Patent Strategies For Start-Up Companies

Patents can be vitally important for protecting the innovations of a start-up company, just as it is important for start-ups to be mindful of trademark, copyright, and domain name strategies (see our other guides for start-ups, including Trademark, Copyright, and Domain Names). A patent is a government-granted right that prevents others from making, using, selling, or importing a patented invention. Having patents covering a start-up company’s key products or services can prevent theft of intellectual property by larger companies, make the company more attractive to investors and potential acquirers, and increase company valuation. In addition, a strong patent portfolio can help a start-up company deter patent lawsuits from competitors and become a source of revenue through licensing.

What can be patented? 

Virtually any type of product, system, or method is patentable. Things that cannot be patented include laws of nature, physical phenomena, and abstract ideas. Recently, the U.S. Supreme Court has ruled that certain types of business method and software patents covering basic economic practices are abstract ideas that are ineligible for patent protection. Start-up companies should give careful consideration to patent eligibility issues when deciding to file a patent application, which should be carefully drafted to avoid patent eligibility rejections and challenges.

In addition to meeting the patent eligibility requirements, an invention to be patented must be novel (i.e., different from what already exists in the public domain) and nonobvious to people skilled in the invention’s field.

Don’t Forget About Design Patents 

There are two main types of patents: utility patents and design patents. Utility patents protect the functional aspects of an invention, while design patents protect the ornamental appearance of an invented object. Utility patents are far more widely used than design patents and will be more likely to be applicable to most technology start-up companies’ innovations. However, robust patent portfolios often include both types of patents. For example, a smartphone may be covered by utility patents protecting the electronic components and software in the device, and design patents may be used to protect the appearance of the device, including the shape of the outer housing and icons and other graphical user interface elements displayed on the screen.

Does a patent give me the right to practice an invention?

While a patent provides its owner with the right to exclude others from practicing the patented invention, a common misconception is that it automatically also gives its owner the right to practice the patented invention. Even if you have a patent, there may be a prior patent that claims the underlying subject matter and prevents you practicing your invention.

What about trade secrets? 

Instead of using patents, start-up companies may be able to protect their inventions through  trade secrets. A trade secret is information that is kept secret by a company and that has some value as a secret. Coca Cola’s syrup formula is an example of a trade secret. Patents, by contrast, make a public disclosure of an invention when published or issued.

Start-up companies will have to rely on trade secret protection instead of patents when an invention is not patentable (e.g., the invention is ineligible for patent protection or a patent application was not timely filed). Companies may also decide that trade secret protection is less expensive than the cost of filing a patent application. Also, patents may not be a desirable option when the product life of an invention is short, particularly given that it ordinarily takes 2-3 years to obtain an issued patent. On the other hand, trade secrets have little value when the product can be reverse engineered or when others can be expected to independently make the invention.

Patent Application Costs 

The costs for obtaining a patent in the U.S. vary greatly, depending largely on the particular technology involved and the complexity of the invention.

As an alternative to filing a full utility patent application, start-up companies may consider a provisional patent application, which can be filed at a lower cost and without claims.  Provisional patent applications are not examined by the Patent Office and must be replaced by a full utility application within one year.  Provisional applications can usually be filed more quickly, and are particularly useful when a deadline is imminent.  However, if the provisional application is subsequently replaced by a full application, the overall costs will likely be higher and the issuance of the resulting patent will be delayed.

File patent applications early

The U.S. has a “first inventor to file” patent system, meaning that if two inventors independently make the same invention, the one who files a patent application first will generally get the patent. Also, in the U.S., inventors must file their patent applications within one year of making a public disclosure of an invention. In most foreign countries there is no such grace period, so if a foreign patent is desired, an application should be filed before any public disclosure of the invention.

Should companies file patent applications outside U.S.? 

Start-up companies should be strategic about filing foreign patent applications, which can be costly due to high foreign government fees, translation costs, and foreign lawyer charges.  Companies should consider filing applications in countries where they currently sell or expect to sell the products to be patented, where those products are manufactured, and where potential business partners and competitors operate. Such filings will help prevent others from producing knockoffs and potentially provide the company with leverage in business dealings.

Identify Inventors Correctly And Obtain Patent Assignments 

It is important to correctly identify the inventor or inventors on a patent.  Failure to correctly identify each inventor can lead to invalidation of the patent.  Also, each inventor of a patent presumptively owns an interest in the entire patent.  It is therefore also critically important that employees, contractors, and others performing work for a start-up company be under an obligation to assign their patent rights to the company.

Each person who contributes to the conception of an invention should be identified as an inventor.  When two or more people jointly contribute to the conception of the invention, each person can be a joint inventor even if he or she made a smaller contribution compared to other inventors, or contributed to only one feature of the claimed invention.  A person is probably not a joint inventor if he or she only acts under the direction and control of another, e.g., in performing tests or building prototypes.

Parting Thoughts 

Patents can be critically important to the success of a start-up company.  Companies should utilize patents as an effective part of an overall intellectual property strategy to protect their innovations.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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