Will applying for a patent hurt your startup?

Twitter, the cool social network with over 500 million registered users, is recognized for leading new trends, adapting to market developments, and innovating. Twitter’s unique attitude towards a well known strategy – that of applying for a patent – however, is less known. A research published in October 2011 discovered a surprising fact: there were no published patent applications submitted to the USPTO by the then 5-year-old Twitter.

Many factors, on top of having developed a very cool product, have contributed to Twitter’s growth and success since startup days: the marketing strategy, business model, and customer focus, to name a few. Patents were not among them.

This seems like a deliberate decision: Twitter’s founders could have probably figured out inventions to patent early on if they had really wanted to. But, instead, they focused on building an excellent company with great products and on selectively investing in Intellectual property (such as trademarks).

This strategy is remarkable, as many technology companies and social networks invest heavily in patenting early on. For example, Facebook already filed 35 patent applications by 2008.

The Twitter case raises the question: should startups invest in patents?

Patents’ great past

The current patent system, rooting centuries ago in Europe, had an important role in technological progress. It provided incentives to spend time, energy, and money on innovations by granting inventors exclusive rights to benefit from their inventions.

The inventors’ rights were, however, balanced with public interest through several means: limiting a patent’s duration, constraining it to specific claims, and using a thorough examination process. In order to be patented, inventions must be novel, non-obvious, useful, and fit a specified statutory class.

Overall, the system seemed to work fine. Many novelties, such as Bell’s telephone and many of Edison’s inventions, were patented. Pharmaceutical firms have invested billions of dollars on drug development thanks to this protection, and many companies from other industry sectors did the same.

Patents’ less-than-great present

Recently, there have been many voices, especially in the US, claiming that the current patent system does not work anymore and no longer supports technological progress, economic growth, and new jobs. Among the issues stated by critics are:

As a result, critics, such as Mark Cuban, claim that the current system must be totally revolutionized to restore its historic role. Others claim that open source development, which is an opposite philosophy to patents, generates faster innovation.

Understanding the current patent world, we can now look at the relationships between startups and patents.

Why startups should NOT patent

Recently, opinions against startups’ investment in patents were voiced by experts such as a patent agent, an intellectual property lawyer, and a Nobel-prize winner physicist.
Commonly mentioned arguments are:

  • The long process
    By the time startups eventually get patents (especially for software), they may be of no relevance.
  • A patent may not be granted
    Most of the applications are not granted utility patents by the USPTO.
  • Costs
    Applications handled by professionals cost at least thousands of dollars. The examination process and maintenance fees are expensive too, not to mention the additional costs of filing abroad for those choosing to do so.
  • Limited resources
    Startups are usually very lean, and dealing with patent applications consumes lots of time, energy and managerial focus.
  • Litigation is for big guys
    The patent wars between Apple and Samsung may give the impression that patents trials are mainly a territory for 800 pound gorillas. Indeed, patent lawsuits cost millions of dollars, so a startup’s patent may not deter infringement by big guys (unless the startup has exceptionally strong backing).
  • Poor Return on Investment
    The reality is that most patents don’t get commercialized (or licensed), and their investments are never returned. Similarly, many startups do not generate revenues, let alone profits. This means that a lot of thought should be given to any investment.

 

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In which cases SHOULD a startup file for a patent?

It may seem that “Do no apply for patents!” is, then, the best recommendation for startups. However, the situation is more complicated, and there may be good reasons to apply (provided, of course, that the startup developed a patentable invention):

  • Patent applications are very relevant for some industries
    Biomedical devices, pharmaceuticals, renewable energy, and complex hi-tech, are some industries in which the costs and duration of R&D require maximal protection.
  • Patents may be crucial due to potential competitors
    Without early patent applications, Mobileye, who developed a great proprietary system for driving security, could have been seriously threatened by large and powerful automotive industry players, when it was founded in 1999.
  • Many VCs prefer investing in startups that apply for patents
    This position is supported by an iam-magazine research conducted among VC-backed startups, demonstrating a positive correlation between Intellectual Property and success. However, it should be mentioned that some VCs strongly criticized these findings.

 

What should a startup do, then?

Founders must make a sound assessment of the startup’s situation:

    1. Analyze the specific circumstances
      At one extreme, there are startups (like Mobileye) that definitely require patent protection when founded. At the other extreme, standard e-commerce sites with zero innovation should not consider it. In between, there are startups with some innovation. For them, a patent’s relevance should be considered given the industry sector, the specific level of innovation, the startup’s resources, etc.
    2. Forecast expected patent expenses
      Some entrepreneurs do not realize the full costs of patenting. Therefore, it is highly recommended to consult with trusted patent professionals about the expected long-term costs, as well as the strength of the applications.
    3. Estimate non-monetary costs
      The founders should get a realistic estimate of what a patent application would cost also in terms of time, energy, focus and managerial attention, and, as a result, the potential negative impacts on crucial activities such as product development and sales efforts.
    4. Consider other intellectual properties that may be more appropriate
      Copyrights (protecting software, among other things), trademarks, and design patents could provide powerful protection for some startups. There is also another type of intellectual assets, i.e., website domains and social media usernames (like on Twitter), that may be very relevant for others.
    5. Assess whether financing by VCs or angels will be needed
      If an external investment is required, check whether lack of patent applications would be a serious obstacle for fundraising. For example, could the startup raise capital through crowdsourcing platforms such as Kickstarter?
    6. Get mentored
      On top of patent professionals, the founders shuld seek advice from knowledgeable entrepreneurs or friends who have been through the patent application process. Their experiences may be priceless.

 

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