How Startup Patent Filing is Different
Jackie Hutter has been recognized for the last 7 years for her innovative insights in creating value from IP Strategy with the peer-awarded Top Global IP Strategist by Intellectual Asset Magazine. Ms. Hutter’s IP Strategy clients have been varied, and include a Fortune 500 consumer hardware company, a large alternative energy company, several funded medical device ventures and dozens of startup companies with diverse technology offerings.
The prevailing view of patent experts who advise innovators–be they individuals or companies–it that patent filings should occur as early as possible. This advice, which is even more prevalent now that the US has moved to a “first to file” system, exacerbates the significant problem of worthless patents that I have written about previously. To summarize, by “worthless,” I mean that the innovator’s patents will not cover anything that consumers desire to buy. Logic thus dictates that patents will be irrelevant to the startup, as well as expensive wastes of time, unless protection aligns with a validated customer demand for the innovator’s product or technology.
This is where a key difference falls out between the patent filing strategies for established companies and startups where each is developing innovative products or technology. The former already have products in the market and customers that they (should) understand, as well as the means to get new products to market through existing distribution channels. In short, established companies possess one or more existing validated business models. Startups have none of these which, as Lean Startup teaches, means that they are still on a quest to validate a sustainable business model. An established company thus has a substantial leg up on the startup when matching patent protection to customer demand because a higher probability exists that it has, in fact, identified a real unmet need in the marketplace and has generated a product or technology innovation that will address the needs of its customers. In contrast, the startup with an idea for a product or technology innovation must first test the hypothesis that customers exist for the innovation idea, where the testing process often reveals the need for multiple pivots that require the product or technology concept to be modified from its original conception. In short, for an established company, an early patent filing will more likely be grounded on the existence of real customers that can be served with an innovative product or technology, whereas the opposite is true for the startup.
The solution to this problem for startups is to delay patent filings until customer discovery demonstrates that a validated business model exists for a product or technology idea. Of course, waiting to file runs counter to the usual patent filing advice. This is due to the general belief that discussing the idea in public can result in either or both of the idea getting stolen or preventing the ability to obtain a patent because of legal restrictions on filing following certain public disclosures. However, customer discovery done correctly poses little risk that the startup will publicly disclose the product or technology. (In short, if you’re disclosing the product or technology details when conducting customer discovery, you’re doing it wrong.)
Besides reducing the risk of getting a worthless patent, delaying patent filing until the startup validates the existence of a strong customer demand has the added benefit of enabling the startup to generate patent protection that more likely broadly covers the customer need, that is, the “why” versus the usual “how.” Put simply, the more the startup knows about the scope of acceptable solutions to a customer problem–knowledge of which can only exist when the startup truly understands the customer–the more likely it is that the startup will be able to obtain broad patent protection that reduces the ability of competitors to solve the same customer need.
...startup entrepreneurs often don’t feel comfortable owning responsibility for patent filing decisions because of the arcane nature of patent law...
Admittedly, waiting to file for patent protection until completion of customer discovery gives rise to the risk that someone else will file earlier to result in that patent holder owning superior patent rights. And, this does happen, especially in rapidly developing technology areas. It must be recognized, however, that the earlier filer was either lucky to gain protection on what would later be demonstrated to be a validated business model (this is the story with many so-called “patent trolls") or that the patentee validated the customer need earlier and therefore was entitled to earn a patent covering that product or technology first. Moreover, if a startup is moving quickly on customer discovery–as should be the case–any patent filing delays should be minimal. Astute entrepreneurs should then realize that alignment of patent filing decisions with customer discovery efforts is actually nothing more than a business and risk management problem. In other words, whether and when to file for patent protection falls squarely within the job description of a startup entrepreneur.
I should note that startup entrepreneurs often don’t feel comfortable owning responsibility for patent filing decisions because of the arcane nature of patent law, which is arguably made even more complex because many lawyers don’t do a good job explaining what they do in a business-relevant context. This means that entrepreneurs often prefer to outsource their IP strategy to outside counsel. Add to this the fact that many entrepreneurs feel the need to get things off their plate and what better to hand off than something as undesirable as “that patent-stuff?” Entrepreneurs must realize, however, that once they have established that a strong customer demand exists that they can address with their product or technology innovation, they also must ensure that they have a means to restrict competitors from satisfying that same customer demand. Outsourcing IP strategy to outside counsel means that one is outsourcing a key aspect of startup value creation strategy to a lawyer. Doesn’t make much sense when put in this context, does it?
Getting back to the patent filing timing discussion, while it is somewhat risky for startups to wait to file because there is a possibility that someone else might beat them to the Patent Office, I believe that there is a larger risk that the startup will waste money and time obtaining patent protection on a product or technology that customers don’t care about. That is, there is more risk for the startup if it obtains a patent that does not align with the company’s validated business model and, as such, is “worthless.” Startup patent filing strategy should therefore differ from that of established companies that already possess validated customers, markets and distribution channels. Accordingly, startups should wait to file for patent protection until they have conducted sufficient customer discovery to demonstrate that a strong customer demand exists, but they should indeed be prepared to file quickly once that demand has been validated.
In a subsequent post, I will discuss how to reduce the risk of a public disclosure when performing customer discovery. In the meantime, if you have questions about this topic or, more generally, how to maximize the value of your company using IP strategy, please contact me at jackiehutterATgmail.com