Archive for risk

Sep
20

David and Googleliath (or VSL vs. Google): A Small Company Fighting a Giant Reminds Us Why Software Patents Matter

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A small start-up company fighting one of the great giants of all time: it’s a classic story of David vs. Goliath, or in this case, David vs. Googleliath (a.k.a. VSL vs. Google).

Googleliath's Googleplex (source: Wikipedia)

Googleliath’s Googleplex (source: Wikipedia).

Many small companies have claimed that Google misappropriated trade secrets or other IP, but rarely has Google graciously (and accidentally) cooperated in providing smoking-gun evidence the way they apparently did for Vedanti Systems, Ltd. (VSL). In this case, they allegedly left sticky notes on VSL’s trade secret materials showing their questionable intentions to take Vedanti’s technology. If VSL prevails against this giant, it may be more a case of Googleliath falling on its own sword than David being great with a sling.

VSL and their partners are now suing Googleliath for infringement of patents and theft of trade secrets in two courts. The suits are against Google (here also known as “Googleliath”) and their subsidiairies, YouTube and On2 Technologies. London-based Vedanti Systems Limited and their U.S.-based parent, VSL Communications, Inc., have turned to Max Sound for help in enforcing IP rights. The patent suit was filed in U.S. District Court for the District of Delaware, while the trade secret suit was filed in Superior Court of California, County of Santa Clara.

The complaints claim that Google executives met with Vedanti Systems in 2010 to discuss the possibility of acquiring Vedanti’s patented digital video streaming techniques and other trade secrets. Vedanti’s compression technology for streaming audio and video files is far superior to what Google had, Google’s own standards for streaming video t the time led to “jittery, low-quality video and sound for large-sized video files,” according to the patent complaint.

As part of the talks with VSL,  Google had access to trade secrets such as VSL’s proprietary codec for encoding and decoding a digital data stream.  That codex has proprietary techniques for “key frame positioning, slicing and analyzing pixel selection of video content to significantly reduce the volume of digital video files, while minimizing any resulting loss of video quality.”

Shortly after the negotiations began, Google allegedly began implementing VSL technology into its WebM/VP8 video codec, applying what they had learned from VSL but not letting VSL know. The WebM/VP8 video codec is extremely important for Google. It is used in many of their services and websites including YouTube.com, Google TV, the Android operating system, and Chrome web browser. They had inferior technology, but by allegedly stealing Vedanti’s, they were able to quickly advance their business at virtually no cost.

There’s just two pesky little problems for Google:

1. Vedanti has patents for its technology and is not afraid to sue. Now you might see why Google seems to really hate software patents (rather, other people’s software patents). They have been a leading force in some of the patent reform measures and related steps that have made protecting IP rights harder than ever for little guys like Vedanti. This giant, with its easy access to the White House and many other influencers, has also been an important voice against software patents, and may have helped influence popular opinion and the courts into recent devastating attacks on software patents. But Vedanti’s patents are still alive for now, so Google has cause for concern.

2. Google seems to have assisted VSL’s case by returning VSL’s trade secret materials with tell-tale sticky notes all over them showing their intent. Huh? This is really an amazing part of this story.

Attorney Howard Ankin puts it this way in a post from Sept. 17, 2014:

When the VSL Google talks ended, VSL demanded the return of its files. The returned documents were covered with incriminating Post-it notes that had apparently been left behind by Google employees. Attorney Adam Levitt claims that the notes said, among other things, that Google might possibly be infringing VSL’s then-pending patent and that Google should “keep an eye” on VSL’s technology and sweep it into a Google patent. In addition, notes warned Google engineers not to be caught “digging deep” and to “close eyes to existing IP.”

The complaint alleges that Google began to amend its preexisting patent applications and file new applications using VSL’s technology. Then in early 2012, VSL noticed that there were significant improvements to the video quality of Google’s Android operating system as well as other Google software. In June, the staff at VSL analyzed Google’s publicly available code only to discover that the code contained VSL trade secrets. Levitt asserts that the “Defendants’ theft of VSL’s trade secrets pervades virtually every website and product offered by defendants.”

“The use of new technology by established companies should be based on original creation and innovation,” said Adam Levitt, head of Grant & Eisenhofer’s Consumer Protection practice, who is representing the plaintiffs. “Vedanti Systems created groundbreaking digital video technology — technology that has forever changed the way that video content is streamed and displayed over the Internet.”

The lawsuits allege that Google willfully infringed Vedanti Systems’ patent and did so deliberately and knowingly, while recognizing the serious shortcomings of their own video streaming capabilities prior to the infusion of stolen IP.

Whether the suit will succeed or not remains to be seen, but I find Google’s lapse in leaving sticky notes on the borrowed materials to be rather hilarious, if it is true. One thing is for sure: If Vedanti’s allegations are factual, their chances of seeing some degree of justice are vastly greater by virtue of having a patent than if they did not. Software patents are essential for protecting innovations in the hugely important arena of information technology. This is the Knowledge Economy, folks, not the Iron Age. Economic growth and progress is more likely to come from advanced software and IT innovations than from hammering out better cogs and gears, and we need an IP system that understands this. Most judges and politicians ranting against software patents or patents in general do not understand this. Recent ruling that make many software innovations not even eligible for patents show that we have judges and influencers very ignorant of the physical nature of information and computer systems. Innovations like those of Vedenati are not tantamount to mere abstraction and mental exercises. They should have just as much right to be considered for a patent (provided they are novel, nonobvious, and useful) as any tool wielded by or widget hammered out by an innovative blacksmith.

Software patents matter, and they are vitally important for the best innovators of our day if they are to stand against the anti-patent giants that want anything but a level playing field. VSL vs. Google, or David vs. Googleliath, is a compelling reminder of that.

VSL’s patents in Europe are already causing pain for Google. Here is an excerpt from “Court Seizes Google’s Infringing Android Devices in Germany at IFA,” Stockhouse.com, Sept. 11, 2014:

SANTA MONICA, CA–(Marketwired – September 11, 2014) – VSL Communications, creators of Optimized Data Transmission technology and Max Sound Corporation (OTCQB: MAXD) (MAXD) creators of MAX-D HD Audio solutions, have been granted multiple preliminary injunctions from the District Court Berlin against OEM’s (Original Equipment Manufacturers) to stop the sale of certain Google Android devices in the Federal Republic of Germany at the Premier show IFA in Berlin (Internationale Funkausstellung, http://www.ifa-berlin.de/en), the world’s leading fair for Consumer Electronics and Home Appliances).

Max Sound, under agreement with VSL Communications, is enforcing intellectual property rights on VSL’s behalf and has obtained preliminary injunctions against Shenzhen KTC Technology Co. Ltd and Pact Informatique S.A., France. German Customs authorities further inspected several other exhibitors of smartphones and tablet PC’s with Android operating system. Shenzhen KTC Technology Co. Ltd. is one of the largest Chinese electronics groups operating worldwide, and Pact Informatique is a French electronics company operating in many European countries under the brand Storex. Max Sound’s actions were based on infringement of VSL’s European Patent EP 2 026 277 concerning an Optimized Data Transmission System Method. The Infringement was found on the basis that Google’s Android OS implements the H.264-Standard for video encoding, which is protected by VSL’s patent. A bailiff seized all smartphones and tablets of KTC and Pact at the trade fair IFA in Berlin on September 10, 2014. The injunctions have no automatic time limit, and opponents can file an opposition.

So what will Google do? For starters, I’m predicting we’ll see VSL and their allies soon being called some kind of “troll.” I also think we can rely on Google’s friends at the USPTO and beyond to find all sorts of reasons why Vedanti’s patents aren’t even drawn to patent eligible subject matter, regardless of how novel they may be. But the trade secret case is where I think tiny Vedanti might have a fighting chance, thanks to Googleliath’s cooperation with the sticky notes. Who said IP law wasn’t entertaining? Weird Al could have a lot of fun with this story. Suggestions for what tune to use in his spoof?

Note: The US cases referred to are captioned as: Vedanti Systems Ltd. and Max Sound Corp. v. Google, Inc., YouTube, LLC, and On2 Technologies, Inc., No. 1:14-cv-01029 (D. Del., filed Aug. 9, 2014) and Max Sound Corp., VSL Communications Ltd., et al. v. Google, Inc., et al., No. 114-cv-269231 (Cal. Sup Ct.).

Related stories:

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Apr
15

America’s Anti-Patent Revolution: Stoking the Engines of Innovation Fatigue

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My latest post here at Innovation Fatigue lamented the actions of the USPTO in their apparent war on patents involving natural products. New information makes the story even more troubling than before, indicating that more than just judicial error and bureaucratic blindness was involved. The steps taken appear much more deliberate and political than that, and reflect an increasingly revolutionary attitude toward patent rights holders, where IP is viewed as the problem, not as a vital tool to benefit society.

First, new insight into the actions of the USPTO comes from a leaked USPTO PowerPoint used to train patent examiners on the radical new USPTO guidelines implementing their extreme response to the Myriad decision. A PDF of the PowerPoint slides, coupled with the USPTO guidelines and some vital commentary have been compiled by Hal Wegner and are kindly provided by a great champion of IP (quality IP, that is), Greg Aharonian, Director, Center for Global Innovation/Patent Metrics. Wegner observes that the new guidelines, which require inventions involving natural products to be “significantly different” than what may be found in nature provide no concrete, objective test to determine when a claimed invention is “significantly different” from ineligible subject matter. Is a creative device made out of wood significantly different from naturally occurring wood? Is a new anti-cancer drug extracted from a newly discovered fungus significantly different? Who knows? The uncertainty created by the test can be disastrous for property rights holders. Wegner points out that a much more useful and concrete test already exists: the Papesch test for determining whether the claimed invention as a whole is nonobvious from the prior art. But this was never mentioned by the Supreme Court in the infamous Myriad decision and has been neglected by the USPTO as well.

In a recent email to his subscribers, Greg Aharonian shares an email sent to him by a biotech patent examiner within the USPTO. It helps explain some of the motivation behind the seemingly crazy USPTO action, which isn’t so crazy at all from the perspective of politics:

1610 examiner here again. We examiners in biotech at the PTO also would like to know ourselves who wrote those ridiculous guidelines. We are being told to stretch 101 as much as possible. The guidelines say that, for example, if claim 1 is an assay method, with steps such as centrifugation, column chromatography, mixing reagents in a test tube, spectrophotometric measurements, if each category of technique was known at the time of the invention (is routine/well known/conventional), forget about whether the step was ever done with the molecules in the claim, we have to write how each step is 103-obvious w/o using 103’s word “obvious”. We have to write somehow how the combination is 103-obvious, w/o the using 103 word “obvious”. Then we have to reject the claim under 101. We don’t know if the PTO requires art cited for each step that is obvious.

Now, Funk Bros. v. Kalo Inoculant, one example in the guidelines, is a decision in which the patented composition, which I think is amazingly clever, was considered not to be inventive. The decision involves 103, not 101. How could the PTO so thoroughly confuse 101 with 103?…

Myriad was politically motivated, filed by the ACLU, because poor people can’t afford the BRCA1 gene test. OK, this is the Obama era, max political correctness. Current politics ruled. The test, however, is expensive and difficult to do. It’s not in the test strip category, like a pregnancy test.

But Mayo v. Prometheus takes the cake. The drug and its metabolites are not natural products. So what is the natural phenomenon that the justices never mentioned? And the clever part is looking for a target concentration of one synthetic metabolite in red blood cells.

What seems to be forgotten is that patents are intellectual property and that patented inventions are new and useful. When intellectual activity is maligned rather than rewarded, the economy goes with it. The PTO seems to be under pressure from the White House, because biotech patents don’t jive with Obamacare, which is backfiring.

Yes, it is high time for patent attorneys to fight back (don’t laugh Greg). David Kappos cut our time for examination, but he increased customer service. Time for the customers to demand more service.

The biotech community seems afraid to speak out too loudly on these outrages, but I think savvy investors see a dimmed future and have begun pulling some of their money out of the field (my guess about the recent plunge). The patent community and the business community is remaining far too silent, perhaps afraid of attracting political wrath, but the losses of IP rights could seriously set back innovation in the US and beyond.

China is ramping up its IP system and strengthening protection, while America is declaring IP to be the problem and weakening IP rights. Who’s going to own the future? I’m living in beautiful Shanghai now, where a lot of the future seems to be sprouting in an increasingly pro-IP environment. Meanwhile, I hope America will come to its senses and return to vigorously protecting IP rights and promoting innovation, not innovation fatigue.

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Jan
03

First, Align All the Lawyers

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Many companies seeking innovation overlook their own internal barriers to innovation success. One of the biggest barriers can be their own attorneys. Lawyers are needed for many aspects of innovation, such as drafting the agreements with partners in open innovation and protecting IP with patents, trademarks, and other intellectual assets. The skill of a good lawyer who understands the business and its needs will often make the difference between success and disaster. But frequently non-lawyers fail to recognize how broad the spectrum of lawyer quality is and how non-standardized and diverse the practice of law can be. People with a technical or financial background, who are used to seeking and finding “correct answers” in problems of math, engineering, and accounting, might not recognize how subjective and variable in style and outcome the work of lawyers can be. More specifically, they might not recognize how ridiculous and counterproductive the work of their attorneys is.

In working with various companies seeking to promote innovation, I’ve sometimes watched in horror as a single misguided attorney not only impedes deals but even destroys relationships as he or she seeks short-term gains that destroy the long-term potential in a relationship. The tone of an attorney’s work can exude distrust and harshness at a time when trust and friendship needs to be built. Opportunities can be destroyed by an attorney urging the client to twist the screws to extort unreasonable gains from a potential partner, by pushing for extreme terms, by treating every encounter with the outside world or with inside employees as an adversarial relationship to be won at all costs. I’ve seen good innovators walk away from partnerships or even from their own companies through the antics of poor lawyers.

When it comes to innovation and partnerships, managers must not assume that their legal team know what they are doing (in spite of genuine excellence in the letter of the law), and instead must take steps to educate the attorneys about the relationships they wish to build, the tone they wish to convey, and the long-term goals they seek. Innovation success may require aligning your legal team with the not only the business goals but the principles to be pursued, the relationships to be strengthened and the spirit and character they wish to show.

Don’t take Shakespearean extremes. Rather, first simply align all you lawyers. Then you’ll be a little more likely to overcome innovation fatigue.

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Jan
31

The Long Journey of Discovery and Innovation: Lessons from Columbus

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columbusEvery October, the United States celebrates Columbus Day (well, maybe “celebrate” in the sense of “ignore”). Though now a controversial figure, the journey of Columbus has much in common with the journey of many innovators. It began with a vision, a dream that he could sail west and reach India to change the world of international trade. Like many inventors and entrepreneurs, his initial dream was wrong, but it did lead him in the right direction for one of the most important discoveries in our history. What many people don’t realize is how long it took him to turn his vision into reality. In 1484, after extensive study and development of his vision, he was determined to sail west and had (incorrect) calculations to back up his plan. But he needed funding for the project. He would spend nearly 8 years pitching his proposal to one European court after another, encountering delays and bureaucrats who slowly evaluated and then repeatedly rejected his proposal.

It’s not clear what kept him going and how he provided for himself during this time, but he persisted. Everything seemed to stand in his way, though. After having pursued all options and having received an absolute and final rejection from the Court of Spain, he was heading away to give France a try again, when he was called back and told that Queen Isabella of Spain, for reasons not known, had decided to support his proposal after all. A lucky break from a powerful ally–the kind of luck that often only comes through years of hard work and persistent evangelizing. The rest of the story, including many risks to be faced and conquered, is well known. Columbus would discover the New World and dramatically change the world.

As an entrepreneur, your initial vision is almost certainly wrong. There may be entire continents between your neatly drafted business plan and your intended destination, but the journey of discovery must begin. You will need funding and perhaps years of persistence. Endurance and vision is needed to get through the early years. Hopefully, you will find success–and may it be success free of controversy.

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Dec
17

Children Present: Innovators Beware

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One of the most challenging areas for innovators, entrepreneurs, and businesses of any kind now is field of children’s products. Innovation fatigue has reached new heights in this area due to “external innovation fatigue”–the kind that comes when outside forces from government and others, often with the best of innovations, deliver hard-to-evade punches to the body of entrepreneurs, including some very low blows.

The problem is especially severe when the governmental forces that can shut down a business or change the playing field unexpectedly arise not from legislators accountable to the voters, but from lone appointed individuals who may not be directly accountable to anybody.

The Consumer Product Safety Improvement Act (CPSIA) in 2008 dealt with, among other things, the problem of lead that had affected some books imported from China. Rather than address the specific issue of Chinese imports, the law sought a broad “fix” by banning lead in children’s products in general. Who could oppose that? But what it means in practice is that millions of toys and children’s books were unnecessarily discarded–wasted–by small businesses around the country because they could not afford to have lead testing done for the products in their inventory. For used products, there weren’t technically required to do testing, but they still had to comply with the law forbidding them from selling products with lead above a certain threshold. In practice, it was test or toss. I know of local entrepreneurs in Wisconsin who had to discard a lot of products.

For inventors and entrepreneurs, the added cost of certifying that your product is lead free can be one more tax that stands between success and failure, even when you have diligently avoided working with companies where lead could possibly be a problem.

At least the lead ban had its roots in law from Congress. The most recent ban affecting children’s products comes from one unelected leaders of an agency who has made tough new regulations on children’s cribs a top priority. In the past decade, 32 children died from defective children’s cribs with drop-down sides. Now drop-down sides will be banned in 2011, making it illegal to make, sell, or distribute them. (See “Baby Asleep in a Drop-Side Crib? Soon They’ll Be Banned” at Time.com.) Any death is regrettable, but 32 deaths from tens of millions of users is remarkably small. Chances are the deaths are not evenly distributed among companies, yet a blanket ban on a product punishes all, including those who had a flawless safety record and had delivered innovations that made their beds more reliable and safer than the competition. Now they are out of luck, as are the millions of parents (myself included) who have found safe and sturdy drop-down beds to be a big help in safely taking care of children and grand-children.

30 deaths across a decade: all tragic, but consider those numbers in light of the risk we face every time we take a step, turn a corner, plug in a product, or take a bite of food. Far more children die each year from salmonella–do we ban chicken and meats? There are about 30,000 deaths a year in the US for accidental poisoning and about 40,000 automobile deaths a year, with thousands of children in both categories. 3.5 million children aged 14 years and under suffer medically treated sports injuries each year, with many more deaths than cribs could ever cause. Do we ban sports? About 50,000 people a year go to the hospital because of skateboards, with many more deaths than cribs. Among useful but dangerous products, consider lawnmowers, where over 150 people die each year (that’s 5 decades worth of deaths from cribs at our current rate). Time for a ban?

There are hidden costs and even injuries for safety measures that are too strict. Alternative products and alternative behaviors have their own set of consequences. Will parents now be tempted to let kids sleep on beds or without the enclosed protection of cribs because the new generation of cribs are too expensive or too inconvenient? Is there any guarantee that children nationwide will be safer because of the ban?

I love kids and want them safe, but am most comfortable when informed parents take responsibility for that. When one person in an unelected position can make broad new rules that wipe out products that millions of people have found to be safe and effective, this changing of the rules midstream is a terrible disincentive for innovation in children’s products and innovation in general. Why bother with making the safest, most innovative drop-down crib when you’re going to be lumped with inferior products and stuck with a blanket ban that wipes our your business? It’s easy to do in the name of the children, but there are a lot of more pressing problems that children face, and better ways to deal with them than having one regulator issue laws without direct accountability to the people. Chalk one up for innovation fatigue.

Anytime is a tough time to be an innovator, but it’s especially tough when government gets overly involved in helping without considering the unintended consequences of the help, or the opportunity cost from helping in areas where help isn’t really needed. The quest to protect children is one area where the temptation to be overzealous can be especially strong. Who could be against protecting children?

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Oct
21

The Tsunami of External Fatigue

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Innovators and business leaders doing their best to achieve commercial success need to understand the set of innovation fatigue factors that they face. These include personal factors due to the bad behavior of individuals; corporate or organizational fatigue factors reflecting inadequate systems, culture, or flawed judgment; and external fatigue factors due to the burdens of legislation, taxation, and challenges in the patent system, for example. The first two categories are factors where innovators and corporate leaders are in charge. The external category is the most difficult one because the challenges come from outside our sphere of influence, where the best efforts on our part can still face seemingly insurmountable challenges beyond our control.

One of the effects of uncertainty regarding the regulatory climate that business faces is a dangerous reduction in venture capital that is often needed for start-ups to succeed. Consider this ominous news story from Yahoo! about the drop in venture capital funding recently:

Venture capitalists poured less money into U.S. startups in the third quarter and split this among more companies, signaling that investors are trying to be more economical with their funds.

According to a study set to be released Friday, startup investments declined 7 percent to $4.8 billion in the July-September period, compared with $5.2 billion invested during the same three-month period in 2009. A total of 780 startups received funding during the quarter — 9 percent more than the 716 companies that took slices of the investment pie last year.

The study, which was conducted by PriceWaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters, said that much of the decline stemmed from a drop in large investments in clean technology. Funding in clean-tech startups, which include alternative energy, recycling, conservation and power supply companies, has been mercurial lately. It fell every quarter last year compared with the previous year, but has been climbing this year — until the third quarter.

This is a genuine red flag, consistent with many red flags that we are seeing. The co-founder of Home Depot, for example, recently criticized the federal government in an open letter to President Obama in the Wall Street Journal (Oct. 15, 2010), explaining that Home Depot, founded during a past recession and now providing over 300,000 jobs to Americans, could never have been successfully founded in today’s climate where government, in his opinion, seems set on vilifying and punishing business rather than helping it to succeed.

We opened the front door in 1979, also a time of severe economic slowdown. Yet today, Home Depot is staffed by more than 325,000 dedicated, well-trained, and highly motivated people offering outstanding service and knowledge to millions of consumers.

If we tried to start Home Depot today, under the kind of onerous regulatory controls that you have advocated, it’s a stone cold certainty that our business would never get off the ground, much less thrive. Rules against providing stock options would have prevented us from incentivizing worthy employees in the start-up phase—never mind the incredibly high cost of regulatory compliance overall and mandatory health insurance. Still worse are the ever-rapacious trial lawyers.

Meantime, you seem obsessed with repealing tax cuts for “millionaires and billionaires.” . . . The wealth that was created by my investments wasn’t put into a giant swimming pool as so many elected demagogues seem to imagine. Instead it benefitted our employees, their families and our community at large.

Business leaders and innovators face many new burdens and uncertainties that can crush delicate start-ups and even thriving businesses. Increasing the burdens right now, whether through more regulations, higher taxes, or other measures with unintended anti-business consequences, seems likely to only increase innovation fatigue at this critical time in our nation’s history. I urge our leaders to carefully consider how small companies and start-ups are being affected, and how venture capital will be affected, by the changes that are being proposed and by the actions they’ve already taken.

It’s time for government to listen to the voice of the innovator.

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Graphene: A flat layer of carbon atoms bonded in a honeycomb crystal lattice a single atom thick.

Graphene: A flat layer of carbon atoms bonded in a honeycomb crystal lattice a single atom thick.

Tim O’Reilly (@timoreilly on Twitter) had a recent tweet about the Nobel Laureate Andre Geim who discovered graphene and many potential uses for the super strong two-dimensional material. His tweet was “Puts the lie to the claim that patents help small inventors: Why Geim Never Patented Graphene http://bit.ly/9QrEC3“. The link is to a discussion on Slashdot that begins with this observation about why Dr. Geim didn’t patent graphene. Turns out he almost did, but chose not to after a conversation with someone from a big multinational company that could become a major user of graphene in the future. Here’s the content that Tim O’Reilly and others feel shows why patents don’t help small business owners:

gbrumfiel writes

“As we discussed on Tuesday, Andre Geim won this year’s Nobel prize in physics for graphene, but he never patented it. In an interview with Nature News, he explains why: ‘We considered patenting; we prepared a patent and it was nearly filed. Then I had an interaction with a big, multinational electronics company. I approached a guy at a conference and said, “We’ve got this patent coming up, would you be interested in sponsoring it over the years?” It’s quite expensive to keep a patent alive for 20 years. The guy told me, “We are looking at graphene, and it might have a future in the long term. If after ten years we find it’s really as good as it promises, we will put a hundred patent lawyers on it to write a hundred patents a day, and you will spend the rest of your life, and the gross domestic product of your little island, suing us.” That’s a direct quote.'”

While some people, including some in the anti-patent community, see this as a self-evident case for the problem with patents, it’s actually just the opposite, in my opinion. Tim’s a sharp thinker and great entrepreneur, but I have to disagree on this one.

Look at the story again. A genius on the verge of filing a foundational patent for a major breakthrough in technology approaches a large corporation who might benefit from the technology. The company learns that the inventor is about to file a patent. A valid patent would mean that the company would have to pay royalties for the invention, perhaps very expensive royalties. If no patent is filed, the company can use the technology for free and develop its own patents without having to cross-license or worry about what Andre Geim owns. Hmm, which would be better: paying a lot, or paying nothing? Having to work with an inventor or tech transfer office or new patent owner who may end up thinking an invention is worth billions, or having the whole thing pretty much gratis? Tough call, but I think the corporate leader was quick to recognize the advantages to nipping the patent threat in the bud. How could he talk the inventor out of a patent? What negotiating tactic to deploy? ah, how about the Hindenburg? That’s where you explain to the other party that their intended course of action would be a flaming disaster, with burning bodies falling out of the sky–oh, the humanity!–resulting in the adversary becoming toast themselves.

The Hindenburg: A flaming disaster and a common negotiating trick

The Hindenburg: A flaming disaster and a common negotiating trick

The Hindenberg it is. The corporate leader then explains that IF Geim is so foolish, so greedy, so inhumane as to file a patent, disastrous suffering will follow and he’ll be burned. “100 patents a day!” Overwhelming force! You’ll go into debt suing us for nothing! You’ll be toast, baby. One big flaming Hindenburg crashing into the ground.

Baloney! All bluff and bluster. But the intimidation and scare tactics work. “OK, OK, I won’t file my patent. Sorry for even thinking about that. Now I see that patents don’t help the little guy, Mr. Big. Here, take what I’ve got for free. I’m just honored to watch you commercialize my work.”

Patents are the great equalizer. It’s what gives lone inventors a fighting chance against the big corporation that wants to take what they’ve got for free. It’s not easy and may not work, but with patents you’ve got a chance and corporations know it. Good ones respect that and will work with out. Others will try to take what you’ve got anyway, or better yet if they can, talk you out of pursuing a patent. Without one, you’ve already surrendered. You might as well throw the keys of your car to any passing stranger and hope they will pay you someday after they drive away.

The story isn’t about why patents don’t help the little guy. In fact, I think it’s about how much some big corporations despise and loathe patents in the hands of little guys. So much so that they would make outrageous statements to trick a brilliant scientists into NOT doing the one thing that could have helped him most: filing a patent. Instead, he handed them his inventions for free. Score one for the big guys.

It would be fun to go back in time and be with Dr. Geim when he was given the Hindenburg treatment. I’d like to ask a quick question of the corporate executive who made the threat:

Wow, 100 patents a day. That’s so amazing, you know, because the world’s most prolific patent filers like IBM and Canon average less than 20 filings a day, and I would be surprised if they ever hit 100 patents a day, and certainly not on one single project and certainly not over an extended period of time. So how many US patents did your company get last year? Wait, it’s right here at USPTO.gov – hey, based in your pathetic past filing rate, it looks like you could never ramp up to 100 a day. You’re trying to spook me. So just what are you afraid of? Oh, I see, my patent. Nice try, Mr. Big. I’m going to file, especially now that I see how much you care. Now go ahead and hire a hundred lawyers and create your own little fiscal Hindenburg, or we can talk about collaboration.

Oh, one more thing. You need to work on that Hindenburg act. The flames shooting out of your ears were a bit freaky.

Jun
16

Guerrilla Development: Brian Argo Shares Innovation Lessons from His Work with Solar Cells

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Today I’m pleased to share a guest column from a friend, Brian Argo of Brian Argo & Associates LLC. Brian specializes in technical scouting, intellectual property searches, and formulation of cleaners and personal care products. He has a wide variety of experience in innovation and offers an interesting perspective that I thought would be useful for readers of Conquering Innovation Fatigue and this blog. –Jeff Lindsay

Brian Argo

Brian Argo

Since I was a kid, I have always rooted for the mad scientist in monster movies. It’s not the diabolical nature of their work that I found so appealing, but the willingness to take on the world for a cause that you’re committed too. Although I have spent 23 years happily developing various consumer products for companies like Kimberly-Clark and Clorox, I’m also interested solar power. My solar project started in 2003 at Christmas time during a lunch with my former graduate research group. They had a very cool way to grow nanoscale metal hairs out of an insulated template. They thought this would be the Holy Grail for solar power, but couldn’t see a good way to produce this at a large scale. After a few dozen napkins, it became clear that there were viable technical options to do so.

Our idea was simply to form a microscopic mold as a template, fill it with metal, and remove part of the template leaving individual metal hairs surrounded by an insulator. Then, we could use any number of methods to coat the hairs and form solar cells. At the end of the day, its not too far technically removed from fabricating a micro scale Popsicle using a semiconductor foundry.

When our technical work started in earnest, we thought we might have been a bit deluded to think we scooped the big boys of the world (GE, BP, Sharpe). Off to my basement I went. I worked through the physics. I looked through hundreds of journal articles. I read through over 3000 patent abstracts. All the while, simply using Google, the US PTO, and the WIPO search engines. While I prefer using search engines like Aureka, it really isn’t to bad doing a search manually either. As long as you are short on money and don’t mind working like a mad man, it’s not a problem. I was worried that I must have missed something so I double-checked my search against an IP search using artificial intelligence. No significant prior art came up.

It become evident that geometry of the nano scale hairs was perfect to create a super solar cell. The solar cells are probably coated with what are referred to as nano dots or at least coatings so thin that phenomena that cause electrical losses due to excessive thickness disappeared. The cells are also super light absorbent and conserve rare materials. This was not lost on the theoreticians. However, their further belief was that semiconductor equipment is cost prohibitive for the use in solar cells, which is correct for machines found in state-of-the-art foundries. What they missed was that older, more primitive equipment was sufficient to make the nano-wire solar cell cost effectively. General George Patton once said, “If we’re all thinking the same thing, someone isn’t thinking.” In retrospect, groupthink in the solar industry left us a brief crack of time, which we used to patent and develop the technology. In the years that followed, we learned a lot of work had started a short time after ours.

The intellectual property needed to be done flawlessly. In my mind, that meant that I should draft the applications myself. However, the group voted to go with a big name national legal firm. Since we were bootstrapping the enterprise, we were starting with a provisional patent application. To save on legal fees, I drafted the application. Next, I spent the two weeks bringing an entry-level patent attorney up to speed on our technology, and then she let us know that the application was excellent and she supported filing it. No added claims. No significant improvements to the specification. Only a big “atta boy” and an invoice for $15,000. I think that when you work with a large legal firm and you are a fledgling startup, it is very unlikely that you will get the “A” level support. In the end, I suppose I did what I set out to do; we were just poorer for the experience. My only other qualm with our process is that our team viewed IP development as an ancillary activity. Some people just don’t get the value of IP until it is too late. Eventually excellent counsel was located through a recommendation of a former colleague, and the final application was done well.

Now all we needed was money. We chose two avenues, grants for academic research and angel money. Neither path is easy, but we managed to get several grants. The grants were nice to keep members of the team solvent, but they can also be a trap where too much focus is on writing papers. We found this to be the case, and eventually refocused fund raising on angel investors. That is not easy either. To get angel money, you need to have a good idea, and you need to have someone they know on your team. People who are trusted by angel investors or venture capitalists are not necessarily people that can be trusted. I cannot over emphasize how difficult it is to find a good person that meets that criterion. Mark Twain once said “A man who carries a cat by the tail learns something he can learn in no other way.” You cannot do too much background work. Fund raising last year was not fun. A Nobel Prize winner, a Stanford electrical engineer who graduated top his class in two and a half years, and few dozen other technical leaders, vetted us out. It was our experience that the complexity of the idea got lukewarm responses or ridicule from VC’s with little technical depth, but fantastic responses from investors with high levels of technical skill.

As grants and angel money trickled in, I frantically yet frugally raced to develop a prototype always working to stay one step ahead of the money. One problem was that there was no other technical support. Another problem was that manually performing operations that are normally automated around the clock is challenging. After many months of grueling work, it was gratifying to find that everything worked as I thought it would. Finally, individual investors gave us the money we needed to enter into long-term process development. The project has been moving forward according to plan. However, my personal and business priorities were not a match with the new management of the company, and the company no longer employs me. I am back in the consumer products business enjoying a brisk consulting business. This type of venture is not for anyone with a weak stomach for long hours, high risk, or high stress. However, if you are willing to pay the price and can work with trustworthy people, it can be the most satisfying and financially rewarding adventure in your career.

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The lifeblood of innovation is capital. Investment of capital is the primary difference between great ideas and great teams that go nowhere and those that change the world. From the airplane to the iPod, from wonder drugs to wonder software, innovation requires invested capital to bring concepts to commercial reality. Angel investors play a crucial role in the ecosystem of invention, but they may soon be shut down by Congress in their efforts to “protect” Americans from financial risk.

Risk is a dirty word for those who don’t understand business. Wouldn’t it be nice if government could just protect us from the risk of failure and ensure that we are always safe? But this kind of thinking means stagnation, captivity, and the death of innovation, for the opportunity to succeed inevitably is shadowed by the risk of failure. If success is guaranteed, why put forth the effort to create and innovate? If a venture is protected from failure, we are also protected from the kind of success that inspires innovators and their backers to undergo risk.

Tom Still of the Wisconsin Technology Council has boldly and bravely weighed in on Congressional plans to protect us from risk, plans that would give them even more control over the things they seem to understand least while making it more difficult than ever for innovators to succeed. Tom Still challenges the financial reform legislation proposed by Senator Dodd and points out that his efforts to protect us will crush angel investing, which in turn will stop many innovators from having a shot at success. Ultimately, Dodd seeks to “protect” people from investing their own money the way they want to, and the unintended consequence will be a painful blow to innovation. Tom Still’s article is “Angels on the head of a sharp pin: Financial reform bill poses threat,” published April 21, 2010 at Inside Wisconsin by the Wisconsin Technology Council. Here is an excerpt:

The financial sector reform bill being pushed by U.S. Sen. Christopher Dodd, D-Conn., takes direct aim at the wings of angel investors for reasons that defy explanation. If passed, this “Washington-knows-best” attempt to regulate some of the nation’s most productive risk-takers could destroy the entrepreneurial economy.

Angel investors are often entrepreneurs who hit a home run in their own start-up businesses and who want to reinvest in other young companies. Angel investors are generally strong business executives with an eye for innovation, and they’re not afraid to take a calculated gamble on companies that are too new to get financing from venture capitalists or too risky for banks.

They usually invest close to home and most often as individuals or within a family, but increasingly angels invest as members of angel networks or angel funds that offer some safety in numbers and more partners to screen potential deals.

In Wisconsin, angel investors have been in the vanguard of fostering the state’s early stage economy. Five years ago, there were only a handful of angel networks in Wisconsin. Today, there are nearly two-dozen networks and funds – and they’re not shy about rolling the dice on Wisconsin companies in sectors such as biotechnology, information technology, medical device, advanced manufacturing and “cleantech.” …

But if Dodd has his way, these individualistic investors will be regulated out of existence.

The Restoring American Financial Stability Act, of which Dodd is the chief sponsor, would tighten regulation of the nation’s financial system in ways large and small. It contains three provisions that would effectively kill angel investing in the United States:

  1. It would require start-up companies to register with the federal Securities and Exchange Commission, and wait at least 120 days for SEC review, before trying to raise money. Currently, fledgling companies can raise money from accredited investors without regulatory approval. Four months is an eternity in the life of a start-up company, and most would die in the vine before they ever get a chance to grow.
  2. It would redefine who is an angel. Accredited investors, who are people deemed wealthy enough to invest in start-ups, would be limited to those individuals with more than $2.5 million in assets (up from $1 million today) or a personal income of $450,000 per year (up from $250,000). This will dramatically decrease the supply of angels, which the University of New Hampshire’s Center for Venture Research estimated at 259,000 in 2009. Those angels invested $17.6 billion in about 57,000 deals.
  3. It would subject investors and start-up companies to state-by-state rules versus a single set of SEC standards. Along with the new SEC filing requirement, that would add red tape, time and cost to the investment process.

In its frenzy to clamp down on Wall Street, Congress is threatening an investment community that fosters innovation, mentors young companies and generally cares about how the economy is faring where they live. Angels have helped to create some of today’s biggest companies – Apple, Amazon, Google and many more – usually without putting anyone’s money at risk other than their own.

Angel investing isn’t perfect; the average return on investment proves that. But it’s precisely the kind of bottom-up, largely self-regulated economic activity the nation needs as it struggles to create new companies and jobs. Only those federal lawmakers intent on a top-down, command-and-control economy would think otherwise.

We have enough innovation fatigue factors on our backs already. Clamping down on one of the major arteries that provides capital to start-ups and entrepreneurs is not going to enhance circulation in the atrophying limbs of this economy. We need to back down and let the private sector thrive on its own, taking on both risk and failure, and when we fail, let us fail instead of taking from those who succeed to prop up failures deemed “too big” to fail. The free market offers powerful solutions to some of the problems we face and powerful incentives for innovation, if we can stay out of the way.

Kudos to Tom Still for his insights into the risks Dodd’s bill poses.

For connecting one human to another, it’s been said that any two people can be connected by acquaintances in six steps, hence the concept of “six degrees of separation.” The term “seven degrees of separation” occurred to me when reading Malcolm Gladwell’s discussion of airliner accidents in his outstanding book, Outliers: The Story of Success. He observes that extensive studies of airliner crashes show that the fatal tragedies often require a combination of seven things going wrong, any one of which might just be an inconvenience or minor problem by itself, but in combination with the others can lead to disaster. When it comes to connecting skilled humans to the very disasters that they have been carefully trained to avoid, there are seven degrees of separation to disaster.

While mechanical defects, fatigue, and bad weather are often involves in the seven degrees of separation, these airliner disasters almost always involve flaws in interpersonal communication. For example, there may be a copilot who is afraid to speak up and challenge the pilot when an obvious mistake is being made, or there is a lack of clarity in communicating a problem to the air traffic controllers. When trouble is brewing, success often requires extensive communication between the flight crew, other crew members, ATC staff, and sometimes others. Plans must be made, checked, implemented, revised, clarified, conveyed, and so forth, at many levels to handle an emergency properly. When crew members keep their mouths shut and don’t share what they know or sense, when courtesy or fear stops urgent information from being shared, or when there are cultural or linguistic barriers to effective communication, multiple mistakes and miscues can accumulate, whittling away at the separation between survival and disaster. It’s that way in the world of innovation as well.

Superior IQ and innovative genius is often far less important than the ability to communicate. Disasters in innovation and new product development are often due not to lack of intelligence among the innovators and corporate leaders, but gaps in communication. Launching a product and safely navigating it through the storms of the market can be much trickier than flying an airplane. The flight of a new product always involves malfunctions and emergencies that require communication skills above all. Information from the market must be effectively shared with the developers. Plans must be shared and communicated with external partners and internal teams. Benefits and features must be effectively communicated to end-users. Expectations must be clearly conveyed to suppliers and service providers. A plethora of data must be handled and shared in ways that inspire, motivate, drive action, and keep all parties aligned.

As in an airplane emergency, “yes men” are not the people you need around to help. You don’t want devil’s advocates either or professional naysayers–you need people willing to share what they know and challenge directions and assumptions that may mislead the project or the company. You need people who can help you confront and conquer the brutal facts of your present reality. (See my previous post on the Stockdale paradox and the danger of optimism.)

More than words alone are involved in the communication relays that are essential for a successful new product flight. Intangibles related to trust, loyalty, and common agendas must be in place. It’s all about relationships, and these take time and effort to build and maintain. Unreliable or misleading communication can break those relationships and jam navigation systems, as can abusing or taking advantage of partners and employees. Bonds of trust and mutual respect inside and outside the corporation are essential to maintaining effective communication and bringing about the alignment and common purpose needed for innovation to succeed.

As Gladwell notes, the seven errors that tend to accumulate in major airline disasters “are rarely problems of knowledge or flying skill. . . . The kinds of errors that cause plane crashes are invariably errors of teamwork and communication.” Ditto for the risky, high-flying adventure of innovation, where crashes are the rule rather than the exception. It’s not that the team wasn’t skilled or clever, but fundamental gaps in teamwork and communication resulted in the product launch smashing at full speed into barriers they failed to notice or attempting landings on runways that weren’t there. These disasters are always going to be far more likely than airplane disasters, but improved communication and teamwork across your innovation ecosystem can do much to bring you safely home.

In Conquering Innovation Fatigue, our chapter on the Horn of Innovation is devoted to illustrating the importance of including the innovation team in feedback loops that bring data from the marketplace to the innovators to allow them to make rapid on-the-fly adjustments for iterative innovation. Cut off that communication, and your innovators are flying blind. Blind innovation is what fills the convention “innovation funnel” with numerous abortive attempts that need to be weeded out. Keeping innovators inside the loop with clear and instant communication gives them a more clear map and helps them work with your team to develop the right flight plan for success.

Innovation success is all about abundant communication and teamwork, not hand-offs that isolate those with the vision from those at the helm. Innovation is disaster prone enough when everything is running well–no need wiping our a half-dozen of your degrees of separation from disaster by your own communication and relationship mistakes from the beginning.

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InnovationFatigue.com is the official blog for the new book, Conquering Innovation Fatigue. Here we provide supplementary innovation, news, tips, updates, and, when needed, a correction or two, to keep those who are using the big on the inside edge for innovation success.