Creating a patent strategy for startups.

Whether or not your newly formed company ultimately seeks patents for its innovations, one of the worst mistakes is to have that decision be made for it by not setting aside enough money for patents[1] or waiting too long to take action.[2]  Many startups do not pay adequate attention to their intellectual property involvement of a patent attorney.  They are too busy focusing on other important matters, such as raising capital, developing their products, and marketing, and patents are often at the very bottom of their to-do lists.  Perhaps this is because the patent process is viewed as mysterious, unaffordable, too complex, or some combination of these, or maybe the decision-makers simply aren’t familiar with patents or have heard patent “horror stories” from others.  Whatever the reason that delays or prevents decision-makers from considering to seek patents — or not, any company aspiring to take a product (including software) to market should develop a patent strategy as early in the company’s life as possible.

While the term “patent strategy” may conjure thoughts of needing a level of sophistication far beyond your startups’ ability, this is just not true.  A patent strategy can be quite simple.  For example, consider a software startup where the principal founders have a large contact network that will license the company’s software once available.  Further consider that the new software will be based on well-established functionality and the company will make frequent releases having useful, but not game-changing, improvements.  In this scenario, the company may be perfectly fine with a patent strategy of not seeking patents at all.  Patents would probably not bring this company value and would only cost it money in procuring patents it won’t use.  In this case, the company’s value may lie mostly in its contact network and agility, and investing in patent procurement would not bring any return on that investment.

On the other hand, consider a startup based on sea-change technology that will take years to bring to market.  In this example, the company would likely benefit from a patent strategy that involves patenting core aspects of that technology early on and, along the way, patenting any improvements and details that the company and/or competitors would need to commercialize the technology.  In this scenario, patents would probably bring tremendous value to the company, and investing in patent procurement would likely bring a high return on investment.  Indeed, patents, in combination with knowhow and/or trade secrets, often form virtually the entire market value of many technology startups in their early days.

Regardless of whether or not a startup ultimately decides to pursue patents, it is important that it develop a patent strategy as early in its life as possible.  Developing a patent strategy can be just as important as finding investors for the next capital raise, working toward the next milestone in product development, or honing a marketing campaign.  For example, in the first scenario above, the software startup, knowing early on that patenting does not make good business sense, can avoid the mistake of putting money into a patent procurement program only to later find that the money it spent hasn’t brought an ounce of value to the company.  Regarding the second scenario above, the technology startup, knowing early on that patents are virtually essential, can rely on its patent portfolio for higher valuations, which helps raise capital with less dilution to early shareholders, and for deterring competitors while developing markets for its new technology, among other things.

Two important takeaways are:  1) develop a patent strategy early and 2) base your patent strategy on whether or not patents will bring value to your company—at any stage of its life.  Pretty early on, a startup should have knowledge, or at least a good sense, of the business considerations that go into developing a patent strategy.  However, it likely will not have the knowledge to assess the patent law considerations for developing a patent strategy.  A startup without a clear understanding of the patent law considerations should at a minimum consult a patent lawyer.  Other professional consultants may also bring value to the process, but non-lawyers cannot provide legal advice, and patent lawyers can provide counsel on how non-lawyer consultants can complement legal advice.  Startups often loathe spending money, especially on lawyers, but the benefits of budgeting for and spending on sound patent advice early on can make a significant positive impact on most any technology-based business.

[1] Patents are expensive.  The cost of a single, well-written, U.S. patent, from preparation to issuance, is typically on the order of $20,000 to $25,000, typically spread out over several years.

[2] Patent laws and rules are rife with deadlines.  For example, most of the world operates on the concept of “absolute novelty” before filing, meaning that, to be able to seek patent protection, a patent application must be filed before the subject invention is divulged publicly.  The U.S. still has a one-year “grace period” that allows applications to be filed within one year of public disclosure, but it is best to avoid having to rely on this grace period if at all possible.