Conventional wisdom suggests that businesses that innovate should also take every available step to protect their work — such as filing for patent protection.
This thinking is especially common among “high-tech” businesses, which typically have long research and development (R&D) cycles that require significant capital investment and dedicated teams of sophisticated innovators, all calibrated to deliver new technologies that will have a long-term impact in a variety of markets.
And it’s well known that high-tech industries file massive numbers of patent applications each year. For example, the eight companies in the recently announced “High Tech Inventors Alliance,” led by Google, Amazon, Intel, and other high-tech industry titans, collectively own over 115,000 patents.
But filing a patent application is an expensive and time-consuming process. If you’re going to make the commitment, you should first consider whether the benefits will justify the cost.
Above all, a patent is a business tool, so you need to evaluate your inventions in terms of their commercial value. Filing a patent application is often worthwhile for inventions that present viable business opportunities, or offer your business an advantage over its competitors.
What is a patent?
Many believe a patent gives you the right to use your invention. But this isn’t the case. You can own a patent, and still not have the right to use the patented technology — for example, your patented technology could infringe someone else’s patent.
Instead, a patent gives you the right to exclude others from making, selling, using or importing a particular product or service, and to claim damages (royalties) from anyone who infringes your patent.
In other words, a patent allows you to prevent another business from exploiting your technology, so that you can enjoy the exclusive commercial benefit for some period of time.
7 benefits to filing a patent for high-tech businesses
1. Higher profit margins from your products and services
Tech companies with long R&D cycles require significant capital and time investment before they can take a product to market. For these types of products, patents are often the primary means of recouping your R&D investment, making them essential to a profitable business model.
If you don’t have a patent, competitors can reverse engineer your manufacturing processes and copy your end product. And they won’t have to make the same R&D investment, so they could viably sell the product at a lower price.
With a patent, the ability to exclude competing products means you can set your profit margins high enough to recoup your R&D investment. And as long as your patent is in force (usually about 20 years), no one else can enter the market with a product or service covered by the patent.
2. Controlled development and deployment of your technology
Because a patent usually protects your technology for 20 years, you can define a long-term business model around your technology — with less concern about competition. This gives you the time, space, and flexibility to ensure that your technology is sufficiently validated by and optimized for reception with each of your target markets.
For example, you might want to spend time “beta” testing your product or developing relationships with key customers, but feel pressured to get your product to a broader market ahead of competitors. Patent protection gives you a level of assurance that, even if another company has developed a competing product, you have some recourse if they attempt to enter the market ahead of you.
In other words, patents offer the market security needed to develop a more effective long-term marketing, sales, and deployment strategy.
3. Reduce or deter industry competition
Patents are a public record of your exclusive rights, which means that they might be working for you even when you don’t know it.
For example, if you own a patent covering valuable technology, chances are your competitors (or potential competitors) will discover your patent and be forced into a difficult and often expensive decision — if they avoid infringing your patent, they might end up with a lower quality product. Or they may consider the risk of infringing your patent to be greater than the profits they would gain from competing at all.
Even if your competitors are able to develop a competing product, they’ll have to expend additional resources dealing with the risk of infringing your patent, which gives you an edge.
By publicly defining your technological territory, patents help you maximize your competitive advantage within your industry.
4. Fundraising opportunities
Fundraising is especially important for startups and early-stage ventures attempting to establish themselves in high-tech industries, as they typically need outside funding from venture capital (VC) or other sources.
Patents can be significant to investors in part because a patent provides some objective assurance that your invention is unique and your technology can’t be copied. This is particularly true in high-tech industries, where the qualities of the product itself are more likely to drive sales.
For instance, compared to consumer-product developers, high-tech companies are are more likely to succeed based on the uniqueness of their technology — even without brand recognition or a “first-mover” advantage. Investors often look at a successful patent portfolio as a validator of or proxy for uniqueness.
5. Higher royalties in technology licenses
Patents are often used as leverage in negotiating technology licenses, which allow other companies to use or sell your technology in exchange for royalty payments.
Because successful high-tech innovations often have a long-term impact on the market, a patent can potentially bear royalties for many years. (This stands in sharp contrast against apparel, fashion, and consumer goods, where market opportunities are generally shorter-lived.) As such, high-tech companies often stand to gain significant revenue through patent licensing.
6. Access to competitors’ technology through cross-licensing
If you’re successful in the high-tech industry, you’ll draw competitors who will almost certainly have patents of their own. If a competitor asserts their patents against your business, having your own patent portfolio provides significant leverage and opportunity in resolving the conflict.
To put a finer point on it, you can respond by asserting your own patents against your competitor, claiming that they have infringed your rights. In fact, this happens all the time.
When two patent holders in the same industry encounter this type of dispute, they are more likely to cross-license — that is, each party gets a license to the other party’s patents — instead of going through a costly litigation process. In addition to settling the initial dispute, cross-licensing gives you access to your competitor’s solutions, which can improve your technology and generally advance your business.
7. Wider market reach
Patents allow you to generate additional revenue by actively licensing your technology across multiple markets, whether in terms of different geography or industry — even if you sell products in only one market.
High-tech innovations often have a longer-term impact in a variety of markets, which you can capitalize on to maximize your revenue streams. If you’re developing technology for a particular industry, you might find that the technology also has applications in another industry, and broad patent rights can provide a basis for licensing the technology to businesses in the other industry.
One great example of this is magnetic resonance systems — they have great commercial value for medical imaging (MRI), and also vast application in other industries such as oil and gas. Wireless technologies provide another great example; for instance, Bluetooth is found in everything from phones and printers to cars and sneakers.
If you’re creating technology that has strong commercial potential, developing a patent portfolio to protect your investment may be well worth the time and expense. An appropriately-scoped patent filing strategy will balance the costs of seeking patent protection against your current budget and your projected long-term business objectives.
Looking for specific advice tailored to your circumstances? Consider consulting a patent attorney with extensive technical expertise in your field. Not only are they qualified to serve as your ongoing legal advocate, but their deeper understanding of your work will also prove invaluable in offering relevant insights and forging a long-term relationship.
Henry Patent Law Firm’s attorneys have experience in a wide range of technical fields. Our scientific and legal expertise gives us a unique perspective on developing patent portfolios for high-tech businesses. We love hearing from innovators and tech executives — if you have questions, contact us now.