Remodeling your Artificial Intelligence IP Strategy: Top 3 reasons to invest in your IP

Foley & Lardner LLP

Foley & Lardner LLPArtificial intelligence has weaved its way into almost every industry, from detecting cancer to predicting employee performance to teaching robots and vehicles to use all kinds of sensor data to make human-like decisions in real time. In recent years, this explosive growth has been fueled by the confluence of four key factors: (1) widespread access to the computing power needed to support AI technologies; (2) the accumulation of large amounts of data for building AI technologies; (3) small but significant refinements to key AI technologies; and (4) significant growth in AI funding. According to Forbes:

  • $10.7B was invested in AI startups in 2019 in seed, early-stage venture, and late-stage venture funding rounds
  • Over half, or 57% of all AI startup financing rounds were either seed or pre-seed, 21.2% were series A, and 11.8% were series B
  • The median AI startup funding round generated $4M, with the average being $14.6M and the maximum $319M

With the rapid pervasion of AI and the increased funding in AI technologies, there has been a dramatic increase in AI related patent filings in virtually every sector. The number of patent filings can be expected to continue to grow as new entrants attempt to capture whitespace available in the patent landscape while also protecting their specific implementations. 

As a result, patent filings are on the rise as companies race to be the first to protect their innovations. A 2019 World Intellectual Property Organization report identified a significant increase in AI patent filings worldwide in recent years, which can be attributed to the urgency felt by companies in the AI space to protect their ideas in a rapidly growing market.

As the size of early rounds of funding increases, more early stage companies are being pressured by competitors with existing patent portfolios. This pressure can include a patent owner sending cease and desist letters that may require the recipient to redirect valuable resources from more productive tasks to addressing such actions, such as analyzing the patent portfolio to identify noninfringement positions and/or disclosing the letter during due diligence. Such behavior can disrupt an early stage company’s ability to raise additional capital while reducing the available spend that the company has to invest in protecting its own IP.

Because of these developments, companies will need to be more strategic about how they protect their IP to maximize business value to the company. Although each company’s IP strategy and patent roadmap needs to be unique based on their industry, competitors, product roadmap, exit strategy, and financial situation, the following are three of the most important reasons to invest in a comprehensive intellectual property portfolio for AI innovations.

Top 3 Reasons to Invest in Intellectual Property

1. Establish a Competitive Advantage

Perhaps the most important reason to invest in IP is to establish a competitive advantage over existing or future competitors. Patent applications, once granted, allow a company to prevent competitors from making, using, selling, offering to sell, or importing the patented inventions. Patent applications, once published (typically after 18 months from the date of filing), can also serve as prior art against any later filed patent application by a third party claiming similar subject matter. This can result in the later filed patent application failing to issue as a patent or granting with a much narrower scope of protection. As such, by preparing well written and comprehensive patent applications that cover a company’s own technology as well as alternative implementations, and filing them early, companies can win the innovation race by getting patents issued that cover their own technology and restrict others from copying them, while also staying ahead of competitors who might try to gain patent coverage in similar areas.

Depending on the competitive landscape within which a company is operating, the company may use its patent portfolio to disrupt a competitor that is attempting to copy or market products incorporating the company’s hard-earned innovations. Often, these behaviors may warrant sending a letter to the competitor informing the competitor of the company’s patent portfolio. Such letters may need to be disclosed by the competitor to potential investors, creating FUD (fear, uncertainty and doubt), which can be enough to disrupt a funding round of the competitor. 

In the context of AI based companies, the valuations and corresponding rounds of funding of such companies continue to increase at remarkable rates. As such, AI based companies are (and should be) investing more resources in their patent portfolios. In addition, in many verticals, AI improves technologies by training computers to make similar decisions as those previously made by humans. According to recent patent law decisions, these patents if not properly written, will likely be rejected as being directed to a “mental process.” As such, valuable patent applications describe in detail how the AI system performs the invention and what improvements are achieved because the AI system is used, as opposed to focusing only on the results generated by the AI system. 

2. Capture Whitespace

Companies tend to focus on protecting technologies that they are currently developing, while choosing to delay protecting technologies that are further along in the product roadmap. There are generally good reasons to do so. First, companies would rather invest in driving growth than on patents that do not cover their current technology. Second, they may not have thought about the implementation details of features that are further downstream in the product roadmap. 

Nevertheless, there are reasons to consider capturing whitespace in the patent landscape. First, competitors may begin filing patent applications and use that as a competitive advantage. Second, capturing whitespace makes the company a more attractive option compared to its peers for future investment opportunities. That said, a company’s decision to capture whitespace needs to be well thought out and needs to be part of a larger IP strategy for the company and consistent with its business objectives.

Capturing patent whitespace is even more important in the burgeoning AI industry. The number of filed patent applications related to AI continues to grow by about 28% per year, according to WIPO. Any identified space or coverage in this area is to be of some value, even if it there is no current plan to market the claimed features. Patents, once granted, provide protection for 20 years from the date of filing, creating value for a much longer time frame than the development cycle for many technologies in the AI realm. This can demonstrate a solid foundation of innovation that will make it easier to raise funds or become an acquisition target. Taking the time early on to deliberately define, build, and grow a robust patent portfolio can not only ward off infringing competitors, but also impress potential investors.

3. Raise Money

An important source of financial resources for start-up companies is venture capital. A solid patent portfolio makes it easier to maintain the attention of potential investors, venture capital or otherwise. 

Investors want confidence that their initial investment will pay off (and not be knocked off). Because the underlying framework of many AI technologies, once conceptualized, can be implemented in a relatively short period of time, there is a high risk that a competitor may implement similar technology. Having a legal stake in the ground that provides the exclusive legal right to prevent others from developing or selling a technology instills investors with the confidence that competitors are unlikely to disrupt the market with similar innovations.

Having a robust intellectual property portfolio also demonstrates to potential investors that a company’s ideas are new and inventive. A granted patent proves that a technology is demonstrably new when compared to existing technology at the time of filing. This alone can instill a lot of confidence in investors. Continuing to file patents for technologies as funding grows can demonstrate that funding is being put to good use and create landmark data points to show the technological progress of a company’s growth in research and development.

In short, every company should periodically assess their IP strategy to ensure that the IP strategy remains aligned with the goals and vision of the company. For AI companies, time is of the essence as the number of patent filings will only increase and the amount of patent whitespace diminishes. There is never a bad time to revisit your IP strategy. For many companies, their IP strategy may need to be remodeled -- or at least reevaluated -- as a company begins or closes a funding round or launches a new product or feature.  And occasionally, a company only begins to revisit their IP strategy once they receive a letter from a competitor. Let that not be you.

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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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