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RIM / NTP: Lessons for Entrepreneurs

Rich Tehrani commented on his blog, the other day, that Canadian companies don’t seem to be as concerned about US patents as they should be.  He was referencing the RIM / NTP patent dispute.

I concur.  Since returning to Canada, I’ve repeatedly encountered venture capitalists, and entrepreneurs, who don’t put much faith in patents.  One technology company I know of, in existance for more than 20 years, has fewer than 5 patents.  Another startup, raising a B round in a hotly contested market, just 3.  The common theme: patents are expensive to acquire, and difficult to defend.

This is incredibly short-sighted, and also somewhat ill-informed. 

In a recent conversation with our patent attorney, I learned that 70% of the patent applications sent to the US PTO are granted.  It’s relatively easy, if you do the work, to get your patent approved.  It’s common knowledge that the USPTO is backlogged.  The quality of these patents is suspect, which is what RIM is challenging in the NTP case right now, but the fact remains that patents are being granted.   That’s dangerous to you, as an entrepreneur, if you choose not to protect your own products.  However, it’s a potent weapon, if you make patents part of your strategy.

As for the expense, most patent agents have cookie cutter applications.  Form the claims, assemble the documents, and file.   For less than the cost of an engineer, you can probably file 10 to 12 patent applications per year.  A good strategy is to file one broad application for your idea, and then many smaller applications for related ideas, and implementation specific elements.  That’s where the cookie cutter approach can be especially beneficial.

If you make patent protection part of your business strategy, here are the benefits you might expect to see:

  1. Increased valuation.  Being able to say that your intellectual property is protected can raise the value of your company to either an acquirer or to a VC.  Large acquirers routinely value patent portfolios as part of a transaction.
  2. Defensive weaponery.  RIM is being challenged by NTP.   Would the story be different if RIMs portfolio included a patent that read on NTPs?  At that point, neither party can use the IP, and a cross license is the only route forward for both.
  3. Cross licensing currency.  You may encounter a situation where you need intellectual property owned by another company.  Having currency of your own, in the form of a strong portfolio of patents, may allow you to negotiate a royalty-free license from the other company.

Few companies can afford, or wish to pursue, an offensive patent strategy, such as the strategy being pursued by NTP.  But that isn’t the only use for patents, and in some cases the best defense is a strong offensive capability.

{ 2 comments… add one }

  • Mitch Brisebois December 7, 2005, 8:52 pm

    Hey Alec!

    Good luck in the blog awards!

    I agree with all your points on IPR – it should be one of the top 6 things the entrepreneur should concern themselves with. The management team of any company should facilitate the develoment of an innovation culture. And to leverage that culture, an innovation management plan should be in place – to collect and review the ideas generated by the organization – and (more importantly) to focus creative efforts on gaps in the intellectual property defining the cluster (niche) the company strives to own.

    Another benefits I teach my students and the companies I consult to is that the patent process is a PROCESS – a discipline that is worthwhile. Whether or not you actually file the patent application – the process of defining an idea the way a patent would be formulated goes along way in defining a product roadmap!

    cheers – enjoy your blog!

    Mitch

  • Alec December 8, 2005, 4:03 am

    That is a great tip Mitch. The single biggest hurdle beyond the initial idea is simply documenting it.

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