Blog Post

Patents, why bother?

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!

17 Responses to “Patents, why bother?”

  1. Tim Kramer

    Nice article. Its sad that once you ahve a patent and have given the goverment your money to get one that they do NOTHING to help you defend or stop someone from using your same idea. I am sure the people who first formed the idea of patent protection had no intention of having attorneys spend your hundered of thousands of dollars to defend it! I think the system needs to be done over!!

  2. philcoextra

    it seems like even if you do patent
    it’s never going to be as solid as you want since it costs so much and i guess from what i know (not much) you then open yourself up to p[eople with more money that can look at yours and expand off it and make it more or less a stronger theirs.. and i’m just down for the movement.. so it’s tricky’ but welcome to greed power life hi okay back to work everyone!}

  3. jasonlemkin

    I believe for a start-up, the highest value of patents is defensive, not offensive. Your competitors will be larger than you for a long, long time. Are they litigious? If so, when you hit an inflection point, they will at least threaten you if they believe they have a strong IP position (true or not). They may even try suing you. You can’t stop them. But if you have no chips, it will be much harder to dissuade them.}

  4. kdonaldson

    Last year when I was working on a startup idea, I went to a IP/Patent presentation by a local law firm. They went through all the basic aspects, but the one comment that stuck out in my memory from the ‘panel of experts was’: Provisional Patent translates to ‘copy it quick’:)}

  5. bhoecht

    For the past decade I have been at the forefront of my industry in terms of effective software design. My companies and I have created many inventions along the way and I frequently hear “you really are where the market is going.”

    There are several means of competing in any given market. Arming yourself with patents and lawyers is one way, but to me it feels too much like a restriction on fair trade and insecurity in yourself to continue to improve. Maybe it is different outside of software where there are end-state inventions, but software is an intellectual construct and to me, is never really “done.”

    Continually pushing the envelope to “innovate or die” is another way to compete and my preferred method. Going this way has the added benefit that your competitors don’t get an otherwise hard to get, free behind-the-scenes peak at your strategy and designs.

    Can I ward off others who claim I’ve infringed. Most definitely.

    A) I don’t do patent research so the inventions are mine (I think it would be an interesting case to argue that someone had invented the same thing as someone else, yet only the one with a patent had the right to use it).
    B) While ignorance of the law only protects from “willingly” infringed, I have the added defense of having studied (and documented in my business plans) the competitive behaviors and methods in the industry before beginning.
    C) It hasn’t happened yet, but if/when someone does come claiming infringement, I’ll have the added benefit of revenues from the invention to defend the claim.}

  6. technolawyer

    During Web 1.0, patent applications remained confidential until the patent issued.

    Regarding the statement about large firms, most lawyers practice in small firms, including many large firm refugees. This country does not have a shortage of patent lawyers (though the USPTO does).}

  7. viperteq

    It seems that with more and more consumers becoming ‘digitally aware’ that more men and women coming out of Law Schools across the country would think that Patent Law would be a nice area to specialize in. Especially if what you say about bigger firms working with small start-ups is true.}

  8. hardaway

    The patent system is outmoded. Most startups who file provisional patents can’t afford to defend them anyway, and filing a patent makes public your information.

    The only we reason we tell our clients to go for patents is if they are going for VC funding. Investors always ask if the IP is protected.}

  9. davidwfox

    “Would you like fries with that order?”. Patents seem like a staple upsell for law firms, a ready opportunity to take a slice of your recent funding round. Has anyone seen academic research on the monetary value of patents (value created vs money/time spent). Without hard numbers, I wonder if the odds of benefiting from patents are any better than rolling the dice in Vegas?}