Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, Use Patents to Protect Your Intellectual Property and Create Value for Your Start-up Company

To be successful, all start-up companies need to differentiate themselves in the market with their technology, product or service offering.  In addition, these same start-up companies also need to create a long-term sustainable advantage in the market that is defendable.  One way to accomplish this is to develop, file, and prosecute a number of broad patents to protect your start-up company and its underlying intellectual property. Although necessary to create a strong and defendable position in the market, the requirement of developing, filing, and prosecuting patentable ideas is often prohibitively expensive for these same start-up companies. With limited funds, the necessity of securing a number of patents to protect your intellectual property has generally not been a viable option for these same start-up companies. This is primarily due to the prohibitively high costs of patent attorneys ($250 to $500+ per hour). Today, with the development of “off-shore” service companies offering substantially similar services to traditional patent attorneys and patent agents, the ability to secure a number of patents with a limited amount of funds is now a viable option for your start-up company. This article addresses the value of constantly innovating, determining the potential of patentable ideas and using alternative approaches to develop, file, and prosecute patents to create a long term sustainable advantage in the market.

Constantly Innovate

Venture capitalists and angel investors want to be assured that their investment in an early-stage company not only provides a competitive advantage in the market, but is protected to create significant economic return in accordance with the risk of their investment. This is generally accomplished with patents covering the underlying and core intellectual property of your start-up company.  With the ability to offer 20 years of protection, patents can provide these same investors some level assurance that their start-up company has developed a unique and protected position in the market, with the possibility of substantial financial returns. 

Entrepreneurs also need to create value for their investors and their start-up company, by continually innovating and subsequently protecting their company and its intellectual property by filing patents.  A number of companies have developed very successful competitive market positions by developing massive patent portfolios to define and defend their technology and their unique position in the market.  One excellent example is Qualcomm, San Diego, CA.  Although Qualcomm did not invent CDMA technology, they pioneered its use in the digital-cellular phone market. To protect its position, Qualcomm has amassed a substantial portfolio of patents as they relate to CDMA technology and its application to the digital-cellular phone market.  This has uniquely positioned the company by offering a proprietary technology that currently has a significant percentage of the cellular phone market worldwide.  So, as a start-up company you need to continually innovate and develop new patentable technologies, products and service offerings to uniquely position and subsequently defend your start-up company, providing a long-term competitive advantage in the market.

Determine the Potential Value of Patentable Ideas

Not all ideas are patentable and in addition, even among those ideas that are patentable, not all of these same ideas provide any significant potential value to your start-up company. So, as a start-up company with limited funds, you need to determine which ideas have the potential to be patented and among those ideas, which patentable ideas are broad enough and significant enough to bring substantial value to your start-up company. Therefore, you need to take the time to evaluate the merits of each idea to determine the broad protection implications of the underlying intellectual property as they apply to your start-up company and its technology, product or service offering.  If an idea does not really add any specific protection to the “core competencies” of your start-up company and its technology, product or service offering, then it is probably not worth the cost of developing, filing, and prosecuting a patent.  On the other hand, if you believe that this new idea will provide broad protection and help to uniquely position your start-up company and its technology, product or service offering in the market, it is probably worth pursuing. Alternatively, if your potential patentable idea has the ability to open up and substantially protect new business opportunities that can add significant long-term economic value to your start-up company, again they are worth pursuing. Therefore, take the time really understand the potential value of patentable ideas to your start-up company’s long term competitive position in the market. This will allow you to determine which potential patentable ideas are worth pursuing for your start-up company.     

Lower the Cost of Developing, Filing and Prosecuting Your Patents

It is well known that developing, filing, and prosecuting patents are very expensive.  Often it is prohibitively expensive for start-up companies with limited financial resources.  With patent attorney fees ranging from $250 to $500+ per hour, the cost of just filing a single patent can break the bank for your start-up company.  Fortunately, there are alternatives out there that allow your start-up company to take advantage of “off-shore” patent attorneys that work with “on-shore” law firms, offering a proven and economically viable alternate that will allow your start-up company to do patent searches, as well as to pursue patent development, filing and prosecution at rates that are substantially less than the traditional patent lawyer or patent agent alternatives.  Two firms that offer inexpensive alternatives to the traditional patent development model include Brain League (www.brainleague.com) and Lexntech (www.lexntech.com).  Both firms have proven track records for researching, developing, filing and prosecuting patents both domestically and internationally.  Each offer a slightly different business models, but both offer viable “off-shore” based alternatives to the traditional high hourly rate-based “on-shore” law firms.  So, as a start-up company looking to protect your intellectual property and to uniquely position your company in the market, it is worth looking into these two “off-shore” alternatives, as they will substantially lower the costs associated with searching, developing, filing and prosecuting your start-up company’s patents.

As a start-up company that desires to uniquely position itself in the market and at the same time be assured that it has protected its intellectual property, you need to develop patents that protect the underlying intellectual property associated with your start-up company’s technology, product or service offerings. By doing so, you will create long-term value to your start-up company and to your potential investors.  Accordingly, as a start-up company with limited funds, looking to create a unique position in the market, you need to constantly innovate, determine which patentable ideas create significant value for your start-up company and at the same lower to costs associated with the developing, filing and prosecuting your patentable ideas.  To do this, currently the most cost effective approach is to work with patent firms that provide a combination of “on-shore” presence, with “off-shore” patent execution.  This will provide your start-up firm with the ability to cost-effective develop a portfolio of patents to develop a unique and defendable position in the market.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.

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May 31, 2010 - Posted by | Venture Capital | , , , , , , , , , ,

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