This article aims to present some fundamentals of patents for tech based startups. While a startup should be aware of other forms of intellectual property like copyright, industrial design rights, trademarks, plant variety rights, trade dress, and trade secrets, this article focuses on patents.
Image credit "ShutterStock"
A patent gives you the ability to exclude others from using the invention for a limited period of time. Hence, you get the ability to license the technology and decide how the invention can be used and by whom, during the period of exclusivity. This type of exclusivity needs to be carefully protected, and startups need a good coach who can help them navigate the complexity, including type of patent rights (utility patents, business method patents, and design patents), the procedure for patent applications and prosecution, the rights offered and the requirements in different patent jurisdictions, and most importantly the timing and content.
A patent application consists of several sections – abstract, specifications, drawings, and claims. The meat of the application is the ‘patent claims.’ A claim defines the skeleton around which the technology solution can be built – hence it should be looked as the bare minimum description of your invention that captures patentability requirements – namely novelty, usefulness, and non-obviousness.
Startups should actively sense changes with respect to policy and guideline with respect to IP. For example, India’s new (very recent) patent guidelines for the first time declare software patents and business methods patentable, which is of serious significance to startups here in India, they should be cautious from infringement point of view. The exclusivity from the patent office comes at a cost – the patent application with all relevant details is published – this allows others working in the same area to benefit from the current state of the art and continue to build upon it. Does that explain why Coca-Cola hasn’t patented the recipe for its most famous drinks?
Patents are expensive and time-consuming, so startups need to understand the trade-off in filing for a patent versus exploring other types of IP or business protection. A patent provides its holder with a legal right to monopoly on use or sale of the invention in the country where the patent rights have been granted. This right can be leveraged to gain competitive advantage and exclusivity, and to avoid the risk of being exposed to assertions of IP infringements from third parties and competitors.
If you are wondering whether your technology is worthy of a patent, here is a quick checklist to guide you:
If your invention(s) meets one or more of these criteria you should seek legal advice to decide on a patent strategy. Patents can serve many mid-term to long-term goals for a technology company.
Patents as sword: Offensive IP strategy: Patents that are registered with view to enforce them to generate royalties or to exclude competitors is addressed as an offensive IP strategy. Many pharmaceutical companies use offensive patent portfolios to protect new drugs they bring to market to ensure market exclusivity for a time to gain return on their investment, establish market share, and earn profits. (Apple Inc. was able to exclude Samsung products from some markets through court injunctions, etc., as part of an offensive patent strategy.)
Patents as cash cow: collaborative, valuation, licensing opportunities: Patents could be used as revenue generating tools from licensing opportunities, generate increased valuation during funding and acquisition conversations, and could be used for collaborative opportunities. A robust patent portfolio could return 25X of investments in patents during acquisitions. While startups in India have typically shied away from patents, there is an increasing awareness of the value patents can bring both from the market and fund-raising perspectives. A ‘patent pending’ tag and a registered trademark for a product name would benefit a startup to attract investors, advertise, and to promote the brand early in the business cycle. Also, a unique product could command a premium market price, having a significant impact on the bottom line.
Patents as shield: Defensive IP strategy: Heard of nuclear deterrence? Well, the same thing might apply to patents in some cases. A lot of patent deals in high-tech spaces involve cross-licensing – where each party provides access to some of their patents in return for a similar license. Startups could build a patent portfolio with the intention of negotiating more favourable licensing terms and/or defending the company against patent infringement lawsuits.
(Google’s acquisition of Motorola Mobility for the latter’s patents surrounding Android mobile operating system was considered a defensive move, as it bought a struggling handset maker because of its highly valuable patents and technology in an area surrounding the Google Android operating system.)
A simple straightforward answer to when to consider IPR protection for a startup is “as early as possible.” Once a technology has been made public – directly (publication) or indirectly (for example, through marketing) it might no longer be defensible as a patent. Hence, businesses might be better served by filing a patent early during the lifecycle of the technology. Also, priority date of the application is an important aspect in determining novelty of the technology. A provisional patent application can be filed early on to lay claim to an early priority date, while keeping the upfront cost of drafting and filing a patent low.
Patents are location-restricted and the costs involved in having a broad geographical coverage for IP are very high. It is very important for startups to understand where their market lies and address those geographies for patent coverage. A PCT application is an important tool when deciding geographic coverage – it gives the applicant 30 months to choose what geographies he/she would like to pursue the patent. When making patent-related decisions, startups should keep in mind that a patent term is typically 20 years, and hence decisions should be made with a long term view of the technology and its commercial potential.
[A Bangalore-based startup – LinkSmart technologies has used a broad geographic coverage for their patent portfolio to give them strategic market access and optionality. LinkSmart has developed a single point smart labelling solution to address tampering and counterfeiting problems while also offering tracking and remote monitoring enablement. Given the broad scope of the technology both in terms of application areas and geographies, LinkSmart understood that a strong patent portfolio could give them leverage to enter different markets on their own or through other partners with existing distribution and marketing channels. Today Linksmart’s smartDNATM technology has optimal patent coverage both in terms of claims and geography and has a robust product that would serve industries as diverse as logistics, storage, retail, e-commerce, pharma, automobiles, and electronics. Intellectual Ventures has partnered with and invested in LinkSmart’s technology and patent portfolio to strengthen their patent and market position.]
Startups should start thinking about their patent strategy early on. It can have a cascading effect on various seemingly unrelated aspects of their business including – budgeting, fund-raising, product launch, market entry and manufacturing tie-ups.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory)