The vast majority of patents today are worthless for creating business value, but by following the 5 Rules for Avoiding Worthless Startup Patents in this post, entrepreneurs can improve their odds of generating patent rights that create value for them.
1. Know the Difference Between a Protecting Your Innovation and Protecting Your Product
Most patents cover only a single solution to a broad consumer problem, as opposed to the suite of solutions that solve the problem. In other words, most patents cover inventions, not innovations. This means that competitors are often able to solve the same customer problem with a product that does not infringe the patent. Moreover, these competitors will be motivated to do so when the first to market (e.g., you) demonstrates that customers will clamber for a product that solves their problem (i.e., once the first innovator validates the business model) and, often, are able to do so at lower cost. In generating patent protection that “makes it easier for others to go through you than around you,” entrepreneurs must recognize that patent coverage should focus not on features of the invention but, instead, on the benefits provided to the customer. Because such “market-making” patent coverage protects the benefits provided to the customer, competitors cannot legally sell a product encompassing the same benefits. In short, innovators who are the first to create products that solve a broad unmet consumer need must understand how to generate patent coverage that aligns with the reason the customer buys the product, not just the product itself.
2. Accept That It’s Not Your Attorney’s Job to Get You a Valuable Patent
Patents are hard. And arcane. And often boring. (Did I just say that out loud?!) All of which mean that it’s tempting for busy entrepreneurs to want to hand everything over to their patent attorney to handle. But your patent attorney is not the expert in your business, and she is likely is only moderately knowledgeable in the specifics of your company’s technology. If you want to obtain a patent that “makes it cheaper to go through you than around you,” you must be actively involved at all stages of the patent drafting process. Put simply, your patent attorney is nothing more than your conduit to the Patent Office: if you don’t tell her how to define the business value that you seek to obtain from your patent filing, you are guaranteed not to get it.
3. Don’t Be Afraid to Wait to File Your Patent Application
In 2013, the US changed from a “first to invent” system to a “first to file” system. While patent attorneys always urged clients to file applications as early as possible, the new law seems to make folks believe that it is imperative to file as early as possible to prevent others from beating them to the Patent Office. The net result of this increased urgency is that even more patent applications will be filed for inventions that do not align with validated business models. As related in this post, Lean Startup requires us to demonstrate that customers exist prior to moving our business forward, and the same reasoning applies to filing a patent. As an entrepreneur, I should not care about obtaining a patent unless I know that such protection is needed to ensure that I will be able to capture the value of my validated business model. It then follows that any patent filing should wait until the customer is shown to exist. Of course, care must be taken to ensure that one does not disclose the “secret sauce” of your technology during the customer discovery process, but if you’re talking about such details during the customer discovery process, you’re not doing it right.
4. Stop Choosing Your Patent Lawyers the Way You Choose Your Plumber
Large companies are lightyears better than startups when selecting patent counsel because, as experts themselves, they are able to vet their peers using professional quality metrics. In contrast, entrepreneurs tend to select their patent attorneys like they choose their plumbers, either as a result of succumbing to the lawyer’s marketing efforts or because they “know a guy who knows a guy.” As someone who regularly reviews the work of many of these lawyers when assessing patent value for those seeking to sell or buy patents, I can say with authority that entrepreneurs must be more diligent in choosing their patent service providers. For example, you know that lawyer at that big firm–you know the place where they give out the great swag to clients? I had to tell a client that he made a dumb mistake on a patent license that destroyed millions of dollars in market value. And, that patent lawyer who is the son-in-law of your next door neighbor? Yikes! He can’t draft a good patent to save his life. Significantly, you won’t find many in-house attorneys at sophisticated technology companies hiring these guys, which should be a strong signal that they shouldn’t be doing your work, either. A great way to discover names of great patent providers who are not the “usual suspects” is to apply your customer discovery skills: ask. But don’t ask entrepreneurs who are in the startup stage like you because they don’t know yet whether their patent attorneys are actually any good. Instead, you need to ask people who successfully exited from startups where patents are known to have formed a significant aspect of their company’s valuation. This information might be kind of hard to find, but we agree that you’re going to spend more effort on choosing your patent lawyer than you spend on the plumber, right?
5. Know That the Sunk Cost Fallacy Applies to Patents, Too
Let’s assume you adhered scrupulously to Rules 1-4 above and filed a patent application today. That application will stay exactly the same in content until the Patent Office finally gets around to reviewing it 18-36 months from now. In contrast, your company’s business model is likely to change markedly in that time. Many patents end up being worthless for startups because, while they might have been perfect when filed, their content no longer aligns with the business model. Notably, once a patent is filed, the outside patent attorney is incentivized to convince the Patent Office that the inventions claimed meet the legal requirements for patentability, as she benefits financially and professionally from these efforts. This means that entrepeneurs likely will not be hearing from their patent attorneys to drop the application when it comes up for review because that is just when things get interesting for the lawyer. It is therefore up to the business team to review the patent filing at various stages of its existence to determine whether it makes business sense to continue. If the patent filing no longer matches a validated business model today (either yours or someone else’s), there is no reason to keep it going, even if the organization invested significant time, effort and money to get it to this stage. Nonetheless, it often seems that it is harder for people to let go of something as “official” as an issued patent or pending patent application. A worthless patent is worthless or, in other words, the sunk cost fallacy applies to patents, too.
For more advice on patents and IP, visit Jackie Hutter’s previous posts directed to startups at Hypepotamus.com. For more in-depth analysis visit Jackie’s IP Asset Maximizer Blog where she has been providing guidance to companies of all sizes since 2008. Jackie can be reached at JackieHutter@gmail.com.
