patent wars 2

The Patent Shuffle ~ Make money from patents

The American system of patents began as a way to secure your intellectual property. If you had an idea, you could register that idea; no one else could then copy it. This is the basic concept of patent law. It’s a shield, used to protect inventor’s ideas.

But nowadays, savvy investors have begun using patents as a sword, not a shield.

U.S. patents are ridiculously easy to obtain; as long as there isn’t a similar patent on file, you can have one issued to you. The process for applying has even been automated into an online system.

Once you have that patent, though, you have an item of intellectual property that can be a major business asset to you, even if you have no intention of opening a business yourself.

Take, for example, Personal Audio. Personal Audio is a company that formed in 1996. Their idea was simple: license music and deliver a custom playlist to a consumer via the internet. Actually, what they did was take the custom playlist from the consumer online. The actual audio was then mailed to the consumer. On an audio cassette.

In 2009, they applied for a patent, which reads as follows: (Editors Note: Stick with us here, it’s relevant) “An audio program and message distribution system in which a host system organizes and transmits program segments to client subscriber locations. The host organizes the program segments by subject matter and creates scheduled programming in accordance with preferences associated with each subscriber. Program segments are associated with descriptive subject matter segments, and the subject matter segments may be used to generate both text and audio cataloging presentations to enable the user to more easily identify and select desirable programming. A playback unit at the subscriber location reproduces the program segments received from the host and includes mechanisms for interactively navigating among the program segments. A usage log is compiled to record the subscriber’s use of the provided program materials, to return data to the host for billing, to adaptively modify the subscriber’s preferences based on actual usage, and to send subscriber-generated comments and requests to the host for processing.”

Ok, that’s a pretty hefty chunk of text. But read it through again; notice how general it is? Sure, Personal Audio was taking playlist info over the net and then sending out cassettes to people. That fits in that patent. But the language in the patent, you may notice, is much broader than that.

Personal Audio, LLC, has already won eight million dollars from Apple for patent violations. They’ve reached other major settlements with websites and tech companies involved in podcasting. The owners of Personal Audio LLC are now all millionaires, several times over, without ever having to create or market a patent.

Such is the life of a patent troll. Now, there’s a lot of political hubbub about patent trolling, and this window of opportunity may close if the American Congress ever manages to pass any kind of legislation about it. That said, given the current political deadlock in that body it’s unlikely any sort of immediate change is going to take effect.

There is also a lot of ethical debate concerning patent trolling. It may very well stifle innovation, it may choke the market, and it may very well be slowing humanity’s technological prowess. This is not a practice for those that want to feel good about themselves while investing; this is a practice for those who want a high-potential investment with low buy-in. If you want to feel good about your investment, check out my previous article on microfinance. But if you’re feeling a bit more like a shark, here’s what you need to do.

Come up with an idea

The beauty/horror of patent trolling is this: you don’t need to know how to actually program a computer to get a tech patent. Is there something you wish technology could do that it currently doesn’t? Figure out how it could. Again, you don’t need to program the computer; you just need to be able to say that a computer would do something. Store data, process data, whatever. Chances are, if you’re looking for the technology to do it, someone else is.

Make sure you’re first

OK, now you have your idea. Good. Now go hit the US Patent Office online database, and see if anyone else has already patented your idea. This is going to do two things: First, it’s going to let you know if you need to head back to step 1. Second, it’s going to get you familiar with the format of a U.S. Patent.  You’ll want that when it comes time to apply for the patent.

Apply for the patent

You can get a patent attorney for this. I should say at this point that I am not a patent attorney; there’s a special bar exam just for patent lawyers. If your idea is complicated, it might be a wise investment to see a patent lawyer to make sure you’ve nailed down as wide an area as you possibly can. Either way, though, the US Patent Office has an online application system.

Wait for someone else to have your idea

Here’s the thing: your idea is something useful, which means it has a market draw. Somewhere out there, a tech company is going to discover your idea, or something similar to it, and come to the conclusion that filling that need would enhance shareholder value. They’ll invest time and money designing and building a system that looks remarkably like your idea.

The thing is, you had the idea first. The law knows you had the idea first, because you have a patent on it. That means any profit that tech company makes off their work is made in violation of your patent, and you are owed a licensing fee.

If the tech company is smart, they’ll do the patent research first, find your patent, and ask to license the rights beforehand. If not, they’ll have a great deal of money invested into the idea before your cease-and-desist letter shows up. Either way, they’re going to need to pay you off.

After that, it’s all a matter of negotiation between you and the company. How much do you believe your idea to be worth, and how much does the company think your idea is worth? That’ll vary from case to case; not every patent is the patent on podcasting.

The ethics of patent trolling are, as I have said, debatable. On one hand, it does reward people who think about the problems in our society and generate possible technological fixes to those problems. There’s a perfectly valid argument to be made that this is good for society on the whole.  On the other hand, the patent system provides a reward for those who have the general idea at the expense of those who have the capacity to actually put the technology to market. There’s another argument to be made that such a system discourages tech companies from finding new things to try.

Either way, though, this is the system in place. So grab a decent science fiction novel and figure out what the next big computer programming challenge is going to be. If you’re right, you could be sitting on millions of dollars without having to type a line of code.

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3 Responses to The Patent Shuffle ~ Make money from patents

  1. Wow! Ethics aside, that is a slick way to make some cash, isn’t it? I had no idea!
    Laurie @thefrugalfarmer recently posted..Summer Budget Breaks and a GiveawayMy Profile

  2. Peter Jones says:

    Yeah; there’s a whole host of ethical considerations, but it’s an interesting loophole with a lot of potential. There’s always a running question on where to draw the ethical line, but the most profit is almost always made on that cutting edge.

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