Is it that important to patent my inventions...?
Statistically, new patents and economy growth are related subjects. The innovation curves of enterprises show new hundreds of patents every year which go hand by hand with the growth of their capital. Furthermore, the number of patents granted per capita in San Francisco nearly doubled between 2011 and 2014. VC investments for the region exceeded 2014 totals by $4.7 billion, reaching $24.5 billion.
Even the US Constitution empowers the Congress to secure authors and Inventors by establishing a patent system. In this capital driven environment, one of the interesting doubts that are sometimes heard is: How to appropriate the value of the intellectual property rights in young technology companies.
Young Companies
One of the thing to consider is the business goal and the market challenge the company is facing with. A small, young and privately held company may not have the same approach as a company facing an “exit” event whether by IPO or by M&A. The younger company (usually before the “First Round”) may need to attract investors and demonstrate a significant value over other entrants. For such young companies defending the IP can contribute number of particular cases.
· Raising the market entrance cost and thereby reducing the number of competitors receiving funding from investors. The patent portfolio doesn’t need to disclose everything, but should disclose the appropriate parts preventing new entrants from making the effort to penetrate into yours market segment
· Clear the uncertainty – The uncertainty of the firm’s future profit is high. Licensing the protected IP is one of the significant options the firm has in order to appropriate the value of these inventions
· Cross-licensing - Young companies may be able to use their protected IP in cross-licensing negotiations to defend themselves against litigation, or more generally to obtain better terms in any licensing negotiation. This act may also help to reduce the uncertainty level which help when negotiating with investors
· Partnership – Protected IP is a needed asset when partnership is discussed. Unlike the NDA which is very hard to enforce and puts unnecessary burden on your partners. The protected IP defenses your products and allows the company and its partners to be the only entities which can commercialize the inventions.
Does it really help?
Patent allowance plays a particularly important role for technologies with longer technology life cycles or that lack alternative appropriation mechanisms such as copyright, reputation, or brokers.
Understanding of the existing patents at moment of birth of the company may help you to better define your technology and business approach. Studies show that rich patent environments result in delays in receiving funding by the competitors. On the other hand, firms that have higher numbers of their own patents are more likely to receive funding from outside investors.
A robust patent strategy enables new ventures to license their way into the market. At the end of the day, the licensed and protected inventions serve the client better and provide attractive products which can be positioned at the front of the competition.
Last but not least, studies show the importance of building patent portfolios to facilitate capital investments, and in the future, significantly increasing the likelihood of successful exit events such as initial public offerings or acquisitions by other firms.
Conclusion
Patents are means which can be utilized to appropriate the value from the innovation. Studies show a strong relationship between the likelihood of successful exit event and the ability of a company to patent its invention. This advantage is significant and sometime decisive with young companies, particularly when alternative appropriation mechanisms such as copyright, reputation, or brokers are not around.
The value of a patent portfolio for a young company (before the first round) is enormous and can be utilized in different business scenarios associated with diverse business objectives. Statistically, a high quality of patent portfolio increases the ability of a young company to succeed.
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