Looking through online advice on patents for startups, you may be confronted with a lot of contradictory articles and comments that make clear conclusions difficult, if not impossible. Amongst others, you will find comments to the effect that patents should not be a priority for startups because they are too expensive, and that they may instead be filed at a later stage - if at all - when it is clearer which product is likely to become a commercial success. Other comments may indicate that the grant of a patent is not guaranteed and that the associated financial risk is therefore too high.
However, the value of a patent very much depends on the individual startup, the initial idea on which the patent shall be based and the stage of growth the company is in. If you have not already launched your startup without applying for a patent, here are some thoughts on why patents are a versatile tool which provide a real asset to your startup in the long term .
What comes first: the funds or the patent?
If you are a tech-startup developing patentable technology, investors generally expect, even at an early stage, that a patent application is filed or that one is pending. Angel investors and venture capitalists are often reluctant to fund a business insufficiently protected against other companies providing similar products on the market. Hence, patents are a powerful tool to give your startup a competitive advantage from the outset.
When is the right time for filing a patent?
Startups generally develop at a very rapid pace. Choosing the right moment to file a patent application in the development process can be quite difficult because the initial product idea usually adapts to technological challenges before morphing into a more promising concept. However, the longer you wait to file a patent application, the more the underlying product idea is likely to be disclosed to the public before the patent application is filed. A disclosure of this kind is generally regarded as prior art and makes it much more difficult to get an enforceable patent down the line. In any case one should therefore consider applying for a patent before any public disclosure about it has occurred and before initial funding rounds have begun.
How to use patents along the way?
If a patent has been duly filed, funding has been secured and the product launch was successful, the startup usually still does not have a lot of money. Hence, enforcing the patent such as suing a competitor at this stage will likely be out of the question. Nevertheless, the mere existence of a patent may give other companies pause before developing and using infringing products. Having said that, we would like to point out the value of a “good quality” patent. A “good quality” patent provides among others fundamental protection of the underlying innovative concept and not just against copies of individual examples of your developed products. Otherwise your competitors may find easy “work-around” solutions that escape from the scope of the patent.
Are patents a valuable company asset for an exit?
A startup with broad and enforceable intellectual property may attract potential buyers. Owning even a small and coordinated patent portfolio can make the startup especially attractive. However, the aforementioned aspects also hold true for the buyer: a patent merely covering individual product examples but not the underlying concept may be of no use for the buyer who seeks to apply the underlying concept as broadly and as flexible as possible.
Hence, if you found a tech-startup based on innovative technological concepts, a patent is a powerful background tool to support your startup’s development from initial launch to exit. Even if it is never sold or licensed, the patent can just make the difference for the startup to become an independent player on the market.
This is another guest blogpost written by our cooperation partner Rentsch Partner AG.
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