Protecting Innovations of Startups are patents worth the investment

Multi-billion dollar patent acquisitions by the likes of Google and billion dollar patent damages awards in disputes like that between Apple and Samsung have made patents rise in prominence recently. While patents can be one of the most valuable assets a company owns, the value of each patent varies widely and pursuing a patent may not always be the right choice. Entrepreneurs and Small and Medium-Sized Enterprises (SMEs) need to consider several factors when deciding whether a patent is worth the time and expense.

1. Control the market

Patent owners obtain value from the ability to prevent imitators or copiers (“infringers”) which a patent confers. If an invention is commercially successful, it will be imitated by others. If the invention is not patented, there may be nothing to prevent others from imitating or directly copying the invention. A patent owner can control the market for the patented invention and obtain premium pricing when the invention is commercially successful.

The first consideration in deciding whether to patent should be the commercial value of the invention since entrepreneurs and SMEs usually have limited financial resources to pursue a patent. Inventors should consider the following questions:

• How difficult would it be for a competitor to copy or reverse engineer the invention?
• How difficult would it be to design an alternative?
• How important is the invention to the business model?
• What would be the commercial impact if a competitor was able to copy or reverse engineer the invention?
• Is there a broad market for the invention or a narrow, niche one? If it is niche market, could it one day gain mainstream adoption?
• Are there similar analogous markets which are not of commercial interest but can benefit from the invention?

2. Generate a revenue stream or raise capital

Patent owners can also obtain value by licensing or selling their patents to others, either alone or in combination with the associated technology. This allows inventions to be “monetized” without having to make the patented invention. A patent owner may seek to license the patent to another entity which may be better positioned to realize the full commercial value of the invention. In later stages of the business cycle, a patent owner may license or sell the patent when discontinuing a product line.

3. Defending your business

While a patent grants its owner the right to exclude others from making, using, selling or importing their invention, a patent is not a permissive right for the patent holder. This is an important distinction that is often overlooked. Patent owners sometimes cross-license each other’s patents so that each may continue to operate in the marketplace.

Patents are granted to the first inventor to file a patent application; however, innovation often proceeds along parallel paths. Patenting an invention prevents competitors from independently developing and patenting an invention first. Ensuring that important inventions are promptly patented minimizes this risk.

4. Building a Strong Brand

The ability to promote an invention as being patented or having a patent pending can be a very valuable asset itself, particularly in the early stages of the business cycle. In consumer products, a patented or patent pending status creates a strong association in the minds of consumers that the product is innovative and high quality. This association is often the reason for patent marking on consumer goods. Patents can be used in combination with trade-marks to create a strong brand with consumer loyalty.

5. Raising Capital from Investors

Entrepreneurs and SMEs often seek investment capital from banks, angel investors or venture capital groups. When it comes to technology companies, potential investors are reluctant to invest in companies which have not protected their inventions by way of patents because there may be nothing to prevent others from imitating or copying their inventions. Investors in technology companies have become quite savvy with respect to intellectual property and often consider the quality, not merely the quantity, of intellectual property assets.

6. Trade secrecy

The duration of a patent is finite – 20 years from the date of filing an application for patent. However, when the patent expires, competitors are free to use the information contained in the patent. To avoid this disclosure, some inventors seek to protect their inventions by keeping them as trade secrets. Trade secrets, in theory, can be protected indefinitely.

The main drawback to trade secrecy is that others may be able to reverse-engineer a product to identify the underlying trade secrets without consequence. Once reverse-engineered, there is little an inventor can do to protect his or her invention. Another drawback is that trade secrecy relies upon the ability to control the trade secrets. Key personnel with trade secret knowledge can disclose the trade secrets to third parties, even if accidentally, or may leave the company to work for competitors. Confidentiality agreements may be difficult to enforce and once the trade secret is exposed, the options available to the inventor are limited. A further consideration is that another person may independently invent the trade secret. Where this happens, or where the trade secret has been reverse-engineered, the other person could encroach on the first inventor’s market share, or worse, obtain a patent for the invention and prevent the first inventor from exploiting the invention entirely. While some prior user defences are available in some instances, this defence is limited and does nothing to address the lost competitive advantage.

7. Longevity of the invention

The longevity of the invention should also be considered. It may take several years to obtain a patent, and rapid change in the field of the invention may mean that the invention is obsolete by the time a patent is granted. However, in other instances the field of the invention may develop such that the invention is essential to the subsequent improvements in the invention, with the result that the patent may be of great value. Note that there are ways to accelerate the examination of a patent application, if desired.

8. Stage of Development

Another consideration is whether the invention is ready to be patented. Ideas cannot be patented. The general requirements for patentability are that the invention is new, inventive (i.e., more than a trivial variation of what has been done before), and commercially useful. However, the patent must also describe the invention in sufficient detail to enable a skilled worker in the field of the invention to build and practice the invention when the patent expires. A prototype or minimum viable product (MVP) is helpful but may not be required. Your patent lawyer can assist you in deciding when an invention has been sufficiently reduced to practice so as to be ready for patenting.

9. Consider all aspects of IP

All aspects of IP should be considered, including designs, trademarks, and copyright. For example, one of the disputes between Apple and Samsung focused heavily on design patents, where the ornamental shape of the mobile phone as well as the graphical user interface features of the “home screen” were enforced.

For more information or questions related to patents or other intellectual property matters, please contact Steve Martin at smartin@ridoutmaybee.com or 416-865-3508..

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