donderdag 29 december 2011

Benford law

Again a topic not so related to patents, though still of a puzzling beauty:

I 've just stumbled upon the mystery of Benford law in one of the video's of the Khan Academy:

This law dictates that the first digit distribution of naturally occurring random numbers is not at all randomly distributed, instead occurs in a certain distribution. For curiosity's sake, i have made an excel matrix with in each cell only the first digit of the product of any number of 1-99 (lined up in rows) and any number of 1-9 (lined up in columns)..

much to my surprise, these random numbers (with random first digits) multiplied with random numbers (also with random first digits) results in a mysterious mathematical distribution of the first digit....

Below I 've showed the matrix with the results. If you want to expand the matrix, for each cell I 've used the function VALUE (LEFT($A2*B$1;1)) returning the first digit of the product of A2 and B1. After adding some color, the following art piece is the result:

When plotting the frequency of each of the first digits of the occurring results, it becomes clear that the randomness of this distribution is gone. In this graph, each line represents the frequency distribution of first digits in a column of the above depicted matrix.

From this graph, it is shown that in order to destroy randomness of the first digit, multiplication with 2 will do best, more than 50% of the results obtains 1 as first digit. On the other hand, multiplication with 9 the least disturbs the randomness of the first digit.

The total frequency of first digits of the entire matrix is:

which closely resembles the Benford Law chart shown by Sal....


woensdag 28 december 2011

about innovation monetization

In order to get a grasp of the game of licensing, the following two books may be very useful: "The Patent" by Robert Bruce Kennedy and "One simple idea" by Stephen Key.

When you are not familiar with any of these books, it is recommended to first read "the Patent", a terrifying story about what could go wrong in finding a licensee without having a thorough knowledge of the licensing trade. Kennedy gives an excellent insight in theft of invention and to what consequences that may lead.

The general message from Kennedy's book can be sublimated to "protect your ideas well"

The second book is a great eye opener in how to best license ideas. This is a very hands-on guide in how to bring ideas and inventions in ten practical steps to successful licensing contracts. In Key's book the essence in successful licensing resides in solving the question: "will it sell?". The sooner this question is answered the sooner the bad ideas can be separated from the good ones and time, effort and resources can be more efficiently be dedicated to the good inventions. A good protection, prototyping, production, logistics, raw materials, search for investors etc. etc. all is made subordinate to this question. What is needed is a proper sell sheet, and a powerful benefit statement.

The general message from Key's book is "protect your ideas with minimal effort and find out if it will sell".

In this light, a relatively new development is taking place that is able to answer the question “will it sell?” before production and development of the idea have started. This development is known as crowdfunding.  On most crowdfunding initiatives, a project requires a certain sum of money, a threshold which should be reached within a certain time. Some initiatives allow an overshoot, some don't. Most crowdfunding websites do not pay out when the threshold is not reached. 

At the moment, the most successful initiative available in the United States is Kickstarter. Over 10 000 projects have been successfully sourced, only in the last three years. For all of the successful projects, the answer to the question "will it sell?" was affirmed. We do need this fascinating new “bringing inventions to the market” in Europe badly. 

Therefore I appeal to Kickstarter to open up its European branch as soon as possible!


[1] R.B. Kennedy, "The Patent" (2008).

[2] S. Key, "One Simple Idea" (2011).


maandag 15 augustus 2011

US Total debt development

The following figure is the sum of total debt (household, foreign, domestic financial sectors, state and local governments, business, consumer credit and home mortgage) development per year of the US [1]:

If the periods are roughly divided in three periods, from 1976 to 1986, from 1987 to 2008 and from 2008 onwards, pretty accurately on each period an exponential function can be fitted (excel does the sum of squares calculations within a split second). Thus, the following equations result:

for the first period:

y1 = 2602,6e0,1181(x-1975) 

for the second period:

y2 = 4331,4e0,0744(x-1975)

and for the third period:

y3 = 50021e0,0014(x-1975)

wherein y1, y2 and y3 is the total debt for each period, x is the year in question.

The turning point, the time of change of one "debt regime" into the other can be calculated by solving for x under the condition y1 equals y2 and under the condition y2 equals y3.

The first turning point is calculated to be about late July 1987, the second turning point is calculated to be about early December 2008.

From these relative rough excell generated exponential fits, and from the relatively rough "end of year only" total debt figures, these two turning points pretty accurately reflect the 1987 crash panic moment (October 19, 1987) and the credit crunch panic moment (October 2008).

Apparently, what is needed for a major change of regime in total debt development, is a "panic moment", after which debt increment appears to slow down considerably.

If we consider the debt development of the last four years (2011 still being an estimate), total debt has virtually stabilized, despite the fact that vast amounts of money have been injected into the US and other economies.

Scary enough, it appears that we are only one further panic moment away from a seriously declining total debt. When this happens, money is virtually evacuated from economy to reduce debts, inherently resulting in a deflation period.

I very much hope that I am wrong!


[1] Federal reserve statistical release, Flow of Funds Accounts of the United States, June 9, 2011, Z1 D3 p. 9.

zondag 17 juli 2011

Patent Darwinism and its use in patent evaluation

Please (re)read this very last paragraph of Darwins "On the origin of Species" [1]

It is interesting to contemplate an entangled bank, clothed with many plants of many kinds, with birds singing on the bushes, with various insects flitting about, and with worms crawling through the damp earth, and to reflect that these elaborately constructed forms, so different from each other, and dependent on each other in so complex a manner, have all been produced by laws acting around us. These laws, taken in the largest sense, being Growth with Reproduction; inheritance which is almost implied by reproduction; Variability from the indirect and direct action of the external conditions of life, and from use and disuse; a Ratio of Increase so high as to lead to a Struggle for Life, and as a consequence to Natural Selection, entailing Divergence of Character and the Extinction of less-improved forms. Thus, from the war of nature, from famine and death, the most exalted object which we are capable of conceiving, namely, the production of the higher animals, directly follows. There is grandeur in this view of life, with its several powers, having been originally breathed into a few forms or into one; and that, whilst this planet has gone cycling on according to the fixed law of gravity, from so simple a beginning endless forms most beautiful and most wonderful have been, and are being, evolved.

So Darwins legal framework of evolution boils down to:
- 1. Growth with reproduction
- 2. Inheritance
- 3. Variability from direct and indirect action of the external conditions of life
- 4. Use and disuse
- 5. Natural selection and extinction of less-improved forms

All of this resulting in higher animals.

For the sake of fun, let us project these laws on those fields of technology that are captured in patents and patent applications around the world.

Well, in technology development, there is no (or at least not yet, or not that I know of) growth with reproduction. Though how wrong would it be, if we would assume that certain technology, citing earlier technology is considered its offspring, or its decendant? In that case, though slightly constructed, the first law can be accepted as being in force.

When we have this first assuption digested and accepted, the matter of inheritance almost follows immediately. That patent citing an older patent, i.e. the "state of the art" it automatically comprises a list of features similar to or the same as those features in the parent patent (no this is not relating to divisionals, continuations or continuations in part) and those features that are however slight distinct from the parent. Thus the second law can be accepted as being in force as well.

No doubt that in "patent offspring" variability exists, if no variability is there, no patentable matter would be present and no valid patent would have been resulted. Variability thus is a sheer obligation in patents by the nature of the patent system as such. Accordingly, this third law can be accepted to be in force as well.

Use and disuse, some features will be of great use and will in certain technology remain whilst others may not be very useful and will become obsolete and finally become extinct. This again is a law that applies in technology, although some superfluous features may be persistent, they finally will vanish. Concludingly, the fourth law may be accepted as being in force as well.

Natural selection and extinction of less improved forms, of that technology that is for some reason not accepted and not turned into value, will not be maintained, and not be furhrer developed. So even the fifth law can be considered as being in force.

One further aspect that is, in Darwins time less explicitly uttered and in my opinion of great importance and the driving force behind the whole evolution: the magical rewards for being successful. These rewards being the exploding orgasms in nature, that may -with some fantasy- very well be compared with the vast license income streams generated by winning technology.

Since the legal framework of Darwin actually is -slightly tweaked- in place in the field of patents and broader spoken in the field of technology, we must inevitably only find an evolution of technology similar to that in biology. Thus when a paleontology graph of technology would be drawn up, it is expected to be a striking look alike of the paleontology graphs of the 6 kingdoms of life. Although this technology-paleontology is neatly documented by the various patent offices in the IPC classification, I could not yet find any graphical representation of the classification tree...

Since these very principles of evolution appear to fit in nicely on the development of technology, in virtual all technical fields, this knowledge can be of use in spotting successful candidates in a relatively early stage of live. The successfull candidates are very likely to have -like in nature- an over time increasing "offspring", being an increasing number of citations, reflecting its increment of reproductive power. Poured in a formula, the increment of reproductive power can be seen as the time derivative of the total growth of  the sum of the number n of all citing generations i.

When investing in patent portfolio´s, this time dependent indicator might become a key factor and might become decisive in deciding on the valuable purchases. The vast documentation of technology to be found in patent databases, from which -after some proper data mining- the reproductive power increment can be deduced for each and every single patent, may thus help investors (and the inventors behind the high reproductive power patents) finding and purchasing the "fittest" patents. These "fittest" patents are most likely to result in the magical reward of vast licencing income for their inventors and investors, thus becoming the most likely to survive.  

Indeed, there is grandeur in this view of life!

PS: This view of technology being similar to evolution is already fantastically explained in a 2005 TED talk by Kevin Kelly [2]. In this presentation he suggests that technology is the very seventh kindom of life. Which, though far fetched, may be true. Darwins legal framework at least appears not to prohibit this view.

[1] C. Darwin, "The Origin of Species" (24-11-1859), Chapter 14,

[2] K. Kelly, "How Technology Evolves" (02-2005),

zondag 29 mei 2011

about patent valuation

Some effort has been done in evaluating the price of patents. The company Ocean Tomo is quite far in providing (allegedly) rather accurate prise evaluations of single patents and patent portfolios. According to J. Malackowski, founder of Ocean Tomo, basically three ways of evaluation appear to be practised [1]:

1) cost base approach
2) market value approach
3) Income approach

Well, let's have a more profound look on these three approaches in the light of the data available:  

Cost base approach

From a study done by Gasnier, an evaluation of the out of pocket expenditure, including both patent attorney fees and official fees, for obtaining patent protection in the United States, Japan and three major European states (DE, FR and EN) is estimated to be on average per patent family [2]:

From these data, a 10 year old patent family would on average be worth 80 k€, whereas a 3 year old patent family would on average be worth 10k€.

Market value approach

From data gathered from published results of auctions held by Ocean Tomo, a average selling price can be deduced [3].

From the data between 2006 and 2011, an average sales price of 106 k€ can be calculated, with extremes (in the average sales price) varying between 25k€ and 300k€. This price is based on the sales of about 980 patent families, wherein the day to day Dollar/Euro rate of exchange has been applied. The four auction average (green line) shows a slightly declining tendency. It is remarked that the data of last ICAP/Ocean Tomo auction of March 30/31, 2011 were not taken into account, since at this auction, for the first time ever, covenants not to sue were offered, of which at least one was sold for a stunning 35 million $ (35E6$). These covenants however are blurring the sales price figures of patents as such. Furthermore, after the takeover of ICAP of the IP auctions of Ocean Tomo, auction results are less and less published, which will render it more difficult in the future to obtain valuable data on market based patent price indications.

Remarkably, an auction held by IP Auctions GmbH (for obvious reasons, now out of business) in Munich in May 2007, resulted in an average sales price of patents sold of less than 6 k€, based on 83 offered families [4]. This means that patents sold in Europe are on average selling for a factor 18 less than the average price in the US. When compared with the average cost base evaluated price, selling patents in Europe is not quite a profitable business.  

Income based approach

In a study performed on assignment by the European Union, based upon about 10 000 questionairs, handed out to inventors and patent holders, representing about the same number of patent families another picture emerges [5]:

Leading to an average value of approximately 3 million Euro [3E6€], a remarkable 30 times more that the average sales price in the US market and, even more stunning, a 500 (!) times more than the average auction sales price in Europe.

Conclusion and discussion

In a cost based approach, inevitably, older patents are valuated more expensively, since more costs have arisen. In this model, the older the patent, the more expensive it is going to be, whereas less and less time remains for exploiting it. In itself, the cost base approach can thus be seen as quite a questionable model.

In an income based approach, the value of patents appear quite overestimated by patent holders themselves. This price evaluation model carries along some inevitable crystal ball, hope for income effects, rendering a price evaluation of EP patents on average a factor 500 higher than the prices actually paid for on auction in Europe. 

It is my firm believe that the difference in average sales prices of patents between auctions held in Europe and auctions held  in the US of a factor 18 is due to the complex and inefficient European patent system, when compared with the straight forward single market, single economy US patent system. 

One can arguably say, that due to the relative complex and burdensome patent enforcement in Europe and relative expensive European patent system, patent applicants first have to pay 10-20 times more money, to obtain a patent worth 18 times less than a US patent [6]. A unification of the European patent litigation system will thus be likely to both decrease the costs and increase the value, rendering patenting trading business in Europe a stunning factor 250 more profitable. The patent trading (by some denounced patent trolling) in Europe will instantaneously emerge, as soon as the patent system is finally unified.   

The slow European political systems -it is now 36 years after the first community patent convention (CPC) has been drafted [7]- and above all the unification blocking of patent wise unimportant countries such as Italy and Spain are costing (predominantly European) enterprises considerable amounts of money. Even if a new CPC will finally be agreed upon, it will last some more years to be finally ratified and to enter into force.  

From the above given data, the best evaluation of a patent appears to be the market value approach. By trying to find similar patents and to search for their sales prices, an appropriate value may be evaluated.

For evident reasons, however, the prices of patents, sold at auctions are less and less easy to be found on the web. The companies providing price evaluations, more and more keeps commercial auction data undisclosed, such that others, including patent holders can no longer make a fairly accurate marked price evaluation themselves and more firmly depend on them.

So the best evaluation method available is likely to disappear, which, I believe, is on the long term neither in the interest of the companies organising the auctions and providing valuations nor in the interest of the other stakeholders.

It is my prediction that in this market, like in every fully grown market, in the future open bidding and price forming systems will appear, leading to a transparent system, where patent valuation can be a relative straight forward exercise, based upon a market approach model. The unification of the European system will contribute to such transparant system and will strongly accelerate its process of development.   

Till that time, patent evaluation remains inevitably a partially crystal ball and gut feeling business.

[1] S. Graj, "The IP quake Behind how You Bet Your Asset", Interview J. Malackowski (15-05-2011), 

[2] A. Gasnier, "The Patenting Paradox" (2008), p. 88-89.

[3] Ocean Tomo and ICAP information on auctions (2006-2011), (most auction results are no longer available).

[4] J. Ostler, "IP Auctions GmbH first sale of patents at live auction in Munich" (2007), 

[5] A. Gambardella e.a., "The Value of European Patents" (2005),

[6] A Single Market for Intellectual Property Rights, Boosting creativity and innovation to provide economic growth, high quality jobs and first class products and services in Europe (25-05-2011),

[7] M.Hoffmann, "The EU ‘Community Patent’ – a new, better patent protection regime?", News Link, (spring 2004),

zondag 15 mei 2011

Patent traders

It is fascinating to see how the ratio of intangible assets versus tangible assets has virtually flipped the last 35 years [1]:

Although the graph represents listed US S&P 500 companies, the very same effect occurs throughout the world, with in developing economies at an even far more rapid pace. It means that within these companies, intellectual property, e.g. know how, patents, breeders rights, software, copy rights, models and designs is nowadays far more valuable than land, buildings and machines.
In relation to the surge of importance of intellectual property, amazingly, the patent and patent revenue distribution appears extremely imbalanced and revenue is predominantly concentrated with large industries [2]:

This might indicate that patents of small entities, individuals and research institutions are of an appalling commercial quality. Expressed in revenue value, they perform about a factor 150 less than those of large corporations. Though their patents maybe less valuable, 150 times less valuable appears highly unlikely.
More likely, the patents of small entities, individuals and research institutions hardly find their way to a profitable exploitation when compared with large corporations. Common sense would indicate, when the left and right pie charts were more similar, a fairer distribution of plain reward for inventive effort would have been provided for.
This very reward for inventive effort is the true pith and marrow of our national, international and global patent systems. The basic thought of our patent systems is a reward for the effort of the inventor, in exchange for the full disclosure of the technological progress made by him. Yet, this system proves to function suboptimal. 
Apparently large corporations are more successful in converting intellectual property into money, whereas small entities, individuals and research institutions own more intellectual property. Thus, a huge potential for trade of intellectual property has emerged.  
This potential has not been left unnoticed and relative new companies are now stepping in this potentially very profitable trade. However, especially the larger producing entities are predominantly negative about this evolution, which is very accurately described by J.F. McDonough III [3]. The above presented charts clearly support his view that patent trade potential is progressing and that traders, often denounced trolls, may function as essential market intermediaries, for the benefit of enhancement of the efficiency in the patent exchange economy. Thus, in an evolving market, when traders start to open up the market, the trade in patents will grow and flourish in the decades to come. This development will finally balance the left and right pie charts, inevitable leading to a fairer rewarding of inventors.   
Most contradictory to what is now seen as trolls, being the evil abusers of our patent systems, these companies actually act in favour of the very philosophy of these patent systems. The fact that governments are considering amending patent law to prevent this evolution from happening would be directly against the ideas behind the patent system and might in the end even threathen the progress of technology. On the contrary, governments should encourage trade in patents, for the benefit of more and better rewarded innovation, development and progress.   
Consequently, patent traders are the much welcomed and needed pioneers in breaking the barriers for a more fair distribution of invention reward and definitively deserve more respect than the troll pejoratives.

1: Ocean Tomo:
2: Acacia Research Corporation:
3: James F. McDonough III, 'The Myth of the Patent Troll: an Alternative View of the Function of Patent Dealers in an Idea Economy', Emory Law Journal, 56 (2007), p.189-228.