21 Dec 2018
By building a robust patent portfolio, tech startups can gain a competitive edge in their industry:
- Increase your profit margins
- Exclude your competitors from monetizing your inventions
- Create prior art against your competitors’ patents
- Generate licensing and collaborative opportunities
In earlier posts, we’ve discussed larger companies’ tendency to rely on a “high-volume” strategyto build their patent portfolios. But because tech startups are working with limited resources — small budgets, diverted attention, lack of internal patent counsel — they need to take a fundamentally different, more offensive approach to the patent process.
Instead of trying to ineffectively mimic what big companies do, tech startups can create a powerful patent strategy that actually works for them by leveraging their unique attributes.
EXPLOITING YOUR STARTUP’S ASYMMETRY WITH LARGE COMPETITORS
I began my patent law career drafting patent applications for several big tech companies, and after many years, found myself managing international patent portfolios for a couple of the biggest tech companies in the world.
Throughout the same period of time, I also represented several well-funded tech startups who were developing cutting edge technologies. I helped them create strategic patent portfolios that were eventually acquired by big tech companies for large sums of cash.
Through this experience, I recognized several major differences in the way big tech companies and small tech companies operate, and in particular, how each type of company can turn their distinctive attributes to their own advantage during the patent process:
|Tech startup||Large company|
|Risk appetite||Intrinsically risky endeavor (you’re betting on your ability to monetize a future market); startups can take on bigger risks by playing offense with their patent strategy||More risk-averse; it’s in their best interests to file defensively|
|Financial resources||Cash lean; it makes more sense to invest in a few strategic, high-quality patents||Can afford to file many patent applications to distribute risk, deter litigation and encourage cross-licensing|
|Speed in making decisions||Make fast and well-informed decisions; high-level executives are often inventors who actively offer insight and strategic vision to the patent process||Slow to come to a consensus; high-level executives aren’t involved with individual patents|
|Responsiveness to change||Nimble; can quickly respond to market/industry opportunities and risks, and redirect IP toward “green spaces” and away from minefields||Bureaucratic and inflexible; more administrative overhead governing every step of the process|
|Predictability||Less information available on the market; many startups launch in “stealth mode,” making it difficult for competitors to target their business models||More information publicly available; easier for competitors to predict the behavior of large, well-established companies|
|Business integration||Smaller teams and operations make it easier for startups to integrate patent and product strategies||Large employee base is usually spread over multiple teams; operations are more divided|
|Tolerance for “innovation risk” (risk that the invention isn’t valuable)||By definition, startups are already exposed to innovation risk, which means they can go all-in on their patent portfolio||Patent strategy needs to support success, not failure; large companies must be cautious about investing in different areas|
If you’re a tech startup or a growing tech company, you should periodically think about how you can leverage these asymmetries in order to compete with larger companies in your industry. From my experience working with tech companies of all sizes, I know that smaller tech companies can certainly obtain higher value patents than large companies if they take the right approach.
DISADVANTAGES TECH STARTUPS FACE DURING THE PATENT PROCESS
Of course, startups will also face a couple of challenges as a result of having fewer resources. Here’s what your startup can do to address these potential pitfalls.
THE VALUATION OF YOUR PATENT PORTFOLIO
When assessing the value of your patent portfolio, many potential investors and acquirers will still prefer to see a high volume of patents — because volume is much easier to measure than “quality.” (Let’s face it, a list of 40 patents looks more impressive than a list of five patents!)
To that end, you might need to take a mixed approach, where you consider volume in addition to quality. For example, you might designate a certain number of “low priority” (and low budget) patent applications to file each year or each quarter.
But take that approach, it’s important to also limit your spend on these lower priority applications so that you can focus resources on your more important “offensive” filings. This will help you generate a patent portfolio that has volume, without sacrificing strategic value and quality.
UNCERTAINTY OVER YOUR PATENTS’ LONG-TERM VALUE
As a startup, you might prefer to diversify your investments, because you won’t know in advance which patents will be valuable.
But keep in mind that you’ll enjoy significant value just from the initial filing alone: Upon filing, you automatically gain defensive value (as you can prevent others from patenting a similar invention) and portfolio value (you can license a pending patent application). And this value only increases with the patent’s quality.
By regularly “pruning” your portfolio, you can cut your losses and focus only on the most valuable patents. You can eliminate half of the overall cost of a patent as late as 30 months after filing — without losing all the value.
SETTING A SMART PATENT PROSECUTION TIMELINE
Startups that build strong patent portfolios are strategic about what they file — and when they file.
Our FREE infographic, “The Cost of the Patent Process,” outlines common deadlines during patent prosecution, as well as the estimated costs you’ll incur. It’s never too early to start planning ahead: Download the infographic now!
HOW MUCH DOES IT COST TO PURSUE PATENT PROTECTION? IT’S A QUESTION ON EVERY BUSINESS OWNER’S MIND.
Need to find out how much you’ll spend and when? We’ve created a free infographic to help you plan for the costs associated with securing protection for your intellectual property.
- Costs to expect during the patent process — so you’re not surprised or unprepared for fees
- Breakdowns of official government fees versus legal fees
- Where costs occur during the patent-protection timeline
- The cost of patent protection in a number of foreign countries
Fill out the short form on this page to get the infographic now.
GET THE INFOGRAPHIC
Michael K. Henry, Ph.D.
Michael K. Henry, Ph.D., is a principal and the firm’s founding member. He specializes in creating comprehensive, growth-oriented IP strategies for early-stage tech companies.