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Patents. Worth it for a startup?

Yesterday I ran across a Time Magazine piece from August 28th, titled Here’s How Startups Actually Start Up. As I read, I found myself nodding my head in agreement with much of what they had to say.  And then I reached part 3, which reads (in part)

3. Shoring up intellectual property

Padlocking your product or service with an array of patents, trademarks, or copyrights can sound terribly dull, but the truth is it’s one of the most important steps to ensuring a budding company’s success. Without these protections, a competitor can swoop in and copy an idea without having to pay a dime for all the hard work done until this point.

“Issued patents may be used to stop competitors from entering the field and to recover damages for any infringement that occurred,” writes attorney Michael Kasdan in this excellent intellectual property explainer for startups. In addition, he writes, patents can protect a startup from getting sued for patent infringement by someone else.

Wrong. Let me be clear – patents are worthless to a startup.  Companies that focus on patenting technology early in the game focus on the wrong thing.

Patents are:

  • Expensive and time-consuming to file, and maintain.   That makes them a huge distraction from building the business.
  • Not  guaranteed to grant.  Examiners may have questions for months or years, and decide that there is prior art, or nothing defensible.   Meanwhile, their queries are a huge distraction from building the business.
  • Often invalidated, or trumped by someone else’s patents.

In addition:

  • Most are worth very little on the open market from a licensing perspective.  And what business are you in really?  Licensing your IP is just another distraction.
  • No startup actually has the wherewithal to prosecute a violator.  And, of course, that would distracting from the main focus of the business.
  • Moreover, in some cases a business pivot has rendered the patent irrelevant to the new business direction.

Lest you think this an ill-informed point of view, check my LinkedIn profile – I have three patents to my name.  They took years to grant, and these are the only three that granted of the 12 applications filed.  Cost was over $200k.  Worst of all, the company isn’t in the business anymore that these patents protected.

Some will argue that they can be used defensively at some undefined future point, should you find yourself in someone else’s gun sights.  Congratulations.  You weren’t distracted from building your business.  You’re now big enough to matter, because you maintained focus on your business.  Now it’s time to negotiate a license.

Patents are a big boy game, and nothing that a nimble, focused, fast-moving startup should ever consider.

 

{ 3 comments… add one }

  • Randall September 1, 2015, 6:53 pm

    Alec,
    Some great thoughts and I can totally relate to where you are coming from. Like you, and as an early software person, I wasn’t really that keen on patents either. My sense was that investors started to push patents hard in software companies because they came from the chip (ie. “Silicon”) and/or telco worlds.

    And, you are totally right that startups can rarely afford patents and they usually come at the expense of other “essentials” at a cash poor time in their life cycle.

    The only point I might differ on is that perhaps this shouldn’t be black or white. For a startup to have a single patent carefully chosen isn’t nearly as costly as your experience and it might just be an excellent insurance policy. Clearly, more defensive than offensive, but it might just help later in the growth of the business. Personally, I’d look at such a limited use of patents only on a case by case basis.

    • alec September 1, 2015, 7:05 pm

      I don’t disagree Randall, if you have a patent that is very unique or strategic. My general feeling, however, is that the process is too slow, the patents often fragile, and the business moving too quickly, for patents to be material to the outcome.

  • Conrad Seaman September 3, 2015, 11:13 am

    Alec,

    I largely agree with respect to software – the software patent game remains very challenged by ambiguity (see CLS Bank v. Alice).

    However, startups are rapidly becoming more common in hardware, biotech, chemistry and other sectors. The stability, tests and value of patents in these fields is much clearer. For example, the fight over CRISPR-CAS9 may be instructive as this invention could easily have occurred in a small personal lab not connected with a university.

    I think startups should have a conversation with a patent lawyer if they believe they have a unique idea that involved real time or insight to solve. I would set the bar for proceeding with a software patent very high, but in other sectors I would remain quite open to the idea. In the US a provisional patent also exists as a means to lower the barrier to entry temporarily – it’s a path that gives a startup a year to build the business.

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