“Economy Class” Patent Applications: Do They Provide Value? Here is When and Why.
In one of my latest Clubhouse events (click here) I had the honor to interview Jackie Hutter again, and one of the topics that we have touched was “crappy patents”, as opposed to “litigation-grade patents”.
This is where I am coming from: I have together with my team prosecuted about 18,000 patent applications in my lifetime. Many of those patent applications were clearly not “litigation-grade”. But does this mean that these patent applications deserve the attribute “crappy”? I do not think so.
Here is why.
A Real Example: Patents As A “Scary Sword”
The following is a recent example from my own practice, and I have countless examples like that one:
An inventor contacts me, asking whether he can offer his latest development, an emulator of a certain type of computer that has been used in the last century, as a Software as a Service (SaaS) product in the USA. He has done some prior art searches and there are more than 100 granted US patents out there that cover exactly that technology. And many of these US patents are owned by one large US corporation.
After looking at these patents it became immediately clear that these were not litigation-grade patents.
My answer to this inventor was three-fold:
#1: we cannot create a state of Freedom-to-Operate by invalidating all these patents. There are simply too many of them out there.
#2: one of the many other things that he can do is to shift the operations of the company that offers the SaaS operations to a country where there are no patents for his technology. US customers can then access these services in that other country. My first thoughts were Brazil, or possibly some overseas territories, such as the Bahamas.
#3: even if that is done it is recommended to perform a formal non-infringement exercise with a US Patent Attorney because only that will prevent that inventor from being accused of “willful infringement” if there should be a lawsuit in the future. Being found guilty of “willful infringement” could result in punitive treble damages being awarded to the patent owner.
Although the inventor had already invested a five-digit amount into developing that SaaS tool, he stopped further pursuing this business idea after receiving my advice.
The reason was simply that he did not even want to face the remote possibility that the large US corporation with that patent portfolio goes after him.
This example shows that even very simple patents can work, even if they are not litigation-grade. Just create many of them and they will work as a deterrent, at least if you are big enough in order to be perceived as a serious potential opponent.
You are now ready for the truth that will set you free: there is not one single type of patent application in this world.
Standard Email Reply To Patent Drafting Enquiries
You can best see my approach to recommending the various types of patent applications in my email template below:
Thank you for the attached information. I have checked your invention disclosure briefly. The information provided is sufficient for us to start working on a patent application draft. Nice effort!
The next step is to find out how far we go into drafting this patent application.
We have a range of patent drafts from the standard fixed fee ‘Economy class’, all to the way to a litigation grade ‘Premier leagues’ class. They are described in our resource here:
In short, depending on your company’s motives for filing the patent application, we can draft your above-mentioned invention according to one of the following 5 classes:
1. Standard Economy Class: none of the criteria quality, speed to grant, and early filing date does matter. Cheap is king.
2. Premium Economy Class: time to grant is not important, the quality of your patent application is important, but litigation-grade patent quality is not needed
3. Business Class: achieve a patent grant quick, the rest does not matter at all
4. Professional League Class: achieve any patent grant quick, one patent application contains several inventive concepts plus always keep a divisional patent application open, early filing date, but litigation-grade patent quality is not needed
5. Premier League Class: litigation-grade
Please find enclosed our leaflet for further information of our ‘Standard Economy Class’ fixed fee patent drafting product, for S$ 5,000. For higher class patent application drafts #2-#5, we go by our standard hourly rate of S$550/hr for the drafting work.
The email above gives an overview of five (5) different classes of patent applications, sorted according to “quality” and “time to grant”.
What everybody can easily understand is that “high quality” and “short time to grant” involves more effort and this must cost more than “low quality” and “slow prosecution”. And if you want to achieve “litigation-grade” quality, there will be a premium to be paid.
The Mass Transport Means in Patents: Standard Economy Class
According to my experience, 80% of the patent applications could (and should) be Standard Economy Class, because there are “soft motives” behind filing that patent application, and nothing else.
A “soft motive” always leverages on assumptions that are made by one of the parties involved in a communication about the product and services of a company.
And in the case of a patent, this is because most people do not know what a patent is.
Many people assume that a patent is some sort of intellectual certificate: smart patent attorneys have drafted it. And even smarter people at the patent office examine it thoroughly, and they run experiments on these patent applications in order to find out whether the invention works or not. And finally, there is a high-ranking government official who in a special ceremony endorses all this with a seal on a hand-written bill that is recognized as a monopoly that can immediately be enforced by any policeman. Or something like that. We all know that this is not true. But still many people believe in these myths.
And that is the reason why in 80% of the cases, a standard economy class patent application is more than sufficient to provide what is required. Just like in real life: 80% of the commercial passenger flights take place in standard economy class. Yes, taking business class can be a sign of wealth and success. It is just that you don’t need a business class ticket in most cases.
Six (6) Soft Motives For Filing “Standard Economy Class Patent Applications”
Here are some of these soft motives that come with the “intellectual certificate patent” assumption: “a patent demonstrates the creativity of a person.”
I will in the following give you some examples on this.
A Standard Economy Class patent application would do the job in most of the following six (6)cases.
Soft Motive #1: Patents As Creativity Certificates
More than once have I seen that people who did not do well in school later seek all sorts of certificates and memberships that prove that they are advanced in all areas of life.
There is an adult-learning industry looking after these people that produces fast academic degrees. Other industries provide certain luxury goods that can be bought with money, and this is how they serve as status symbols.
While I have not seen that extremely often in the area of patents, this is certainly a way to demonstrate that someone is creative.
Here is the good news: a Standard Economy Class patent application would do the job in most of these cases. The criteria quality, speed to grant, and early filing date does not matter. Any narrow 2-pages long granted patent claim will do, and these are the patent examiner’s most favorite patent applications.
Believe me because I was an auxiliary patent examiner myself and I personally know many patent examiners: once an applicant has indicated that they are happy with any granted patent claim, that opens the way to a quick grant.
Soft Motive #2: Patents Enable Obtaining Tax Benefits
Many countries give tax benefits when a taxpayer can show that they have filed patent applications.
Example: from 2013 to 2017, the “Patent Box” scheme allowed UK companies to apply a lower rate of Corporation Tax to profits earned from its patented inventions (click here).
According to the UKIPO website, “… the Patent Box is designed to encourage companies to keep and commercialize intellectual property in the UK.”
Many other countries have copied that scheme, there is even a Wikipedia page on that concept, here https://en.wikipedia.org/wiki/Patent_box
Now to the quality of the underlying patents for the Patent Box scheme. Nobody asked for litigation-grade patents when setting up this scheme. And no bureaucrat who has to tick the Patent Box criteria on the tax returns will ever be in a position to determine whether the profits that are claimed to stem from a patented invention or not. Only a judge during a trial in court can ultimately do so.
In my opinion, an Economy Class patent application is good enough if the only reason to file a patent application is to obtain tax discounts.
Soft Motive #3: With a Patent, you can get Exemptions From Competition Law Restrictions
Did you know that license agreements that do not have a proper basis, such as a patent or Know-How, are often seen as invalid, by law?
While it sounds logical that there is an obligation to disclose to the licensee any prior art that is likely to render the patent, there are exemptions for competition law restrictions if there are patents in place.
There is a decades-long quarrel ongoing between the capitalist side and the pro-government and anti-monopoly side of the Intellectual Property landscape.
Without diving too deep into this matter, you can look this up on the Internet if you want. I just Googles for “licensing IP competition law patent”, and this recent OECD paper DAF/COMP(2019)3 came out, describing the entire problem: https://one.oecd.org/document/DAF/COMP(2019)3/en/pdf
You can download it here if the link above is dead: DAF-COMP(2019)3.en
The article’s summary says:
Licensing is a fundamental tool for diffusing innovation, for allowing innovators to be rewarded for their efforts, and to promote co-operation and follow-on innovation during IP rights’ period of exclusivity. On the other hand, licensing agreements can also have anticompetitive effects, such as facilitating cartelisation or anticompetitive foreclosure. The main challenge for competition enforcers is to determine whether a particular agreement is likely to help or hurt competition. There is, in any event, an increasing international agreement that IP licensing has the potential for pro-competitive effects. With the exception of hard-core collusive conduct, the finding that an IP licensing arrangement infringes competition will typically require evidence of anticompetitive harm following an effects-based assessment that will need to the balance pro- and anticompetitive effects of individual licensing practices.
In short words: “if there is a registered patent, we have to evaluate whether there are still pro-competitive effects. But that is more difficult as compared with no patents being there.”
The quality of the underlying patents for whether or not applying competition law exemptions does not play any role. Nobody asks for litigation-grade patents when it comes to this. Again, only a judge during a trial in court can ultimately say whether a certain license agreement is found anti-competitive or not.
This is why I recommend for every cross-border cooperation agreement in the European Union to have at least one underlying patent, be it a technical matter or a pure business matter. In my opinion, an Economy Class patent application is good enough if the only reason to file a patent application is to claim exemptions from competition law restrictions.
Soft Motive #4: Patents increase Rankings in Public Benchmarks
There is no doubt whatsoever that the number of patent filings is indicative of the innovative power of the respective patent filers. That works for companies on a small scale and for entire countries on a large scale.
As an example, take the “Intellectual property (IP) statistics and analysis” project of the Organisation for Economic Co-operation and Development (OECD) which you can find here https://www.oecd.org/sti/inno/intellectual-property-statistics-and-analysis.htm
This is what OECD says about Intellectual Property:
Intellectual property (IP) rights aim to stimulate innovation by enabling inventors to appropriate the returns on their investments. IP also plays an important role in the creation, dissemination and use of new knowledge for further innovation, as contained in the inventions disclosed in patent documents.
The changing landscape of innovation, the globalisation of markets and the fragmentation of production value chains, as well as the emergence of new players are changing the way market actors use IP rights and policy-makers understand rights and their role. The context in which IP currently operates is very different from the one in which IP rights were conceived. IP systems are undergoing continuous changes as they seek to optimise the balance between private and social benefits to contribute to economic growth and the welfare of societies.
And when you check out the OECD website, you will find detailed data studies about patent filings and their meaning (click here) and even a paper about “Measuring Patent Quality: Indicators of Technological and Economic Value” (click here).
When digging deeper into that aforementioned OECD paper about patent quality it comes out that the OECD criteria for patent quality have nothing to do with the criteria for patent quality that typically are requested for passing a patent attorney qualifying exam. The OECD paper states the following criteria as those that are taken into account: “Patent scope “, “Patent family size “, “Grant lag “, “Backward citations “, “Citations to non-patent literature (NPL)”, “Claims”, “Forward citations”, “Breakthrough inventions”, “Generality index “, “Originality index “, “Radicalness index”, and “Patent renewal”.
What follows in that paper is nothing else than tea-leaf-reading, trying to evaluate the value of patents by applying big data science. Breaking that down to an individual case is comparable with identifying the visible features of a cow by analyzing a slice of salami that has been made from the meat of that cow. This is probably also the reason why “patent quality” has never reached any OECD statistics.
In very short words: the OECD does not discern between “Economy Class Patents”, “Premium Economy Class Patents”, “Business Class Patents”, and “Litigation-grade Patents”.
And as a result, if your plan is to file patents only for increasing your rankings in public benchmarks, you can achieve that with a cheap Economy Class Patent.
Soft Motive #5: with patents, you can obtain government subsidies
Many would go for an “Economy Class Patent” if the only goal is to obtain a government subsidy by filing a patent application, and especially if the government subsidy is larger than the costs for obtaining the patent application. That sounds so logical and straightforward to me that I doubt that this conclusion can be wrong. It may be illegal to do so in some jurisdictions, though.
While countries with a more collective worldview see government subsidies as a legitimate means to steer their economies, more individualistic countries see government subsidies as a way for easing hardships of specific parts of the population, for example after a natural disaster.
It is clear that a patent subsidy can never be properly evaluated by a government official, maybe except in cases of blunt fraud, where large amounts of patent specifications have been created by applying copy/paste working techniques, followed by using these for applying for government subsidies on a large scale.
Any “Economy Class Patent” application clearly goes beyond such a criminal practice, so we are using this patent application type for requesting government subsidies
But let’s see how this works in practice, with some real-world examples.
Example 1: CN Patent Subsidy Schemes
China had a similar system in place. Here is an English language report about that subsidy, taken from the website of the US Patent Office: “Trademarks and patents in China: The impact of non-market factors on filing trends and IP systems” (click here) or download the file here if the link is dead USPTO-TrademarkPatentsInChina
This is what is written there about government subsidies in China (p. 7):
Subsidies and government mandates that help drive patent application trends
Patents confer commercial value to patent holders by affording exclusive rights relating to the claimed invention for a limited term, and they facilitate innovators’ attempts to enter into commercial relationships with others and to access capital. Like trademarks, patents serve this function in China, as elsewhere, but
patent filings in China are also influenced by non-market factors. These factors include subsidies and government mandates of various types. Their existence may in part explain why the commercial value of China’s patents is low, by several measures, relative to some other countries.
ccording to professors Dan Prud’homme of the École de Management Léonard De Vinci in Paris and Taolue Zhang of the Tongji University College of Law
in Shanghai, “[a]ll 31 provinces/municipalities in mainland China have a patent subsidy scheme.”30 That observation is consistent with 195 reported subsidy
measures in China.31 As with trademark subsidies, many of these patent subsidies provide financial incentives greater than the cost of obtaining the patent, as shown in the examples below.
China also establishes patenting targets for stateowned enterprises, universities, public research institutions, and government officials.32 Indeed, Prud’homme and Zhang explain that subsidies and targets are part of China’s “massive system of IP-conditioned state incentives—including subsidies for patents, tax incentives tied to patents, and other monetary and non-monetary awards—as one tool to meet [innovation] targets.”33 Recently announced targets appear to confirm China’s continued commitment to this approach. On March 11, 2020, China directed its 128 centrally owned enterprises to double their holdings of U.S. and other foreign patents by 2025.
Subsidies are likely a major contributor to China’s rapidly growing PCT filings. In 2019, the Shanghai government raised the per applicant maximum annual
subsidy for international patent filings from RMB 1 million (about $142,000) to RMB 10 million ($1.42 million), and the per patent subsidy from RMB 30,000
($4,500) to RMB 50,000 ($7,500). The per patent subsidy for domestic patents was reduced to RMB 2,500 ($370).
The Beijing government has adopted a similar approach. According to measures that became effective in December 2019, an applicant is now entitled to as much as RMB 20 million ($3 million) in foreign patent subsidies per year (up from $150,000). The $3 million cap is higher than the RMB 2 million ($300,000) cap for domestic patents. The Beijing municipality also raised the per foreign patent subsidy from RMB 20,000 ($3,000) to RMB 50,000 ($7,500). The $7,500
per foreign patent subsidy is higher than the RMB 1,000 ($150) offered per domestic patent.
As with trademarks, subsidies likely encourage parties to seek patents to receive the subsidy rather than to protect an innovation. They also appear to motivate strategic filing behavior, including the practice of splitting a single patent application into multiple applications in an effort to reach specific innovation metrics. An Organization for Economic Co-operation and Development working paper analyzed recurrent year-end surges in patent
Example 2: EU SME Fund
The European Union has a similar subsidy in place (click here):
The Ideas Powered for business SME Fund is a grant scheme designed to help EU small and medium-sized enterprises (SMEs) intellectual property (IP) rights. The SME Fund is a European Commission initiative implemented by the European Union Intellectual Property Office (EUIPO) and will run from 10 January 2022 to 16 December 2022.
Funds are limited and available on a first come, first served basis.
Enough writing about this sensitive topic. A word to the wise is sufficient.
Soft Motive #6: with patents, you can achieve internal and external performance metrics
I have seen patent applications as Key Performance Indicators (KPIs) in employment contracts and in investor relations news. In some countries such as in Germany there is a duty by law to file patent applications for employees’ inventions.
I do not want to judge whether that makes sense or not.
A word to the wise is sufficient.
There are no “crappy” patents, at least I am not aware of many of such patents of bad quality.
But what I know is that there are patents of different types, and they come with different prices, qualities, and delivery times.
If it is only about the face value of a patent and if you know that will not need a “Litigation-Grade Patent” then all speaks for the “Economy Class Patent”, and especially so when you can catch several birds (the above soft motives) with one single stone (= patent application).
Select wisely what you need in order to achieve the intended purpose with your patent application.
Martin “Value” Schweiger