Bigger (Profit) Is Better… The Importance of Patents in the Sex Tech Industry

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This article originally appeared in XBiz Premiere Magazine, October 2017 at page 68

The Sex Tech industry has achieved a remarkable amount of progress in the last decade.  Innovation is occurring everywhere, including in the shapes of vibrators, the way their motors function, incorporation of haptics, and the whole new terrain of VR.  The only way for a company to protect its work, is to file for patents and understand how to use them to their business’s advantage.

Patents are sometimes dismissed by people in adult business because of the industry’s difficult history in dealing with several non-practicing entities, a/k/a “Patent Trolls.”  This issue is coming to light again because Tzu Technologies, Inc., the owner of infamous patent known in the industry as “The Teledildonics Patent,” recently sued sex toy powerhouse, LELO, for infringement.  LELO is next on a long list of companies that have been sued in relation to that patent.

A non-practicing entity is a company that owns a patent, but does not create a product.  The term, “Patent Troll,” was coined over time by people who believe it to be in bad conscience for such company to sue third parties for patent infringement while producing no covered product of its own.

The Teledildonics Patent (U.S. Patent No. 6,368,268), titled: “Method and Device for Interactive Virtual Control of Sexual Aids Using Digital Computer Networks,” issued on April 9, 2002.  The patent has very broad claims, enabling it to encompass much of the field of remote control sex toy technology.  It expires in August of 2018.

Tzu acquired the rights to the patent in 2015 without since developing any product of its own.  That same year, Tzu sued seven companies for infringement, bringing it to be known as a Patent Troll in the industry.  The defendants included six small burgeoning sex toy companies and Kickstarter, the crowdfunding platform, for its role in facilitating pre-orders in one of the products.  On October 2, 2015, the case against Kickstarter was dropped.  In 2016, two of the defendants were held liable for approximately $50,000 in damages each, and the cases against the remaining defendants were dismissed based on undisclosed settlements.

Things were quiet on that front until recently, when on July 18, 2017, Tzu filed a complaint against LELO, asserting that their product, IDA, infringes on the patent.  At the time of submission of this article, LELO has not yet responded to the suit.

This is an example of a patent, among many others, that has left some in the adult industry “sour” towards the patent system.  However, as a patent attorney, I promise you that there is a lot that is “sweet” in the system if you know how to capture it.  Patents are drivers of technology and business, and deliver many advantages to the owner.

Patents Incentivize Innovation

The U.S. patent system finds its roots in the Constitution.  Specifically, Article I, section 8, states:

Congress shall have power . . . To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.

 Therefore, creating a patent system was one of the first things our forefathers did when establishing the USA.  They recognized the importance of such a system.  Patents create an incentive for innovation in a “give and take” deal.  An inventor provides all information it knows about the invention in the patent application.  This is eventually published, and increases the base of human knowledge on which others can build.  In exchange, the government grants the inventor 20 years of exclusive use to the invention.  Countries around the world have patent systems of their own with slightly different rules, but mostly of the same spirit.

Patents Increase Profits

Patents allow a company to reap the benefits of their innovations.  The term of protection helps the innovator to keep competition out.  During the lifetime of a patent, the owner can sue third parties for infringement, as well as stop importation of knock offs at the border.  Without a patent, anyone who learned of an idea from an inventor could produce and sell it without the inventor having any recourse.  This means that the inventor’s R&D dollars would not be recoverable, much less significant profits.  With competition kept at bay, an innovator can build a business, and enjoy the profits that come with a product that is the “first and only” of its kind.

Patents Facilitate Licensing, Collaboration, and Partnership

Patents can facilitate collaboration.  Take a look at LELO and Standard Innovation.  Standard Innovation had sued LELO for infringement of U.S. Patent No. 7,931,605 (as well as two Canadian patents) for its C-shaped vibrator.  LELO had released a C-shaped vibrator called “Tiana”.   In response, Standard Innovation had sued for damages, an injunction, and attempted to stop importation at the U.S. border.  LELO, in a brilliant strategy, purchased US patent No. 7,749,178, covering an inductively charging massager.  It was this move that facilitated a settlement announced in February of 2016 where the parties cross-licensed their IP to one another.  Standard Innovation licensed the C-shaped vibrator patent to LELO, and LELO licensed the inductive charging massager to Standard Innovation.

Patents Enable the Raising of Capital and Certain Exit Strategies

Investors want to see patents, period.  Buyers of companies want to see patents, period.  Buyers of patents want to see patents, period.  All of these entities know the value of a patent.  Accordingly, if a company is looking to raise capital for a product launch, applying for a patent should be on the original business plan.  This will significantly increase the company’s chance of obtaining investment capital.  Execution on that plan, including obtaining a patent, will position the company for buy-out out at a later time if the management so desires.

Hopefully, at this point, I’ve convinced you that patents are valuable tools.  So, now you’re going to need to know what qualifies for a patent…  A patent can be granted on any technology that is new, non-obvious, and useful.  “New” means that the product or services have never been published before.  “Non-obvious” requires that the invention not be obvious in light of what has come before it.  I know that this sounds subjective, and unfortunately, it is.  Finally, the usefulness requirement has a low threshold.  It simply means that the invention should do what the patent application says it’s going to do.  If it’s a vibrator that hits some spot of the body differently from others, then it should, in fact, function that way.

Patents can mean big bucks to a business.  It’s important to appreciate their worth.  I am happy to see many players in the Sex Tech space have been filing for patents recently.  Still, however, I also see a lot that is left on the table.  In such a competitive market, companies should be reviewing their products prior to launch to determine if it would make sense to protect the technology.  Although there is certainly a chunky initial investment in applying for a patent, it can pay off in leaps and bounds later on.  And, bigger [profit] is better, right??

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