A Business Approach to Intellectual Property
Editor’s note: This story appears in our July 2009 issue.
By Pete Tormey
Savvy inventors know that patents are important business documents, used to enhance the success of a business and ultimately to make money. Like any other business investment, a patent needs to withstand traditional cost-benefit analysis in order to be a money-making tool. Having an understanding of the nature of patents will aid in this process.
First and foremost, every inventor must realize that once an invention is used publicly or an attempt is made to sell it, a patent for said invention must be filed within one year or the rights will be lost. This is good news because it gives inventors a year to test market an invention before spending money on a patent. However, it also opens the door to disputing with regard to who was the first to invent. Having a successful invention most definitely means that you will have to deal with imitators. In this case you will have to spend time and money proving you invented first, and without excellent records, proving this may be impossible.
The difference between good legal advice and good business advice is another important concept for inventors to understand. A good lawyer tries to minimize a client’s exposure to risk. Advising their client to apply for a patent before showing the invention to the world will reduce any chance of a legal battle with regard to who invented first. However, good business advice, suggests that a short test market period gives the inventor the information needed to determine how much to invest in the idea. If there is no market interest in the product, there is no need to spend money getting it patented.
The one year limitation also shows how patents are perishable. There is a point in a patent’s lifetime when it is the most valuable, and a point where it becomes worthless. Those knowledgeable in business take advantage of the patent’s lifetime. One must consider whether it makes better business sense to fund a patent or spend money building market share. After all, branding provides a much stronger competitive advantage than a patent does.
If you go the patent route in fast moving business segments, getting a patent issued quickly may make for better business. If your invention is the type of product that will eventually turn into a “cash cow” the patent has more value in the last year of its life than in the first year. In this circumstance, delaying the filing of a patent, or adding a year by using a provisional patent application, may be more beneficial.
Inventors need to know that patents do not enforce themselves. If your patent is infringed, time and money must be invested to file a patent lawsuit in an attempt to bring the infringers to justice. This process will require expensive patent attorneys and expert witnesses and an expected cost of over $100,000 with no guarantee of winning the lawsuit. If you are unlikely to enforce a patent you may reconsider whether you should apply for one. If there is not a large market for your invention, a patent may not be worth pursuing.
The value of a patent is more than simply having the right to enforce it. The marketing value of being innovative is likely to sway a potential customer in your favor. Companies will use the fact that you have a patent to provide a sense of legitimacy when promoting it to their customers. When comparing your patented product to its unpatented competition, customers will be inclined to purchase your product.
If your objective is to license your invention instead of commercializing it yourself, you will need to file for a patent. Although you can protect yourself with nondisclosure agreements, generally this approach will not work and it will be difficult to enforce. Once you file for a patent, you are in a position to start selling your rights in the patent application. Of course an issued patent is more valuable than a patent application, but the patent application will still offer some protection as you try to license your invention.
In order to find someone to invest in your invention, you will need a patent. Applying for a patent conveys to investors that you are serious about your idea. Angel investors and venture firms generally do not sign nondisclosure agreements, so a patent is necessary if you are looking for capital from them.
A patent can be used to create value even if the invention is never commercialized. A patent doesn’t necessarily allow you to make and use your invention; instead it gives you the right to keep others from making or importing your invention. Take for example a simple barstool. In this hypothetical, the first inventor to get a patent for a barstool goes into the barstool business. A second inventor improves the barstool with a back and arm rests. Although the second inventor can patent a barstool with a back and arm rests, he cannot make and sell his invention because of the patent on the basic barstool. In the same token the first inventor cannot make a barstool with a back and arm rests because it is patented by the second inventor. As a result, neither inventor will truly maximize the potential profit unless both can come to an agreement.
Your patent may still have value even if you are unsuccessful at licensing or commercializing your invention. If nothing else, being able to list an issued patent on your resume will provide you with a considerable advantage. All else being equal, the person holding a patent is more likely to be called in for an interview. Having a patent in a specific technology adds an air of credibility and people will believe you have some expertise in that area as you invent more products for that industry.
