Blogs
By Alex Polyansky Oct. 29, 2018

Shrewd Startups Work the Patent System to Their Advantage

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Ideas-To-Market

You know how important it is to get your product to market before anyone else does. But, whether you have a patent or not, nothing stops your competitors from stealing your ideas or non-practicing entities (i.e. trolls) from initiating a litigation process if they think your product infringes their patent.

Let’s say you decided to develop a system like Square and take it to market. On a high level, Square consists of two parts: hardware (credit card reader) and software (communicating with the bank). If you are strategic, you have likely considered filing provisional patent applications to cover both parts. You might call the whole thing a “system,” which is only partially true and useful. In reality, your IP might cover much much more: the product, process of making the product, process of using the product, apparatus/device and software (which is typically some type of process as well).

Just spending a few hours to research existing patents, will allow you to discover how others might have described similar or analogous “systems.” File as many provisional patent applications as you can to capture your core IP and all the peripherals. It will significantly improve your chances of obtaining funding by creating a sense of security for investors and corporate partners.

Patents for Venture Funding

Patents allow a venture-backed startup the ability to grow. They can create a securable asset and promote innovation by promising private value to inventors. They can lead to further fundraising, brand loyalty, and even large acquisitions.

Patents have been shown to increase a startup’s chances of securingfunding from a VC by 47% and a loan (with the patent as collateral) by 76% within three years of the patent decision.

The effects of a patent on raising VC funding can vary depending on a few factors. It is strongest for startups who:

  • Have raised little or no VC funding before the patent decision.
  • Were founded by inexperienced entrepreneurs.
  • Are located in areas where attracting investor attention is difficult.
  • Operate in the information technology industry.

Additionally, through their property rights function, patents can help startups attract funding by promising investors a legal recourse against expropriation (Johnson et al. 2002). They can also mitigate information asymmetry issues that hinder the formation of funding agreements.

Startups don’t have to wait for funding to file a patent. In fact, 18.9% of venture-funded companies file prior to receiving any funds, and 33% of companies that are funded, file for patent at some point throughout their life cycle. The most important part is getting your ideas on paper.

Recommendations

First and foremost, before you shout out your ideas to the world, which could be at a conference, in a meeting with a potential corporate partner, in a paper or at a demo event, do a comprehensive patent search to find all the relevant patents, who owns them and their expiration dates.

You can dig deeper and learn fairly quickly whether whoever owns the patent(s) is a frequent litigant, and whether the patent is still active.

Second, file file file.. provisional patent applications. It is inexpensive and fairly easy to put together.

Third, prevent others from engineering around your solution. File continuously and consistently to keep pace with your go-to-market strategy as you dream up of new features and receive feedback from the users to cover the core features of your product and all the peripherals to make it very difficult to engineer around your core IP.

Make continuous submissions to harvest all your IP for at least the following reasons:

  1. Your problem and/or solution will evolve fairly quickly,
  2. You should protect every aspect of the core idea and all the peripherals so it is harder to engineer around, and
  3. By staggering the provisional application filings, you can add all the major milestones throughout the innovation lifecycle as you find ways to go from concept to market. This enables you to pick and choose applications based on what works with users and what doesn’t.

Conclusion

With continuous provisional filing, you will have a much better sense of your IP coverage, the industries, the market players and what strategies make sense to your business. Continuous filing and a comprehensive strategy virtually ensures higher quality filings and stronger patent portfolios. For example, if you plan to exit in the 1–3 year span, no matter what your product is, staggering quality provisionals to keep the dates rolling and keeping IP in stealth might be the best strategy.

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