Patent Strategy

Patents should be thought of as more of a strategic or economic asset rather than a legal one. Yes the legal process is used in the enforcement of a patent, but that is frequently a last resort.

see: Intellectual Property, Patent Process, IP in the start-up process

This discussion of strategic decisions that surround patents in a software business will address three ideas:

  • Defensive publication
  • What to patent
  • Patent portfolios

Defensive publication

Obtaining and defending a patent can be an expensive and time-consuming process. In many cases your ideas are small and not worth the expense of obtaining a patent. The worth of such ideas will depend upon your overall patenting strategy and how much you are investing in it. As a startup you probably do not have enough money to pursue and exhaustive patent portfolio. However, you probably want to protect yourself from other people patenting those ideas. In the U.S. and many other countries the patent goes to the first one of file rather than the first one to invent.

DefensivePublication

Figure 1 – Defensive publication

In this case you are using the patenting process to defend yourself against the possible patents that others might create. If you write down your ideas and publish them in some way that is dated, preserved and publicly available you can prevent other from patenting those ideas. In figure 1 your ideas are the blue. Early in the work you publish and date some ideas. Later on someone attempts to patent those ideas (yellow). Because of your previous publication, their patent is invalid and your later work (upper blue box) is protected from infringement.

Defensive publication is not completely fool proof. If someone else has filed a patent or a provisional application before you publish your defensive materials, their patent may still be valid. Remember that you will not know about their patent until it is granted which can drag on.

Defensive publication is easy. You just need to meet two criteria: the work was public and there is clear evidence of the date that it went public. A web site is public enough. Because the web is dynamic you will need evidence of the date it went up. Other forms of publication help also.

What to patent

Particularly in a start-up, resources are scarce and patenting costs money. As you formulate your strategy you need some guidelines for when to expend the costs for patenting. I use the following three for my own work:

  • Externally visible
  • Key to product value
  • What not now

Externally visible

Before you can enforce your patent you need to be able to discover if someone is infringing. A patent that you cannot enforce is worthless. I look for something that people who are not skilled in my area (patent judges and juries) can readily see and understand. This is one of the reasons that I personally avoid patenting algorithms in software. It is too hard to discover whether a competitor is using your algorithm without an expensive subpoena process.

Externally visible, however, can mean many things. For example a network protocol is externally visible to anyone with packet sniffing tools. The information is on the network where it is easily accessed. However, encryption might be a barrier. Attorneys at IBM obtained an electron microscope as a tool for enforcing many of their patents. With the electron microscope the designs of their competitor’s chips became externally visible. Some of their competitors were even foolish enough to retain the IBM logo in the circuits they had copied.

It is also important that infringement be clear to a judge and/or jury. In the end you want to be confident that you will win a court battle. If the struggle is over obscure techniques that only specialists can understand it will end up being your experts against their experts with the judge/jury throwing the dice.

The idea here is to decide beforehand how you will determine that people have infringed. As a start-up you do not want to invest money if you do not have a means for enforcing your advantage.

Key to product value

When you patent idea A you want idea A to be so important that if A was removed from the product, the product would be seriously flawed in the eyes of its users. If what you have patented is not that important then your competitor simply removes that feature from their product and there is no infringement. You want a patent that punches a hole in their product that the customers will recognize and miss having. At the end of the day, winning patents is not the goal. The goal is reaping economic value from the patents. That value must be clear in the eyes of your customers.

What not how

If I were going to invent a new form of interactive television, I would patent the ways in which people interact with the television, and the techniques for providing those advantages. I would not patent the network protocols or the algorithms. The reason for this is that with a different protocol or a different algorithm the competition might provide the same customer experience. If my competitor can provide the same customer experience using a different technique, then it is hard for me to reap economic value from the patent. If, however, I patent the techniques of the experience itself, then it does not matter how the competition implements those features, they still infringe my patent.

Patent portfolio

A single patent is not likely to provide the economic advantage that you need. There are two reasons for this:

  • The product space is generally too broad for a single patent
  • Acquisition and negotiation strength is frequently based on quantity as well as quantity

Breadth of coverage

A patent is supposed to be a single topic and the ideas that flow from that. If too many things go into one patent, the examiner is likely to force a split into several patents. When thinking about a patent strategy one should think about the region of ideas that you want to protect. Many parts of the space are not patentable because of prior art or not meeting the criteria described above. Think of a patent strategy as a net or fence around your technology. Yes there are holes, but the more patents you have around your technology the more likely a competitor will run into them when trying to move into your market. As Figure 2 shows, you want a variety of patents in the area to create an infringement protection for your product. A variety of patents also provides backup in case any of them are declared invalid. The Edison light company was not built around the famous light bulb patent. It was built around a large collection of patents about the bulb, the connectors, the power generation system and the power distribution system. Edison was famous for the bulb but was successful for the whole system that he created.

PatentPlanning

Figure 2 – Patent Planning

Acquisition and negotiation strength

The real reason for creating a patent position is so that you can negotiate from a position of strength within your chosen market. It is more common to negotiate about patents than to prosecute an infringement case. The threat of infringement needs to be credible but negotiation is generally less costly for all concerned. If someone is thinking about acquiring your company, your patent portfolio is part of the concrete assets that they will consider when putting a value on your company.

PatentsByThePound

Figure 3 – Weighing Patents

One might enter a negotiation by essentially “weighing” each other’s patent strengths as shown in figure 3. The simplest method is just count the number of patents on each side. Some patents are taken off of the scale because they do not apply to the area of negotiation. IBM or Microsoft, for example, have very large patent portfolios. For a given market or technology, they might be quite limited. Most of their patents are not even on the scale for a particular negotiation.

If the stakes are high and the negotiations are serious there may be an examination of the patents. Some patents are 10 pound patents because they have great value to the customer experience. Others are quarter pound patents. Such are useful for impeding a competitor but not really powerful in themselves. Once the relevant patents are identified and their weight determined one frequently balances the scales with money as in figure 4.

BalancingPatents

Figure 3 – Balancing Patents

This balancing does not always mean that the big company extorts money from the little company. If your start-up has opened a new product space (as it should for many other reasons) you may very well be the one that has the most patents in that space.

Even if you are at a disadvantage on weight, the other side may just want a royalty/licensing agreement. Many of their patents are not producing any income and a small royalty from you is easy money and they can get back to what they do.

Also remember that you are not the only player in this game. GiantCorp may want to license from you because adding your patents to theirs provides them an advantage when they deal with MegaSoft.com who is their prime competitor. It is really important to stay aware of all of the players in your space and consider carefully their positions and goals.

 see: Intellectual Property, Patent Process, IP in the start-up process