I’ve been working with early stage companies and their intellectual property protection plans for years. But only recently did I read a clear document on the risks and rewards of patent strategy. Thanks to Russ Krajec, a patent attorney, for the quick improvement in my education, here are some important points to consider when thinking of your patent strategy.
What is the true cost of patenting an idea?
First, know that the $16,000 average cost of research and filing a patent is only the start,
even if your patent application is not opposed or even if the examiner is reasonably receptive to your brilliant idea. The true average cost of a single patent over the twenty years of its legal life is $56,000, when you consider all costs beyond the initial application process. That’s a lot of money for a startup, and it multiplies quickly when your patent is published for comment or opposition or the examiner continues to deny claims.
Do you let the world know your innermost secrets?
And what do you get for this? You reveal to the world the essence of your brilliant idea for all to find work-around methods of accomplishing the same ends. Sometime, simply keeping the trade secret through non-disclosure and confidentiality agreements would be a better service to your idea than a patent. And that’s just about free. And private. So, a patent could be damaging to the startup, not a barrier to entry.
We investors often ask: “What’s the patent protection?” as if that would be a guarantee of value, especially for companies in the technology field. Well, there is more to it than that. Shame on us investors for not knowing all the pitfalls involved.
The two requirements of a patent
[Email readers, continue here…] It is important to note that patents are useful only if they satisfy two requirements: that they protect the brilliant invention you create, and that they are commercially viable in the marketplace. A great idea often never succeeds in the marketplace. Yet, we investors often ask about patent protection before the product or idea is even tested in the market.
How soon must we file a patent to be protected?
The United States Patent Office allows a full year after first introduction into the market for the patent to be filed. Most of us believed that the patent filing is required before introducing the idea to the marketplace. That is still true in Europe, but not here. Surprise.
How about provisional patents?
And then, many of us investors suggest provisional patent filings as the answer. After all, they give you an additional year of protection at a minimal cost. But did you know that no-one reads the provisional patent at the Patent Office? With the grace year, it would be better to spend the money and time filing the real thing after initial reactions from the marketplace, no matter how limited.
The core of any patent?
Then there are the claims that are the core of any patent. Most inventors want to explain the patent fully in its description, paying less attention to the claims. Here’s another blockbusting piece of news. The description is not a legal part of the protection and could even be used to glean more information from you by a competitor than you ever intended. It is the individual claims that form the entire legal basis for protection. And claims must be written with precision, backed by significant research as to other patents which may come close but do not infringe upon each claim. As I have learned form one of my companies and its decade-long fight to enforce a single patent, one word can make the difference between ultimate acceptance by the examiner and then winning a patent infringement suit when that time comes. Whew.
But there is a good part of the story
Patents have made people and companies rich. They have protected their right to their inventions. Patents have allowed companies to spend up to five percent of their gross revenue on research and development. Patents have provided a long, rich royalty stream for inventors. Patents protect inventions in many countries. Without patent protection spending on research would be lower, the possibility of theft of ideas even greater, and many would be poorer than without the patent system. Properly used, patents are an excellent defense for inventors.
More to learn (of course)
There is so much more to learn about patents than this. For us investors and for all entrepreneurs with novel and non-obvious ideas to protect, this is one valuable place to spend a little time becoming educated. After all, early stage companies have limited resources, and often the most valuable resource is the core idea that forms the company itself. Protecting that core is an important, but not necessarily an expensive task. So, it is fair to ask, “Are you wasting money filing patents?”
I’ve defended multiple patents with the Patent Office. Even though your team would be working with counsel to get everything filed properly; a business owner needs to take into account the time it will take them to research and defend all of the past patents the office might bring forth in a challenge. This took weeks of time which we didn’t expect at the onset.
Thank you, Dave, for another illuminating post. I would add one more important criterion for the decision to patent: could infringement be (easily) policed? It is in the nature of many inventions, particularly in the area of methods and processes, where a competitor could infringe as much as they want and you would never be able to find out. In those case, trade secrets are really the only sensible route for protection.
First if you are paying $16,000 to get a patent you have not found the right law firm. Many firms recognize the future value of working with start-ups and can do this for much less. Your local start-up ecosystem should be able to help you find these types of firms.
Second, there are significant challenges to legally maintaining trade secrets. The information must be rigorously protected with clear policies, procedures and secrecy agreements. Writing “policies and procedures” is not the strength of most entrepreneurs.
As with any secret it is wise to limit access to a very small group. This can be difficult for a start-up talking to many investors who want to have confidence in the “secret sauce” or potential employees who want to understand the technology to have the confidence to make the leap to a start-up.
Finally, I do agree that making the decision to apply for a patent should be carefully considered. It is a decision with long term implications beyond the initial granting process. Just be aware that maintaining a trade secret requires a serious commitment of internal time and energy versus the external expense of a patent.
For enforcement, startup companies should get patent enforcement insurance. A typical startup might pay $5000/year for $500,000 of patent enforcement insurance.
…thanks for taking the time to expose the facts….
You have left out a very important aspect of patent cost: enforcement. If it is a large company that is infringing on your patent, good luck dealing with them outside of a court room. Why should they be concerned? Having a patent only gives you the right to sue them and it doesn’t guarantee you will win. If you are a cash strapped start-up, chances are you will loose. You could even have your patent invalidated. If you thought getting the patent was costly, wait till you try to take a competitor to court.
At Bakman Technologies we have both patents and trade secrets. Of the two, I value the trade secrets more because I am not teaching my competitors how to do something.