Owning patents is among the ways a business can enhance its chances of success. But securing them in abundance in some industries may be unnecessary under current law and possibly harmful.
Patents in tech are more uncertain and difficult to license than ever. They are also more costly to enforce and require disclosures which may prove harmful to some businesses. More businesses and their investors are saying “Why bother?”
Overreliance too many or uncertain patents can provide a false sense of security, experts warn. On the other hand, dismissing the need to protect key inventions and designs with a sufficient number of well drawn rights can be dangerous, too.
“Fewer unicorns, private companies whose market valuation exceeds $1 billion, are interested today in patent protection for their inventions,” says Efrat Kasznik, President of Foresight Valuation Group, an IP advisory firm, “especially if their focus is in the area of ecommerce, Internet or software, where patentability is in question.”
If a unicorn is engaged these and other areas, it is less likely today that patents will have a significant impact. In the bio-pharma, chem and the life sciences, where a single U.S. patent can have undisputed value, it is another matter.
Too Few or Too Many?
“Some companies have far too many patents and are relying on them more than they should for value,” says Kasznik, who teaches in the Stanford Business School. “Others with good funding have too few and believe they can worry about IP rights down the road. Some early stage businesses are turning to trade secrets and putting more capital into building their brand.”
Patents can cost from $10K to $40K to secure (see chart above) and maintenance costs can add up, too. About 50% of granted patents do not survive the first renewal. For that and other reasons, many venture investors are not keen on them. That is not to say the the right well-written and timed patent can not be valuable leverage. It also may help to acquire and maintain market share. One expert pegs 63.5% of new U.S. patents granted “software related.”
“Getting a patent can be wise when your idea can be reverse-engineered, such as a medical device or a pharmaceutical,” says Nathan A. Evans, partner and registered patent attorney at Wood Rogers Vandeventer Black PLC in Virginia, as reported in the Wall Street Journal. “But if you make any public disclosure, even inadvertent, trade-secret protection may be lost forever.”
In some instances and industries a patent does not make as much sense. “If your idea is something that can be kept secret, such as a recipe or complex process that cannot be reverse-engineered, perhaps keeping it as a trade secret makes more sense,” he says.
“In some industries, patents are absolutely critical,
but in far more they are not”
With proper brand protection and first mover advantage, a patent may not matter that much, especially in industries where it is difficult to obtain patents and where they are more likely to be infringed and challenged in litigation.
Diminished Reliability
What patents’ diminished reliability mean for innovation is unclear. Thus far, it appears to have a encouraged a pivot toward trade secrets, which can impact sharing and future development in a market or industry.
Patents are not legally required before a business sells its product or to profit from its invention. There are many products and services sold in the United States that are not patent-protected. However, a patent is necessary if a business wants to prevent others from making marketing, selling, or importing their invention.
“Why bother? We’ll buy some when we need them,” is a rather cynical attitude. Companies like IBM have become the “Home Depot” of businesses in need of instant IP assets, their relevance to the purchaser and true value notwithstanding. Patents should not be seen as window dressing in preparation for public ownership.
“In some industries, patents are absolutely critical. But in far more they are not,” writes inventRight CEO Stephen Key in Forbes. “It’s a well-known fact that a vast majority of patents are worthless. Around 97% of all patents never recoup the cost of filing them. That figure has been floating around for years. There’s other compelling evidence.”
“Patent attorneys are keen to liken patents to real estate property. That’s wishful thinking,” says Key. “At best you can establish perceived ownership over an idea. But you never actually own anything. That’s the conclusion I reached after watching my Silicon Valley patent attorneys spar against the toy company Lego in federal court. After three long years, we settled two weeks before trial. I learned firsthand that patents are just words subject to interpretation by judges, juries and patent examiners.”
Less reliance on patents means that protecting core inventions is more difficult and despite trade secrets, even easier to steal, especially by more powerful players. Not all inventions in every industry benefit equally from patent protection. Clarifying patentability in areas like software will help to encourage certainly and attract more investment. Unfortunately, the courts have not been keen to offer much direction.
Knee-Jerk Reaction
Is it a good sign that more young companies are forsaking patents? It is in their best interest and that of technology, in general, to be judicious about selecting what to patent. Patents in many areas of technology are not a simple ticket to riches. However, not pursuing patent protection could become a problem if executives and investors lose faith in the underlying value of business assets.
“Should you protect it with a patent?,” reports the Wall Street Journal. “The knee-jerk reaction is, of course. You don’t want somebody stealing your idea. But the answer isn’t as clear as it might seem. Experts and entrepreneurs say that there are other considerations that may be more pressing when you’re preparing to launch—so you might want to put off getting a patent, if you get one at all.”
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