Monday, September 21, 2009

Ebay for Patents?

In light of our upcoming class discussion on intellectual property, I found this article in the New York times pretty interesting.

In the article, Steve Lohr shows how, "...the world can be a rough place for independent inventors." He tells the story of Dr. Daniel Schlager, co-founder of Zoltar Satellite Alarm Systems, and inventor a device which beams locator beacons from cell-phones. This device makes individuals in emergency situations easier to find by emergency response personnell.

After securing a patent on the device, Zoltar presented the invention to large cell-phone makers. These companies showed no desire to purchase or use the invention, but in the years to follow, Zoltar's founders started to see the ideas and designs show up in products made by the major companies. Zoltar took the companies to court, and after millions of dollars in court fees, settled in each of their cases.

This story is descriptive of many inventors who, rather than finding the licensing rights they seek, turn to courts to find a return on their investments. This path sometimes yields results for inventors, but rarely does the same for their investors. Also, some critics argue that the time spent in litigation limits innovation activity and slows the speed to market of viable innovations.

Venture capital firms and investment groups are responding by creating a market-based solution to the problem. These firms buy patents from small investors and auction them off to larger corporations. This, the firms argue, is a win-win for inventors and corporations alike.

Some critics argue that the "little guy" still loses out. Patents are hard to price, they say, comparing them more to "works of art" than stocks.

What are some benefits/drawbacks to this approach to commercializing innovation? Is this business model itself a form of innovation? How do you think this will effect innovation in this country as a whole?


  1. Sounds like this new business is an innovation on the innovation process! I think this commercialized business model for innovation will make the innovation-to-market process faster and less risky for inventors and larger firms. Rather than spending a lot of money on legal fees to settle compensation in court, inventors will benefit financially by receiving reasonable compensation through the auction and not spending money on legal fees. Moreover, the auction model makes the innovation process less risky for inventors. When suing large powerful firms, there’s always the possibility that the inventor could lose the case and go home empty-handed (or in debt due to expensive lawyers). Independent inventors have much more on the line financially than large companies. The auction model, on the other hand, ensures that the inventor will receive at least some amount of compensation.

    On the other hand, the auction model could sacrifice the amount of inventors’ compensation for simplicity and speed to market. As the critics argued, it is difficult to accurately determine the price value of a patent. For speed’s sake, the inventor risks receiving compensation that is less valuable than his invention.

  2. I found this article extremely interesting. Since I worked at a law firm, I cannot help but wander what this is going to do in terms of the business of patent litigation. If this catches on I believe it is going to be a disruptive innovation for the law firms with large patent litigation practices. With the economy taking a toll on law firms it is going to be interesting to see how they react to this innovation.