8 Reasons Your High-Tech Business Needs Patents

Virtually every sophisticated high-tech company pursues patent protection for their new and innovative technologies. From the biggest tech companies who get thousands of patents each year, to smallest tech startups who allocate a significant portion of their resources to new patent filings every year—patents are critical for all high-tech companies.

But why? You might think that a massive tech company that has market dominance doesn’t need patents to stave off competitors. You might think that tech-startups would rather keep their technology secret for as long as possible and avoid the significant expense of filing patent applications.

While there is truth behind both of these reactions, a broader perspective shows that a strong patent portfolio is a valuable tool for tech companies of every size and stage—this is mainly because of the numerous and diverse ways that patents can benefit high-tech businesses.

It’s important for tech companies to understand all the ways that patents can provide value, so that they can optimize their patent programs. To make the smartest investment in a patent portfolio, tech executives should consider the impact that patents can have at every stage of business.

What is a patent?

From a legal perspective, a patent gives you the right to exclude others from making, selling, using or importing a particular product or service, and to claim damages (royalties) from anyone who infringes your patent.

In other words, a patent allows you to prevent another business from exploiting your technology, so that you can enjoy the exclusive commercial benefit for some period of time.

But as a practical matter, patents can provide a number of other benefits.

8 Benefits to Filing a Patent for High-Tech Businesses

1. Prevent Competitors from Blocking You Out

The most basic reason to file a patent application is to beat your competitors to the punch. In competitive fields of technology, multiple different companies are often solving the same technical problems in parallel, and it’s not uncommon for two different companies to independently develop similar technical solutions at about the same time.

In that type of situation, there’s a “race to the patent office” by competing companies. Whichever company files their patent application first gets priority over everyone else. And if that company gets an issued patent with broad claims, they can use their patent to block competition from using the technology.

This is the main reason that big companies continue to pursue large volumes of patents even after they have market dominance. They use them as “defensive” weapons to ensure that their competitors can’t block them out of valuable market opportunities.

2. Higher Profit Margins from Your Products and Services

Tech companies with long R&D cycles require significant capital and time investment before they can take a product to market. For these types of products, patents are often the primary means of recouping your R&D investment, making them essential to a profitable business model. That’s why businesses with long R&D cycles are often referred to “patent-intensive” companies.

If you don’t have a patent, competitors can simply copy your product and enter the market without making the same R&D investment. Since they have a much lower startup-cost, they can viably sell the product at a much lower price. Patents are the primary business tool that can be used to prevent this type of competition.

With a patent, the ability to exclude competing products means you can set your profit margins high enough to recoup your R&D investment. And as long as your patent is in force (usually about 20 years), no one else can enter the market with a product or service covered by the patent.

3. Controlled Development and Deployment of Your Technology

Because a patent usually protects your technology for 20 years, you can define a long-term business model around your technology — with less concern about competition. This gives you the time, space, and flexibility to ensure that your technology is sufficiently validated by and optimized for reception with each of your target markets.

For example, you might want to spend time testing your product or developing relationships with key customers, but feel pressured to get your product to a broader market ahead of competitors. Patent protection gives you a level of assurance that, even if another company has developed a competing product, you have some recourse if they attempt to enter the market ahead of you.

4. Reduce or Deter Industry Competition

Patents are a public record of your exclusive rights, which means that they might be working for you even when you don’t know it.

For example, if you own a patent covering valuable technology, chances are your competitors (or potential competitors) will discover your patent and be forced into a difficult and often expensive decision — if they avoid infringing your patent, they might end up with a lower quality product. Or they may consider the risk of infringing your patent to be greater than the profits they would gain from competing at all.

Even if your competitors are able to develop a competing product, they’ll have to expend additional resources dealing with the risk of infringing your patent, which gives you an edge.

By publicly defining your technological territory, patents help you maximize your competitive advantage within your industry.

5. Fundraising Opportunities

Fundraising is especially important for startups and early-stage ventures attempting to establish themselves in high-tech industries, as they typically need outside funding from venture capital (VC) or other sources.

Patents can be significant to investors in part because a patent provides some objective assurance that your invention is unique and your technology can’t be copied. This is particularly true in high-tech industries, where the qualities of the product itself are more likely to drive sales.

For instance, compared to consumer-product developers, high-tech companies are are more likely to succeed based on the uniqueness of their technology — even without brand recognition or a “first-mover” advantage. Investors often look at a successful patent portfolio as a validator of or proxy for uniqueness.

6. Higher Royalties in Technology Licenses

Patents are often used as leverage in negotiating technology licenses, which allow other companies to use or sell your technology in exchange for royalty payments.

Because successful high-tech innovations often have a long-term impact on the market, a patent can potentially bear royalties for many years. (This stands in sharp contrast against apparel, fashion, and consumer goods, where market opportunities are generally shorter-lived.) As such, high-tech companies often stand to gain significant revenue through patent licensing.

7. Access To Competitors’ Technology Through Cross-Licensing

If you’re successful in the high-tech industry, you’ll draw competitors who will almost certainly have patents of their own. If a competitor asserts their patents against your business, having your own patent portfolio provides significant leverage and opportunity in resolving the conflict.

To put a finer point on it, you can respond by asserting your own patents against your competitor, claiming that they have infringed your rights. In fact, this happens all the time.

When two patent holders in the same industry encounter this type of dispute, they are more likely to cross-license — that is, each party gets a license to the other party’s patents — instead of going through a costly litigation process. In addition to settling the initial dispute, cross-licensing gives you access to your competitor’s solutions, which can improve your technology and generally advance your business.

8. Wider Market Reach

Patents allow you to generate additional revenue by actively licensing your technology across multiple markets, whether in terms of different geography or industry — even if you sell products in only one market. High-tech innovations often have a longer-term impact in a variety of markets, which you can capitalize on to maximize your revenue streams. If you’re developing technology for a particular industry, you might find that the technology also has applications in another industry, and broad patent rights can provide a basis for licensing the technology to businesses in the other industry.

One great example of this is magnetic resonance systems — they have great commercial value for medical imaging (MRI), and also vast application in other industries such as oil and gas. Wireless technologies provide another great example; for instance, Bluetooth is found in everything from phones and printers to cars and sneakers.

If you’re creating technology that has strong commercial potential, developing a patent portfolio to protect your investment may be well worth the time and expense. An appropriately-scoped patent filing strategy will balance the costs of seeking patent protection against your current budget and your projected long-term business objectives.

Looking for specific advice tailored to your circumstances? Consider consulting a patent attorney with extensive technical expertise in your field.

Henry Patent Law Firm’s attorneys have experience in a wide range of technical fields. Our scientific and legal expertise gives us a unique perspective on developing patent portfolios for high-tech businesses. We love hearing from innovators and tech executives — if you have questions, contact us now.