Office will do their best to stop an infringing product from entering the US if they are provided with a suitable request, documentation and proof of patent infringement. Otherwise, the inventor is solely responsible to enforce his patent rights, which implies taking legal action against an infringer generally at some considerable protracted cost.
Against the above background then a number of questions arise:
Can one afford to sue the infringer?
Practically speaking, only if the practice of the invention has a cash flow worth protecting in an amount that covers the expenses, distraction, aggravation, etc. associated with a litigation. Winning the case may not produce cash flow or a significant pay off; it may produce only an injunction against the infringer, which by the way does not preclude another one from coming along.
What if in the course of litigation one discovers that other aspects of the product infringe on patents held by the infringer or someone else?
This is very common in the electronics industry where frequently patents have great value to counter-sue and eventually settle by reciprocal licensing. Much of this jousting is now going on and reported in the press involving Apple and their iPad against various competitors among which only one (the smallest and weakest) was actually sued for infringement. In these cases there may only be legal expenses and the benefit of upsetting a competitor's product development road map.
If one has a validly issued patent, how much protection does it provide?
Better than none to be sure, but hardly a guarantee. The case of RIM (Research In Motion), makers of the Blackberry, is very instructive (details): It started in 2000 when RIM was a startup with strong beliefs that their issued patents covered their products well. After a surprising chain of events, by 2006 they settled for $650 million with NTP (plaintiff) after a court injunction forced the Blackberry network dark for one day (RIM by then had a $2 billion business at risk of going dark worldwide, hardly a desirable bargaining position). Since 2006 and continuing to this date "patent reexamination" action by RIM has sought to void NTP's prior art claims; NTP is responding in kind. One can hardly imagine the costs involved (at $500 or more per hour). Needless to say RIM investors had been confident of their IP position and of the issued patents. Conclusion: even ISSUED patents are no guarantee since prior art can be submitted at any time and re-examination requested.
Is a patent much ado about nothing?
Definitely not. A Provisional Patent filing, if properly written and searched, tells potential investors that there may be more than just an idea. It says that the company and the inventor understand the IP implications of their business and have invested time and money to protect their innovation. If a patent is issued, it tells investors that a pretty solid stake is in the ground that proves innovation, at least from a theoretical and PTO standpoint. If potential competitors exist, they are obviously not easy to find and on the time-line may be behind the current inventor and therefore not innovators in the PTO sense. Of course they could still come out later with proof of "prior art" and open the RIM type can of worms.
It should be noted that claiming infringement while holding an issued patent has risk. The "infringer" may turn up to have prior art and that may invalidate the patent. To wit, I had occasion of working with a small manufacturer who was an outstanding and recognized innovator but never filed a patent. He explained that, not being interested in having investors or selling the company, patents to him were a cost and of no value. His strategy was to practice whatever innovative process he devised without fear. If anyone came to try and stop him he depended on his meticulously documented prior art files from many years back to trump the action. Furthermore he had no interest in licensing his own inventions and felt that since issued patents files are open to the public, they are more risky than helpful unless one deals with fundamental inventions. By those strategies, his company never grew to dominate his markets, but he was happy with his lifestyle company; my lesson was to beware that prior art occasionally may come out only when one "kicks the beehive".
Why uncertainty cannot be eliminated
In the US the PTO operates on the doctrine of "first to invent". This means that anyone can come and claim to be THE inventor of anything if he can show with a preponderance of evidence prior art precedent to that of any patent filed. If a patent had been issued, reexamination is the cure. Documentary proof of prior art can be from most kind of documents, preferably lab books (numbered non-removable pages), dated and witnessed affidavits, etc. Elsewhere in the world the "first to file" rule is followed therefore it is imperative to not delay a viable filing and one can depend on the value of an issued patent to a greater degree. Even there a patent can be contested with suitable evidence that the prior art was "published" and therefore in the public domain prior to the filing of the issued patent. Demonstrations of preponderance of evidence of prior art are not easy to do, so an issued patent is still a strong stake in the ground, but...
Conclusion
Beware: from a business viewpoint, the value of a patent is not an absolute one. It depends on the circumstances of the business, the market, the product, the objectives of the inventor, the objectives of investors and many other factors. Deciding to file a patent (the inventor) or to assign a value to a patent (the investor) is a problem without an optimal solution. Clear understanding of options, implications and trade offs is the best one can achieve in reaching an entirely subjective decision.
My "Should I get a patent" Roadmap may help with that analysis. Read more about my Roadmaps
By the way for my own IP I still file patents, but I am cognizant of how thin the ice is that I stand on. If I cannot justify a costly fight to defend it, my patent is not more than a feather in my cap.
Marco Messina
- You are an expert angel investor with IP due diligence experience - your comments would be most welcome.
- You are a potential or new angel investor (bless you for helping to grow our country). In this case you might be interested in one (mine) practical view of what protection a patent gives you.
- You are an entrepreneur that could use some financial help to get your invention (IP) to market (bless you for helping to grow our country too). In this case, you should know what questions to expect from your angel investor and have good answers.
What does a US patent give the inventor?
In simple terms, the RECOGNITION by the US government that he/she is PRESUMABLY the inventor of a certain concept, product or process and therefore has the EXCLUSIVE RIGHT to practice the invention for a certain period of time (e.g. 17 years) without competition. Note that contrary to public perception it does not give the inventor any real protection (with one exception) unless (s)he takes steps to enforce that right. The exception is that the Customs Office will do their best to stop an infringing product from entering the US if they are provided with a suitable request, documentation and proof of patent infringement. Otherwise, the inventor is solely responsible to enforce his patent rights, which implies taking legal action against an infringer generally at some considerable protracted cost.
Against the above background then a number of questions arise:
Can one afford to sue the infringer?
Practically speaking, only if the practice of the invention has a cash flow worth protecting in an amount that covers the expenses, distraction, aggravation, etc. associated with a litigation. Winning the case may not produce cash flow or a significant pay off; it may produce only an injunction against the infringer, which by the way does not preclude another one from coming along.
What if in the course of litigation one discovers that other aspects of the product infringe on patents held by the infringer or someone else?
This is very common in the electronics industry where frequently patents have great value to counter-sue and eventually settle by reciprocal licensing. Much of this jousting is now going on and reported in the press involving Apple and their iPad against various competitors among which only one (the smallest and weakest) was actually sued for infringement. In these cases there may only be legal expenses and the benefit of upsetting a competitor's product development road map.
If one has a validly issued patent, how much protection does it provide?
Better than none to be sure, but hardly a guarantee. The case of RIM (Research In Motion), makers of the Blackberry, is very instructive (details): It started in 2000 when RIM was a startup with strong beliefs that their issued patents covered their products well. After a surprising chain of events, by 2006 they settled for $650 million with NTP (plaintiff) after a court injunction forced the Blackberry network dark for one day (RIM by then had a $2 billion business at risk of going dark worldwide, hardly a desirable bargaining position). Since 2006 and continuing to this date "patent reexamination" action by RIM has sought to void NTP's prior art claims; NTP is responding in kind. One can hardly imagine the costs involved (at $500 or more per hour). Needless to say RIM investors had been confident of their IP position and of the issued patents. Conclusion: even ISSUED patents are no guarantee since prior art can be submitted at any time and re-examination requested.
Is a patent much ado about nothing?
Definitely not. A Provisional Patent filing, if properly written and searched, tells potential investors that there may be more than just an idea. It says that the company and the inventor understand the IP implications of their business and have invested time and money to protect their innovation. If a patent is issued, it tells investors that a pretty solid stake is in the ground that proves innovation, at least from a theoretical and PTO standpoint. If potential competitors exist, they are obviously not easy to find and on the time-line may be behind the current inventor and therefore not innovators in the PTO sense. Of course they could still come out later with proof of "prior art" and open the RIM type can of worms.
It should be noted that claiming infringement while holding an issued patent has risk. The "infringer" may turn up to have prior art and that may invalidate the patent. To wit, I had occasion of working with a small manufacturer who was an outstanding and recognized innovator but never filed a patent. He explained that, not being interested in having investors or selling the company, patents to him were a cost and of no value. His strategy was to practice whatever innovative process he devised without fear. If anyone came to try and stop him he depended on his meticulously documented prior art files from many years back to trump the action. Furthermore he had no interest in licensing his own inventions and felt that since issued patents files are open to the public, they are more risky than helpful unless one deals with fundamental inventions. By those strategies, his company never grew to dominate his markets, but he was happy with his lifestyle company; my lesson was to beware that prior art occasionally may come out only when one "kicks the beehive".
Why uncertainty cannot be eliminated
In the US the PTO operates on the doctrine of "first to invent". This means that anyone can come and claim to be THE inventor of anything if he can show with a preponderance of evidence prior art precedent to that of any patent filed. If a patent had been issued, reexamination is the cure. Documentary proof of prior art can be from most kind of documents, preferably lab books (numbered non-removable pages), dated and witnessed affidavits, etc. Elsewhere in the world the "first to file" rule is followed therefore it is imperative to not delay a viable filing and one can depend on the value of an issued patent to a greater degree. Even there a patent can be contested with suitable evidence that the prior art was "published" and therefore in the public domain prior to the filing of the issued patent. Demonstrations of preponderance of evidence of prior art are not easy to do, so an issued patent is still a strong stake in the ground, but...
Conclusion
Beware: from a business viewpoint, the value of a patent is not an absolute one. It depends on the circumstances of the business, the market, the product, the objectives of the inventor, the objectives of investors and many other factors. Deciding to file a patent (the inventor) or to assign a value to a patent (the investor) is a problem without an optimal solution. Clear understanding of options, implications and trade offs is the best one can achieve in reaching an entirely subjective decision.
My "Should I get a patent" Roadmap may help with that analysis. Read more about my Roadmaps
By the way for my own IP I still file patents, but I am cognizant of how thin the ice is that I stand on. If I cannot justify a costly fight to defend it, my patent is not more than a feather in my cap.
Marco Messina
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