The Myth that You Want An Early Filing Date
When I studied for the patent bar exam, it seemed that every other question was about priority dates.
The priority date is when time stands still. Anything that is done before that date is “prior art,” and anything afterwards does not matter. Examiners cannot use any reference *after* your priority date to deny your patent.
Patent attorneys are trained to think about “early filing dates” and to do everything to get a patent filed as fast as possible. This is engrained into their thinking from the beginning.
As patent attorneys, we are bombarded with cases where hundreds of millions of dollars hung in the balance because of a priority date. You do not want to be on the losing end of that decision without paying your malpractice premiums.
An early filing date makes it easier to get a patent, but it comes with some unintended consequences.
Unintended Consequences of an “Early” Priority Date
The biggest unintended consequence is that any patents in the family must expire at 20 years from the earliest filing date. This comes to haunt the company as years go by – especially if they file lengthy, rambling patent applications that contain “everything they know” (which is another of the patent myths).
Startups see the 20 year lifespan of a patent as eternal. At least at the beginning.
The truth is that the “early” filing date becomes a huge boat anchor for the startup, one that they regret as time marches on.
Startups Come in Three Flavors
An angel or venture investor looks at startups in three buckets: the ones that “succeed,” the ones that die, and the Walking Dead.
The startups that die tend to do so quickly. They run out of money before gaining enough revenue to keep their heads above water.
The startups that “succeed” are those that return money to the investor. This can be through an acquisition or IPO, but it is the only way that investors actually get paid. Most angels are happy to just get their money back, but 5-10% of all their investments will be a big return. These 1 or 2 out of 20 investments pay for their entire portfolio.
Then there is the Walking Dead. These are companies who make enough revenue to cover expenses but never get acquired or hit that hockey stick growth.
Angel investors hate the Walking Dead. The investors would rather have the loss on their tax bill if the company died, or the huge capital gains bill when the company succeeds. But the Walking Dead deliver neither.
By most accounts, more than 50% of an angel’s portfolio will be the Walking Dead.
All this is to say that most companies will wind up as the Walking Dead.
Companies who “succeed” will be rocketing up the growth curve and the early priority date will not be that much of a boat anchor to them. Companies who die early also do not care about the priority date: they die off before it is a problem.
But the Walking Dead will see the problems of the early priority date.
What are the problems of an early priority date?
The early priority date means that all the company’s patents (in a patent family) will expire on the same date. This date can quickly become a problem.
I see a lot of companies who want to take loans against their patents. This gives me an opportunity to look at some portfolios that have been cooking for a long time.
I have run across companies who have been relentlessly pouring money into their patent portfolio for 10 or even 15 years without turning a profit.
Some have had patents that issue with 3 years left of enforcement. Those patents will expire before the second maintenance fee is paid.
These patents are brutally expensive, where the startup has been something on the order of $10,000 per year to keep a patent family alive – or at least on life support.
These companies are living on borrowed time – at least from a patent protection standpoint.
These “early filing date” monstrosities turn into a boat anchor. Because they disclosed too much in their original application(s), they are forced to do continuation applications year after year.
Because of the 20 year life of a patent family, companies often find themselves with a very short period of IP protection as time goes on.
I have seen companies who – because they filed too much information too early – wind up trying to get acquired with only a handful of years left on their patent-created exclusivity.
These companies are not getting a premium for their IP because it will evaporate in a short period. Why buy a company with patents if the patents are just about to expire.
The best practice is only file a patent for a specific invention. I discuss this in a blog post about “data-driven patents.”
Even though your patent attorney has a financial incentive to tell you otherwise, resist the urge to get a patent too early – or to vomit all kinds of ideas into longwinded applications. There are countless sad examples of unfortunate ‘inventors’ who write 400 page provisional patent applications in an attempt to get ‘coverage.’ These ‘strategies’ quickly become boat anchors that erode a company’s value.
Try to reset the clock by doing new patent families over time. Ideally, each new invention should stand on its own and – here’s the key – not rely on the ‘early’ filing date of other patents in the portfolio.
As time goes on, your patents get better – purely because you have more experience and feedback.
Do not hang your hat on an ‘early filing date’ when the best patents are yet to come.