Understanding Patents for Your Business

About three years ago I embarked on the very complex and confusing journey of gaining patents for my business. Until this point, all the technology and IP we had ever developed as a company was completely unprotected and we had never taken the time to look around the market to see if we were infringing on the competition and any protected IP they may have.   

Now, as I write this for you, I will give an intermediate lay person level of understanding of the patent process as it is something that requires a deep level of knowledge and I speak as a client and business owner.  

First, if you are in technology or any industry that has a process, method, or apparatus, you really should instruct a lawyer to do a patent search to understand the landscape. Uncover the risks you may have as well as any opportunities. Below are the key areas to establish for a patent strategy. 

Understand the Investment

At first, I could not believe the cost of filing a patent, it was far cheaper than I expected. I thought it would be hundreds of thousands of dollars. Filing a patent can be as cheap as $10,000, but here lies the understanding of the investment.  

First, there are different types of patents with varying degrees of cost. For example, if you’re looking to expedite the review of your patent, you could opt for the Track One patent option to fast track processing at the US Patent Office; however, it is more expensive. This is the tip of the investment iceberg. Next, you must accept that you may receive a non-final rejection, and in that situation, you should be prepared to argue your case, incurring additional costs for that process. Some patents can take years to chase and can cost you a considerable amount of money to try and prove their validity. This all may be in vain if you abandon the filing, which will result in lost investment dollars. Finally, the time spent on patents is your own time as a business. If you want to invest heavily in gaining patents that matter and are of value, you must know your market well and should be able to stand confidently behind your technology, knowledge and intellectual property.

Let’s say you have successfully received patent approval. It is still fairly worthless at this point unless you do something with it.   

Offensive, Defensive or Both? 

This brings us on to the next phase of the patent strategy. Frankly, this phase may be the source of possible major costs to having this asset as an enforceable asset.  If you are looking to pursue an offensive process, you go after infringers of your patent. You will need legal power, and will require research, effort, time and money.  

Of course, if you pursued a patent to simply be defensive, then relax! You have covered your intellectual property. This approach gives you a solid guard around the business asset in case someone wishes to come along and attempt an infringement accusation on you.  Remember, this doesn’t stop someone from copying your intellectual property. They could do so indefinitely unless you invest in the offensive approach and attempt to stop them by issuing a cease and desist or claiming license fees.  

Licensing 

Here is where you can be smart. Pricing a license fee for your intellectual property could be set at a level that is seen by infringers as easier to pay than to fight. For example, if you have a patent and find a competitor that appears to be doing something very similar to your protected IP, you have a right to take them to court to prove and claim damages.  This will take time, money, and distraction from both parties involved. Let’s imagine the forecasted cost from the lawyers is at least $1 million in fees, but as the licensee, you have offered a license at $100k per annum. The lawyers representing the potential infringer may advise their client that it is easier, cheaper, and less taxing on time to simply agree to the cost of the license.    

As the patent holder, it may be advantageous for you to continue this method with various other companies with which you see intellectual property overlap and potential infringement. This both protects your IP and can result in a decent amount of incoming fees. There is a caveat – it may not work out like this. But often the best solution forward is one based on commercial logic for the cheapest path to resolution that doesn’t put anyone out of business.

There are other routes to earnings from patents that you may wish to consider.

Raising Investment 

Let’s state the obvious here: investors like IP and here’s why. First, it’s a clear demonstration of your unique selling point for tech. Second, it shows the company owns assets that have downside protection and could be sold if the company is unsuccessful in trading. This makes it easier for an equity investor to come on board and invest money into the company in the form of equity.   

However, if your tech and IP is worth as much as you believe, then why give away valuable equity when you can borrow against the patents?  Yes, you read that correctly. Some investors will lend to your business to the tune of tens of millions, with that debt secured against the patent assets themselves. 

They secure debt against that asset with the mindset that the patents and future license fees could be worth a certain amount; therefore, they determine a level of value, risk, and the debt-to-asset ratio they are willing to go to when it comes to lending.  

Summary

In my opinion, you must go into patents and IP expecting to investment millions, and in return you could make millions in fees, market capital, and raised capital.  The return is significantly higher than the investment, but you must have enough money to invest in the first place; otherwise, you risk losing your investments and yield a return of nothing. Pursuing one or two patents may suggest you lack the funds to go offensive or defend yourself if someone decided to take action on you as a business.  Patents and IP are a major investment and not for the faint hearted.

My opinion on patents: Go hard or go home.  

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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