Why, when and how should a startup build a patent portfolio
Why, when and how should a startup build a patent portfolio
Previously, I covered some of the main responsibilities of a VPE, which included being responsible for building the company’s patent portfolio. Patents are an activity that is seldom done in the earlier stages of a startup, yet it does become somewhat important at series-B onwards. In this post, I’ll be covering why patents are important and how to establish a pattern program at your startup.
Why file patents anyways?
There are several reasons for why patents become important in a startup’s latter stages. Patents give you an opportunity to protect you IP and market position. Filing the right patents can help protect your company from competitors that might mimic what you do. If you observe - we’ll come to how later on - a competitor copying your core IP, then a patent gives you the ability to sue them for infringing on your invention. Your patent portfolio can act as a barrier to entry for your competitor’s.
Patents can also protect you against larger incumbents suing you for invention infringement. A competitor who is contemplating suing a startup for potential infringement might not do so if there is a risk of a countersuit. Your patent portfolio in this case, is protecting you from being sued by competitors, or at least giving you the ability to settle. A good example of this is the 2012 patent lawsuit between Honeywell and Nest. Honeywell, the incumbent, sued Nest for patent infringement, and ultimately was unable to stop Nest from selling its products. The two companies settled the lawsuit in 2014, at which time Nest was part of Google.
Patents are also important when scaling a startup into the enterprise segment. Large companies who are interested in buying your products will be interested to know that your core IP is unique to you and protected. Similarly, patents come in play during fund-raising, especially in late-stage rounds. I recall during a series-C fundraising round being asked by a potential investor on the number of patents we had. We had none, to which I received a blunt and pointed reaction:
“How can you claim to have novel and unique IP without patents”
Touché. We filed 10+ patents the next year. We closed the round too.
How to file patents?
Establishing a patents program requires an internal process, which I will address shortly, and finding a patent law firm to work with. The latter is something that as VPE you will have to do either by tapping into your own network or your investor’s might refer you to a patent law firm that they work with. I have often found it better to work with a law firm that specializes in patent law, especially software patents.
Once you have a patent law firm you can work with, you will want to retrospectively evaluate your product for any potential inventions that should be filed. This is a retrospective activity in that you are looking at already released features and assessing whether they are patent worthy. In the US, you have a 12 month window to file for a patent from when an invention was disclosed in the public. Note, that this might not be true for countries outside the US - hence the need to have a patent law firm that can help you navigate these rules. Your retrospective analysis, is therefore, looking at any inventions disclosed within the past 12 months that are patent worthy. This sets the baseline for what you will start filing patents for.
Next you want to set up two processes.
The first is to help you assess which inventions are patent worthy on a go forward basis. Patents are expensive, both in terms of dollars and time. In my experience filing a patent in the US costs anywhere from $20-30K. Therefore, you want to have a prioritization process that allows you to decide which inventions should be patented and which not.
The second is to create a a process that connects how you work with the timing of patent filing. Ideally, you want to be file patents as your engineering teams start designing and building new features. Well before public disclosure of the invention. This gives you ample time to work with your patent lawyers to evaluate and file the inventions.
Patent prioritization
Your law firm should be able to help you with coming up with a prioritization framework, especially one that can cover the offensive and defensive nature of patents. The framework that I have used repeatedly over the years, assesses each invention along the following criteria.
Did the invention stem from a customer and/or broader market need? This is a key criteria because if customers are asking you to build a specific feature, then they might also ask the same of your competitors. By filing a patent, you therefore, are blocking your competitors from building the same invention.
Is the invention visible in your product? A visible invention is easily defensible, meaning you can easily tell if one of your competitors infringes on it - you will see it in their product. Conversely an invention that is hidden, for example a networking protocol or how blocks are laid on disk, can be more challenging to detect.
Is the invention key to your product? Many of the patents you will file will not be outwardly facing nor will they be customer requests. However, these might still be absolutely core to your product. File patents on those too.
I then use a simple scoring system - mine is weighed - to evaluate every invention across these three criteria. The inventions with the highest scores tend to be filed over ones with lower ones.
Timing of patent filing
I mentioned earlier that in the US you have a 12 month window during which you can still file patents for already disclosed inventions. I prefer to work in a proactive mode though versus looking back - retrospectively - to assess what inventions need to be filed.
Therefore, I tie my development process with timing to file patents. At the beginning of any new project, I will assess whether the project has key inventions that could be patented. If there are, then the patent disclosure meetings and filing process can commence. This way, patents are filed as you start building new features, which is also very helpful for the engineers filing them. It’s easier to disclose an invention for work you are actively doing versus having to go back in time, sometimes up to 1 year.
Larger companies, like Microsoft where I worked at many years ago, reward inventors with a cash bonus at the timing of filing and another one if the patent is granted. I do not recommend that you do that at a small company. The incentive to file a patent - especially at a startup - is to protect and help grow the business, and not strictly to get some incremental cash bonus.
However, rewarding the inventors with a token gift is almost always very well received. The patent application process can be long, and often times dry. The inventors will spend countless hours with lawyers describing their work and reviewing documents littered with legal jargon. At one of the startups I worked at we used to grant the inventors a special edition version of our mascot 3D printed. It’s a fun and lightweight way to recognize the inventors for the work they put into the patent, and more critically the invention.