Should you be considering patents? What value could they bring?

Yes, I would argue that these days, nearly all companies should be investing time and money into evaluating the potential for their business to derive value from filing one or more patents.

The results of such an evaluation or assessment may suggest that you don’t currently have anything patentable, or they may suggest that you should be filing a patent application right away.  Most, if not all businesses could likely receive an issued patent.  Business processes are patentable, for example.  As is software in many cases, including various aspects of artificial intelligence/machine learning innovations.  

The important first step is to carefully consider if and what you might be able to protect through patent protection and if your application might reasonably be accepted by the patent office.  Once this question is answered, it is important to give thought to whether or not it would bring more value to your business than it costs.

Patents can bring value to a business right away once an application is filed, not just once they are accepted or issued by the patent office (which can be a long, expensive process).  For example, as soon as you file any patent application, such as a United States Provisional, you can claim “patent pending” status – even before the actual patent office ever looks at it.  Having a patent application in the works might bring value to your business in any of the following ways:

1. Reduced need for confidentiality.  Filing an application will allow you to share your idea more freely without the need to worry that someone else might steal your idea.  Such worries are likely unjustified but can still affect your peace of mind.  Peace of mind is valuable, even if it relates to unjustified worries.  Additionally, filing an application will help ensure you don’t lose the ability to file your patent due to your own public disclosure.

2. Improved credibility.  Filing a patent application will bring additional credibility to your business in the eyes of your competitors, customers, potential partners, employees, shareholders and investors.  Many people aren’t entirely clear on exactly what “patent pending” means, so they just assume that they shouldn’t mess with you (stay tuned for a future post).  Even those who do know what it means will think twice, at least until your patent publishes, allowing them to evaluate its potential for themselves.

3. Investor confidence.  Although I mentioned investors in the above point, the value that a patent application can bring to your ability to seek investment is significant enough that it deserves its own point.  I have no doubt that if you are pursuing investment, you will be asked what is preventing your competition (especially any large entrenched players) from building their own version of your product once you prove that it is viable.  The answer to this question isn’t always patent protection, but if not, you should make sure you have a well thought out explanation as to why you aren’t pursuing patent protection, which only comes from carefully considering it.

4. Additional revenue, potentially in the short term.  Licensing your patent allows you to give another company the right to use your patent in exchange for various payments (royalties, upfront payments, milestone payments, etc.).  Believe it or not, depending on your invention and the quality of your patent, there are many companies that are open to licensing even before your patent issues.  It may make sense to pursue licensing as your business’s primary model.  Even if you intend to market and sell your invention through your business, there may be other industries or jurisdictions where your patent could be of value.  It is possible to license the right to use your patent only in such specific industries or jurisdictions, reserving exclusivity to your business in your core area.  The nice thing about pursuing such a model is that it could bring in significant revenue much sooner than sales of your own products and could help fund the development of your core business.

5. Increased net worth.  Intangible assets such as patents and other forms of intellectual property can increase the financial net worth of your business.  The financial value of your company is important if you are considering an investment round, a sale of your company or a portion of it, or an initial public offering (IPO).  Even if such events are a long way off, building your patent portfolio now can significantly add to the eventual valuation of your company.

6. Competitive differentiation. If your competitors are developing similar technologies, filing patent applications early can limit your competitors’ ability to file similar patents.  Over the long term, this could also reduce the chances that you are infringing on others’ patents.  As such, you may not need to license the right to use other company’s patents as much as you otherwise would.  Even better, your competition won’t be able to use or sell any of your issued patents (patents that are approved by the patent office) without a license from you.

7. Better negotiating position.  If you are considering a partnership such as a co-development, manufacturing, or distribution arrangement, having one or more patents can greatly improve your ability to negotiate a more beneficial agreement for your company.  In the example of a co-development agreement, if you have clear background intellectual property, your potential partner will likely need to a license in order to proceed with the collaboration.  This could change the distribution of revenues received for the new joint technology or result in another benefit or concession back to you.

Almost all these benefits are available to you as soon as you submit your first patent application.  Once your patent is accepted by the patent office, and issues, it is even easier to extract value in most of these ways.  For example, a company considering licensing your patent would be more likely to move forward and may pay higher royalties if your patent has issued than if it is still in the application phase.  The other “benefit” that comes from having your patent issue, is that you can now finally sue anyone who is using your invention (infringing), although I would argue that it will probably be far more of a headache than a benefit to your company if you pursue this path.  You are much more likely to extract value by constructively pursuing a licensing arrangement.  Comment below if you know of any other ways patents can bring value that I may have missed and contact us if you need help evaluating the potential for your business to derive value from filing one or more patents!

2 Replies to “Should you be considering patents? What value could they bring?”

  1. Thanks so much for this information. I will be putting point 7, better negotiating position to work for me in a co-development project soon. reading this reminds me to stand firm for what I bring to the table.

    1. Great! Definitely don’t undervalue the intellectual contribution you bring (embodied in your intellectual property), this can be significant.

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