US281884 Johnson, Electric Tele-thermoscope cropped

Johnson Controls and Tyco International have announced plans to merge in a multi-billion dollar deal. They will make their home together in Ireland, where they can take advantage of lower tax rates. A company has to make money, though, before it needs to worry about taxes.

Lost in the Wall Street Journal’s extensive coverage of the merger is the fact that Johnson Controls, the largest public company based in House Speaker Paul Ryan’s home state of Wisconsin, “was founded 131 years ago by a Milwaukee professor who had received a patent for the first electric thermostat.” See “Johnson Controls-Tyco Deal Adds to U.S. Tax Exodus,” WSJ Jan. 26, 2016.

Founded on a patent

In 1883, Professor Warren Johnson, frustrated with lack of temperature control in his classroom in wintry Wisconsin, invented a bi-metal thermostat, patented it (U.S. Patent 281,884), and attracted financial backing for the company that would become Johnson Controls. Fifty patents would be granted to Mr. Johnson in his lifetime and another twenty times as many would be granted to his company. As long ago as 1895, Professor Johnson invented and patented an automatic multi-zone temperature control system. See U.S. Patent 542,733 (the ‘733 patent).

One patent tracker counts 722 U.S. patents currently in force for Johnson Controls and another 331 U.S. patent applications pending. Tyco’s various companies have several times as many U.S. patents and applications. Both companies have used patents to secure their market leadership. Early in its corporate life, for example, Johnson Controls successfully asserted its ‘733 patent in Massachusetts District Court, withstanding a challenge to the validity of the patent.

Your invention will be copied

If you invent a better product and you sell it to market acclaim, your product will be copied, your price will be undercut, and your margins will be gutted. Look what happened when Apple introduced the iPhone. That’s why you want a patent: To stop infringers from stealing your invention. Samsung couldn’t resist the temptation to imitate the iPhone. They tried to steer clear of Apple’s patents, but in the end, Samsung wrote a check to Apple for $500 million for patent infringement. Be like Steve Jobs: Protect your inventions.

Professor Warren Johnson did several smart things when he invented a better thermostat, patented it, and founded a company to make and sell it. That humble yet wise start led to a $14 billion dollar deal to create a giant provider of commercial building control systems.

The 4 W’s of patent: Who, what, why, when

Mr. Johnson answered correctly the four W’s of patent. He knew that it was he who should file. He knew what to patent. He knew why. And he filed at the right time, when he was starting his business and about to launch a product line that would change the world.

Here’s the takeaway, my friends: When you see a real world problem in your corner of the world, such as inadequate heating controls in chilly Wisconsin, invent a solution. Patent your invention. Launch the new product.

Invent, patent, sell

That’s three steps: Invent, patent, sell.

Repeat.

Too much money

Someday, your company, like the one founded by Professor Johnson, might have 170,000 employees in 1,300 locations on six continents. You might generate annual revenues of $43 billion and pay a 29% tax rate on net earnings of $1.4 billion. Wouldn’t that be a nice problem to have: To earn so much money that you need to look for a way to lower your taxes?