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Donated patents hold promise for enterprising entrepreneurs
MILWAUKEE -- Dilip Kotecha figured his working days were over when he retired from the food-manufacturing industry. But after an unused patent for instant yogurt landed in his lap, he couldn't resist turning the dormant technology into a business.
"I would say our company wouldn't even be there without that patent," the 59-year-old entrepreneur said.
Countless patents -- including the one used to start up Kotecha's company, Yokit -- sit unused when companies decide not to develop them into products. Now, not-for-profit groups and state governments are asking companies to donate dormant patents so they can be passed to local entrepreneurs who try to build businesses out of them.
Kotecha's patent covered the formulation of instant yogurt. Consumer-products company SC Johnson of Racine, Wis., was awarded it in 1984 but tabled its plans.
Instead of gathering dust, the donated patent spawned a startup that Kotecha hopes will revolutionize the vending-machine industry and provide snacks to troops overseas.
There are countless other patents that are promising but sitting idle, business developers say.
In fact, about 90 percent to 95 percent of all patents are idle, according to Ron Sampson, the secretary of the not-for-profit National Institute for Strategic Technology Acquisition and Commercialization in Manhattan, Kan.
"These technologies represent an important national asset but the vast majority remain unused and eventually will be permanently abandoned," Sampson said.
Companies used to receive tax benefits for donating patents but Congress ended the incentive in 2004 after too many companies tried to unload useless patents with little chance of being commercialized.
Now that federal tax breaks have been eliminated, there's less of an incentive for companies to offer unused patents.
Kotecha received the patent through CATI, the Center for Advanced Technology and Innovation. The Racine incubator acquired the technology from SC Johnson in 2002 and approached Kotecha because it knew he had experience in food manufacturing. CATI provided the patent to Yokit for a 5 percent equity stake in the company.
CATI has spawned four other companies in its five years. Its goal is to jump-start southeast Wisconsin's economy by giving local entrepreneurs access to mature technology sitting in hibernation.
Kotecha improved upon the original formulation and repatented a variation that involves adding water instead of milk to the mix -- a change Kotecha said would make it easier to use.
Unused patents are being sought elsewhere, too.
Judy McKinney-Cherry, the director of economic development for Delaware, said her state acquires patents and offers them to local citizens as a way to energize the economy.
"It's a question of thinking strategically long-term," McKinney-Cherry said. "You only need one or two [businesses] to hit out of 100 and you have a winner."
In 2006 her state received 255 patents from DuPont Co. and five from chemical manufacturer Hercules Inc. Neither company received federal tax benefits, but the state provided capital assistance for facility upgrades.
Delaware officials created a Web site where entrepreneurs can review and apply for the 105 patents that the state has received from DuPont so far.
Why would a company spend money to research technology only to let the patent sit idle?
Procter & Gamble Co., which uses only some 7,000 patents of its approximately 36,000, patents any meaningful advance but only acts upon those that are aligned with P&G's long-term strategy, said company spokesman Jeff LeRoy.
"In some cases we have a technology that for whatever reason we decide we're not going to launch, or it needs more development beyond P&G's expertise," LeRoy said.
In the past P&G donated patents, including one in 2000 that led to the launch of Nutrijoy, a Kansas company that sells nutritional drinks.
IBM Corp. has more than 40,000 patents, according to company spokesman Steven Malkiewicz. Rather than give away idle patents, the company keeps them but allows some groups to use the technology for free.
"We believe this strategy helps generate new innovation and growth," he said.
Delaware has found dormant patents to be an easily accessible and near-limitless source of economic development, said McKinney-Cherry. Even without the federal tax incentive, every state should mine its local resources, perhaps offer its own tax incentives or appeal to a company's desire to be community friendly, she said.
"You can't rely on the old methods of economic development anymore. You have to be innovative" she said. "Every state has these gold nuggets inside their borders -- it's just a question of figuring out how to unlock that potential."
On the Net:
State of Delaware Economic Development Office: http://dedo.delaware.gov/business/patent--portfolio/index.shtml
Yokit instant yogurt: http://yokitinc.com/