It’s a scenario that has played out in many a boardroom around the world. An entrepreneur lands a sizeable investment but has not spent a single cent on protecting their intellectual property (IP). No matter what your exit strategy, or whether you even have one, the protection of IP and an appropriate IP strategy should be conscious, pro-active discussions that all startups have at a very early stage.
One effective way of protecting new technology is by way of a patent. While not all technologies are patentable, the rumour that inventions that rely on software for their operation cannot be patented is the stuff of fables. If you are not considering patents for your software-driven business you may quite simply be missing the boat. But patents are not only effective in preventing others from making, using or selling your patented technology. In fact, the following may be far more beneficial to your software startup:
Investors like patents. They clearly indicate ownership of IP, meaning that it is evident to potential investors what technology your startup actually owns. Patents are easily identifiable and demonstrate some degree of differentiation from the status quo — they can also be indicators of innovation.
A patent, unlike know-how, is something that remains behind when a key-man leaves, meaning that investors get to invest in something more tangible than talent. Patents also give potential investors at least some level of comfort that the technology they are investing in could be monopolised. You also do not have to break the bank to get patent protection. One pending or provisional patent application with some outstanding international patent rights may be all you need to satisfy the investors.
Patents can be used to protect your startup against claims of patent infringement from others. Having its own patents on hand would naturally strengthen your startup’s position at the negotiating table and, when faced with an allegation of patent infringement, cross-licensing or counter-suing are options which may encourage the patent assertor to back down.
This is particularly relevant for startups planning on launching in the US, a market well known for its assertive patentees and less savoury operators like patent trolls.
In his book Cash in, cash out, Fundamo founder Hannes van Rensberg mentions their defensive IP strategy: Fundamo “lodged many patents and managed (their) patent portfolio actively, not so that they could sue for royalties, but to assure their clients that what they licensed from (Fundamo) was actually (theirs)”.
3.Licensing; an additional revenue stream
Patented technology can be licensed. This is particularly beneficial for technology which no longer aligns with a startup’s direction. As big-league examples, IBM has been reported to generate about US$1-billion in revenue every year through out-licensing their own patents and other intellectual property and in its heyday Microsoft was making about US$2-billion by licensing patents used in Android-based phones.
4.Monopoly for new tech
Even if you have no intention of suing, others (without knowing this) will think twice about encroaching once aware of your patents. In some cases a simple letter is effective in deterring or just delaying would-be competitors from eating your lunch. Patents play an important role in protecting innovative and technical advances in the software realm and should not be left at the very bottom of your to-do list.
Stephen Middleton and Erik van der Vyver are patent attorneys at Von Seidels.
Featured image: Neil Turner via Flickr (CC 2.0, resized)