There are plenty of articles out there written by patent attorneys about the legal reasons for filing a patent. There are also many articles on the misuse and abuse of the patent system, particularly in the area of software, which this author happens to agree with. However, this article is meant to cover the under reported business reasons why an inventor or small business may decide to patent their new idea.
Filing a patent is not cheap. The typically cost of a full non-provisional patent application is around $7,500 (including attorney fees) and that number can easily double in certain technology areas like software and biotechnology. So why make this large investment at a time when money and resources may be at a premium? A patent attorney may say that the value of filing a patent is the ability to stop other people from infringing on an invention. My former boss (an old patent lawyer) used to joke and say “a patent is nothing more than your ticket to sue someone” and there are no doubt hundreds of business school text books which define a patent in a similar but more elegant fashion. However, this benefit may only be realized many years in the future and often requires hundreds of thousands of dollars in attorney fees (patents are not self enforcing so a law firm must be paid for this costly service). What many fail to understand is that there are important business (non-legal) benefits to filing a patent. Many of these benefits can be realized immediately upon filing.
Patents can be used as a valuable asset (investors love them)
In business school we spent entire semesters learning about company assets and liabilities but the examples given were routinely boring and included things like plants, property, equipment, and inventory. The greatest asset an entrepreneur may have is his or her own idea but it is difficult to categorize that idea as an asset without a form of legal protection. Patents and pending patent applications can be sold or transferred just like any other tangible asset. Of particular value to entrepreneurs and start-up companies, a patent can be used to raise money. One of the more frequent questions on the hit ABC show Shark Tank is “What’s your IP protection?” or “Have you filed a patent on that?” Investors want to invest in more than just an inventor and their great idea, they need to know there is an underlying asset and protection behind the idea which could eventually be sold or transferred for money or even be used to stop competition.
Patents can be used for marketing
There are many clever ways to use a patent or pending patent application for marketing purposes. Simply labeling a product as “Patent Pending” or placing that tagline on a website has tremendous value. It instantly buys credibility in the marketplace and may even frighten or delay some competition from launching similar products or services. Customers and investors may see that a patent was filed and assume a company is doing something new and cutting edge leading them to choose that company’s products or services over another’s.
Patents can provide leverage in an established market space
Perhaps the number one reason why companies like Apple, Samsung, and Google are busy buying or filing thousands of patents each year is to leverage those patent rights against other players within the market. In order to survive and thrive in the market space, they each need the ability to cross-license those patent rights to each other and avoid costly patent litigation. For the smaller firm or entrepreneur starting out, their patents may give them a seat at the table with other more established players allowing them to use their patents as shield or as a cross licensing tool to avoid being sued.
Patents are more than just a legal document. They should be a key part of any new technology company’s business plan and can be used to raise money, differentiate a new product or service, and lead to power and credibility within an established market.
About the author:
Brad Fach is the creator of the patent filing website patentfile.org. He is a registered patent agent with the US Patent and Trademark Office and has over 13 years of patent filing and IP management experience. Brad holds undergraduate and graduate degrees in biotechnology plus a MBA from the Johns Hopkins University. Brad is the founder of three start-up companies, serves as a mentor for early stage technology companies, and a judge for local business plan competitions in the Charlotte, NC region.