Start-ups, Patents and Intellectual Property
By Cynthia Kocialski
All too often, start-ups become enamored with obtaining patents and protecting their intellectual property. This stems from investors stressing the creation of assets and corporate value. It's rare to find a technology start-up that is not quick to mention their intellectual property portfolio. Start-ups should stop and consider whether it is really applicable to their company and if so, when they should consider such a strategy.
Patents prevent competition and the unauthorized use of their technology. But not everything is patentable or should be patented either. Unless a start-up is well funded, it's not likely to spend the large funds needed for patents. The total cost of a patent can be $25,000 to $30,000. Patents are only worth as much as one's willingness to enforce them, which may be too costly for a small company and can result in a very lengthy and time consuming legal battle. There are law firms that specialize in buying the intellectual property of failed start-ups and look for companies to litigate against for infringement.
The legal departments of companies often get phone calls from inventors claiming that they should pay them for using their intellectual property. In fact, many corporate lawyers will say they often get several people or organizations staking the same claim. They can't all have been the first ones to invent something? Companies are not going to pay without a fight. If they paid off everyone who knocked on their door with a claim, they would soon erode away all their profits. Even paying one or two claimants could put them at a competitive disadvantage in the market.
Patents work best if the start-up's technology is something that can be incorporated into the larger company's shippable product. The design of a car's intermittent windshield wiper is a famous example. Infringement must be easy to demonstrate. If you have to reverse engineer and get into the guts of another company's design for proof of infringement, it's not something a start-up should patent. If the technology is software to improve operating efficiency then many companies may be able to whip up something similar for their own internal use. Start-ups have limited resources and should consider whether the trade-off between filing patents and directing more funding to product development and marketing is worth it.
Some start-ups file patents for the sake of building a portfolio. Recently, a computer security software start-up was filing patents on artificial intelligence for the creation of the first true robotic imitation of a human being. When quizzed on the reason, they responded with someone will build one someday and they wanted to have the patents. It wasn't on the company roadmap. It wasn't adding value to the start-up. The CEO was looking to step down and my suspicion was he thought the more patents attached to him, the greater his value in the job market.
Entrepreneurs like to brag to investors about their patents. During their due diligence or evaluation process, investors will get a subject matter expert of their own to weigh in on the technology value of the company based upon the patent filings. Using patents as a means of attracting investors can be either positive or negative because the specific details are exposed and easily analyzed.
Some start-ups will try to use patents as a means to drive sales. They use patents as a fear tactic for customers to obtain the technology. It doesn't work with large corporations because the group concerned about patent infringement is the legal department, and they are brought into the conversation until well into the decision making process.
Cynthia Kocialski has founded three companies and has been actively involved in more than 25 hi-tech start-ups and has served on the advisory boards. Cynthia has seen what works, what doesn't work, and much of the day-to-day humor that happens in these start-up companies. For more information about entrepreneurship and start up companies, visit Cynthia's blog at http://www.cynthiakocialski.com/blog/
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