So, you’ve got a tech startup and you want to learn about patents? Great, you’re in the right place.
If you’re a solo inventor, non-tech-startup small business owner, or just generally full of ideas, you might want to check out this post first.
Startups often want to file patents for the wrong reasons.
Before we jump into how patents can help your business, let’s get something out of the way:
Patents may not help you stop “copiers”…
Why not? The average patent infringement lawsuit in the U.S. costs around $2,000,000. And that’s for a single lawsuit – so if you’re intending to sue multiple competitors, expect to pony up some serious cash and spend years in litigation. Not to mention that this assumes your ideas are patentable in the first place, and that you spend the money (~$30k per patent all in) and time (~2 years) to get them there. For many startups, this is not a good investment of time or money.
…and copying shouldn’t be a primary concern anyway.
Many innovators are concerned about potential copiers. What they often fail to realize is that their “great new ideas” are often not all that new – or that in any case, even the best ideas are difficult to execute (and so ideas alone may be of little use to would-be copiers). Real innovation usually takes place when creative minds put ideas into practice; not before. Take the iPhone, for example: it wasn’t the first smartphone (IBM’s Simon preceded it by 13 years), it wasn’t the first to feature a capacitive touchscreen (that would be the LG Prada), it didn’t have the best specs (competitors had 3G cellular connectivity, more RAM, faster processors, and better cameras) or the best application support (Windows Mobile and Blackberry OS). Even though the iPhone was spawned by a “big idea” (Steve Jobs’ desire for a stylus-less smartphone), it was hundreds of smaller innovations developed in service of this idea that made the iPhone so successful.
If you still need more evidence that big ideas are overrated, check out this mega-list of startup ideas available for the taking. Many are great, and yet the list of ideas grows much faster than the list of startups capitalizing on them… there’s a reason for that.
Patents may not be the best way to prevent competitors from patenting similar technology.
While one patent application (e.g, yours) may serve as “prior art” to a later-filed application (e.g., a competitor’s), so may publication of the details of your invention. The difference? Publishing a white paper on the internet is essentially free, while patent applications may cost upwards of 20k.
Generating licensing revenue from patents is often difficult.
As I mentioned in my other post – the “invent and license” fantasy is an attractive one to many would-be innovators, but the reality is that finding someone who wants to put the time and effort into developing and producing your invention is extremely difficult. While there are successful companies that make the majority of their money from licensing, these companies (e.g., Qualcomm, Nokia, NuCurrent, Intellectual Ventures) don’t usually fit the startup model.
So what are patents good for, then?
In my experience, there are three main reasons for startups to file patents: to increase valuation, to deter patent infringement suits, and to increase leverage in strategic partnerships.
Increasing valuation
Filing patents can be a good method for startups to increase both short-term and long-term valuations. In the Seed and Series A stages of a startup, filing a small number of patent applications (or even simply having a plan to file) reinforces any claims to innovative technology the startup may have, in turn increasing attractiveness of the startup to early stage investors. In the later stages of a startup, owning a strategic patent portfolio (including issued patents with significant protection on the startup’s valuable products or services) can be particularly attractive to a large company that wants to bolster their patent position relative to another large company. Issued patents are commonly valued at $1M during an acquisition; this is a 25X return on typical patent costs (from filing to issuance).
Deterring patent infringement suits
Filing patents can also be a good method for deterring other companies, especially competitors, from initiating patent infringement lawsuits. Other companies (particularly sprawling, multinational companies) must first convince themselves that they are not infringing any patents of an infringement lawsuit target; if they are, they may have more to lose than gain, owing to the inevitable countersuit. Because of this situation, a startup’s patent portfolio may successfully discourage competitors from filing infringement lawsuits.
Filing patents may also serve as a deterrent to patent trolls. Because a strategic patent portfolio is a good indicator of IP law knowledge and sophistication, patent trolls have skipped over patent-savvy startups in search of easier targets.
Increasing leverage
Filing patents allows startups to increase their leverage over strategic partners. When a large company enters into a joint-development agreement with a startup, the large company is often seeking the insights and technology of the startup. Since the large company often dictates the terms of the agreement, the startup can significantly increase their leverage if—before the signing of the agreement—they develop a strategic patent portfolio. This portfolio becomes the “background technology” for the agreement and is commonly not shared or licensed.
So you need patents – what next?
If a startup has identified a real need to file patents, the next step is finding a capable patent attorney or patent agent. Since patent applications are typically prepared by only one or two patent practitioners, the quality of the individual practitioners matters much more than the overall quality of the firm. With that in mind, what should companies look for in a patent practitioner? Patent experience, technical background, startup experience, and proximity are four of the most important qualities to look for in a great patent attorney.
Patent Experience
The Supreme Court has stated that a patent application is one of the most challenging documents in the legal industry. Evaluating an invention, crafting a claim set, and brainstorming the technical disclosure are just some of the difficult tasks. There is often no substitute for the 10,000 hours of mastery in this field. Look for a practitioner with many years of experience in patent prosecution, preferably in technical fields similar to those pursued by your company.
Technical Background
A patent practitioner with a strong technical background can benefit your company in a number of ways. Perhaps most significantly, a strong technical background is necessary for crafting the most important aspect of a patent application: the independent claims. In drafting independent claims, a patent practitioner chooses approximately 200 words that describe the invention with enough specificity to distinguish the invention from everything known, and yet with enough breadth to prevent other companies from making simple changes (and “designing around”) the invention. This cannot be done well without truly understanding the technical nature of the invention. This understanding also provides a number of other benefits (e.g., increasing efficiency and efficacy of communication).
Startup Experience
A startup needs a patent portfolio that scales from the seed stage to the acquisition or IPO stage. Scaling is accomplished by strategic allocation of resources and by providing options for precise timing and budgeting (through use of provisional and PCT applications). Further, startups often require flexible and impactful portfolios that can be developed without straining valuable resources (specifically, CEO and employee time). Patent practitioners without significant startup experience are often unable to effectively meet these particular needs.
Proximity
Some meetings cannot be accomplished via Skype. Handling a prototype and brainstorming on a whiteboard are both extremely helpful for a patent practitioner to fully understand the invention and to prepare an ideal patent application—and it’s a lot easier to build a relationship with a patent practitioner when you work nearby.
Based on these four criteria, startups (and other small companies) can intelligently choose their patent representation.
Disclaimer
The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.