Wednesday 20 January 2016

10 Patent Considerations for Startups in the Age of the Assault on Patents

Today, Oxfirst sponsored a talk by the distinguished Rt. Honorable Professor Robin Jacob defending patents.  Another commentator has also stepped forward to defend patents.  Recently, attorney John R. Harris authored an article titled, “The Patent System is Under Assault:Startups, Should You Care? Ten Things About Patents that Startups Need to Consider,” published in the 44 American Intellectual Property Law Association Quarterly Journal 27 (Winter 2015).  Mr. Harris outlines the current assault by describing one of the attacks coming from the Patent Trial and Appeal Board (affectionately known as the so-called “Death Squad” for patents) and its rate of 80% in finding patents invalid in Inter Partes Review Proceedings.  Notably, the U.S. Supreme Court has recently granted certiorari in Cuozzo Speed Techs., LLC v. Lee to determine whether the Patent Trial and Appeal Board is applying the correct standard in reviewing patents for invalidity.  The outcome of that case will be closely watched—particularly, I think, given the current gaming going on concerning shorting the stock of companies whose patents are then challenged through IPRs.

In defending patents, particularly in the context of startups, Mr. Harris states:

But most significantly for startups, that property right can represent enhanced value for investors and improve the prospects for obtaining early stage financing.  A well-crafted patent—or even better, a collection of patents in a portfolio that forms a patent “thicket”—reveals and represents the fruits of product or service development, helping form a protective barrier against theft. If that product or service requires capital to come to market, investors draw some comfort from the patents’ protection of the investment while the product is commercialized. This early protection is vital because, in this author’s experience, it often takes companies years to go from “maybe a good idea,” to a prototype, to a testing environment, to a sold product, to market acceptance, to profitability, and finally, to investment realization.

My own personal experience mirrors Mr. Harris’: it can be difficult to draw attention from venture capitalists without solid patent rights.  I haven’t practiced in a while, but my understanding is that venture capitalists still value patents in determining whether to invest in a startup.  [Interestingly, I’ve never seen the use of term “patent thicket” in a positive light.]

Moreover, in spite of the assault on patents (and their cost), Mr. Harris notes that startups should take into account these ten considerations concerning patents: 1. Enterprise Value Enhancement; 2. Signaling Quality to Investors and the Investment Community; 3. Establishing Ownership of Technology and Inventions; 4. Assertion Against Competitors; 5. Avoiding the IP of Competitors and Others; 6. Revenue Generation/Licensing/Monetization of IP; 7. Facilitating Collaborative Research; 8. If You Get the Patent, You Block the Competitors; 9. The Laws Will Change . . . Again; and 10. Although Trade Secrecy and Copyright Offer Some Protection, There Is No Viable Alternative to Patents.
Do you have any other considerations to add?  Also, what is on the cost side?

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