Another Wannabe Story: Inventor and Investor Bet Their Farms on a Patent. And Lose It. And Later Blame The Patent System For It.
I found this story on the well-known US blog ipwatchdog.com.
Have you read the horror story of that loser inventor and wannabe entrepreneur in my free book “The 4×4 Innovation Strategy“? Here comes another one. That new story is told by Paul Morinville, who is – according to that ipwatchdog.com website – “… Founder and former President of U.S. Inventor, Inc., which is an inventor organization in Washington D.C. that advocates strong patent protection for inventors and startups.”
Morinville and his organization have some very “unilateral” ideas about what patents should be, I have written about them before (click here).
But here comes the horror story, buckle up.
“On the patent’s government-issued cover, it stated that Snapizzi would have the ‘right to exclude others from making, using, offering for sale, or selling’ the invention. This meant the patent would protect their company from infringers and give them enough time to carve a toehold in the market. Randy trusted the U.S. government, and this made the burden of huge risk much more tolerable.”
Whenever I read the words “trust” and “government” together in one sentence, something cannot be right. No, Randy, you have misunderstood something. No government of this world does provide patent protection in order to make risks huge or small more tolerable. A patent gives you some exclusive rights for a limited period of time. In exchange for the right to exclude others, your patent must disclose your invention in detail to the public. This is the deal with the government that grants the patent. Please note that the purpose of a patent office is not to
help you, but only to grant patents and nothing else.
The article continues:
Randy dela Fuente was an entrepreneur and a photographer for 25 years. His company did high volume photographs for large events—things like high school graduations and other events with hundreds of participants. Managing thousands of photographs for hundreds of people can be a complicated affair. The object is to sell pictures, but to sell them, the subject of the picture must be able to find the picture. If the process is too difficult, customers get frustrated and sales are lost.
A Neat Idea
Randy needed to find a solution that would improve his customers’ experience and thereby increase sales. But the market for digital photographs was still relatively new and there were no solutions. Randy even tried to build his own, with limited success.
Finally, in 2010 Randy found Snapizzi, which had developed a powerful solution for managing high volume photography. Snapizzi was founded in 2009 and filed their first patent application in 2010. It was a hot product in the photography space. A competitor, called PhotoLynx, featured Snapizzi in a blog post saying that Snapizzi is “a really neat idea”. Randy became one of Snapizzi’s first customers.
Startups crash for a myriad of reasons. By 2011, Snapizzi ran into trouble and was going out of business. Randy knew why Snapizzi’s solution was unique and what value it provided to customers. He was, after all, a customer. He also knew that Snapizzi’s unique value was protected by pending patents. So, Randy bought the company.
At first, he continued using Snapizzi for his own business. But by the end of 2012, Randy figured out how to redeploy Snapizzi in a different business model, one that photographers would find easier to consume. Randy started investing in his new vision of a redeployed Snapizzi.
In short words: Randy had a business idea (good) and he invested into a company that put his business idea into practice (good), and that company had some patent applications filed (good).
What was wrong with Randy was the assumption that the company´s “unique value was protected by pending patents”.
Why was that wrong? Because this is a common myth: “granted patents are carved in stone”. Check out page 31 of my free “4×4 Innovation Strategy” book, there you find it right under your nose: patents may be incorrectly granted, that is why they can be revoked. Patents can always be challenged with a revocation request.
One prerequisite for a granted patent claim is that it is novel and not obvious over the prior art which was known at the relevant filing date of the patent. How can someone with a sound mind believe that a bureaucrat can do one or more of the following right:
a) know the entire relevant prior,
b) evaluate novelty and non-obviousness/inventiveness of a patent claim, and
c) determine what is the relevant filing date of that patent claim?
And all that with a limited work time: patent offices around the world are run as profit centers, which means that there are some standards when it comes to the maximum average work time that a patent examiner has for evaluating these questions.
I was an auxiliary patent examiner myself, for a limited amount of time. And I personally know many patent examiners: even my own best man is a patent examiner.
And this is what I can tell you: patent examiners are seldom experts in the subject matter when it is about reviewing patent applications and granting patents. I have studied mechanical engineering myself and I majored in robotics, more specifically in systems identification and control theory. Being assigned to the German Patent and Trademark Office during my training to become a patent attorney, I was placed into a patent examination unit for cigarette packaging machines, which was a quite developed mechanical technology back in 1995. I honestly understood close to nothing of that technology. My tutor and head of this unit was a trained food technologist who was there for a decade or so, so this was at least better than nothing. Would he qualify as an expert witness in a patent infringement court case? Maybe, but also maybe not. From my limited experience and insight, I believe that is a normal case.
Another unrealistic assumption is that a patent examiner is presumed to have considered each listed reference and found the claims to be patentable over such references. Applicants are also required to submit prior art of which they are aware and which is material to the patentability of the claims in the application. The examiner is required to consider these references as well with respect to the claims of the application. And the examiner is presumed to have searched for and discovered the most relevant prior art. But all that is not reflecting the time constraints of reality and the limited insight of patent examiners into their ongoing cases.
Believe me: a patent examiner can at best do 5% of what needs to be done in order to fully examine a patent application. Yes, we have today better search tools but that still does not make better patents. As an engineer, I would say that patents are multi-dimensional problems because of these many constraints. Patent protection cannot be easily extrapolated. The type of language used in a patent application can also be problematic for many people. This is another reason why patents are not ideal projects for government organizations. I would even go as far as saying that a patent that did not undergo inter-partes court proceedings is a highly risky business asset. Check out pages 29-30 of my “4×4 Innovation Strategy” book if you want to find out more.
The article continues:
Betting on Patents
In 2015, Randy launched Snapizzi with its shiny new business model. It worked. Snapizzi was attracting customers and growing. Like most startups, Snapizzi was operating at a loss, so Randy poured in profits from his photography business.
After four years of hard work and hefty financial risk, Snapizzi was finally profitable. Randy closed his photography business and turned his focus completely to Snapizzi. These were exciting times. Randy had bet it all, risking hundreds of thousands of dollars. But finally, he could relax. The business Randy had envisioned was becoming a reality and he was living his American dream.
Randy had bet big, putting his career, savings, and company at risk. Later, Randy brought in a business partner, Chris Scoones, who cleaned out his savings and mortgaged his house. But they believed in the patent. On the patent’s government-issued cover, it stated that Snapizzi would have the “right to exclude others from making, using, offering for sale, or selling” the invention. This meant that U.S. Patent No. 8,794,506 would protect their company from infringers and give them enough time to carve a toehold in the market.
That patent cover also said that the patent was “granted under law”, which meant that it was a legally granted and presumed valid property right. In America, we are a nation of laws. Randy trusted the U.S. government, and this made the burden of huge risk much more tolerable.
In short words: Randy´s transition to the Internet was successful. And he found someone to join him, and Randy probably sold him a share of his new business. Congrats.
Do you recognize the term “betting” in the above section of the cited article? It was used three times. That is not the language that entrepreneurs use, same as in “they believed in the patent”. And entrepreneurs also do not speak of making “the burden of huge risk much more tolerable”, as used in that article. Such language is the wining of a wannabe.
The article continues:
The U.S. Patent System: An Invitation to Infringe
Snapizzi had two major competitors: PhotoLynx and ImageQuix. PhotoLynx is the company that blogged about Snapizzi’s solution, saying it is “a really neat idea”, so they were aware of the customer value that the Snapizzi solution provided as early as 2009 and, as a competitor in the market, they knew about Snapizzi’s patents. ImageQuix also knew of Snapizzi’s product and patents.
All three companies are in an industry built on intellectual property protection; photographs are copyrighted. Yet, PhotoLynx and ImageQuix infringed the Snapizzi patents.
In 2018, Randy sent invitations to PhotoLynx and ImageQuix to license Snapizzi patents. PhotoLynx admitted infringement and took a license.
But not ImageQuix. ImageQuix responded to Randy’s invitation within seven days and included vague assertions that they had invented it first. Shortly thereafter, ImageQuix was acquired by Alpine SG, a well-funded SaaS acquisition company. Once acquired, ImageQuix sought a declaratory judgment claiming that Snapizzi’s patent is ineligible subject matter under 35 U.S.C. § 101 because the claims are directed to an “abstract idea” under Alice v. CLS Bank.
In December 2019, a district court held that the claims are all ineligible for patenting because they are “abstract ideas”.
And so it happened, a court decided that the patent cannot be asserted against an infringer. I have seen similar situations dozens of time in my so far 27 years of professional work in the area of Intellectual Property (IP). That is common.
This case confirms once again: patents are not carved in stone. Swallow it if you cannot grasp that truth.
The article continues wining.
There can be no question that Snapizzi technology was unique and useful. A PhotoLynx’ blog confirmed that and further provided a link to Snapizzi and recommended that their customers take a look. ImageQuix assertions that they had done it first proved unsubstantiated, which ironically shows there was nothing in the market before Snapizzi. Randy’s photography business was one of Snapizzi’s earliest customers, and when Snapizzi ran into trouble, Randy and Chris bought Snapizzi and invested hundreds of thousands of dollars to regear it for a new business model. The industry turned on Snapizzi’s invention; it is now a standard industry practice. All of this shows that the Snapizzi patents are unique and useful and would pass the threshold of Sections 102 (novelty) and 103 (non-obviousness).
None of those things is abstract. They are tangible results of actual trust placed in the U.S. government to uphold a patent granted by the U.S. government.
Again: how can one possibly use the term “trust” in connection with the services of a government? Has the author never heard of the idea of Separation of Powers which is a key element of every democracy? Patent laws come from a legislator (1st power), and they are granted by the administration (2nd power) as the law says. But why would patents be exempted from being reviewed by the 3rd power, the court system?
This is what § 282(a) U.S. Patent Act says about the presumption of validity: “A patent shall be presumed valid. … The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.”
In other words: yes, an alleged infringer is allowed to use the potential invalidity of the patent in suit as a defense in a patent infringement lawsuit.
When it comes to that defense, the question of standards of proof arises.
There are a number of standards of proof that are used in lawsuits. In criminal cases, the prosecution must prove “beyond a reasonable doubt” that all the elements of a crime were committed by the accused. This generally means that the so-called trier of fact – the judge(s) or the jury – is convinced of the truth of the facts to a degree where “it would be unreasonable to doubt their veracity”.
Not so in civil cases, including patent infringement. The party seeking to prove a fact must do so by a “preponderance of the evidence.” This means that the trier of fact must (only) be convinced that the facts are more likely true than not true. Please note that this is different from the standard of proof in criminal cases. In civil cases, a fact must be proven with “clear and convincing evidence”, which is a higher standard than simply more likely than not, and it does certainly not reach the level of “beyond a reasonable doubt”.
The standard for civil cases has also been defined as a “strong belief” in the truth of the fact. This reflects that the term “clear” together with the term “evidence” is inherently vague. Whenever I see a lawyer or law student write the term “clear” in a submission or paper it is a sign to me that nothing is clear at all.
Taken all together: why should a court or jury need to apply a higher standard of proof when it comes to invalidating a patent? Answer: there is no reason for that. Please read the Microsoft Corp. v. i4i L.P., No. 10-290 (U.S. June 9, 2011) decision of the U.S. Supreme Court (click here) if you want to find out more.
The article finishes with rhetorics:
The Abstraction Distraction
The very definition of an abstract idea, as defined by the courts, is an abstract idea. As such, it is not possible to overcome an abstract idea argument with concrete analysis. Therefore, any determination that an invention is an abstract idea can only be arbitrary and, as such, capricious. It makes fools of attorneys and judges, paupers of inventors and investors, and technological kings of other nations, like China, because nobody can invest in something that can so easily be taken away.
Randy has appealed to the Federal Circuit. Oral arguments are January 6, 2021.
Always look at the background of an author of an allegedly shocking article.
Morinville and also the blog under which he has published his above-cited article are promoting an outdated patent system. That is not realistic, and I have written about that before (click here).
Nothing beats the proper education of inventors. And one very common myth that needs to be busted over and over is this one: patents are carved in stone.
They are not. This is why you should never bet your farm on a patent.