Startups want to make stuff, not patents


I often get asked by people involved in startups whether they should be patenting the stuff they're working on. Many times they recognize their core idea isn't really patentable -- it's obvious, it's trivial, or it's been done before -- but their investors tell them that they can probably sneak it past the USPTO's overbusy examiners. Investors really lean on entrepreneurs to do this, even though it is very expensive and sucks up time that should be spent figuring out how to make money.

Why do investors want founders to spend money and time on bogus patents? It's not as if a VC fund is going to give you an extra 10 million bucks and ten years' worth of time to use your "defensive" patent to fight off a lawsuit from Cisco or Apple. It's because when your business fails -- as most startups do -- your investors want to be able to flog your patents to a patent troll, who will use them to extract rent from people who actually make things that people want (as opposed to lawsuits, which is all that a patent troll makes).

For founders, this means that in the very likely event that you fail to make your cool idea into a business the first time round, you will not be able to try again for 20 years, until the patent expires -- because there will be a patent troll lurking in the bushes, waiting to bleed you dry if you ever figure out how to make a go of it.

Now TechCrunch's Leonid Kravets publishes research showing that founders are getting wise to this scam, and fewer and fewer startups are filing for patents.

Over the past several years, the average popularity of patents has steadily declined among funded technology startups.

The reasons an individual company may choose to apply for patents can be complex, but key characteristics can have a major influence. A company’s industry and investors, for example, appear to be meaningful indicators of their likelihood to apply for patents.

Despite the overall decline in application activity, those companies that have chosen to pursue patents have done so more aggressively than ever. This is indicative of the increasing dichotomy in the marketplace, in which some thought leaders are actively speaking out against certain types of patents while patent portfolios are being bought and sold for lucrative amounts.

Do Patents Really Matter To Startups? New Data Reveals Shifting Habits (via Techdirt)

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  1. For founders, this means that in the very likely event that you fail to make your cool idea into a business the first time round, you will not be able to try again for 20 years, until the patent expires — because there will be a patent troll lurking in the bushes, waiting to bleed you dry if you ever figure out how to make a go of it. 

    Alternatively, if you fail to make your cool idea into a business the first time round, you will not be able to try again, because someone much better at making cool ideas into businesses may step in and cut you out of any chance of making it to market yourself.

    The patent trolls (and the collusion of investors with them) would seem to be the problem here, not the patents.

  2. Edison got into a number of patent battles but lost the one on the light bulb. In those days you had to have a judgement in your favor in each one of the federal districts. Today a high percentage of inventions granted a patent never result in a commercial product. Depending on the projected life, companies make something using a proprietary process and get it on the market quickly and won’t bother with a patent. Defending a patent is very expensive. I knew a man who was sued for infringing a patent. After the two parties got to $100K in legal fees they came to an understanding out of court. Patents are used by trolls and by one company seeking a tactical advantage over another or to force that company into a patent pool.

  3. Or file the frivolous patents in your own name, and license them to your business, then sell them yourself when the business fails.

  4. Cory, I think there is a slightly less cynical reason why VCs want patents (which may of course be in addition to the cynical one…).

    If you don’t attempt to patent something – however obvious – that your business relies on,  then someone else might patent it instead. Then when the company is successful, someone can sue you for infringement. For the VC, that’s a risk they don’t want to take – it detracts from their investment.

    This risk isn’t just that some other failed startup may have patents that can be used against you. The whole issue of tech patents is actually stacked against innovation:
    – a small, innovative startup typically has no resources spare to do anything except invent stuff. They are creating new ideas, but don’t have time to patent them.
    – a large, established megacorp may not be generating ideas at all. But they have the resources to file for many patents – however spurious. Many large companies have reward programs that reward employees for filing successful patents. All they want is a large patent portfolio.

    This means that the companies who are actually developing stuff don’t have patents, and those who aren’t, do. And that means the innovative companies are at risk of being taken down by established players who can litigate them to oblivion.

    This whole system encourages everyone to patent everything they can, if only to say “if you file against us for X, we’ll file against you for Y”. And it leaves everyone exposed to parasitic patent trolls. The system as it stands does not protect innovation.

    1. If you don’t attempt to patent something – however obvious – that your business relies on,  then someone else might patent it instead.

      But you can’t patent something that someone else has already put out on the market, patented or not.  At best, you can patent an improved version and prevent someone else from using the improvement.

  5. I don’t know that I’d characterize producing a patent as expensive, especially if you’re doing the work yourself.   Write your document in Word, add your diagrams you made in Visio, drive to the PTO in Crystal City, pay your 190 bucks.  The toughest part was finding a parking place. 

    1. Producing a patent application might be cheap (just look up good ol’ Mr. John Quincy St. Clair), but producing something that actually has a chance of being granted without shooting yourself in the foot in the process is another matter.

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