Updated 1 Jul 2021
Most Foreign Patents are a Vanity Project
Many entrepreneurs like to go after foreign filings. The normal course of business is to file a PCT application, then enter “national phase,” typically about two and a half years later.
(“PCT” means Patent Cooperation Treaty, often mistakenly called an “international patent application.” The PCT is an agreement where almost all countries of the world (with the notable exception of Taiwan) agree to accept the originally filed application as priority for their national applications.)
It is very easy to start rattling off all the countries where you wish you could do business, from Korea to Japan, Indonesia, Vietnam, all of Europe, Australia, Israel, South Africa, and on and on.
It is very easy to think that if you *might* do business in a certain country, you should have a patent. This is not good thinking.
I have seen countless entrepreneurs spend hundreds of thousands of dollars getting patents in far away countries – purely on the speculation that they *might* do business there. Years later, they are still building out their business in their home country.
Remember that a startup company’s most precious asset is time, not capital. The sooner the startup can generate revenue and, eventually, become profitable, the sooner they become a sustainable business.
The startup’s most precious resource, time, is measured in the capital they have. Capital represents the runway before bankruptcy. For early stage companies, getting patents too early, and especially getting any foreign patents, will eat up that runway. It is foolish to sell off runway to get an expensive asset that might never be used.
I am a big fan of waiting to get your patent. At the beginning of a venture, you have the least amount of data to support an investment in a patent, and the least amount of knowledge to put in the patent application. Because of my view of patents as call options on technology, I want to get the “best bang for the buck.” In almost all analyses, a tightly focused patent in the US is the best way forward.
Most Countries See Patents as a “Free” Tax They Collect on Foreign Companies
Almost every country – other than the US – sees patents as a revenue source. In the US, our system is self-funding with a minimum surplus. When the US Patent and Trademark Office (“USPTO”) has a surplus, our Congress glides in and scoops up any extra money. Consequently, the USPTO only charges enough money to pay its costs and not much more.
The result is that a patent in Europe, covering the same number of residents as the US, will cost TEN TIMES as much as a patent in the US. The biggest cost, other than mandatory translations into all the required languages, is that each European country charges an annual annuity fee. (The US only changes maintenance fees at 3.5, 7.5, and 11.5 years, and the fees are comparatively modest.) The annuities can run $20K+ per year in Europe – and are paid every year to keep the patent in force.
A single patent in the US will cost about $50-60K on average. The same patent in all of Europe over its lifetime will be closing in on $1M. Add in patents in several other countries, and you have a very large expense – for just one patent. Is this a good use of money?
Usually, you would be better served by having 10 patents in the US rather than one in the US and one is Europe.
A single patent is a single point of failure if it were challenged. A bigger portfolio cannot be challenged in the same way and gives a much stronger negotiating position.
Doing a cost for all the other countries, the only ones that make sense is China. China, as of the writing of this book, is fast becoming a better place to assert your patents than in the US. They have a huge population, so one patent will cover a much bigger population than the US, plus the fact that you can get injunctions in China make them a great place to have patents.
It used to be that Germany was a great place to assert your patents. This is because you can get an injunction quickly, which leads to a rapid settlement. Sadly, the ability to assert patents in Germany has been severely crippled.
In the US, after the infamous eBay case, the injunction power in the US has been crippled, so patents are actually easier to enforce in China than almost anywhere else.
Don’t Get Patents in Foreign Countries
In general, I try to talk US-based entrepreneurs out of getting patents in different countries.
The simplistic view of patents is that you use them to keep competitors away. With this mindset, a patent in Vietnam could – in theory – be used to sue a local Vietnamese competitor. We could force that competitor to cease and desist. There are countless ways this is a problem, from detecting infringement, navigating the court system, enforcing the judgment, and so forth.
The more reasonable and likely scenario is that the patents are traded with another company as part of a negotiated agreement. The agreement might be to split up a marketplace geographically, do a joint venture, gain access to each other’s technology, or some other use case. Another likely scenario is that your company might be acquired by a company who wants your patents to negotiate a deal with their competitors.
In this case, the patents are useful when they are in a jurisdiction that the OTHER company wants to practice the invention. For example, a Singapore company would typically get patents in the US and China so that they can trade with US and Chinese technology companies. The Singapore company might never enter the US market, but they might be able to negotiate a deal with a US company to gain access to specific technologies, get better terms on a supplier agreement, bring the US technologies into Singapore, or any other agreement.
The key here: patents are rarely used to “keep out a competitor,” but are often used as part of bigger negotiations, such as cross licenses. Foreign patents are only useful if your competitor has a presence there – whether or not you actually have a presence there.
When considering which countries to file your foreign patent applications, do so with an eye to building negotiating value for your company. Look outward, not inward.
Considering all the countries of the world and the cost to get a patent versus the amount of negotiating power it provides – the US is still a very good bargain.
Note: this is an early excerpt from my book “Startup IP Strategy.”