This article is reprinted with permission from the June 2006 issue of TechJournal South.
"Budget $3 million to $5 million in your business plan for defending against the first patent infringement litigation that is likely to be brought against you at the time of the initial product launch," is my advice to nanotech startup endeavors. The advice is guaranteed – if I am wrong, you can keep the money.
But why such dark predictions? An early appreciation of the potential of nanotech and more than 25 years of universities operating under the Bayh-Dole Act has led to a fever pace in patenting nanotechnology. Couple that with an appreciation of the history of the introduction and prior disruptive technologies, and it seems unlikely a nanotechnology-based product could be launched without running afoul of someone's patents that has an interest in enforcing those rights. Further, no longer are these people limited to competitors who might be inhibited from asserting their rights in light of their products infringing the potentially overlapping rights of accused infringer (the so-called Mutually Assured Destruction defense), or fear of starting a global IP war among all the competitors. In a post-Lemelson era, there are plenty of patent speculators (so-called patent trolls) willing to fund litigation who do not have any intention of commercializing any product. In short, in second place only to technology convention organizers, those most likely to make significant money in nanotechnology are patent attorneys, particularly the litigators.
So why are people so interested in at least investing at some point? It is nanotechnology's enormous potential to change the world and the inevitability that it will solve some of our most fundamental issues, that drive the continued investment, and will drive the investment, past these early hurdles. For those unfamiliar, the Bayh-Dole Act of 1980 facilitated research universities patenting and transferring technology from universities labs to commercial product producers. Some universities, including Stanford and MIT, derive very significant income from their IP portfolios. Many companies, such as Google, have been spun out from research universities. Instead of fundamental innovations being dedicated to the public through publication by the university researchers, as was common before the Bayh-Dole Act, new fundamental technology is being patented, and these patents can cover entire new areas of endeavor. For example, the Mullis patent (4,683,202) covers PCR (Polymerase Chain Reaction) technology used to decipher DNA. This is reportedly a several-billion-dollar-a-year industry.
As for patent speculators, Jerome Lemelson was named an inventor on 550 patents. He never did, nor did he try to, commercialize products. He would observe the direction technology was going, and patent the next development he predicted would occur. Apparently he was pretty good at it, having reportedly gathered more than $1.5 billion in royalties and settlements over the years.
Further, because of the rapidly growing interest in nanotechnology, new "pioneer" inventions are quickly surrounded by a so-called picket fence of improvement patents, usually by others seeking to obtain leverage to get the pioneer patents. The result is there are few areas in nanotechnology that have relatively clear ownership of technology that might go into a commercial product.
The U.S. Patent and Trademark Office has taken some extraordinary steps to get ahead of this new wave of technology, including providing more than 6,000 hours of training to examiners through the Atlantic Nano Forum, and preparing a very detailed cross-reference class 977 in its patent classification. However, as with every new wave of technology, broad patents have been issued, some of which seem to have heart-stoppingly encompassed entire industries. For example, U.S. Patent No. 5,424,054 claims any "hollow carbon fiber having a wall consisting essentially of a single layer of carbon atoms" infringes the rights of the patentee. Single-walled carbon nanotubes are one of the most exciting materials developed in nanotechnology.
So, if you're developing a realistic business plan, consider adding $3 million to $5 million — the average cost of patent litigation through trial — to the budget around the time of product launch. That is when patentees might want to stop you — before you get a lot of market share.
History tells us that these early hurdles will not prevent the new wave of disruptive technology from changing our lives. Ted Sabety has compared the current development of nanotechnology to the introduction of radio and other technologies in his article "Nanotech Innovation and the Patent Thickets: Which IP Policies Promote Growth?” Nanotechnology Law & Business, Vol. 1.3 (2004). Patents, lawsuits and disruption of the old technologies have ensued, but no one can question the impact and significance wireless communication has had, and continues to have, on our lives, or the tens of billions of dollars it continues to generate each year. Nanotechnology is relatively new, but the legal battles that will ensue will be a familiar refrain from an old song.