Patents are poised to play a key role in the AI revolution — a period that will likely be judged as one of the most disruptive in the history of technology. The histories of earlier disruptive technologies provide a valuable predictor of who will win and lose in the AI revolution.
Be it with the telegraph, the telephone, photography, motion pictures, microchips, computers or telecommunications, there was often a strong correlation between patents and the winners or losers.
One short example between two well-known competitors is illustrative. Edwin Land, the founder of Polaroid Corp. and inventor of the first instant camera, initially purchased his chemicals from The Eastman Kodak Co.
When Kodak learned what Land was doing with those chemicals, Kodak insisted on a license to use Land's instant film technology. Land refused, built his own facility to make the chemicals, and introduced the Polaroid instant camera in 1972.
Polaroid strategically patented its technology, and when Kodak introduced its own instant camera, Polaroid sued for patent infringement, won more than a billion dollars, in the 1980's, and shut down Kodak's instant camera business.
Ironically, Kodak failed to learn its lesson about the criticality of strategic patents, as Kodak was an early inventor of digital photography, but failed to strategically patent the technology. Without strategic blocking patents, Kodak left the market wide open for others to dominate.
Sophisticated companies recognize the correlation between patents and success. This is why Apple Inc., which recently introduced its Apple Vision Pro headset, is said to have filed about 5,000 patents on the technology.
Few companies can afford to file so many patents. However, by internalizing three key principles, your company can significantly increase its valuation with far fewer patents.
Patents are not commodities. There are companies with hundreds of worthless patents and companies with relatively small portfolios worth billions. Why did Google LLC pay $3.2 billion for Nest, a thermostat company who owned less than 50 patents at the time?
Industry analysts suggest that Nest's relatively small but highly valuable patent portfolio drove the acquisition.
The thermostat is a central fixture in every home, and Nest realized that by strategically protecting ways to obtain data from the thermostat, it could glean valuable insights unavailable to others. These insights, Nest correctly surmised, were extremely valuable for big data companies.
What did Nest do differently? It approached its patents from a business rather than a technical perspective. Rather than simply protecting the technical details as most companies do, Nest worked with strategic patent thinkers who understood how to merge business value into patents.
Nest also wrote its patents from a litigation perspective — something most companies fail to do. That way, sophisticated competitors examining the portfolio recognized the patents were not paper tigers. Companies that fail to involve patent courtroom litigators in the patent development process are likely to obtain patents that do not scare a competitor's litigators. And in the patent field, patents that do not scare competitors are virtually worthless.
Most companies make the mistake of focusing on technical patents, leaving room for competitors to compete by offering a different technical solution. This is the most common mistake in patents, arising from the fact that the inventors who are, by their nature technically focused, drive the decision on what to patent. By involving businesspeople and a patent strategist in the patenting process, patents can be refocused to further the business goals of the company.
In the AI realm, inventors might tend to focus on a new way of training an AI model, or on a unique embedded algorithm. These types of technical solutions, while they may be patentable, are likely not valuable. At a threshold level, for a patent to be valuable, the patent owner must be able to know whether a competitor uses the patented invention.
How will you ever know how a competitor trains its AI model or what algorithm a competitor uses behind the scenes? In contrast, you will often know the inputs a competitor uses and the outputs it obtains. Many innovations in AI involve finding correlations between sensor inputs that previously could not be used to predict an outcome, but that now, using AI, are predictive. By refocusing at this conceptual level — what happens versus how it happens-- valuable conceptual patents can be obtained.
The businesspeople bragging about the strength of their patents often have little understanding of what it takes to make a patent strong. These businesspeople often cite as evidence the name of their patent firm or the technical acumen of their patent drafter, but can rarely articulate how the patents themselves block competitors and create value.
To block competitors, a patent portfolio must prevent a competitor from taking one of your revenue streams.
Therefore, as a threshold matter, companies should ask themselves: How will this AI innovation increase my revenues, and what will competitors need to do to take those potential revenues from me?
Answers to these questions provide powerful patenting guidance. Once you recognize that a competitor will not be able to offer a competing AI solution without doing "X," you might be able to patent "X," and keep all others out of your market.
Unlike the Polaroid example which involved a single sector of a single industry, AI will touch every sector of every industry.
This means that there will be many winners in the AI revolution, with each sector of every industry providing room for a company to dominate.
The winners will be those who develop thoughtful, strategic patent portfolios designed from a business perspective to withstand court challenges and block competitors from stealing revenue streams.
Originally printed in Law360 on June 23, 2023. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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