Three Root Causes Why Most Patents Never Generate a Nickel of Revenue
(Article 1 of 5)
The Need for a 100x ROI Hurdle Rate
LQ PATENT COLUMN, By Craige Thompson
This article is the first in a five part series that address issues I discuss in my new book: Patent Offense. If you would like to know more about these issues, or you want to find out how to get a copy of the book, please click here or call my office at (512) 649-1046 and we will be sure to let you know how to get a copy.
I believe that every idea that gets patented should be worth millions of dollars. However, I have also observed that most patents fail to generate a dime of revenue.
In this series of articles, I will share the 3 reasons why many patents utterly fail. And these three reasons apply no matter how excellent, brilliant, or highly commercially-valuable the idea.
My ROI-based Hurdle Rate for “Just Say No!”
The way I see it, the purpose of the patent is to help the patent owner unlock and maximize potential revenue in the marketplace. If the idea is not worth a few million extra bucks, I generally try to convince the aspiring patentee, whether entrepreneur or Fortune 100 company, not to start the patent process because it does not meet a reasonable threshold ROI (return on investment).
My threshold ROI is that the idea should have a credible story for returning to the inventor at least 100 times ROI for the inventor. Not every idea will succeed as planned, so a high ROI multiple on projected earnings serves as an effective hurdle rate so that one winner can more than make up for a few that ultimately don’t pan out.
The Process IS the Failure Mode
If most patents never generate a dime of revenue, regardless of how brilliant the inventor’s idea, then what is the root cause? Can we identify a failure mode?
I believe we can. To the extent that the “process” of drafting and prosecuting the patent is not optimized, then it does not matter how fantastic the idea, or how eager the market is to throw money to get the patented product.
No good idea can achieve its maximum monetization potential if the patent process is, how shall I say it, sub-optimal.
In recent years, I have observed numerous sub-optimal patent processes that do not serve the client’s business interests (although I noticed that they must have generated very handsome profits for the lawyers!).
These “non-best practices” are more widespread and negatively impact both the top line opportunities and bottom line results of innovative companies.
A poor patent process squanders scarce company resources, opportunity, and waste time and money, and usually ensures a negative 100% ROI, i.e., a total loss.
The good news is that there are patent counsel who have a process that can minimize waste while maximizing ROI. And, in terms of total cost, it generally requires *less* cash to follow a great process that yields the best results than it costs to follow the conventional, broken process that yields mostly frustration.
For any innovation, there are 3 aspects of a patent process that can *doom* the ROI on your investment in patent protection.
In the next three articles in this newsletter, I will explain these three aspects.
Bottom Line for Businesses
For businesses, the value of this insight is that the patent process is something you can control by selection of your patent counsel who have an effective patent process designed to make money for the client.
There are some excellent patent counsel, who have patent processes that are very effective in their results achieved for the client.
Then there are a shocking number of others who are very effective in getting results toward the lawyer’s own annual billable hours goals.
If you would like to discuss how to position your business to maximize the ROI of your patent investment through an optimized patent process, you can reach me at (512) 649-1046.
To your success!
I highly recommend Craige. Outstanding professional.