Startups are extremely busy. As a result, protecting their assets can take a backseat. I hear it firsthand all the time. “Intellectual property? Oh, our attorneys are handling that.”
Huh? Leaving the responsibility of crafting an intellectual property strategy up to your legal team alone is a mistake. To be of value, the intellectual property you file must support your business objectives, the specifics of which you — and only you — can determine.
The evidence is clear: Technology startups that file early raise more money.
So, how do you go about creating a patent strategy for your startup?
First, by thinking big-picture.
The question Samar Shah asks of startups that consult with him right off the bat is: At the end of the day, what’s your goal?
Shah is a patent attorney who works with technology startups and has represented established companies like Facebook and Blackberry in patent prosecution and litigation.
“If it’s to grow your company based on sales made without ever seeking investors, you might decide to pass on patent protection,” Shah explained. Historically, patents have been thought of as a way to exclude competitors. Because patent lawsuits have become so expensive, litigation is no longer a viable option except for those with very deep pockets.
Most startups don’t know whether they should file for a patent or not. To help answer that question, Shah turns to the data. First, he identifies who the most active investors in the vertical are. Then, he considers the rate at which companies in their portfolios file patents. Regression analysis gives him some insight into how much patents improve the valuation of companies in the space.
“In some verticals, no one is patenting. In others, patents make a huge difference,” Shah explained, pointing me towards research published in 2015 that estimates tech startups receive $530,000 more per additional patent. Wow.
Then there’s the question of what to patent. Shah analyzes the patent landscape for his clients through the use of key words. Where are patents in the vertical clustered? Where are leading companies focusing their efforts? How swiftly is new innovation emerging?
“I try to see if we can carve out a white space,” Shah said. “Instead of being the fifth patent in a sub-field, can we occupy the white space that surrounds these other patents? To the extent that we can, we mold our patents to fit into those white spaces.”
This way, you hone in on a point of difference while looking to the future. I love that.
If your goal is to be acquired, Shah recommends studying the patents filed by your ideal acquirers to see if you can create some synergies. In doing so, you will improve the attractiveness of your portfolio.
The exit piece is the name of the game, he summarized. How could it not be? A ‘shotgun’ approach to your IP isn’t going to cut it.
Yes, most startups have a limited budget. But that doesn’t mean you cannot craft a well-thought-out patent strategy.
There are many tools available for you to tell your story, and thus sell your innovation to investors. In my opinion, a provisional patent application is one of the best.
I could sing the benefits of provisional patent applications all day long. To name a couple: They cost just $70 to file with the United States Patent and Trademark Office and allow you to describe your invention as patent-pending for one year.
In my experience, well-written provisional patent applications practically sell themselves.
And technology startup investors prefer them, and not non-provisional patent applications, to be filed early. Research by Celia Lerman, an intellectual property lawyer in California and Argentina who is on the faculty of Torcuato Di Tella law school, confirms it.
In the concluding section of her empirical study Patent Strategies of Technology Startups, she poses an interesting question.
“So if early patents may help a company obtain more funding, why do many well-known investors recommend not patenting early on?”
Lerman reminds us that investors seem to be mostly concerned about early sales, market penetration and product usage before providing a simple reconciliation: The use of provisional patent applications.
“Investors may be less opposed to cheaper patenting options such as provisional patent applications. In this line, investors may look with better eyes at provisional patent applications that serve to postpone the final patenting decision for a year. After this period, the startup may be in a better position to decide whether a non-provisional utility patent would be worth for the company.”
Which makes sense. According to IPCheckups, a Berkeley-based patent strategy and analytics firm, over the course of a patent’s lifetime (20 years) a company will generally need to spend $1 million on application fees, attorney fees, and renewal fees.
Of course investors want you to spend some time determining what to protect from a market standpoint. You can’t protect everything.
I think inventors are capable of writing their own provisional patent applications. You will need the help of legal professionals at some point, for sure. The question is when? To succeed, you will need to direct the efforts of your patent attorney in accordance with your business objectives. So, it’s never a bad to write your own provisional patent application first — doing so will be useful to you later on.
Shah recommends spending at least half of your time thinking and strategizing about what your invention is. Then get to writing.
“Generally, I think inventors who write their own provisional patent applications sometimes jump the gun and start writing too early. They’re excited, they want to get it filed, but they haven’t thought through the ramifications and variations of their invention,” he said.
I agree with Shah. Don’t make that mistake. Intellectual property that describes variations is not only more attractive to investors. Should you decide to file a non-provisional patent application, it is more likely to be issued by the USPTO and withstand future legal trouble.
“By showing how your patent differs from current technologies in your patent application, you show the patent examiner (and courts in future litigation) that you have done your due diligence and conscientiously made an effort to innovate,” Lili Li of IPCheckups confirms in a blog post.
Here are some additional tips on writing provisional patent applications that you can use to raise money for your startup.
Study the marketplace. Become an expert in your micro-category.
Write out the lifecycle of your invention. From start to finish: How it is built? How would someone use it? What are the end results? What you can establish perceived ownership over is amazing. Sometimes even the most miniscule of details can be important. Don’t forget to include manufacturing methods and methods of doing business in addition to your invention.
Understand how your technology will be manufactured. This can be of huge benefit, especially if you’re doing something that has never done before. Because this information is extremely practical, it gives your IP credibility and value. The insights you gain could help you protect the little details.
Build a prototype. Discover what works and what does not. You might identify aspects of your technology that are not useful for your overall vision, but could be licensed out as an additional source of revenue. List every component.
Try to workaround yourself. How would you do it?
Include many drawings and label them thoroughly. You’re less likely to miss something important.
Stay current by attend trade shows and reading trade magazines. This is a no-brainer.
Don’t forget about methods of doing business. These can also be patented. If your business is doing something in a new way — a way that hasn’t been done before — that can be hugely valuable intellectual property wise. Tech startups should always consult with a patent attorney who specializes in their field for this reason.
Moving forward, I will be writing about intellectual property strategy for software startups specifically.
Originally published on Forbes.com May 31st 2018.
