Patent Law News + Insights

Crafting a Smart Patent Strategy: 7 Advantages for Tech Startups Over Large Companies

December 21, 2018

By building a robust patent portfolio, tech startups can gain a competitive edge in their industry:

  • Increase your profit margins
  • Exclude your competitors from monetizing your inventions
  • Create prior art against your competitors’ patents
  • Generate licensing and collaborative opportunities

In earlier posts, we’ve discussed larger companies’ tendency to rely on a “high-volume” strategy to build their patent portfolios. But because tech startups are working with limited resources — small budgets, diverted attention, lack of internal patent counsel — they need to take a fundamentally different, more offensive approach to the patent process.

Instead of trying to ineffectively mimic what big companies do, tech startups can create a powerful patent strategy that actually works for them by leveraging their unique attributes.

exploit-startup-asymmetry

Exploiting your startup’s asymmetry with large competitors

I began my patent law career drafting patent applications for several big tech companies, and after many years, found myself managing international patent portfolios for a couple of the biggest tech companies in the world.

Throughout the same period of time, I also represented several well-funded tech startups who were developing cutting edge technologies. I helped them create strategic patent portfolios that were eventually acquired by big tech companies for large sums of cash.

Through this experience, I recognized several major differences in the way big tech companies and small tech companies operate, and in particular, how each type of company can turn their distinctive attributes to their own advantage during the patent process: 

 

Tech startup

Large company

Risk appetite

Intrinsically risky endeavor (you’re betting on your ability to monetize a future market); startups can take on bigger risks by playing offense with their patent strategy

More risk-averse; it’s in their best interests to file defensively

Financial resources

Cash lean; it makes more sense to invest in a few strategic, high-quality patents

Can afford to file many patent applications to distribute risk, deter litigation and encourage cross-licensing

Speed in making decisions

Make fast and well-informed decisions; high-level executives are often inventors who actively offer insight and strategic vision to the patent process

Slow to come to a consensus; high-level executives aren’t involved with individual patents

Responsiveness to change

Nimble; can quickly respond to market/industry opportunities and risks, and redirect IP toward “green spaces” and away from minefields

Bureaucratic and inflexible; more administrative overhead governing every step of the process

Predictability

Less information available on the market; many startups launch in “stealth mode,” making it difficult for competitors to target their business models

More information publicly available; easier for competitors to predict the behavior of large, well-established companies

Business integration

Smaller teams and operations make it easier for startups to integrate patent and product strategies

Large employee base is usually spread over multiple teams; operations are more divided

Tolerance for “innovation risk” (risk that the invention isn’t valuable)

By definition, startups are already exposed to innovation risk, which means they can go all-in on their patent portfolio

Patent strategy needs to support success, not failure; large companies must be cautious about investing in different areas

 

If you’re a tech startup or a growing tech company, you should periodically think about how you can leverage these asymmetries in order to compete with larger companies in your industry. From my experience working with tech companies of all sizes, I know that smaller tech companies can certainly obtain higher value patents than large companies if they take the right approach.  

Disadvantages tech startups face during the patent process

Of course, startups will also face a couple of challenges as a result of having fewer resources. Here’s what your startup can do to address these potential pitfalls.

The valuation of your patent portfolio

When assessing the value of your patent portfolio, many potential investors and acquirers will still prefer to see a high volume of patents — because volume is much easier to measure than “quality.” (Let’s face it, a list of 40 patents looks more impressive than a list of five patents!)

To that end, you might need to take a mixed approach, where you consider volume in addition to quality. For example, you might designate a certain number of “low priority” (and low budget) patent applications to file each year or each quarter.

But take that approach, it’s important to also limit your spend on these lower priority applications so that you can focus resources on your more important “offensive” filings. This will help you generate a patent portfolio that has volume, without sacrificing strategic value and quality.

Uncertainty over your patents’ long-term value

As a startup, you might prefer to diversify your investments, because you won’t know in advance which patents will be valuable.

But keep in mind that you’ll enjoy significant value just from the initial filing alone: Upon filing, you automatically gain defensive value (as you can prevent others from patenting a similar invention) and portfolio value (you can license a pending patent application). And this value only increases with the patent’s quality.

By regularly “pruning” your portfolio, you can cut your losses and focus only on the most valuable patents. You can eliminate half of the overall cost of a patent as late as 30 months after filing — without losing all the value.

Setting a smart patent prosecution timeline

Startups that build strong patent portfolios are strategic about what they file — and when they file.

Our FREE infographic, “The Cost of the Patent Process,” outlines common deadlines during patent prosecution, as well as the estimated costs you’ll incur. It’s never too early to start planning ahead: Download the infographic now!

free patent cost infographic download

POSTED IN: All Posts, Patent Prosecution, Patents, Startups

Michael Henry

Michael Henry is a principal and the founding member of Henry Patent Law Firm PLLC. Michael specializes in creating comprehensive, growth-oriented IP strategies for early-stage companies who are developing emerging technologies.

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