Why Patents Should Be a Priority for Tech Startups?

Today’s startups operate in a pulsating ecosystem that is hyperactive with many new stakeholders entering the fray — Governments, funding agencies, industry, and industry associations among others. Unlike before, entrepreneurs have to face to a world brimming with new ideas, new startups and established companies every day. It is no surprise therefore that beginning Day 0, startups face severe odds. The odds are so severe, that a majority of the startups during their lifetime fail to cross the barren ecoterrain (signified by the first 3–5 years of the startup life) to reach the oasis (signified by a mature idea and a clear target market). The battle to differentiate from the competition and gain traction is extremely daunting. However, a majority of the startups spend their time in the barren ecoterrain trying to figure out their idea, and mapping the idea to the target market. On the priority checklist of most tech entrepreneurs, intellectual property and patents would figure at the very end, if at all it figures.

That is a fatal mistake.

Why should patents matter and figure in the startup strategy?

Yes, patents are expensive, and it is tough for a startup with limited finance, to figure out a single patent, and to develop a broad IP strategy. But, if a tech startup were to aim for product and startup differentiation, and rise above the noise, they should consider IP and especially patents.

Why then pursue patents?

Strategically filed patents would yield benefits for a startup from the day they are granted. Having a patent protected idea would result in the startup valuation to increase manifold. It would also enable a startup to channelize the communications to their target market with precise messaging.

However, does it make sense for all startups to have a patent?

Before embarking on this important strategy decision for having patents, a startup must consider the rationale and goals for a patent strategy. It could range from the need to protect their intellectual property, to enhancing their brand image and value amongst the investor community. Patents could also support in protecting income streams and recovering investment in product development, and securing a competitive advantage in their market segment.

Some of the key considerations that a startup must give include the following:

  • The current stage of the technology development
  • Innovation and usage aspects
  • The market landscape, and competition, if any
  • Need for technology licenses to further the product development

To the target market, a patent-protected product would signal that the product is premium, and absolutely different from other competitors and substitute products in the market. For the investor, startup patent applications would be testimony to the startup’s focus on developing novel products with unique market differentiation in the target market. For mature startups, a small but healthy patent portfolio would enable them to increase their odds for scaling-up significantly as well as being an attractive acquisition candidate.

So, what patenting strategies could startups explore?

Well, it depends.

Startups adopt various strategies around intellectual property and innovation. While the focus of some startups is very low on intellectual property, and more on research, product development and marketing, there are other startups that have a loosely defined patent protection strategy that protects some of their products. Standing out from the crowd are those startups that have a frugal IP strategy, and a defined budget to work around with.

Startups would need to consider the geographies or jurisdictions where they intend to operate, and apply for patents in those markets only. Similarly, a startup should invest in understanding its competitive landscape, and the patent heatmap for all its benchmarked competition. Such a analysis would help the startup in avoid infringement suits, and using it for competitive advantage.

A startup could look at the market in which it operates, and then consider between an offensive or defensive patent strategy.

Offensive Patent Strategy

The strategic goal of an offensive patent strategy is to prevent the competition from gaining market access to the technology domain, and market segment in which a startup operates. In such a scenario, a startup would seek to file patents for all its inventions as soon as is practicably possible. Given that the cost of filing and maintaining many patent applications is prohibitive for startups, an offensive patent strategy may not be ideal way forward.

Defensive Patent Strategy

Defensive patenting is a patenting strategy whose strategic objective is to ensure that a startup is able to use its own inventions without risk of competition patenting and enforcing the technology on the startup.

For a startup, a defensive strategy is good play owing to the nominal costs, and the freedom that brings for enabling rapid product development.

Depending on where the startup is in its journey, it may consider either of the above options, or explore both strategies in combination.

For startups, the key to getting their strategy right is lateral thinking. A startup must consider the level of its competition, and the threat perception for technology development, and the target market for protection.

For a startup that is at an early stage of its journey, trade secrets maybe a better bet than patent protection. On the other hand, a startup with proof-of-concept (PoC) could explore patents.

However, it is prudent to note that while trade secrets would enable the confidentiality of the information, they will not prevent the competition from filing for their patents.

For a startup that has gone beyond the initial ideation phase, it would be prudent to consider specialist advice on the best strategy forward, and the type of strategy that suits their interests. Regardless of the approach taken, the odds for success are higher for those tech startups that focus on filing for their own patents early on, and buy patents at a more mature stage to protect themselves, or cement their competitive positioning.