18 May 2017

Developing commercial value through IP - patently obvious?

Our checklist aims to help start-ups identify the best course of action when it comes to whether or not to patent their idea.

Start-ups can live or die by their ‘idea’. Protecting the ‘idea’ is an obvious step, but it might not be the best commercial decision. A wider intellectual property (IP) strategy and a rigorous approach to understanding its commercial value is recommended to progress a company along the business lifecycle successfully.

To help identify the best course of action, here is our checklist with reasons to patent, and reasons not to.

Reasons to patent

  • Patents can be monetised, through sale or licensing.
  • Patents protect against others damaging the business.
  • Investors look at patents as a valuable property right.
  • Patent protection reduces litigation exposure to patent trolls, who may target your company when it becomes profitable.
  • Patents can make it easier for a start-up to raise funding.
  • Owning patents can facilitate joint ventures and partnerships.
  • Owning patents can enhance the reputation of the business.
  • A company’s patent portfolio is a key asset that potential investors assess when deciding whether to invest.
  • Protecting a company's core ‘ideas’ maximises the exit value for shareholders.

Protecting your idea or invention may seem like the obvious next step, but is it always the right thing to do? Deciding not to patent can sometimes be a good decision, and if you adopt a ruthlessly commercial approach it may pay dividends later.

Reasons not to patent

  • The idea you are patenting has no commercial merit. Don’t file a patent solely because you are afraid that someone will copy or steal it. Only good ideas are stolen (and not bad ones), so make sure your idea has real commercial merit before you use scarce financial resources filing a patent.
  • The idea you are patenting is not inventive and won’t get approved.
  • You don’t have to own patents to prove that you are an entrepreneur or an inventor, so don’t let ego or vanity cloud your decision making.
  • Investors need more than patents. Patents may protect an idea but they don’t guarantee that customers want the product or service that exploits the patented technology. Building a business requires a coherent IP strategy which incorporates all the IP and intangible assets that constitute a brand.
  • It’s better to focus on the brand. Less than 1% of all products sold have patent protection, however, most (if not all) successful businesses have a brand.
  • Protection comes at a price. Having a patent issued protects your rights as the creator/inventor and it may help deter others from attempting to steal your idea. Patent infringement, however, is not a criminal offence and if you want to enforce your rights you will have to commence civil proceedings, which is not cheap.
  • Filing for a patent involves disclosing your idea, which might make it easier for others to develop competing products and services.
  • It may be preferable to exploit the idea as a trade secret, which are protected by nondisclosure agreements and employment law. Trade secrets also don’t require public disclosure and are free from the obligation to pay the costs of filing and annual renewal.
  • Patenting the idea restricts the growth of the market and limits the commercial opportunity to develop secondary products, which can exploit the universal adoption of a particular technology.

So, what’s the answer?

It depends. Generally, filing patents is the best route if your product is based on an idea that can be viably patented, the demand for the product is proven and protection is likely to prevent more revenue diversion than the cost of enforcement.

Often, however, it’s a question of timing. Companies with expensive R&D investment prior to the product development have little choice but to file for patent protection as soon as viable. However, for companies with limited start-up capital and competing demands for cash, their initial priorities are likely to be proof of concept to secure further funding and increase the speed to market.

It’s a simplistic answer to a complex question – file for patents when the value in having it outweighs the cost and not before.

To discuss any of the issues raised in this article or the development of your IP strategy, please contact us. 

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