Patents, why bother?

By narendrarocherolle Apr. 13, 2007, 11:55am PT 17 Comments

During the last 15 years (as part of several start-ups as well as large companies), I have listened to enough legal counsel to draw one important conclusion: patents are, quite simply, a pain in the neck. Sure, there are potential benefits of holding them, but the truth is that the cost—in time and dollars—of acquiring patent protections often outweighs any future gains from licensing fees, or litigation settlements. As sexy as it sounds to be a patent-holder, there are plenty of hurdles in the time-consuming, vaguely beneficial, and guaranteed-to-be-pricey world of intellectual property. Here are some things to consider before you hire an attorney and begin the application and review process.

So maybe you’ve dreamed of seeing your name engraved on a plaque as a patent holding “inventor.” (Haven’t we all?) But do yourself a favor. Take a deep breath and ask yourself if you have invented something truly deserving of patent protection–a test that can be summed up with a single question: “is what you are doing novel and non-obvious?” Though it may seem like people are patenting everything under the sun, breakthrough methods and processes are more rare than we founders like to think.

So your answer is ‘yes.’ Now consider that in the United States you have one year to file your application after your invention becomes public. If you are a procrastinator, you may find yourself contemplating a less rigorous provisional patent. It sounds appealing until you discover that a lot of expensive work goes into getting it, and it is only a placeholder. If and when you get around to filing the official patent, should anything have changed that wasn’t covered in the provisional version (markets change, innovation happens!) then you must start over from square one.

But you press on. Now, your “official” patent could be critical if you are building a technology company that has a long-time horizon where IP protection affects viability. Most of the potential rewards, however, are not immediate, and they might not even benefit the start-up! If you are looking for funding, patents and patent filings will certainly get a VC to jot down a few notes, but your patent really won’t be fully appreciated until an acquiring company comes along.

Lets say you did invent something worthy of protection. Congratulations! But now you’ll find out that, far from protecting your work, your patents (particularly patents of the “business method” genre in the consumer web space) are simply part of your war of mutually assured destruction with your competitors in court. Your attorney may convince you that, some day, you’ll want to “trade” patent licenses with a competitor, but a quick glance at the business section of any newspaper tells you that generally these bargains don’t end well.

Now, practically speaking, it is next to impossible to avoid infringing on someone’s patent unless you know the your competitor has been awarded a patent that you can look up and analyze. Ironically, often you’re better off not spending any of your precious start-up capital to educate yourself on the IP held by your competitors. Why? Because this way, if you ever do “infringe” it will not have been willful, which will cost you more in damages, as any good lawyer will tell you.

Finally, finding a good patent attorney will be hard. Big firms have no incentive to help out small companies (who might sue their larger clients). An ideal attorney will know a lot about the industry in which your patent fits and will be willing to offer some strategic advice (most lawyers will stick to the law and avoid from offering strategic or business advice). The bottom line is this: expect to spend $10,000 to $20,000 and at least 30 company man hours on each patent application.

On the subject of fairness, the patent system most rewards deep pockets and litigious patent trolls. When we were running Webshots, we got a form letter in the mail that said, “you may be infringing” on a patent related to image storage. The letter suggested that we “might” like to pay a license fee. At this point, you have to hire a patent attorney (many hundreds of dollars an hour), because ignoring such a letter places you in that dreaded “willful” bin. Nine times out of ten, as our attorney told us, these threats come to nothing, but there you are, out thousands of dollars in legal fees and still no closer to resolving the potential infringement matter. Does that sound fair?
In the end, it might be best to sock away the money you would spend on your own patents and save it for the inevitable legal fees you’ll incur fending off IP blackmail. The good news is this: if you get one of these letters — if someone thinks your business has something they can exploit for cash — it must mean you’re doing something right!

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