Tipping the balance — Intellectual property mistakes could sink naive businesses

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Michael Larson has seen the highs and lows of the patent system.

Most intellectual property isn’t stolen — it’s given away, according to attorney Michael Martensen.

Many people think their business has no intellectual property, he said. Others know they have IP, but they fail to protect it adequately, or accidentally reveal it to others before it’s protected.

Intellectual property mistakes are “bet-the-company costly,” and businesses need to work harder to protect their rights, Martensen said at the Innovation Without Protection is Philanthropy seminar July 11.

“All companies have intellectual property and the intellectual property helps define their competitive advantage,” Martensen said.

Protecting that competitive advantage is “incredibly important,” because the vast majority of a company’s value lies in its intellectual property.

Martensen, a patent attorney and founder at the Springs-based law firm Martensen IP and a former Air Force fighter pilot, said intellectual property protection fits the “parachute analogy.”

“From a pilot’s perspective, if you need a parachute and you don’t have one, you’ll never need it again,” he said. “Intellectual property is very similar to that. If you lose your IP, if you lose a trade secret, or you forget to file a patent because you just don’t have the time or money, you can’t turn back the clock. It’s done.”

Typically the barrier is that “cash is king,” Martensen said. Business owners see it as a choice between paying their employees and their rent, or securing their intellectual property — “I can either pay my employees or I can invest in my future.”

But it’s a mistake where the costs can sink a company.

Martensen described patent litigation as “the king of litigation,” with the average case running $1.5 million to $2 million in legal fees (not damages) and taking at least two to three years, adding companies with foresight look at what they plan to do with their intellectual property at least five years down the track, and consider how they’ll need to protect it going forward.

“That’s often the difference between a growing and emerging company — one that’s continually innovative — and one that’s going to be around for a while and they’re never going to expand and go forward,” he said.

The seminar, part of the Intellectual Property Series for Aerospace and Defense, hosted by Southern Colorado Technology Alliance, aimed to “give the basics of intellectual property and some train wrecks to show how bad this can get,” while addressing issues with both commercial IP and government contracts, Martensen said.

When it comes to patents, Michael Larson, founder and president of Mind Rocket Inc., has seen a thing or two.

“I have seven of them, with six more in process. I have paid as little as $5,000-$10,000 to get a patent; I have also paid upwards of $50,000 to get a patent,” said Larson, who is also El Pomar Chair of Engineering and Innovation at UCCS and president of Sleep Shepherd.

“It is a costly endeavor. But I’m happy to say that I have ones that have actually been commercially successful, which is rare for people getting patents.”

It’s also rare for people to know the thorny side of the IP world as thoroughly as Larson.

He’s been entangled in a patent suit — as plaintiff — for more than a decade.

In 2005, while a professor at Tulane University in New Orleans, Larson invented a laser strategy board game called Khet with two of his grad students.

They took their prototype to the International Toy Fair in February 2005, to great fanfare. It was set for release in August 2005 — the month Hurricane Katrina hit.

In the chaos that followed, their first shipment of 5,200 games had to be rerouted to Houston, and Larson found himself launching the game from the basement of another family’s home in Massachusetts. Against the odds, Khet took off.

“It was amazing,” Larson recalled.

Little did he know, one of the first games was purchased through his website using an MGA Entertainment credit card. And eight months later, MGA Entertainment, the California-based toy giant responsible for Bratz dolls, launched a laser battle game with the same rules as Khet, and similar mirror and laser game pieces.

“My phone starts ringing off the hook with people saying, ‘I’m standing in Walmart, I’m looking at a game, I thought it was yours — but it’s not yours!’” Larson said.

MGA applied for a patent on the game but was denied on the basis that Innovention already had the patent. But it kept selling the game. And the toymaker did not respond when Innovention sent a letter showing its patent-pending documents and demanding it stop sales.

Larson was left with little choice but to sue.

“In light of the law, I was faced with either: File a lawsuit and follow through on this original letter I sent or — without me knowing — [MGA] could use my letter … as justification for filing lawsuit in their backyard of California,” he said. “Because of the costs of litigating elsewhere, I [filed] a lawsuit in the Eastern district of Louisiana, hoping … we will settle amicably, because 95 percent of patent suits get settled before trial.”

Eleven years later, both sides are still fighting.

“We started all this lawsuit stuff [at the] end of 2006, and we finally got our day in court in 2011. The jury verdict was unanimous on all 14 counts in our favor. You would think, ‘We won! High fives!’ But that started the appeal process,” Larson said.

While MGA was held to have copied Innovention’s work and the base judgment against the company was upheld long ago, MGA is still challenging damages and other issues in court.

“We’ve already been to the Federal Circuit Court of Appeals twice. … Right now I’m back waiting in front of them again. …The wheels of justice grind slowly in the patent world,” Larson said.

“In all of this, I have had attorneys tell me, ‘Wow, you’ve gotten an education you can’t pay for!’ I paid dearly. I’m still paying.”

Despite his precedent-setting legal battle, Larson says patents are “an essential part of doing business.”

“In [fields such as medical innovation, technology and software] yes, getting an IP portfolio is important because you’ve got such a big investment, you need to take every step you can to protect that investment,” he said. “For example, the barrier to entry on a medical device is very high … People who are going to invest in a company that needs to expend that kind of capital before making a dime, need to know there’s some kind of protection in place for their money. They’re not going to expend all of this only to have someone swoop in and steal it at the 11th hour … so you have to establish a beachhead.”

It’s important for inventors to understand what kind of protection a patent offers, he said.

“I can speak firsthand, if you have someone infringing on your patent, there are no patent police who are going to ride in and put the offender in ’cuffs and drag them away. … It’s all on you to police and protect the patent that you’ve got.”

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