Start-up Entrepreneurs' Blog

Start-Ups and Patents – Common Pitfalls Made By Early Stage Companies

December 22, 2010

In the early stages, most start-ups want patents to attract investors but patents are expensive and funding is short. The dilemma faced by start-ups these days is to patent or not. Today, I thought I’d discuss some basics about patents, how they relate to start-ups, and some common pitfalls.

What is a patent?

Patents are a government granted monopoly that is given in exchange for full disclosure of the invention. Doesn’t it sound like start-up nirvana? A monopoly brings to mind excessive profits, but is it possible, or even appropriate for your start-up?

Why patents exist at all?

In a country such as the US, our economic well-being and wealth are determined by our ability to create new inventions and innovations, not our natural resources. Patents are a way to foster and encourage innovation and invention among industry. Companies spend millions and sometimes even billions of dollars developing a new product, and patents provide a period of exclusivity to market and sell the product free from direct competition.

What are the three requirements of a patent?

The invention must be useful, novel and non-obvious.

Useful is often the easiest to demonstrate, the invention must have a pragmatic application at the time of the filing. I once knew a start-up whose CEO filed a patent for artificial intelligence because he felt someone would do it in the future – not a wise way to spend investors’ funding. Patents are not cheap and start-up projects never come in under budget.

 Many patent attorneys refer to the novel through the statement that if you search everywhere for a reference and find none then it is potentially patentable. But what exactly is everywhere? A common misconception is that it’s just the patent database. The idea cannot have been disclosure in any prior art and this means other website, publication, patent, or any other media. In a famous example, an inventor filed for a patent on a method to raise a ship from the ocean and the prior art used to decline the patent was a cartoon featuring Donald Duck where Donald used the same method.

Obvious is the most difficult aspect to overcome because it can be subjective.

What are some common pitfalls?

1. Public disclosure of the invention prior to filing a patent can lead to loss of rights.  In the US, there is a 12 month grace period in which the company has the year to actually file the patent after disclosure. In the rest of the world, the patent must have been filed prior to disclosure in order to maintain the rights.  What is public disclosure? Any time you share the details of the invention with someone outside your organization and that person is not under a confidentiality agreement.  This is reason for NDAs even for job candidates. It can also be articles in journals, presentations at meetings or conferences, or even email exchanges outside the company.

2. When deciding on whether to patent, the inventor needs to determine whether the idea can be commercialized, is marketable, and lastly, whether infringement be easily demonstrated.  I have a friend whose is a patent attorney and every year he has a Christmas party. As part of the decorations, he posts on the walls, doors, and tables the silliest inventions that were granted patents for the year.  And these silly inventions never generate a cent of revenue.

3. The method of the invention must be outlined in the patent filing. This means how to make and use the invention. The patent should include what is the best way of making the invention. Often times, patents define ways of making the invention but don’t disclosure the best way because the inventor wants to keep the best method for themselves. This has resulted in the patent being invalidated in the future.

4. In order to strengthen the patent filing, the inventor needs to think how a competitor would design around the patent and what would the competitor do to avoid this patent. The results of this exercise can then be included in the patent filing.

5. Journals or any other type of written evidence such as email can provide evidence to deny a patent application. There have been patents declined or even invalidated after award because employees wrote disparaging, emotional remarks about the idea. It seems silly but written statements such as “This is never going to work” or “I don’t know why we are pursuing this course, it’s entirely obvious” have gotten patents invalidated. It may seem ridiculous but consider start-ups where the majority of employees are less than 25 years old; you will get this type of thing written down somewhere. I once knew these two employees who wrote every entry in a lab journal as the opening to a Star Trek episode and referred Captain Kirk and Spock.

6. Start-ups should have the various NDA available for people they talk to. I know a start-up that was bootstrapped and when they attracted venture capital funding, had to go back to everyone and have them sign NDAs retroactively in order to secure the funding. Fortunately for them, everyone signed the documents. 

Every start-up aspires to have a popular product which can only be provided by them. If this is your vision, a start-up needs to consider exclusivity issues in the early stages of a project. It’s not just a matter of being awarded patents but a matter of defending them in the future.

Filed under: From Concept to Start-Up

Tags: intellectual property, patents, start ups