Patents for Start-Up Businesses with Patent Attorney Russ Krajec
Patents for Start-Up Businesses with Patent Attorney Russ Krajec. Russ shares his entrepreneur journey and insights on patents for small business owners.
NOTE: Please be sure to seek the advice of your own patent attorney before making any decisions or taking action on your patents or intellectual property. The information shared in this episode is for general guidance and education only and not meant to offer any specific legal advice for any individual listener.
Russ Krajec is an author, inventor, angel investor, podcast host, and patent attorney who believes the patent system does not serve startups well. Russ believes that you can find good ideas and curate valuable patent assets, even though 95% of all patents are worthless.
Russ is the CEO of BlueIron – they finance, insure, and loans money using patents as collateral.
Russ’s books “Investing In Patents” and the soon-to-be-released “Startup IP Strategy” describe the systematic process for due diligence on inventions, as well as a comprehensive framework for a startup’s IP strategy. The podcast “Patent Myths” tackles many complex IP issues, simplifying them into meaningful strategies for today’s entrepreneurs.
Russ lives in Loveland, Colorado.
Key topics from this conversation about patents for start-ups include:
- Ask yourself these two questions when determining the need for a patent:
- Can I tell that somebody is using my invention? If you can’t tell if someone else is using it without permission, then it may be best to treat it as a Trade Secret instead of a Patent.
- How many ways can I design around that invention? If you are patenting one of multiple ways to do the same thing, then it may be a poor investment in a Patent.
Episode Host: Henry Lopez is a serial entrepreneur, small business coach, and the host of this episode of The How of Business podcast show – dedicated to helping you start, run and grow your small business.
Books mentioned in this episode:
[We receive commissions for purchases made through these links (more info)].
- Investing in Patents: Everything Startup Investors Need to Know About Patents
- Trizics: Teach yourself TRIZ, how to invent, innovate and solve “impossible” technical problems systematically
Other Podcast Episodes:
You can find other episodes of The How of Business podcast, the best small business podcast, on our Archives page.
The following is a rough transcript of this episode without edits:
Welcome to the how of business with Henry Lopez in David begin the podcast that helps you start Run & Grow your small business and now here are your hosts. Welcome to this episode of the how what business is Henry Lopez and my guess today is Rush crate Jack Russell. Welcome to the show. Thanks for having me could be looking forward to this is an interesting topic. I get asked about this all the time. So in this episode we’re going to chat about Russ’s very interesting entrepreneurial journey, and then he’s going to share his incredible insights and extra cheese on patents specifically Cotton’s as a relates to a startup organization, but we’re going to talk about patents and General in small business Rusk Ray. Jack is an author an inventor an angel investor podcast host a patent attorney and he believes that the patent system does not serve startups very well at all. He believes that you can find a good ideas and curate valuable patent assets, even though as you’ll share it 95% of all patents are worthless arrest is the CEO of blue Iron and blue eye our finances ensures that loans money using using patents as collateral very unique and he’s going to explain how they do that a bit more rest as I mentioned as an authorized his book scrapbook is called investing in patents and soon-to-be-released is his second book which will be called strut start up IP strategy and then describe the systematic process for due diligence on inventions as well as a comprehensive framework for a startup’s IP strategy. He’s also a podcast I need tacos mini complex IP issues simplifying them into meaningful strategies for today’s entrepreneurs. If you want to receive more information about the how of business including linksDo the show notes page for this episode? Just text the word BIZ to 31996. So Russ lives in Loveland, Colorado just outside of Denver. And once again Rush Creek Jack, welcome to the show. Thank you. Show me where we were talking about the snow. It’s been snowing quite a bit is a record this it’s November time frame in the 2019. So you guys have gotten some early snows out there already, right? Yes. We Have Spent A Little Bit of couple days of single-digit temperature. So thankful. He’s warmed up a little bit about 40 now, actually. Thanks for joining us today. Where did you grow up Russ? I grew up in Connecticut and then went to school in Upstate New York. First job out of college was in St. Louis and then wound up in Colorado right here in 91 and never needed to leave as early as early in your career that you landed in.
Colorado, right. Yep. Yep. It was back when I was an engineer in the Denver area back then. Yeah, we moved out here in 91. I worked in Longmont and there’s a huge disk drive a business. There was a lot of storage companies around here that spun out of IBM moving to Boulder and and I was at one of these small Nimble disk drive companies and it really gave me a flavor for the entrepreneur ecosystem my job before this was in St. Louis at McDonald Douglas, which was Big Iron Leifer everybody. There was a lifer to make first shift on in the tooling Department took 25 years old on seniority is a lot of gray hair there and then come out here and it’s very much of a very fluid entrepreneur eco.
System with companies starting up in closing down on a weekly basis. So you think that that definitely gave you began to gave you the itch for starting your own business or did you always think you wanted to start your own business? I always thought I wanted to this gave me another Glimpse inside of it is so even though I was at McDonnell Douglas a lot of the work that was being done there was done by itinerant design Engineers. I see and these guys had and this was during the 8th, you know, it’s the end of the Cold War build up a lot of the engineers that I was working with had worked the B-2 bomber in California and then they moved out to St. Louis that work sucks yf-23 and then I was on the 812 which is a new airplane and these guys would show up. They work 80-hour weeks grind out a whole bunch of work.
And get paid by the hour and then they all the all the all the contractor Engineers would move to the next, you know, the net whatever next airplane which at the time was Triple 7 in Wichita and it did itinerant mindset was really interesting to me because it is they got paid for what they did as opposed to. Yeah. I got paid a salary no matter how I how many hours I was there. I didn’t get any extra and these guys lived on that they lived on the overtime. So now then some of them take off take time off in between projects is that was always something, you know back when I think back to my early I cheat career the people who were Consultants. I wish. Why what a luxury that is to be able to then take a break and then go on to the next project.
Some of them did some of them were like husband and wife teams that would show up and work for 3 years straight and pay off their house or having control of their their ability to make money essentially and I was salaried McDonnell Douglas and the airplane that was working on got canceled. So I went from 100% of Revenue to zero when I got laid off and then wind up coming out here and you know that contractor mentality that mentality of I need to deliver value for the hourly pay me for an hour. I need to deliver an hour’s worth of value and if I kept doing that I always had a job.
And so I was somewhat itinerant here going from place to place but that entrepreneur mindset was always always there. I got laid off twice in my career and then you could have called it a layoff for firing whatever but those those were definitely eye-openers for me that I that I needed to go do my own thing that the how did it impact you at first layoffs you think so, the thing that they did is they allowed us to they gave us two weeks notice cuz we’re salary.
And this is before we had computers at home and all that kind of stuff. So I was able to and you know, the long-distance phone calls and all that. So they allowed us to come into work for two more weeks and use the computers to do a resumes and use the phone system and people there were trading a classified ads from anywhere they could as well before the internet and I was three years out of college was an engineer and requisition to a computer put it on my desk and I was using it and a couple other of us were there but there were two guys who were little bit older not much but just a little bit older and these are Engineers who worked for the company for 3 or 4 years moved into management and we had been managers for like maybe 3 4 5 years.
So there, you know 5 to 10 years out of college and they were managers. They did not have any technical skills. They and they were good people they were you know, they were following the path which was go to University of Missouri get a job at McDonald Douglas. You’ll get on the the corporate train and just follow that the rest of the how the rest of their lives kind of work their way up every, you know, every little step.
And these guys were just heartbroken, you know that the deer in the headlights, they could not find a job. The only thing they knew was how to manage life in this big company how to negotiate the politics and deliver value in there.
But with that being gone, they couldn’t stand by and it really impressed on me that I had to have technical skills the transferred.
And that to me that kick me in the head really hard with that that lay off and it’s kept with me ever since just how do I I had to focus on do I add value? Yeah, very interesting perspective. I love that. I should have worded your interest in IP law come from and then you went back and got your law degree. How did how did that come about I always wanted to be an engineer like like from the beginning of time wanted to be an engineer and the highest calling or the highest reward that you could bees and Engineers to get a patent. And so that was always really important thing to me. I had to submit a couple invention disclosures when I was at McDonnell Douglas that never went anywhere I came out here was working at a company called Mac store was just drive company got my first couple Pat and stare.
Move to I was at Hewlett-Packard for several years went through the patent process a bunch of times there but only as an engineer and it really intrigued me that we could create an acid this patent that would have value in those cases when you’re creating pads. I’m just curious when you’re creating Compassus like that as an employee you you’re the author it but you’re not the owner of that or explain. Absolutely. I have an obligation to give all my inventions to my employer. It’s right before so they hire a patent attorney, you know calls me up and I explained the invention patent attorney writes it all down and I say sign some papers. I didn’t I didn’t really understand what happened behind the curtain there and I didn’t understand what happened afterwards. I know I got my check and I was happy but it intrigued me that you could sit down and and invent something that might be worth. What a billion dollars, right?
End end so I had this invention and an invention for a little saw horse bracket and it wasn’t related to anything else doing it. Right my current employer and I’ve been through the patent process a few times but I go to expand attorney was on on my hockey team and there you were looking at doing this on this side while you’re doing it on the side. I want I want to invent something and license it out and make a you know. A little gig going on the side and hopefully somebody will take a license and send me a nickel every time they ended there were no conflict-of-interest issues there at the point because it has nothing to do with what you were doing. It was completely unrelated to build a cell phone testers and Hewlett-Packard and I see but the discussion with the patent attorney was awful. Like I’m you know, how do I create this asset? What do I do? What does it need to look like? What do I need to for?
How do I build a tiny just would not give me any advice and I was really I was so disappointed with it and he wouldn’t you know, do you want to do provisional application will what’s that will explain it? Well, I don’t want to do number and I asked what do I want to do that? I don’t know you tell me and that was any also soaked me for $5,000 to do to patent really lousy patent searches, which I paid I paid the bill but I was angry and I was so angry that I took the patent bar to become a patent agent and all you need what is an engineering or science degree? So I study for that took the patent bar and then I wound up working for that attorney for about three years to learn the business and it was until I got inside the business that II realized why I was so frustrated as a client and that is that there’s a huge liability for the attorney to give you advice advice then and this is kind of where the the fallback position for the attorney is I give you no advice when I tell you all these are give you the facts but then it’s up to you to decide which way to go with that. I’m paying for this experience. You don’t pay for his knowledge of the industry and bring his expertise. I want all that but I can’t get it and that’s kind of how I got on this tried to figure out. How do I turn the tables on the how do I flip that that that Dynamic so that I could give advice?
And in the intermediate, you know the time in between I want up doing a bunch of patents for Microsoft, which was interesting to see how they did it on the inside as it was that was interesting. I had an opportunity to join a startup company in Seattle with Bill Gates’s technical advisor with a company called concur expense. And so I went from outside counsel to in-house counsel and in-house all I care about are these patents were going to be good when I’m outside. All I care about is how many billable hours. Can I put you know, can I bill sure and sewed it that that Focus that change perspective kind of got me to this point of blue Iron where we Finance patents and it’s really about that business is I have to have skin in the game.
So if if I’m financing a patent in the things go badly.
Well, I have to you know that’s on me because I have to sell that patent if I’m using it as collateral. Yeah, so I do some Angel Investing a dual I look at a lot of startup companies and one of the things I really look for is that conflict the people’s interest need to align and an a good business is one where?
Everybody’s interests are aligned and it’s amazing that most a lot of startups missed that for some reason. Yeah. Okay, so I want to go back for a moment to correct what you mentioned you were a co-founder of that business. Is that correct? Correct? And I was there was that your first business. Well, I mean my first business was the sawhorse. My fertile cat Independent Business was like the sawhorse thing that I had on the side. I see then I open my own Law Firm. Do you know so I was at solo practitioner for a while still I still do that. That’s still going concurrence was the first Angel Venture business though where I was on the inside. It got a blue Iron as you’ve mentioned you launch that in 2014, right? Yeah, that’s about it.
That is that was a bunch of ideas floating around for a long time that finally seemed to gel about then. Is there anybody else doing this financing of patents are ahead that has anybody come into the space since you started doing it tell me about that a little bit. I have not found anybody that’s doing it. I don’t know if that’s good or bad but before we segue then it to talk to you more about patents. I’m always curious, you know, you sure your journey and in some of those things that lead to wanting you to become your own boss and understanding early on that that exchange of value for an hour an hour of work. What would you say though that as you look back now or a couple of characteristics personal characteristics that you think I’ve been part of why you’ve been successful in business and in life.
One of them is that I’m not a very good employee even early on you think that was a challenge for you. Yeah, I don’t think I was a very good employee.
And I think that’s because I get excited about about the idea and and I really want to run with it and yeah plow a ton of time and effort and you know, you mentioned this podcast thing it is actually been something has been welling up in me for a long time. The first time somebody said, you know, you’re a doodoo pocket so like a year-and-a-half ago and it kept in back of my mind and finally it’s just boom as you know, it’s time to do it in and go that’s part of who I am for better for worse end. And when those when that time hits I’m really, you know, I’ll just work and work and work and work and work and work on that kind of thing and you know, just bury myself in it has that been sometimes an issue where people who are like that?
It’s hard for them to then realize you’re going down the wrong path.
They’re working on the wrong thing. It’s time ya have a challenge with that that’s not very fun in this blue Iron thing, you know, you try to have sold, you know, I’ve done a bunch of deals sold some, you know some agreement, you know made the sale if you will and then you know, somebody pushes back and says don’t know this is not you know, for whatever reason that they’re hesitant and I’m even this week I’m recently widowed. How do I reform this thing and instead of doing it in one legal structure? I do in a completely different one in and how do I how do I recreate my value proposition? I thought I had it all that had all that stuff done a week ago.
And here I am rethinking a tree working at Mia. Do you do you bounce these kinds of things off of a partner or confident of Mentor how to use the balance that then so that you do have that that check on is it time to to take a different direction over the years? I’ve found I don’t have a I don’t have a business partner, you know, like a full-time business partner, but I have found some people who will really tell you the truth, you know, the hard hard hard and will push you hard on it. It’s not fun to engage. But if you can get through that and force yourself to to move off of the point where you know the point where you are and and rethink things it’s it’s so important to do that. I think we all have our you know that the psychological inertia that we’ve worked on a problem for a long time and we get stuck on it and we’ve we’ve know we’ve convinced ourselves that it’s really good and we’re invested in it. Right? I mean, it’s hard to let it go and if if you can get somebody to push you.
And and the inspirational come from a whole bunch of different ideas. One of the things that inspired me yesterday is my daughter is starting a business as a consultant for a marketing consultant. She has a little niche and for whatever reason I stumbled on her thing and signed up for newsletter. And is it automatic email newsletter, but one of the things that was in her email that I got yesterday triggered me to like completely rethink the value proposition really push me off dead center interesting and it just came from nowhere. You know what maybe I was ready to hear it or whatever but those things happen all the time. This is Henry Lopez taking a quick break from this episode to introduce you to our new sponsor and they must have a new product SideTrak is an ultra portable USB monitor that attaches to the back of your laptop for more productive work date where they are at home at the office and a coffee shop or on the at home. I have a big widescreen monitor and I’m so used to how productive I am with it that I am nowhere near as productive when I am traveling or working from another location. But now with my SideTrak I can take my wife screen with me Sidetrack is a portable monitor that just attaches to the back of your laptop SideTrak and also mirror your screen and rotate 180 degrees for convenient collaboration presentations demos and more. I use it when I meet with my clients at a coffee shop or example so that they can see my presentation.
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Hi Restless list are diving into that are the topic at hand of patents at and I think a good opening question is when it comes to IP intellectual property, you you often talk about that. A lot of them common mistakes. You see entrepreneurs makes I thought we would start there. So what are some of those mistakes that people usually make as a released to their IP for first-time entrepreneurs are first-time inventors.
They they see the world the way I saw it years ago that that having a patent was was really important to me as a person to me. It’s my ego to you know, it was a lifelong accomplishment. There’s a huge emotional investment that are opportunity there that you know, a lifelong goal is going to be fulfilled.
So there is a tendency to hey, I got a great idea. I want to patent, you know, there’s that that tendency and I’m sure you’re relating to this. It’s it’s it’s almost like I think it’ll be validation of this great idea. I have this is exactly sure. It’s not in fact, I had a guy say the other day, you know patents are kind of like bringing a date to the Junior High dance validated that what you think you convinced one person for an unbridled fear that someone is going to rip off your idea. Yes and the truth is nobody knows about your idea. Nobody cares about it. Nobody even recognizes this as a problem. And and so the mistakes that people make is it the in my view rush to get a patent. Okay, and maybe you have to go do this the first time. Okay, I did it and maybe it just got to get out your system and get the patent and makes a mistake and look back and say wow. I spent a lot of money on that was that valuable to me. I’m looking at it from a much more jaded view point of experience. You you call a jaded. I’ll call you. I’m looking at a Viewpoint down the line. Do these patents ever add value to a company.
And I want to create the ones that add value all the other ones there. They’re a waste of money and end really what it comes down to who is asking, you know in this kind of the focus of the next book is to ask just to simple questions. Can I tell that somebody is using my invention?
And in how many ways can I design around that invention if I can’t tell that anybody’s infringing, you know, you got some big machine learning algorithm that runs and some computer and I can never tell what what competitors doing. So that should be a trade secret never see the light of day and then the other piece of it is how can they design around and if the if your patenting one out of ten ways to do something it’s a waste of time and you’re standing there where the gold is here. So can I tell if someone is using it? I’m not sure about following you there as how I use that as a litmus test as to whether I should think about that mean something is that because it’ll be hard for me to identify if somebody has is using my ID and I’m not following company if what’s best way to put it. You say I’m probably stuck in my little world of of legal speak. I’m looking for infringement. I need to know that somebody is actually copying me. How will I ever know?
And if I have if I’m building a physical product like a mechanical piece kitchen appliance the sawhorse thing. Yeah, you designed the sawhorse think I can go to Home Depot is right there on the Shelf. Yep you in French. Let’s go if I didn’t have a patent before that, but giving me the patent now makes it easy for me to say I see that you’ve copied my patent I can take action. Yes. Okay, and then I send you a cease-and-desist letter or whatever. I ask you to take a lice, you know, whatever happened but a lot of things are you know, some software app some wouldn’t it be cool if we had what are some of the sea the ones I’ve seen today some kind of self-driving car invention where you know, we can we can figure out how much how much to tell you when you’re on the on this road and how much toll you on that road and you don’t like there’s a lot of people who invent quotes but invent those kind of things and then they get patents on it or know if you’re using block chain for that kind of thing or not, like the right directly ripped off my my coach. I was your point there that for those types of things a patent may not make sense. There were you messing may not be worthwhile. Is that what you’re saying? You’re exactly exactly the other part unless I’m like you. Of course if people like little big giants like Microsoft don’t know do that and no actively they have a better ability to find out in somebody else’s use that fair or not. So you don’t to some extent but for patents work it into different regimes for a startup company for a company.
Might have one or two or three patents every single one of those patents is important and they can if they asserted that patent against somebody it can get shot down, you know, it can be challenged whatever Microsoft has like a hundred thousand pounds and when they say you’re infringing you probably are, you know, they just haven’t bothered to take the time to figure out where which one you know, you’re actually infinity and of course they’ve got the resources to make that fair assumption and just throw it at you and you have to deal with it. Then I said that level of trading cards they’re trading their trading with with their competitors of trading with Hewlett-Packard with with apple with will they don’t trade with Google but they gave a licensed all a huge portfolio tall the Android manufacturers and I kind of stuff.
And you know, it’s interesting to see that Microsoft has a huge pile of patents and Google has a huge pile of patents and they absolutely refuse to to litigate they have this Mutual assured destruction thing going on in between so it’s really a silent cross license. No money is changing hands yet.
But Microsoft put a lot of money into apple of your long time ago right around the time the Macintosh first came out, right and part of that was that Microsoft got a license to all of Apple’s patents, and that was a really big element in in Windows, you know coming to the Forefront and right.
Okay, so so the one component is can I tell if someone else is using it? If I can’t sell the not might be something for me to consider. Is it worth investing in a patent? The second one is can can someone design around it. So that’s yes sawhorse component if if my patent if some people can make a slight variation in come up with something that’s similar but still saw the same problem then maybe that’s not worth getting a patent on the diet that I understand that correctly. Correct? So might you know in my sawhorse patent. It was a metal bracket that we put two by fours into and you can buy them today. Yeah, I think I know what you’re describing the two-by-four across the back and then you by force and legs. I had a way I had the bracket set up so that the legs would fold and so I had to folding one.
And you know the competitor is you know, if if if I send a cease-and-desist letter, somebody would have would sell the product that did not allow you have. Old but I had the only one that was folding icy. And so there was a would somebody pay a couple extra dollars and five bucks extra for the folding feature. Hopefully they would but if I had just a different way to fold then I would have something that really didn’t have a lot of value.
But instead you got the patent on the folding. Yes, regardless of the mechanism necessarily of the folding is that cuz that’s one way of making got it full but I don’t know if that’s still a patent you have license or was the life of that and you know, that’s one of those great stories and life last time it it literally changed my life and I haven’t made a dime off of it, you know changed your life because of what you learned related to it you yes, absolutely. No show how did people then copy that and why was it that you weren’t able to make a fortune on it for whatever reason? I did not get it license to the the I wanted to license it to the people who you know who are selling sawhorse brackets to Lowe’s and Home Depot now, I didn’t want to compete with that.
I don’t know it. You know what maybe I gave up on it to the early or didn’t follow through or you’ll next thing. I know I’m taking the patent bar and become a patent patent agent that I went to law school to get on at all this other stuff happened and you know, I never I never put the effort in that I so is there a product on the market now that has the same thing? And how know okay. So that’s still never avoid out there. Well, nobody else had the same, you know who was smart enough to figure that out last for how long they last for 20 years from the date of filing.
Okay. Okay. Alright. I want to go back to a point to meet earlier. I’ve always heard I’ve heard recently more I should say that one of the challenges with filing your patent filing for your past and then we’ll talk in a moment about provisional versus non-provisional is it now you are exposing to the public the design of your thing? Yes. What are your thoughts on that? Is that true? Is that a reason not to file for a patent? What are your thoughts there? Yes, the way the patents work is that the government gives you this right this right to exclude people but in exchange you have to tell them what what would otherwise be a trade secret?
Sell, trade secret is like the formula for Coke. So coke. Coca-Cola could could have at the time they could have gotten a patent on their formula for Coke and they could have prevented everybody else for manufacturing it for for the 20 years. But I am within whatever, you know reach of jurisdiction write in at that point in time. I would have been in the United States is all that they would have had access to really right. They could have kept people other people for manufacturing that exact same thing for a mere twenty years Premiere. You’re 20 years. I see.
But they had to give away that secret what they did instead which was a smart move was just say, you know what we’re going to make this a secret and we’re not going to tell anybody the formula for Coke, you know that Colonel Sanders secret herbs and spices, you know Heinz 57 whatever those are just secrets that you keep secret and don’t tell anybody. Yeah for a lot of inventions recipes, you know, you know those kind of the trade secret route makes a lot more sense for a sawhorse bracket.
It’s it’s just a mechanical thing the pants fit well for the sawhorse bracket, but they don’t fit well for you know, Colonel Sanders secret herbs and spices that’s a trade secret rod and show again right now. And then of course related to this exposure than of the details is everybody then tells me wild than China’s just going to copy it. So what are your thoughts there?
You want it? I’ll give you one interesting fact is that patents in China or actually more enforceable than they are in the u.s. Interesting and it’s because you can get an injunction in in China. We used to have that in in the US and an injunction meaning you’re infringing my patent. I sent you a cease-and-desist letter and go to court really quick and the judge will just say, all right, you got to stop stop producing stop production today. That’s an injunction and Google has been very successful at undermining the whole patent system in the US to the point where we don’t have that ability. And you know, I do a specific is a Google cuz they’ve been very instrumental behind the scenes it at dismantling the patent laws in the US interesting.
China on the other side has said we want to make IP a really important thing in in our economy. They started handing out Awards or paying paying for patent fees or whatever some kind of incentive program a couple years ago and the entire nation of China has created or more patent applications in the last 2 years than any other country because of that incentive program. So it were from global global perspective. We use the u.s. Have fallen fallen behind in China on that regard, you know you but your whole question was about about copying in China. It is true that maybe they’ll copy something in China.
A good patent so will prevent somebody from importing that product into the u.s. No cancel it in the case of my sawhorse bracket. Yes. How many can start Manufacturing in China and selling them in China? That’s okay. But soon as they bring into the u.s. I could stop them. Okay, so it seems to me rusted really where people get confused is it goes back to that second of the questions? It’s really what they’re saying is I don’t want to put it out there. So then someone can figure a workaround a slightly different design that is not violating my pain then so I don’t want to share even the idea not to me. That’s very short-sighted. But I think maybe that’s where it comes from. Does that make sense? Yeah, you know the point of the patent system the ways design is to encourage people to design around that if I had my little folding sawhorse bracket out there somebody look at it and say you know what? I wonder if there’s a way to do this differently, right? So they would look at my pain and they would learn everything that I did and they would look at the claims of it and and say well, how do I do it differently? Maybe I have the hinge in a different spot or whatever and they can make a better one in end the point of the patent system is really to force people to innovate which seems you know, his kind of contrary to you want a lot of people say yeah. Yeah, that makes sense. So then what I hear and I’m sure you deal with is all right, so I know that I can’t that people are going to create an alternate if I need to get this to Market as soon as possible when you’re looking at one of those opportunities, is that a no-go for you or or did you do you accept that sometimes in those cases? It is about getting the market faster before somebody comes out with the alternative.
For a for independent inventors or are really small companies. I usually tell him do not get a patent. Okay, and the reason is is I want them to just take this product get it to Market and learn something. You know for my thing for the sawhorse bracket. I could have you know manufactured if you sold them out about back of my car or got them into true value or Ace Hardware or whatever and sold them online or you know, I could have done that. I would have learned a lot but then couldn’t somebody have stolen your idea and got your hand on it sure. They could not have gotten a patent on a show that you have to defend that position. But you would have that as you’re actually you know, what the point of that is that I want the startup company to learn to just bring a product to Market learn from it. And and then what you learned are applied to your second.
I think that you know, don’t don’t spend all your money on that. First one do it. You don’t try to validate some of the assumptions try to validate your Market assumptions.
End and see what you learn and you know, what are you kind of mentioned provisional patent part of the thing in the us as we have a Grace. We have a one-year Grace. From when you have to go from when you publicly disclose your invention or offer for sale, whatever but we have this one your grace. To figure out if it’s worth getting a patent. So bring it bring it to see what people think and see if somebody likes it if they do get a patent if they don’t maybe want to rethink the invention of the product is going to change so let it change and let it grow and then get a patent.
Why are provisional patents than so popular? I hate them. The reason why I hate them because they are not their ugly stepchild of a non-provisional and a lot of people just treat him treat them badly lot of people, you know, it’s marketed as a as quote cheap and you know this the fact of the matter is that you mentioned that 95% of all patents are worthless. And I think that that that might be low and might be 97 or 98% But if you’re going to bother to do something with such low odds, why not take the time and really do it. Well, I mean virtually guaranteeing that if you’re trying to save money card,Corner and all that it just weighs why this why provisionals are bad, but I’ll give you one reason.
And that is time the most valuable asset that a startup has is time and the faster you get a patent the faster you can license it the faster you get a patent the faster you can borrow against it fast. You can enforce it the best defense you can raise money on that. Everything’s better the faster you get a patent sure. So why would you do anything to delay that?
& provisionals Design to delay getting a patent and do people take this route because it’s at least initially less expensive. Well, yeah, it’s kind of sold that way. I mean the patent office will tell you. Oh, yeah, it’s cheaper cuz you pay $130 now and then instead of $780 and $80 a year from now. So the net result if you’re still going to spend more money for the attorney’s fees less if I hire an attorney to defile a provisional or is it the same a lot of attorneys do that? And I think it’s orders on malpractice. The reason is that the client wants to be they can they come to buy protection and when they walk out of the attorney they sign the documents they walk away.
Are protected but they’re really not because the tourney didn’t spend appropriate time to do a good job on it. And that’s kind of where they get treated as young ugly stepchild and you know, when people come to me with they have they want to do loans on their patents and I go go back and pull up the provisional cuz they are the you get published after time and my cat this is a disaster and we can’t you know, they’re looking for $5000000 loan andDo anything with this mouse one more question on on on patents here and then we’ll Segway into her a lot of more about what you’re doing defending an existing patent. So that’s the other thing like I don’t have a fan but my knowledge has been that a patent is only as good as I’ve been told as to how much you defend it and then the money that goes with that so talk to me about traveling the reality of that.
That is a harsh reality. I think that the term defending is the I like to think about is enforcement. Somebody infringes my patent. I have to enforce my rights against somebody else and you can buy patent enforcement insurance.
Where are essentially prepaid legal fees where I’m a patent owner. I’m going to buy a million dollars worth of prepaid legal fees and when somebody in fridges I call up the insurance company and say here take care of this for me and that insurance is actually pretty affordable. It’s okay. It’s about 1% per year on the order of so million dollars of enforcement will cost you ten thousand a year. Okay, that’s very affordable defense insurance is somebody sues you so inbound, right?
You get accused of violating somebody’s patent, correct?
Now this insurance world is on your insurance. Is this the type of insurance that you offer on patents or what? Was that something else? I do I just act as an insurance broker. There’s there’s an insurance company underwrites. And you facilitate that yeah, but I don’t do that. I don’t write the policies myself of patents is it then the true that if I don’t do that because I can’t afford to or choose not to at some point. Do I does it diminish my ability to do so in the future?
Yes, and you know, you’ve knowingly let somebody copy your thing for free and you didn’t and you took no action. Well, then there’s no there’s kind of this doctrine of laches or whatever where you know, you knew somebody was doing it, but you didn’t didn’t say anything. It’s kind on you knowing part is what good gets argued. I suppose. Yes, you know, that’s true for just about everything and if you knowingly let people walk across your property right when you’ve created an easement or even louder needs you have you have exactly. Okay. Alright, so let’s summarize a bit we’ve touched on it, but the services that you all offer it let’s touch first on again and this concept of financing a patent just described as a high-level what what that means what that entails so when we finance a patent weEssentially do it on a Elise back or a convertible note. If you will where we take the risk on creating the asset just like we would you know, somebody would build an office building and at least it back to you we do we use that same same structure with the patents and the Corvette other than the fact of the finances actually work cuz you pay for it much later rather than have to pay upfront. The core of it is aligning interest means I have to do a good job on those patents because there’s a very good chance that you might not actually complete the the purchase and I have to go sell those patent somewhere else.
Okay in the end when you do this with an organization, are you taking an equity position or is it just strictly related to that patent in the ownership of that patent explain that to me a bit. I do not take equity in in the startup. I only take an ownership position in the patent itself and they have they have the rights to buy that Pat back at any time. I see something some people buy it back 3 months later or a year or you know when they get a next round of financing or whatever is structured such that if I want to buy back earlier, it’s more expensive than later write them and you’ve got to make your investment back on it. Obviously it’s cheaper to buy a back earlier because I have because I have not invested that much. I just wrote the patent we in and it’s pending and you know, we have not done the back and forth with the examiner yet or whatever, okay.
Okay, that makes sense. Right? What else have we not touched on that is part of what you offer through blue Iron Will you mentioned the insurance products enforcement defense insurance. We also do loans on patents. Okay, and this is an another Insurance product that looks like mortgage insurance. Essentially. It’s a it’s an insurance policy will pay off a bank and this is the way you can go to your local lender or whoever and say I want to borrow so much money for my for my company and I have this insurance policy though pay you off and the patents are held as collateral by the insurance company.
Interesting, very interesting very good besides your books mentioned in the one that’s currently out is investing in patents. The one that’s coming out in the spring of 2020 is titled start up IP strategy. Is there another book that comes to mind? I’m always looking for book recommendations. And then I think you’ve got what you thought about one related to the opposite is your books that you would recommend. So there’s one book that I really enjoy and it’s a book about inventing and the book is called trezix in spelled t r i z i c s by Gordon, CameronAnd it’s a methodical and think about the article structured way to invent things and it’s the whole thing is fastened is based on a Russian series or a procedure for invention that was done in the 70s and 80s and it’s a fantastic resource that I used quite a bit every time I’m working on a new invention or when I’m trying to evaluate an invention for a client or somebody that you know, if I’m going to finance a pattern or whatever wonderful. Thanks for that recommendation. That’s definitely not one that has been recommended before so I appreciate that. Some will have a link to that book as well as to Russ’s book on the show notes page for this episode at the house. Com.
Are Russell tried to start your wrap it up here or what? Do you want us to take away from this conversation? You’ve had we’ve had rather about patents for startups which which one thing you think you should take away from this conversation.
Think about patents not just as a way to submit your idea and stone but think of them as a business tool and really do the math to say if I’m investing in this and I’m going to you know, I’m going to spend a lot of money getting this asset. Is it giving me value? And if you cannot make the numbers work if you cannot make the math add up that and make the business case for doing the patents, then don’t spend the money somewhere else, even if it’s going to Market with something and learning from that and then coming back to maybe doing a Pat and I love that idea shirt looking at as a business tool you also sure use a trim and asset and looking at it that way from a business owner financially to make sure that it makes sense.
Inform me that the other thing I took away is it you’re getting a lot of people look at it either because it’s you know, it’s stroke. Sorry go to be able to say I’ve got a patent or because we think they’re magically is going to protect me from stealing our idea and other perhaps often other better ways to accomplish that if that’s what we’re worried about that right? There are other ways of accomplishment but really nobody’s going to steal your idea that it’s not a big Ideas not that good saying in business. It’s it’s not about the ideas about the execution. It’s all about execution all about execution. Where do you want us to go online to find out more?
My podcast is a patent myths. Com or you can hit my website at blue Iron IP cam. Feel free to find me on LinkedIn or shoot me an email or whatever happy to chat with. I love hearing it on Corner stories. So call me and tell me about him wonderful wonderful to take him up on that great source of information the website the podcast that’s where I went to the prepare for this interview process has been a great conversation very educational. Thanks for sharing the story of the inside the background. I took a lot from it. So thanks for being with us today. You’re welcome.
This is Henry Lopez. And thanks for listening to this episode of the how of business my guest again. Today was Rush crate Jack. We release new episodes every Monday morning, and you can find us on Apple podcast Google podcasts Spotify and our website the how our business. Com. You can also just text the word Bisbee AZ to 31996 to receive more information. Thanks for thank you for listening to the how of business for more information links and other resources, please visit the how of business. Com