The patent factory
The art of out of your mind & into a patent
The top patent filers in the major patent offices around the world often include at least one “patent factory”.
A patent factory is a company that generates patents but rarely builds products. The idea behind a patent factory is that the patented invention can be licensed out to generate an income.
This is very similar to a venture capitalist who invests in start-ups, for which at least one in every ten start-ups will give a very positive return. However, a patent factory does not invest in the people or infrastructure, just in patentable ideas.
Why generate patents?
Patent portfolios are very valuable. For example, patent purchases in the last two months have included:
- Google’s $12.5 billion purchase for Motorola; and
- Apple, Microsoft et al’s $4.5 billion purchase for Nortel patents.
What’s different about a technology Goliath’s purchases and a patent factory?
Nothing except the size of the transactions and the press coverage!
Most patent factories contain “Davids” (individuals) who may morph into “Goliaths” (major companies) if desired and successful.
A patent factory files many patents for which only a few patents give positive returns. These returns enable the development of further patents … until enough wealth is made and/or the ideas stop flowing.
Usually a patent factory exploits specific market niches so the ideas and expertise captured in the IP can be exploited efficiently. Such patent exploitation often relies on the patent being able to be boot-strapped onto existing technologies to enable a near-term realisation of licence fees.
In Australia, there are patent factories which remain private; however, in the US some are very well known and quasi-public.
Intellectual Ventures is the most well known: the ex Microsoft executive Nathan Myhrvold founded Intellectual Ventures in 2000 AD – yes, a very new company founded in the era of the tech bust!
Myhrvold’s objective was to capture an idea, patent it, and license it – the patent factory objective.
The ideas were harvested by running workshops with genesis attending. Apparently Intellectual Ventures has generated $2 billion in revenue since it was founded and intends to do better.
Are Myhrvold’s ingredients for a patent factory necessary? Kevin Kelly of Wired & Whole Earth Catalogue fame argues in his latest book “What technology wants” is that the “genesis” component is not necessary: developments in technology will take place without the insight of geniuses, since breakthroughs are often coincidental and independent.
When do inventors become a patent factory? When they become prolific in filing patents.
I would include Japanese inventor, Shunpei Yamazaki as building a patent factory, since he has patented in a many areas. Further, he has substantial press surrounding him and appears to have deity status with the Japanese public. However, he was overtaken in February 2008 by an Australian, who is very private and virtually unknown in the press. Thus, a patent factory does not need fame, a genius’s insight, or have to exist in a manufacturing or technology hub!
A patent factory needs to start by:
- harnessing useful ideas, preferably those that can be bootstrapped onto existing technology; and
- successfully patenting such ideas!