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Wednesday, March 30, 2011

Inventions & Patents are Critical - The Technology Still Needs Development

Inventions and resulting patents lay the ground work for the products your company intends to market.  They protect the company by preventing competition for your products.  Most of all, they facilitate the potential to make money for your investors.  You will find that in any due diligence review potential partners or investor will spend an extensive amount of effort evaluating your NewCo’s patent estate.  You must make sure your patent portfolio is as complete as possible and well maintained.

When you create a new invention keeping it confidential prior to filing for a patent is a must.  Providing information to your patent counsel or technical transfer office (for universities) is the first step in the process.  It is essential that you not present data at conferences or to investors before appropriate filings are done.  You can usually present data after your legal counsel has filed at least a Provisional Patent, but sometimes foreign filings need to be made as well.   As a rule, tell your patent counsel you have meeting you need to present at and have them file what is needed.    It will take time, so do not give a short notice, you may not get the documents completed and filed in time.  Most public disclosures can prevent you from ever obtaining a patent.  Once you reveal the details publicly, the information becomes prior art in the field and will count against you in the patent process; even if you were the inventor.  Prior art is viewed by the patent examiner as public available info relating to your invention.  Patents are issued to cover inventions which are new, novel, and not something obvious to someone in the field.  Prior art will allow the examiner to take a position that the invention was obvious due to public data! 

There are occasions where you may not have the financial resources to file the Provisional Patent and/or foreign patents.  At a minimum, you must have confidentiality in place before you discuss the patent with your potential business partner or investor.  As a cost gauge, fees you might expect to see range $5-20K for initial filing in the USA. By the time you are in full prosecution of international rights aggregate costs may have be more than $50K.  By the time you get worldwide rights, your total fees could have amassed to more than $100K. In addition, expect regular maintenance fees for most countries every few years.  In one company where I managed the patent estate, the company was paying between $250-500K per year for filing and maintenance fees just for the IP which totaled around 50 patents and applications.

There is a high rate of failure to covert patents to profits via product sales!  About 1 in 5000 patents result in a product which is launched.  Roughly, 2 products are launched for every 3000 ideas.  Last time I looked up statistics, about 3,000 patents out of 1.5MM were commercially viable.  Why is this important?  Because you’re overall goal is to make money for your investors.  You will have to be extremely careful about the technology selection process and the IP that protects it. 

Many patents are considered very early stage technology and finding a partner or funding is difficult with only an issued patent.  NewCo is very likely to need to develop the product further or obtain more advanced data to get funding.  The costs vary on the type of product.  Along the way, new discoveries or patent extensions should be filed to enhance the protection.  This is a rather routine thought process in industry.  The overall goal is to extend your exclusivity as long as possible thereby increasing your chance for profits.

Finally, your protection mechanism is via the court system.  Many inventors have told me they will sue for infringement if someone sells a product their NewCo’s patents cover.  Yes, you can do this, but most legal professionals will not take the case on a contingent basis.  This means you may have to pay out of pocket.  In one company, our costs were at $5MM before we settled the case!  The legal process is very expensive and takes years to resolve.  So, take care in your efforts to have a clean IP position and freedom to operate for NewCo’s part.  For others that may infringe on your products, you will have to find your own way at that time.

All of this leaves you with a few ideas of what you need to think about in starting your NewCo. 

·       Do your own due diligence on the IP to the extent you can afford before you complete a licensing agreement for the technology.
·       Take great care in identifying what is covered in any invention you file. Give great thought as to what they cover as well as what they could cover in the future. 

·       Plan for IP costs and the protection of them.  The number of patents you have rights to will escalate your legal costs on an annual basis and increase your cash burn. 

·       Remember that having great patents is essential, having bad patents is costly.

·       Remember where you want to be with your product(s) at launch.  Make sure your intellectual property provides as much protection as possible. Make sure you do not infringe and plan for patent improvements to your estate.

Taffy Williams is the author of:  Think Agile:  How Smart Entrepreneurs Adapt in Order to Succeed to via Amazon