Designing a Patent-Incentive Program?

SoulMaster writes "The company I work for (we are a one-year-old start-up) has recently started filing patents to protect some of its intellectual property. At the onset of the patent process, one of the executives drafted a very basic Patent Incentive Program (PIP) which is now under full review to ensure that it is both accurate and fair. The basics of our original PIP are that inventors receive (or co-inventors share): $500 for each provisional filing, $1500 for an actual patent filing (with full claim-sets defined), and $5000 for any patent that is granted by the USPTO. While the current program seems fair to our staff, we have been unable to find anything to compare it to. Moreover, the revamp of the program is likely to grant an equity stake in the company (via an Options grant) rather than cash payouts. I've scoured Google for information, but because internally documented PIPs aren't generally public knowledge, the results are limited. Thus, I have decided to ask Slashdot users: How does the company you work for handle Patent incentives? Do they have them at all? Are they cash or equity based?"

Comments

What price your integrity?

[Daniel Phillips]

You should quietly smile at whatever they come up with and fail to participate in it. Patents, and particularly software patents, are a huge drain on tech industry and a net drain on society. Be part of the solution, not the problem.

Re:What price your integrity?

[harlows_monkeys]

Companies cannot be inventors, as far as the patent system is concerned. If the company wants a patent, it has to have the inventors apply, and have the inventors assign the patent to the company.

Re:What price your integrity?

[timholman]

You can release an invention into the public domain. While patent trolls can still sue, they have to prove they came up with the invention first.

Unfortunately, it doesn't work that way. If the patent troll sues, you have to countersue to get their patent declared invalid on the basis of prior art. Why should the troll have to validate his patent? The USPTO has already validated it by issuing the patent in the first place. It's up to you to overturn that validation in court. Don't think that making your product open source will protect you from litigation - quite the contrary.

On the other hand having a patent portfolio can be used as a weapon against others threat to sue. "You using our patent so unless you license this patent of yours we'll sue."

Exactly. One strategy is make a competitor back off is to threaten to countersue with your own portfolio. Or, if a patent troll threatens you, you can point to your own patent and say "We're not violating your patent. This is an implementation of our own patent." Then the shoe is on the other foot, and the patent troll must invalidate your patent. Hopefully, the added cost of litigation will make the troll back off.

A better solution to all this BS is to get rid of patents.

As far as business method patents and software patents are concerned, I'm in complete agreement. However, I realize that my wishes and desires do not change the reality that such patents exist, are granted weekly by the USPTO, and must be dealt with rather than ignored in the business world.

typical bonus amounts

[Anonymous Coward]

$500 for the initial writeup is about average.

$2000 for the filing is about average.

The bonus for having the patent granted is all over the place, but not a very good incentive because it takes many years to happen -- and a lot of people move on by then.

They're cash, not equity, and there's usually a limit on the total bonus per patent -- if you many inventors on the same patent, then the limit kicks in. For example: $2000 per inventor per filing, or $6000 total divided across all the inventors, whichever is less.

Don't ask how I know all this...

Re:And a percentage of ownership of any patent

[Anonymous Coward]

At the company where I work, most of the patents are only used defensively (to counter-sue another company if they try to sue us over patents), so you don't see any direct revenue generated by the patent. It certainly has the potential to save the company a lot of money, but it's difficult to calculate the value of a patent since the idea is to obtain a settlement or cross-licensing agreement, probably for several patents at once.

When you get more/biigger

[jhines]

Hold a fancy formal dinner each year. So that the wife/so can get dressed up and party. Have previous years winners also attend.

The company I did some work for, does this, and it is looked forward to all year by the engineering crowd, the usual recepients. Of course, being a large fortune 500 firm, they had lots of patents and people involved.

It was like another mark of achievement, making it into the patent ball.

Patent Programs--

[sillivalley]

I'm a patent attorney in Silicon Valley, and have worked with, under, and around a number of different schemes.

This isn't legal advice -- these are my opinions -- if you want legal advice, go buy some.

It is common to condition payment of filing awards on the signing of the declaration, oath, and assignment by the inventor -- the company doesn't pay until the inventor has signed.

Some also condition payment on being an employee at the time of the event -- filing the patent, issue date of the patent. That way you don't have the obligation to pay departed employees. But having said that, whoever is running the scheme should have the discretion to pay out equal amounts to ex- and non- employees when named on filed and/or issued patents. You get more interest and attention that way.

Another common approach is to pay $N per inventor for up to 4 named inventors, and for N>4 to pay each inventor $4N/k where k is the number of inventors.

Some places pay on disclosure submission. If you decide to do that, pay on *accepted* disclosures, not everything that gets thrown over the wall. While you want lots of disclosures, you don't want a lot of crap.

Decide at the outset *when* you're going to pay inventors -- some pay and present quarterly with great fanfare. My opinion is that significantly decouples the desired behaviour from reward. I much prefer having a system where things get filed, I send a note to payroll, and the $$ automagically appears in people's next paychecks. That system also minimizes the chances of people dropping through the cracks over a quarter. Yeah, have quarterly or annual beer bashes where you honor inventors as well, but don't hold up the money!

Oh, as part of that whole deal, work out with your finance types which department pays for awards -- my feeling is that it should follow who pays for filing, prosecution, issuance, and maintenance costs. If the division/group (hardware, let's say) pays for filing and prosecution, they should pay for awards. On the other hand, if filing and prosecution gets billed to G&A (corporate overhead) then awards should follow. Doing it that way puts awards costs into the entire life-cycle costs of a patent filing.

God help me, but..

[Anonymous Coward]

IBM has a similarly tiered structure. I am not 100% correct here, but IIRC they pay $1,500 for the first one, $750 for each thereafter, plus $1,200 for each of group of 4 as you make you way through so-called "plateaus". Each inventor receives max payout when a disclosure has up to 4 inventors, but everyone splits the max payout when there are five or more inventors. The payouts above are just for the acceptance by the company's review board. I believe there is an additional payout if/when your submission is granted a payout, but none of mine have made it that far yet. There are no rules or guidance as to what types of patents may be submitted, although business process patents are not well-received.

I also worked for a company that will accept any patent application, and they only have one payout - $3,000 if they like your idea. There's an interesting twist, though, in that the second company forbids inventors from looking for prior art, while IBM encourages it. The other company's counsel claims that if you perform any search, you *must* become fully aware of *all* prior art that could possibly compete. IBM's counsel disagrees and appreciates the guidance on what to look for when we submit ideas as they may otherwise not know where to start.

I've already said too much.

Re:you've got it backwards

[the eric conspiracy]

I've been employed in 3 companies that have had varying patent incentive programs over the years. During that time I applied for and was granted 38 patents, in the US and in other nations. None of these were software or business process patents.

The various incentives amounted to an attaboy on the low end up to a hundred shares of stock (worth about $100 per share) per granted patent.

The money was nice, and in some cases there was a reception or dinner involved with a famous speaker which was generally fun. Other times there were plaques, or little trophies inscribed with "Excelsior!" or some such.

Did any of it affect my behavior, or make it more likely I would try to patent something? Not really. Did any of it materially affect my company's business? A little, because it made them feel more comfortable about the security of entering a certain area of business. But none of it really provided the company with a monopoly - there were always alternate technologies that could be used to get the same result, but maybe not as efficiently or cleanly.

If I was going to do it I'd choose the recognition ceremony / famous speaker approach. It meant more to me that the senior management of the company took some time out of their schedule and spent it with the R&D people than than the money or stock did. And think this kind of approach is less likely to distort the inventor's decisions as to what is worth pursuing and what is not. And besides meeting a real live astronaut or Nobel Laureate is way cool.

Common info

[tambo]

I spent several years as in-house patent counsel for a hospital with a large research institute. We had a very interesting population of potential inventors - basic researchers, doctors of all stripes, and the entire range of healthcare workers.

We developed a disclosure program with a more practical twist: financial rewards were based on the successful commercialization of the technology, with a 40% share of royalties going to the inventors (to be split among them.) We also ran many non-financial recognition programs - plaques for implemented ideas, annual recognition dinners for anyone with a submitted idea, etc.

This arrangement had several advantages over the bonus-upon-filing/issuance arrangement:

• We didn't get hit with a flood of bad disclosures from employees who were just trying to cash in.
• Our inventors were encouraged (both literally and through the fee structure) to remain actively involved in the technology - not just the patent process, but also the marketing and licensing deals.

Some other thoughts:

• Intra-organization advertising was key. The biggest reason why inventors weren't participating was simply that they didn't know our group existed. And due to employee turnover and short memory spans, the population needed frequent notices of our program, so this was just an ongoing mission.
• One step up the line from education is a triage process. Be sure to have a solid team of broadly trained individuals who can review disclosures, do some market and patentability research, and thresh the wheat from the chaff.
• On the whole, our inventors were excellent: creative, eager to explain and show, willing to learn about the IP process and to devote time to doing their part. Best of all, very few of them were motivated by money - most just wanted to see their inventions turned into products.
• As for distribution of royalties among inventors - the easiest and fairest way to handle this is to have the inventors agree, UP FRONT (i.e., on the disclosure form), as to their respective contributions to the invention. Let them work it out among themselves, and get it documented ASAP. Waiting until royalties actually materialize is a recipe for disaster.
• As a last observation - I think the reward strategy you've set out is a little unusual in two aspects: (1) The rewards are comparatively VERY large. $5k for an issued patent? Seriously? I don't think such high fees are going to promote innovation - they'll probably promote get-rich-quick thinking among the employees. (2) It's a little odd to have several inventor rewards for various stops along the patenting process. Usually, the inventor only participates in the *patent* process through filing... seems odd to reward them further based on work by your IP counsel.

Good luck! - David Stein

Re:Err?

[tambo]

Why on earth would a company want to incentivize employees to churn out patents?

Err... they don't. They churn out inventions. The incentive is to get them to talk to the IP group at the company before publication. What the company decides to patent is its own business.

Most patents will not yield enough money to recover the $5000 spent on incentivizing the employee, to say nothing about the many thousands spent on patent attorneys.

1) The utility ratio ("useful" patent out of the total number of patents) depends on how good the IP group is at identifying inventions worth pursuing. Yes, a company that tries to patent everything will get socked with a mountain of fees in exchange for very little valuable IP. But a good triage process can greatly extend the value of the IP dollar.

2) Most companies that produce products aren't trying to sell their patents - they're trying to protect the value of their R&D. It's practically impossible to put a dollar figure on that, but any MBA will tell you that these are incredibly important assets for any company that does research and develops products. Instead of worrying about patents, their concern should be having one discovery or one program that is worth anything at all.

How about drug companies that are simultaneously researching therapeutic agents for dozens or hundreds of diseases? I think they probably generate a steady stream of patentable remedies.

However, if the company is insistent on offering incentives for patents, then it should offer incentives based upon how much money others will pay to license the intellectual property and use the patent.

I agree with you - IF the company wants to license its IP. If (like most product-producing companies) it's more interested in protecting its R&D, that's a whole different ballgame.

- David Stein

Re:Stanford's patent policy.

[Daniel Phillips]

The problem is that there should not be a patent at all. Because patents are just slack for the economy as every economist will tell you. The only leftover the free trade revolution failed to kill in the last century.

Patents for software are in particular dangerous. [stopsoftwarepatents.org]

The fact with patents is that registering a patent is like registering a trade mark. Hire more patent attorneys and you get more patents. And no one asks whether they will produce any return on investment.

An innovative company will bail the lawyers out, invest in real R&D and lobby for patent reform to overcome the madness. Research institutions should not patent at all.

I do not see why your post was moderated flamebait, it seems perfectly well reasoned.

Re:Stanford's patent policy.

[Elektroschock]

Well, it is very topical! Don't do what is wrong. Don't spread the cancer.

Why would you even want to make a scheme for employees to file more patents?

He asks how he should worship the devil. I say, there is no devil.

The patent system is useless slack. Therefore my incentive system would be that for each patent your institution has to apply for (because there is a patent system) you invest 10% of the legal costs in patent reform or abolishment. Same for all patent lawsuits and royalties you have to pay. The patent system would implode in no time and make way to a free market.

Re:patent incentives

[eggnoglatte]

The problem with that approach is that the potential payoff is too far into the future to be a real motivating factor. Patents take about 3 years to get through the system and be accepted. Especially for young startups, you can't even rely on the company still being around after that time, never mind being able to honor a long-term commitment after a merger or takeover.

A good policy thus provides a small immediate payoff, combined with a more substantial long-term benefit. As the GP suggests, you of course have to guard against abuse.

Here's how two of my employers have done it...

[marhar]

old employer:

- cash bonus when your invention is accepted into the program
- cash bonus when your application is filed
- cash bonus and shiny plaque when your patent is granted

current employer:

- cash bonus and shiny plaque when your patent is granted

all employers, as far as I know

- general policy is cash payment, no royalty sharing
- if you have a big-deal patent, they may work out a deal with you
- you assign all rights to them
- if you leave the company during the process, you don't get any more payments

Here's
one of my patents so you can know I'm not making this up.

Re:Yes, it does not follow, but it's still correct

[Hognoxious]

litigation costs for the average public firm actually exceed profits from their patent portfolio by a wide margin

I haven't read the study, but even if it's valid, it doesn't mean that the total absence of patents is the best overall solution - just that it's better than a specific (albeit real) bad one.

Patents are bad for the economy because they destroy competition,

Is that patents as implemented now, or as a general principle? And if you mean the latter - on what evidence?

and throwing out the baby would - in this particular case - improve the situation tremendously for almost everyone involved.

Excluded middle - there are options other than total abolition or the status quo.

Why not throw out the bathwater but keep the baby - reform the system? We can start with requiring a prototype/model/formula and that it has to be an invention not an idea. Then enforce the rule that it has to be useful and non-obvious.