Thursday, 2nd July, 2015

Reasons to consider filing a patent when you don't have a crystal ball

I often get asked if it is worth filing a patent for a new innovation. The answer to that is 'it depends'. It largely depends on your business strategy. In many instances it's like saying, 'will I need car insurance?'. Well that depends, right?  Unfortunately at the time you need to file your patent application, many of the answers to that question can only be found in a crystal ball, especially for start-ups that may still be in the R&D or market validation stage.

Think about your IP strategy before you disclose your idea publically

The patent process needs to be commenced before there is any public disclosure of an idea or before there is some commercial use of that idea.

Assuming that a patent is the right form of IP to protect the idea and trade secret protection isn't, then a decision on whether to chase a patent needs to be made before publication or commercial use of the idea.

There are some exceptions to this rule. In the USA and Australia you can file a patent application within one year of first publication or sale.

As we know, a crystal ball can deliver some amazing insights into the future. While I don't have a crystal ball, I do have 21 years' experience helping entrepreneurs and business owners identify and protect their IP. This has taught me and my clients that it's important to cast an eye to the future and look for all possible reasons why having a patent for an important innovation may be of value to your company. Taking the time to do this will also help understand why not to use patent protection, such as: your idea is not new, you can't afford it at this stage but maybe you can for your next development, your sector is too fast moving for patent protection to match it and your first mover advantage is by far the biggest competitive advantage, or your product only has limited application or market potential etc.

Common reasons for filing a patent

Working with my clients it's important to understand their business strategy to know what role that IP can play in driving commercial value. While there may be good reasons to not file a patent, there are also many bigger picture reasons to file a patent. Here are a few to consider:

  • A patent gives you exclusive rights to exploit your idea for 20 years. Companies like Fisher and Paykel Appliances have adopted this approach to help keep competitors from making the SmartDrive electric motor for 20 years. Will you, or whomever may own you in the future, value this potentially huge commercial advantage?
  • Exclusivity can help you increase market share. You may gain a monopoly and prevent others from commercially using your technology, reducing competition.
  • A patent can help protect you when expanding into international markets.
  • Patents can provide pricing flexibility with new technologies. Premium pricing can be a big driver of the ROI equation for IP.
  • Often, patents can represent an 'annoyance factor' for competitors who have to design around your patent at their cost. I have spent a lot of time working with my clients trying to design around patents of competitors. Those competitors have no idea that their patent is acting as a showstopper or causing huge headaches in product redesign. When I hear people say that only 5% of patents are ever commercialised, I realise that they are talking about a very narrow meaning of 'commercialised'.
  • Patent protection can support a manufacturing agreement.
  • Patent protection can result in higher returns on investment from commercialisation, helping to offset research and development costs.
  • Patents can enable you to license or sell the invention, allowing you to gain a source of income even if you don't commercialise it yourself. You may be a David, but Goliath will be wary of the prospect that you can sell or license your IP to their biggest competitor. This type of scenario often arises in the start-up scene where a sale or licence is your typical exit strategy.
  • Patents can be useful for defensive purposes – they provide leverage to support cross-licensing, or they can be used to threaten counter-suits for infringement.
  • Some IP protection is better than no protection. Patents can provide an additional layer of protection around your products. With current computer and manufacturing technology, competitors are now only months, if not weeks behind, in copying good ideas.
  • Patents add support for contractual agreements that require some form of IP position.
  • Patents contribute to your asset base, supporting the sale of the business. You look good to potential purchasers if you can offer them an IP position against their competition.
  • Patents provide validation to potential investors and joint venture partners that you have a unique idea or technology.
  • A patent demonstrates high levels of expertise, specialisation and technological capacity to shareholders and business partners, enhancing your external image and investability.
  • Securing patent protection can provide strong internal motivation for teams, scientists, researchers, and others involved in the innovation process.

Assuming that you have an exit strategy in mind, you also need to consider these points from the point of view of your exit targets. Ask, 'what reasons will they want to have a patent position for?'

The final word

As time passes, you will gain more clarity about the value and role of your IP, and have to rely less and less on a crystal ball. The value of a patent application as a form of insurance will, over time, become better understood.

Don't be put off by the scare-mongering of some commentators who suggest you'll be wasting your time or money to consider patent protection for new innovations. The patent process can be started at a relatively low cost and low risk. You are typically talking about NZ$5-8k for the first 12 months and another $10k or so at the 12 month stage to have a patent pending and international rights reserved for a total of 30 months. For complex innovations, costs can be higher. So while it's not cheap to secure patent protection, it can provide good insurance to back your business value and provide more opportunities in the long run.  You can always pull out of the process.

If you're still not sure, drop me an email. Or contact me to arrange a chat (bring coffee and you will get my time for free).

Disclaimer:
Because situations differ, the above must not be used as a substitute to seeking professional legal advice.

*This was originally posted on The Icehouse website.