Patent Filings: The Next Great Leading Indicator

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  1. Mark Bohrer, MSEE says:

    Patent filings may not always be a reliable indicator of new profitable product release, or any impending product release.

    Manufacturers may choose to protect their work as a trade secret. This may happen with complex products like I.C. systems on a chip (SOCs) or some food products.

    The trouble with a patent filing is that it makes your ‘secret sauce’ a public disclosure. This allows a couple things to happen –

    1. Competitors use the disclosure / approved patent to develop a similar product that’s sufficiently different to avoid patent infringement. I’ve had to do this a couple times when I jumped companies and wanted to use a design idea similar to one I patented at the previous company.

    2. In the long time it takes to get patent approval, competitors may develop and release a competing product that takes away the competitive advantage of a rival, unapproved patent. Again, if the product or process is sufficiently different, it won’t infringe.

    Patents also may change during the approval process, usually when patent examiners find similar prior art they think invalidates part (or all) of the patent. Sufficient change can remove the competitive advantage a patent might have given. The new product may be delayed beyond the market window, or abandoned altogether.

    Some patents are developed mainly as future bargaining chips to trade for other patents. That allows a licensing company to use another’s patented ideas before the 17 year patent expiration by trading part of their patent portfolio.

    So patents may not be a reliable indicator of a stock price rally, especially since they may apply to just a single or two companies, not an entire sector.

    Mark Bohrer, MSEE
    Saratoga, California


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