in Resources

When should startups pursue a patent strategy?

[Editor’s note: This is a guest post by Bob Stratton and Andrew Currier of PCK IP  about patents and patent strategy for Canadian startups. And while “traction is the new IP”, this is one very cost effective strategy for startups, but is it the right one for you? ]

Seriously, patents? Are patents really an effective strategy for startups? It’s an almost Shakespearean dilemma for founders, to patent or not to patent.

There is a real tension between the long term benefit which must be balanced against the short term need to manage cash burn carefully and the management time required for a successful patent program and the immediate need for focus on getting product out the door.

Understandably, early in the corporate development lifecycle most startups choose to focus on building and shipping product and growing traction and revenues. We’ve heard that traction is the new IP. There are unintended consequences to this decision, that founders need to be aware of that have impact on the business down the road.

The refusal to even consider patents can be left for another conversation.

We present an analytical approach for founders to consider performing an upfront analysis of: “Are patents an important part of my business plan?? and “When do I start pursuing a patent strategy?”. Here are some starting points.

Timing is Critical

There are a couple of unpleasant patent facts that we must be considered:

  1. If you disclose the invention before filing a patent application, you lose the ability to patent it in most of the world.  (A short list of countries, including Canada and the US, forgive your prior disclosure for as long as a year, and let you still file a patent application before the expiry of that year);Prior disclosure is an issue because you may have to disclose your invention to a variety of people such as investors, potential customers, suppliers, etc. – who refuse to sign a non-disclosure agreement.It is also an issue because your successful launch of your product/service is a disclosure.
  2. The first inventor who files an application at the patent office blocks any subsequent inventor who files for the same invention.First to file is an issue as someone else can beat you to the patent office, at best blocking you from filing your application and at worst blocking you from running your business.  It actually happens that two or more people independently invent the same thing at roughly the same time, especially in the tech space wherein technological advances may suddenly enable a new product or business.

In view of (a) and (b), pretty clearly the correct answer is to file “as soon as possible”, but patents cost money and start ups, in particular, should defer expenditures as long as possible until their valuation has increased, to make raising money less expensive.  Again the short term and long term are at odds with each other.

Patents Cost Money, Defer or Spend?

So, what do you do?  It depends? Or there is no easy answer. It requires a founder to be able to use their experience and interpret the market signals to make informed decisions about spend.

Our suggested set of analytic steps is:

  1. Determine which aspects of your product/device/system/business might be patentable.
  2. Determine which of those aspects might be worth patenting from a business perspective.
  3. Determine when those patentable aspects will be first disclosed.
  4. Determine when you can afford to file patents.
  5. Compare 1, 2, 3 and 4 to identify critical dates (disclosure of invention vs. available funding) and decide what to file and when.

Unfortunately steps 1-5 sound simple, but of course there is a fair amount of dependency upon specific fact situations.

For example, you may have several possible inventions identified at step 1, but whether they provide a commercially significant advantage to your business (step 2) will vary widely and can be hard to predict given that your goal is to create an entirely new market and how that market unfolds is not predictable with complete confidence.   You may also require some professional advice to help with step 1, as it is not always straightforward to identify developments which are patentable from those which are merely clever.

For step 2, some inventions may have a limited useful lifetime: e.g. the first implementation is web-based, but you expect that most of your revenue will be generated from a custom mobile app – once you can build and deploy it.  So, you may forgo protecting the web-based version to save the expense, knowing that you are leaving the possibility of web-based competitors in the future. Other fact-specific scenarios abound.

Depending on the outcomes of steps 1, 2, and 3, step 4 can be made somewhat easier by deciding upon an appropriate filing strategy to manage the trade-offs between expenditures and protections.  For example, you may decide to limit the countries in which you file for patent protection and/or you may decide to “beat” a disclosure by filing a provisional patent application, rather than a complete application, to reduce immediate costs.

You may also identify, at step 2, different classes of inventions: i.e. – those which are fundamental to your business and which should be patented as broadly as possible/reasonable and those which are mere “nice to haves” which can be deferred or allowed to be lost to manage costs.

Seek Informed Advice

We believe that the patent analysis is really just an adjunct to the kind of big-picture business case analysis that is necessary to achieve long term success.  Founders must know their market and have the vision to see that their startup investment has a real potential of a long term payoff.

Founders are already faced with complex crystal ball gazing business decisions such as: What is my product road map? What investment do I need? Who should be on my management team? How can I monetize my product? Who is my competition?  Where founders don’t know the answer to these questions they seek out a number of excellent, unbiased resources to help them.  A patent analysis can be added to the other analyses both at the outset and at each milestone, and the results fed back into the planning process to best manage the path to immediate and to long term success.

Reach out to Andrew or Bob for a conversation about your startup.

  • http://davidcrow.ca/ davidcrow

    @startupcfo:disqus put together a great IP 101 for entrepreneurs back in 2010 when he was VC.

    http://www.startupcfo.ca/2010/11/ip-101-for-startups/

    I think slide 23 is my favourite. The categories of IP and their relative usefulness vs costs. Patents are expensive and not particularly useful early in a companies lifecycle. But they can be very useful as a company matures. What I like about the view espoused by Bob and Andrew is making an informed decision about the tradeoffs. The argument is not that patents make sense at every point for every startup. But that as a founder you need to understand the tradeoffs and risks to a business of certain behaviours (or the lack of behaviours).