Patents play a critical role during every stage of any organisation. However, it has a specific importance when it comes to startup. To explore it further, let us first understand startup.
What is Startup?
Webster Dictionary of English – Definition of start-up – a fledgling business enterprise.
To me, startup is a nascent, young, yet to be validated business, driven by cross-functional team with finite funds, to sell few prototype products or services to the targeted customer base.
Startup is about facing dynamically changing challenges routinely and overcoming them in a reasonably successful manner at first or later attempt with a mission to finally succeed. With everything, starting from product to people, business model, marketing and so on, in primary phase, and competition from peers, startup needs differentiators. This may come from the primary phase activity as earlier. One such differentiator may be patent.
Why patenting activity?
Patents brings monopoly for its owners to exclusively market patented product.
A patent for an innovation, grants an exclusive right to the owner of the patent, to prevent others from making, using, importing, selling an invention granted in a patent. Inventions here relate to a creative idea for a process of manufacturing a product or for a product itself. An improvement on an existing product may also be patented.
The term of patent protection lasts for 20 years after which the inventions or works they cover is into public domain wherein it is free for everyone to use. Term of the patent may vary in certain countries. Term of the patent is subject to timely payment of maintenance fees.
Patents adds to the valuation of the company.
Patents are the intangible assets and valued based on factors such as cost, market and income to specifically estimate economic difference it brings to the organisation esp. extent of monopoly. Post valuation, patents being assets are part of the organisation’s balance sheet. A strong patent can raise book value of the company exponentially and this can be a game changer in the early stages of a startup.
Patents attracts investors and accelerates fund raising.
Patents award right to exclude others from making, using, selling, importing patented invention. Investors are the people or group of people or organisations looking to shell out funds with the goal of high return on investment. Monopoly attached to patent may bring revenue visibility to the organisation to relative greater extent in comparison to organisation without patent. Revenue visibility reduces the investment risk attached with the funding.
Patents helps in acquisition or partnership.
One of the major reasons for the acquisition or partnership by any organisation is synergy of potential target acquisition or partnership company with its current business goals. Companies with the patent rights are preferred when in synergy with partnership or acquisition goals due to its exclusive marketing rights. In some cases, big organisation while on sprint to their business goals are compelled to acquire or partner strategically important product or component firms. Startup entrepreneurs planning to exit may gain when faced with such synergy opportunity .
Patents gives opportunity for global exposure and visibility.
Patents are territorial rights. They are granted relatively on assessment of known knowledge in the area of applied invention. This evaluation is performed by running worldwide searches. Once a patent is filed in one country, applicant can choose to file in each country of commercial interest. Patent as assets can be sold or licensed for royalty to potential partner or acquirer. This brings strategic global presence and partnership opportunity.
Patents helps in case of future cross-licensing or infringement.
Every innovative organisation follows continued practise of patenting activities. They protect new inventions in the form of patents. In today’s competitive world, multiple companies are working on same or similar product. While developing products, there may be instances wherein there is a need to license competitor patent for achieving desired product attributes. Another instance may be an infringement suit by competitors. When faced with such issues, organisation’s own patent portfolio can be extremely helpful to cross license or settle important risk of imminent infringement suit.
Patenting activity as part of duty to have freedom to operate over competitor patents.
Patents are examined by respective patent office for all patentability criteria and granted upon compliance. Once granted, a patent gives its owner the right to exclude others from making, using, selling, importing patented invention. Every company planning to launch a new product or modified product have a duty to perform due diligence against all patents related to the product. Proactive due diligence may also helps in product modification and avoiding future infringement suits.
Patenting activity to block frivolously filed patents by competitors.
Upon filing of every patent application, they are led open for the evaluation of the general public. Organisation while developing its products may come across a frivolously filed patent application that may affect its current products or upcoming new launches. Filing an opposition may help in preventing grant of such frivolous patents.
Patenting activity to monitor the technological advancement in the sector.
Patenting a new invention involves first to file criteria followed by all countries. This means, subject to limited relaxation, organisation which files patent application first are awarded respective filing date and prevails against subsequent filers. First to file system leads to a race for filing patent application at the earliest. Patent application, once filed, is published and helps in monitoring technological advancement and anticipating competitors next move.
Patenting activity to acquire patent at early stage.
If you cannot create, acquire. Patents are intangible assets that can be sold, licensed for royalty or acquired. Ownership rights of each patenting are available at respective patent office and ownership rights of patent upon sell transaction with acquirer are transferred similar to the transaction in tangible assets as in real estate.
To summarise, every startup must have their patent strategy in place both as a part of innovation led product design programme and their duty to have freedom to operate over competitor patents. An experienced patent strategy consultant, when involved in startup strategy planning may bring transformative changes in the early stage of startup.
