The Potential Patent Pitfalls
Everyone wants to come up with the next big thing. If you’re lucky enough to succeed in this, you’re soon faced with an uncomfortable realisation — everyone will want to steal your idea. This is the nature of innovation and commerce. It’s often said that imitation is the sincerest form of flattery. Those who have seen their hard work and personal vision pilfered by others may not quite agree with this sentiment, however.
Patents offer a safeguard for intellectual property against potential infringement of every level. In the world of tech, patents are big business. Speculative articles concerning new features in the yearly iPhone refresh cycle are fuelled by new patents filed by Apple, with commentators publishing vague blueprints obtained from the patent office’s public records, and deducing that the next handset will invariably see some incorporation of these often vaguely-worded concepts.
Obviously, giants like Apple are expected to vigorously protect their latest technological developments from competitors. Bt what about tech startups? In a crowded marketplace dominated by Silicon Valley, Chinese, Korean and Japanese firms, shouldn’t the smaller firms also act to protect their R&D?
What tech startups need to be aware of right off the bat is the competitive patent arena that they are stepping in to. The major tech companies have dedicated departments with massive operational budgets that facilitate dizzying numbers of patents per year. In a report by the Intellectual Property Owners Association, IBM had a staggering 8,996 patents approved in 2017 alone.
Startups are unlikely to have access to either the funding nor legal manpower to compete. Rather than take a scattergun approach to patent filing, smaller companies must concentrate on smaller, quality patent filings that, should the startup want to pursue this avenue, leave the door open to potential cross-licensing agreements.
The reason why patent law is so lucrative is because it is so complex. While it may seem like a no brainer that startups should immediately file patents in order to safeguard their ideas, the reality is one of the key considerations that founders need to make before rushing in to the patent office.
Startup Products and Goals Change
A revolutionary product is unlikely to remain the same as it journeys from inception to market. A product will likely go through numerous iterations before it is ready to consumer adoption. Paul Graham, co-founder of Y Combinator, once pointed out that at least 70% of startups have a different core idea or product at the centre of their business within 3 months. Dedicating time and money on securing the rights to intellectual property that likely won’t be pursued in its current form is counterintuitive, and could deplete already scarce resources within the company.
Time and Money
There is often a mistaken belief that once a tech company has developed an idea that can be patented, there is a rush to file the patent and quickly secure it. Unfortunately, in the US at least, the process is more costly and drawn out than many people imagine. Patents deemed as ‘extremely simple’ have been estimated to cost $6000, while entire cases of patent filing and prosecution can increase to upwards of $60,000.
In 2016, the United States Patent and Trademark Office estimated that the average wait time between the filing of a patent and the first office action was up to 16 months. The wait, and money spent on the process, could be seen to be a necessary investment, but the success rate of actually getting a patent granted in the US is surprisingly low too — a study from Yale in 2015 found that only 56% of applications were approved.
Reverse Engineering and Foreign Competitors
What constitutes an ‘idea’ is so broad that the legal process of filing a patent does not necessarily preclude competitors from finding ways around it. Patents are public record, and there is the possibility of third parties finding a piece of protected work and copying certain key aspects of it — just enough to skirt the confines of direct infringement. What results is a product that offers the same kind of monetisable functionality, but without any kind of compensation to the original startup.
Not only this, but patents filed in one country, e.g. at the U.S. Patent & Trademark Office, are not necessarily protected from infringement overseas. A great deal of media attention has been given to fragrant patent violation by Chinese companies, including that by several prominent mobile phone manufacturers.
Precedent
The tech industry has unfortunately seen important case law, in the US at least, in which big tech companies have been far better favoured in disputes over patent infringement than the startups going up against them.
One example is the case of eBay Inc. v. MercExchange (2006). eBay were using key functionality on their site, including the ‘Buy Now’ option across their auctions, of which MercExchange owned the patents but were allowing eBay to use through a license agreement. When eBay abandoned plans to purchase the patents, MercExchange sued them for patent infringement. In a series of reversing decisions throughout the courts, the Supreme Court eventually ruled in eBay’s favour, allowing them to continue using the intellectual property throughout their site.
Fast Execution
The tech market may be rife with opportunistic poaching of ideas and products, but the market also rewards rapidly executed ideas that capitalise on consumer need. Don’t file a patent before actually getting a product that’s ready for market. Instead, tech startups should consider the benefits of establishing themselves as the market leader in an area first.
Facebook, Airbnb and Google approached the market in a similar way in the past when they were in their smaller stages as companies. They established market share by quickly rolling out new products and developments, securing investment, and consumer recognition before focusing on patents at a later stage.
Alternatives
Patents are not the be-all and end-all in protecting a tech startup’s intellectual property. Founders can look to several quicker, cheaper and more easily attainable forms of safeguarding their work, starting off with the basic first steps such as registering trademarks, and even .coms and usernames on major platforms to prevent domain camping by individuals hoping to make a profit out of these free assets.
Another vital step for startup founders to take is to draw up non disclosure agreements. These prevent staff from poaching intellectual property from the company, without the cost and legal time consumption that the patent process entails.
