Here’s my recent quote in a Chicago Tribune article about the pitfalls of patents for entrepreneurs – followed by some advice on what to do instead:
SUQUAMISH, Kitsap County In a large, converted 2,000-square-foot garage at the home of Scott McCoskery is where you’ll find what’s possibly the origins of many…
Steve Faktor is founder of the IdeaFaktory in New York, an innovation incubator.
He says, “I’ve talked a lot of entrepreneurs out of a patent since in a lot of cases it’s only as good as your ability to defend it.”
Patent lawsuits, he says, “could run easily into millions of dollars” and be “decades long.”
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To add some meat to this bone – patents aren’t just expensive, the patent system is a flaming wreck:
- It favors huge corporations (sometimes universities) that have staff, funding, and expertise to process patents quickly. Individuals and entrepreneurs usually don’t.
- It allows a bunch of vague nonsense, like software patents, which create more problems than they solve. They proliferate litigation, benefiting lawyers and giant incumbents at the expense of entrepreneurs and consumers.
- Patent registration and issuance often takes over a year, costing at least $50K and sometimes hundreds of thousands.
- Defending a patent can take years and possibly millions in legal fees. If the litigant is a giant corporation, it can wait you out, as this mind-blowing, depressing “victory” against Best Buy demonstrates.
- The market is full of a cancerous cadre of “patent trolls.” Instead of operating real businesses, they buy up vague patents to hold real companies ransom. They start with a threatening letter or an initial suit in some obscure court in Texas. Many succeed at extorting a settlement because it’s cheaper than going to court.
- ALL new products are a crapshoot with low probabilities. Patented ones are more expensive. Even pros lose money on entire portfolios of patents, not just the one.
This is just the tip of the iceberg.
So what are some rules of thumb for entrepreneurs?
A. When entrepreneurs should not invest in a utility patent
- Unless you’re a skilled manufacturing pro, stay away from commodity products China can easily knock off. Chinese factories are notoriously leaky. Branded products come out the front door, knockoffs out the back. And the cheaper and less unique your product, the less you should bother. By the time you find and sue the culprit, the market will pass you by. Fidget spinners and “hoverboards” are great recent examples.
- Software companies are wasting time if they’re focusing on patents. There are hundreds of ways to replicate functionality. Plus if they succeed, it won’t be based on IP or even functionality, but user experience and service. No need to waste time. (Yes, there’s Amazon’s famous one-click checkout patent, but that’s more an example of a failed system than a mandate for more patents.)
- Entire categories like food and fashion can’t be patented. You can get a design patent, which may be valuable in a handful of cases.
- If the product is a novelty or low-utility: a uni-tasker, fad, or non-essential, approach with caution. Anything that doesn’t solve a big enough problem might be forgotten by the time a patent gets bestowed.
- What you have is only marginally different than what’s already in market. In other words, it’s likely to be challenged.
- You don’t have the money – or it’s your life savings.
- Royalty deals are hard to secure, especially if a patented product isn’t already successful in market. Those who do get them might find that a job would have made them more money than the cost and time spent on the patent.
B. When to invest in one (have at least 2 or more of these)
- It’s essential to your business. For example, if it’s standard practice in your industry – or infringements are likely.
- You have a complex physical technology with big market potential.
- You can raise money from investors to cover the cost of the filing AND potential litigation. Be careful that you’re not starving more essential parts of your business to do it.
- You have industry connections that increase the chance of a royalty deal (whether you choose that route or not).
- You can still go to market without waiting for the patent.
- You are an IP attorney or rich.
C. What we suggest instead…
- Think like a service, not a product. Think lifetime value. Ask yourself, ‘how can my business thrive even if my product were a commodity’.
- Focus on differentiating based on brand, service, affinity, and user experience/design. Those are much more powerful and sustainable long term.
- Validation. You’ve prototyped, tested demand, and gotten great customer feedback. Do you know if it’s superior to whatever it’s replacing?
- If you are on the fence, get a provisional patent. They are much cheaper and faster, but only last a year. They act as a bridge to filing a real patent, which you’ll have to do. Keep in mind, a provisional offers you NO PROTECTION in and of itself, but it lets you safely test and market your product. If within a year, it proves successful, invest in a full filing. But don’t skimp on the provisional. Get a good lawyer. If there are holes in your filing, someone else can fill them and file before you.
- There are some good law firms that will swap IP services in exchange for equity. This may be worthwhile if you decide you need a patent. Also be sure you’re covered in case of an infringement case.
That’s it for now. If your corporation or startup needs help inventing or commercializing your next successful product or service, email us at [email protected]
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PS – every situation is different. The content above may not apply to yours. So follow the above ideas at your own risk. Consult with a qualified IP attorney for your specific situation.