Ensuring value in early stage company patent portfolios
March 2019 | SPOTLIGHT | INTELLECTUAL PROPERTY
Financier Worldwide Magazine
March 2019 Issue
Most early stage companies rely on their patent portfolios to drive initial company valuation and establish a competitive advantage. In light of the significant monetary commitment required to secure meaningful patent protection, which as a percentage of budgetary outlay is much larger for early stage companies, it is imperative that the development of a patent portfolio is executed in an efficient and effective manner in order to avoid costly mistakes which can derail even the most carefully crafted business plans. While a ‘one-size-fits-all’ approach is rarely practical, early stage companies can ensure that they are creating a meaningful patent portfolio by understanding the value drivers of a patent portfolio, and committing the proper resources to its creation.
A patent is a right granted by the government that allows a patent holder to exclude others from making, using, selling, offering to sell or importing that which is claimed in the patent for a limited time period – generally 20 years from the first effective filing date of the patent application, with adjustments and extensions available under certain conditions. Accordingly, the value of a patent portfolio is often determined by the scope and scale of the granted exclusion and the alignment of the portfolio with the business interests of the company.
As a practical matter, early stage companies should ensure that every patent filing has a defensible business justification for its filing. For early stage companies, this generally requires that, at a minimum, patent coverage is in place allowing the company to exclude others from making or selling its most important commercially relevant products, technologies or services in the highest value marketing and manufacturing jurisdictions. This requires more than blindly filing patent applications that cover a company’s assets, however. An initial patenting strategy must include an understanding of the current patents and prior art in the field, as early and continuing diligence of the patent landscape in the field during product development and deployment can be invaluable. Third-party patent rights can negatively impact the ability to market a given product, technology or service, or limit the potential patent protection available for the same, which can significantly impact a company’s business proposition. By understanding the prior art and identifying the relevant patent landscape, a company will be able to develop a patent strategy that takes into consideration the prior art, thus ensuring valid and defensible claims, and potentially capturing subject matter not currently exploited by others. For example, patent publications provide a good review of future trends in a field, often much earlier than industry publications. By understanding the current patent landscape, industry trends can be monitored, and adjustments can be made to a company’s product early in its development cycle if necessary to avoid third-party patents. Finally, by performing appropriate patent landscaping analysis, a savvy company may be able to identify and exploit defensive patenting positions that block competitors’ future product developments, serving as a potential hedge for assertion in future patent disputes.
In order to successfully develop a valuable patent portfolio, early stage companies must also understand the patent prosecution process, its timing and its costs. A common mistake many early stage companies make is failing to plan for the costs associated with patent prosecution and the time required to implement a strategy that properly aligns with its business. For many companies, an initial patent filing will consist of a bare-bones provisional patent application. A provisional patent application establishes a priority date, but does not mature into an issued patent unless the applicant converts it to a regular non-provisional patent application within one year. This initial filing, from a cost perspective, is generally minimal compared to the costs that will be incurred as prosecution progresses. Prior to the filing of a regular non-provisional patent application, a company should ensure that the application fully describes and encompasses the technology it wishes to protect, as well as any additional embodiments and future iterations. In addition, recognisable workarounds to the technology should also be covered in order to avoid potential gaps in patent coverage that can be exploited by a third party. This expansion must be properly planned for, both in budget and time, as the company can expect to incur additional attorney and filing costs, as well as increased time commitments required for patent application review and the development of experimental or technical data to properly support the application.
Importantly, valuable and effective patent portfolios have an appropriate global reach and strategy commensurate in scope with a company’s international product marketing and manufacturing plans. Companies seeking international patent coverage can take advantage of international treaties that provide for the filing of a single initial patent application known as a Patent Cooperation Treaty (PCT) application. Much like a provisional application, a PCT application secures an initial priority date, but must be entered into each jurisdiction where patent coverage is desired starting 30 months from the application’s earliest priority date. This process is known as a national stage filing. Accordingly, if a company files an initial provisional application, and then files a PCT application, a national stage filing must be commenced, starting 30 months from the filing date of the provisional application. These national stage filings can be costly due to the need to translate the application into each national stage country’s official language, additional patent office filing fees and foreign counsel attorneys’ fees and ongoing maintenance fees required to keep the patent application pending or granted patents in force. While cost estimates for filing national stage applications vary, based on the jurisdiction for entry and the size of the application, a rough estimate of between $30,000 and $50,000 per country for the life of the patent is not unreasonable. Because of the costs associated with securing international patent rights, seeking patent coverage in 100 percent of jurisdictions is not practical. Therefore, an international filing strategy must maximise coverage in a cost-effective manner while ensuring appropriate protections. For many companies, a significant percentage of a product’s market can be protected by targeting a select number of jurisdictions where the majority of current and future product sales and manufacturing are expected, thus avoiding filing applications in jurisdictions whose costs may not be justified by their market or manufacturing share.
Successful early stage companies also understand how the exclusionary rights in a patent are exercised. In any patent enforcement proceeding, a patentee is burdened with establishing infringement, and must have a reasonable and evidentiary supportive position in bringing an infringement action. A common mistake many early stage companies make in developing a patent portfolio is failing to properly appreciate whether a patent, once granted, can be readily asserted against a potential infringer due to the difficulty in identifying or uncovering infringement. Incurring the costs and public disclosure of valuable technology by securing a patent that is difficult to enforce can seriously undercut the value of a portfolio and the company itself. Prior to each patent application filing, careful consideration should be given to the ease at which infringement can be discerned. If it is determined that uncovering infringement is overly difficult, an alternative form of protection, such as trade secret protection, should be considered.
Another common strategy successful early stage companies engage in during patent portfolio development is the regular review and rebalancing of their portfolios. Business strategies change over time. Given the extensive time it can take to secure a patent, it is not uncommon for certain applications to fall out of alignment with a company’s business. Failing to regularly review and identify patents and applications which no longer align with corporate business strategies can lead to significant spend on unaligned aspects of the patent portfolio, and drain valuable company resources. A good practice is to review and ensure patent portfolio and business alignment during annual budget planning, which allows a company to identify unnecessary patents and applications and redirect resources accordingly. While it can be difficult for a company to abandon filings even if they become unaligned with the evolving corporate objectives, a company should not continue to invest time and money in a patent or patent application that is unaligned with its business strategy simply because it is patentable or because there has been a significant investment in prosecution to date. In addition, companies may continue to maintain unaligned filings in the hope that those filings have value to a third party. Before doing so, it is wise to make at least some effort to assess the value that these unaligned patents may have in the marketplace, as well as the company’s bandwidth to partner such assets. If the inquiry indicates patents or applications of minimal or unrealisable value, it makes little sense to continue to invest in them.
Finally, successful early stage companies are actively engaged in directing their patenting strategy and thus devote significant time working with their patent counsel to ensure everyone understands the company’s business goals. The management team should consistently relay the business goals and opportunities their company is pursuing to their patent counsel, and regularly update them on technological advances through, for example, regularly scheduled patent strategy sessions. Working closely with patent counsel will allow timely adjustments to patent filing and prosecution strategy when necessary, thus ensuring value and avoiding unnecessary expenses on patents or applications that may no longer be relevant.
Brent R. Bellows is a partner and Doug Gooding is a business adviser and technical specialist at Knowles Intellectual Property Strategies, LLC. Mr Bellows can be contacted on +1 (678) 694 1558 or by email: email@example.com. Mr Gooding can be can be contacted on +1 (919) 699 6698 or by email: firstname.lastname@example.org.
© Financier Worldwide
Brent R. Bellows and Doug Gooding
Knowles Intellectual Property Strategies, LLC