Sometimes. It all depends on your business objectives.
In some industries, patents are absolutely critical. But in far more they are not.
It’s a well-known fact that a vast majority of patents are worthless. Around 97% of all patents never recoup the cost of filing them. That figure has been floating around for years. There’s other compelling evidence.
On his website Patently-O, Dennis Crouch, the co-director of the Center for Intellectual Property & Entrepreneurship at the University of Missouri School of Law, points out that about 50% of patents expire prematurely because their owners decline to pay the required maintenance fees.
Patents filed by research universities rarely end up generating revenue. In fact, fewer than 20% of technology transfer offices break even.
It’s extremely difficult to quantify the true value of invention and how costs are recouped. (And indeed, some argue that the business model of technology transfer is actually to ‘create impact.’)
But, it’s also safe to assume it's very low.
These statistics are readily available, but entrepreneurs continue to misperceive how filing intellectual property can be beneficial to them. Contrary to popular belief, a patent does not protect your technology from being infringed upon by a competitor. It merely affords you with legal recourse in the event that someone does. Congratulations! You can sue.
Silicon Valley patent attorney Damon Kali, whom I have known for many years, puts it to his clients this way.
“A patent gives you a seat at the table, both offensively and defensively. That’s it. In other words, a patent gets you some relevance and some leverage. How much relevance and leverage depends on how you play your hand and how deep your pockets are.”
If you intend on enforcing your patent rights in court, plan on spending three to five years. Getting to a judgment — any judgment — costs millions of dollars these days. Unfortunately, recent changes to our patent system have made the process of defending one’s intellectual property even lengthier and more costly, which the intellectual property law blog IPWatchdog has detailed at length.
Simply put: Most small businesses and startups don't have the time or the financial resources to defend their intellectual property. Apple continues to fight Samsung in court five years after a jury awarded the company one billion dollars in damages over patents.
You may be able to deter others from working around by building a ‘wall’ of intellectual property around your technology. But most patents are written far too narrowly for that to be the case. With a little effort, they are easily worked around.
Patent attorneys are keen to liken patents to real estate property. That’s wishful thinking. At best you can establish perceived ownership over an idea. But you never actually own anything. That’s the conclusion I reached after watching my Silicon Valley patent attorneys spar against the toy company Lego in federal court. After three long years, we settled two weeks before trial. I learned firsthand that patents are just words subject to interpretation by judges, juries and patent examiners. Patents that are virtually identical are issued all the time, further confounding the situation.
Of course, powerful companies can use their expansive patent portfolios and team of attorneys to stop smaller competitors that do not have the ability to defend themselves.
Let’s examine a few scenarios in which having a patent may be beneficial.
1. Licensing a consumer product idea. If you have an idea for a new consumer product that you want to license, should you bother patenting it? I wouldn’t. The typical lifespan of consumer products today is about 18 months. Sure, there are evergreen products that keep on selling year after year. But those are few and far between. A well-written provisional patent application that establishes perceived ownership is enough. You can negotiate having your licensee pay for a non-provisional patent application to be filed moving forward, which is why this strategy is so savvy.
Companies that embrace open innovation are realistic. If you’re a market leader that has great distribution and longstanding relationships with retailers, what do you care? Pursuing copycats is expensive, not to mention impossible. Good luck protecting an invention with a single patent! Have you met an engineer? They are extremely clever.
It’s about selling, not protection. For ideas like these, being first to market is a much better form of protection than a patent.
2. Licensing an innovation/complex idea. When you are attempting to license an innovation that requires a significant amount of time and capital to bring to market, having patents becomes extremely important. There’s so much more at stake. Keeping your competition at bay will allow you to recoup your expenses much more quickly. So, you will absolutely need a strategy for how you will file intellectual property that aligns with your business objectives.
In reality, you will need a fortress of intellectual property. Meaning: Patents, trademarks, copyrights, trade secrets and so on. What’s even more important is that you keep innovating and keep filing intellectual property. You must consider all of the ways you can use intellectual property strategically, including the possibility of licensing out something you have invented or licensing in another technology.
To retain perceived ownership over an innovation (as opposed to an invention) you will need access to capital and a strong patent portfolio. A portfolio like that sends a clear message: That it is easier and wiser for others to work with and not against you.
At most between 90 and 112 patent infringement cases actually make it to trial in the United States each year, reveals David Pridham. A well-thought portfolio can keep you out of court.
Gear up for the long haul, and be patient!
3. Owning a small business. You need a point of a difference and a competitive edge. Who doesn't? Patents can help. They convey the message that your innovation is important enough to warrant a patent. Preventing copycats and others from working around you is difficult with or without a patent. Smaller companies may think twice about it, but those that are seasoned and have a clear understanding of patent law won’t. The sad reality is a patent is only as worthwhile as your willingness to defend it. Small business owners and entrepreneurs are besieged with online infringers. Having patent protection means you can go after them. I remember what that fight was like. It was a daily battle! Looking back, it might have been a waste of time.
In my experience, it’s really the other components of your business strategy — not patents — that enable you to hold copycats at bay. After thirty years as an entrepreneur, I think your best protection is to have a quality product and outstanding customer service. Because most retailers will not carry an inferior ‘me too’ product, establishing good working relationships with them is crucial.
Be original. Keep innovating. And don’t rely on patents to protect you.
4. Forming a startup. Startups that file early raise the most capital. So, beginning to file intellectual property on your assets is critical. This can be done in many ways, including provisional patent applications, trademarks, copyrights and even trade secrets. To get people to invest in your startup, you will need to take away the fear that your concept is not new or novel. You can use the intellectual property you file to establish your competitive edge, which investors will greatly appreciate.
Big-picture wise, your IP strategy can be used to paint a picture of your current technology/business model and its future. This is your roadmap to success, which will also help you build partnerships with vendors and suppliers.
To be clear, it’s not the mere possession of a patent that helps startups become successful — it’s the funds they raise. Don’t try to raise money primarily on the basis of your patents. They’re just one way of tipping the scales in your favor.
Patents can be valuable, but they are far from the only tool in your toolbox. I have successfully used intellectual property to profit in each of the above scenarios.