Start-up companies are founded on ideas, passion, and people who want to make a difference. To achieve success, a start-up must put together a plan that allows the company to attract investment, develop a distinguished product, and survive in a competitive marketplace. Patents can help achieve these goals, but how? To be successful, in-house counsel, CTOs, and other start-up company executives should be aware of the benefits that patents provide.
Patents play a significant role in securing funding for technology start-ups. Investors and venture capitalists want high return with minimal risk. Patented or “patent pending” technology is more attractive to potential investors because it reduces the chance that other companies will steal the innovations they are investing in. In addition to attracting investment, a patent portfolio can increase company value, increase the chance for a successful IPO, and make a company more attractive to a potential acquirer.
Prevent Theft of Innovations
By definition, a patent prevents others from making using, or selling the patented invention. With a patent, a patent owner can prevent competitors from knocking off their patented product. If (based on one or more patents) you are the only one that can provide a product for a customer base, your company will be in high demand with that customer base. Hence, a patent can be used to prevent others from stealing your innovations while protecting the demand for your product.
When a start-up gains traction, market leaders and competitors will take notice. All too often, they may respond with a law suit to slow down or knock a start-up out of existence. Competitors and potential litigants will realize that if they sue a start-up that has patents of their own, however, they will be counter-sued in response. The threat of counter-suit will often ward off patent lawsuits from competitors, or at a minimum provide a start-up which much stronger standing during settlement and licensing negotiations.
Start-up Companies With Patents Are More Likely to be Successful
Despite detractors of the patent system, many economists have claimed that patents encourage innovation for companies of all sizes. A recent study titled “The Bright Side of Patents,” published as part of the USPTO working paper series, analyzed patent applications filed and approved by start-up companies from 2001-2014. The study found that approved patents tend to provide or assist start-up companies with increased employment growth, growing sales, further innovation and additional patent approvals, and receipt of critical capital support.
There are very clear benefits to a tech start-up company that invests in a patent portfolio. A well thought out, gradually developed patent plan can assist a tech start-up with attracting investment, protecting their innovations, avoiding patent infringement lawsuits, and achieving successful growth.