How Entrepreneurs Need to Think About Patenting
The patent process begins with selecting an invention and evaluating it as harshly as you possibly can. Selecting an invention for patenting is an iterative process and expect to go back and forth as new information becomes available.
There is a huge temptation to ignore all the warning signs and press forward with a patent anyway, but caution is your friend here. Statistically, you are almost always better off skipping the patent process than getting one that soaks up your time, money, energy, and plans for success.
From a business standpoint, you should plan your business as if a patent does not exist. Your competitive advantage should be your product design, marketing, supply chain, manufacturing, pricing, or something else. Make sure you focus on the things you can control and if you happen to get a patent, that would be icing on the cake.
Do not rely on having a patent to do anything for your business.
Work tirelessly without having the patent as some kind of backstop or insurance policy.
Statistically, most patents are worthless. Every patent represents someone’s hopes, dreams, and hard work put into an innovation, and everyone thinks that they will be the one that beats the odds. The reality is that virtually none of them will.
With this in mind, let’s begin selecting inventions to evaluate.
The most valuable patent assets are those that capture real business value. But we don’t know what is valuable – yet.
In short, this means sales. The only true measure of an invention’s value is whether someone buys it. Everything else is pure speculation and conjecture.
The journey of a startup company is one of exploration. An entrepreneur thinks there is a hole in the market that needs to be filled, and they experiment with different ways to address it. They move from one version to another, learning from prototypes but mostly from feedback from customers. As they learn, they improve the product, pivoting as necessary to meet the real needs of the market. The elusive goal is product-market fit.
The patent that we want is the one that captures product-market fit, not what we thought was important before we started the journey.
I looked at a larger patent portfolio to use as collateral for a loan. This portfolio had 30-50 patents in it, but each one was developed before the company had traction in the market. By the time we were looking at the portfolio, they had begun to find their stride and were starting to make some sales.
The portfolio was not valued very high because the patents were mostly speculative, forward-looking patents that did not really correlate to real products in the market. The patents were also not well-crafted, and were essentially troll-worthy patents. In other words, the size of the portfolio and the haphazard way they were created meant that they could be asserted against competitors to extract some licensing revenue, but there were no Investment Grade Patents in the portfolio.
However, since this company was starting to get traction, we now had a lot of data from which to select inventions to patent. Instead of just speculative patents that guessed about competitor’s products, we now had one missing piece of data – the most valuable piece. We now had customer validation in the most important form: sales.
With this company, we proposed using sales data to inform which inventions to protect. The most important feedback was from the sales people out in the field. We want to capture those specific features that convinced the buyer to select our product. This is the company’s competitive advantage, and their most valuable patents.
Patents should not just protect your investment in R&D, they should protect your investment in marketing.
The conventional way of thinking about patents is that they “protect” your investment in research and development. However, a company often makes a much larger investment in marketing, educating the customer, developing the right explanations of the product, and honing in on the real needs of the customer. What we really want – the holy grail – is the patent that protects our investment in R&D AND marketing. These are the patents that have real value.
One of the reasons why most patents are worthless is that they capture the “cool ideas” that come from engineering, but those ideas often do not make it into the market – or they change dramatically on their way to the market.
With this company, we had the rare opportunity to have some early sales data to help us decide which inventions will be truly valuable. The insightful reader will recognize that by waiting until we have sales, we must disclose the invention prior to patenting. In the US, we have a one-year grace period for filing our patents, but we give up foreign patent rights when we use this technique. See the section on foreign patents to see why this does not matter in most circumstances. It is like shooting fish in a barrel to find the good inventions to patent.
As we acquire more data, we reduce our risk.
The point here is that waiting to get a patent gives you more data on which to base a decision.
One key thing to keep in mind that the best patents come later in the process. Getting a patent early before product-market fit is very speculative, where we are hoping that we are right but have no data to prove it. Hope is not a good business plan.
Be willing to pass on early patents because the better ones will come later – when we have data to know what is essential for product-market fit. Remember the example of the iPhone: it is protected purely by the slide-to-unlock patent, not from some patent on the grand idea.
There may be patents that, looking back, you maybe wish you would have had. That is OK. The point of being in business is to survive to the next day. We can learn from these experiences and apply them to the next product in our roadmap. We do not have to retire on the first product we bring to market. There will be more.
For independent, first time inventors or entrepreneurs, I sometimes suggest not getting a patent at all, but to go through the business struggle of bringing a product to market. If you have one invention, you will have another, so do not stake all your life savings on the first product. Use this opportunity to learn the process and make the mistakes without going bankrupt. Then do the second product with a much better understanding of what you need to do, and if that includes a patent, then do it.