How many patent applications has your company filed today?
Facebook filed at least one patent application today, Oracle filed about 3, Google filed about 5, Microsoft and Apple filed more than 8 each, IBM filed nearly 30 patent applications just today. These are the recent averages per workday anyways. Currently Facebook has more than 450 pending applications, Google has about 3500, Oracle has 3700, Apple has 7000, and Microsoft has 30,000 pending applications. I picked these names to come up with the averages because these names have software heavy portfolios, the type of patents that have been feeling some pressure from both the anti-patent circles and from the Supreme Court – as has been amply covered by IPWatchdog.
If you are a typical new economy small tech company with software and internet centric technology or products, the number of patent applications your company filed today is probably zero. Of course filing and prosecuting patent applications is not cheap and that’s part of the explanation. However it is worth noting that most of the successful companies with software-heavy products, including those in the list above, have been filing patent applications from their very early days. An excellent recent article at IPWatchdog revealed that even an overtly anti-patent company such as Twitter has been indeed filing patent applications from its very early days and have been accumulating a large portfolio through further acquisitions. The fact is that patent protection is a hallmark of a successful innovative business, whether the product is software or not. So, it is startling to see the difference in attitude of the small innovators and the already successful large innovators when it comes to protecting their inventions.
Let me share a perspective that’s based on being an inventor and an IP manager on software as well as ‘hard’ technologies for two decades, and having the benefit of meeting hundreds of tech startups in the workshops I give in the NYC accelerators and co-working spaces. Large tech companies are no different than politicians that dispense populist messages for the masses, but in reality follow policies that benefit only the connected few. An utterly uninformed opinion that I hear all too often from software developers is that patents stifle innovation and keeps them from sharing code freely. The fact is, if you have a patent on a software technology, you can still share it with others, and they can share theirs with you. The mechanism to do this is no different than the current licenses that you agree to when you share and use a software library. The difference is that the innovator now has control over the invention and can benefit from it financially when that innovation helps others make money by using it. Innovators have to arm themselves with a good understanding of what patent protection means for them. Without that understanding, it is a completely asymmetric warfare in the dog-eat-dog world of business. There is a very good reason Google keeps telling small innovators that patents stifle innovation while they employ a patent department that’s probably larger than your entire company, and they spend tens of millions of dollars a year to protect their own inventions.
Here is an excellent example of how small innovative companies benefit from patent protection and use their IP as business assets. An innovative startup company that’s a graduate of Entrepreneurs Roundtable Accelerator in NYC recently had a very successful exit when it was acquired by a larger industry player before they even raised an equity round. When the company was putting together their first demo on their software product three years ago, on my urging they filed a patent application and then followed that up with additional applications. When the company was in buyout talks a couple of years later, it turned out that there were two other competitors with similar products and pretty much similar price points, that the acquirer was looking at. Because of the small but growing IP position this startup had, it beat out the competitors and was acquired at a very good valuation. In the founders’ own estimate, the IP position allowed them to extract 25%-30% higher valuation, and just as importantly, closed the deal, and closed it in a shorter amount of time. What seemed like a large expense of filing and prosecuting a handful of applications earlier turned out to be an excellent investment and paid off for the founders.
Let me also describe a situation that’s known to more than a few inventors. You ate macaroni and cheese everyday and wore old sandals for two years while developing a transformative software technology. Kudos!. Typical of software inventions, most of the value is in the product concept; but you also put in a lot of effort to make sure the code you wrote is robust and free of bugs, works across platforms, secure, and is production quality. Real stuff of sweat and tears. You show it to others, maybe even companies such as Google or Microsoft, hoping they would be interested enough to buy it. Then you see a large software company develop and market the exact same thing a few months later, maybe even after you showed it to them. What now? Don’t count on NDAs, as any lawyer will tell you. It is extremely rare that an NDA can be successfully litigated on, even if you had the resources. You are out of luck. Go back to eating macaroni and cheese and come up with another idea perhaps? The only thing that can possibly level the playing field and keep everyone honest is for the inventor to protect the technology as soon as possible with patent applications.
Here is another example of how a defensible IP position is helping a startup company I know closely, although the circumstances are very different than the earlier example. A startup I have been advising on IP matters has a software solution in the 3D printing space. The company developed a very innovative technology and have been diligent in protecting it in a number of patent applications. More recently, they have been discussing their technology with a large industry player and disclosing how their technology works, in hope of cooperation or possible acquisition. Discussions went on for six months and finally came to a close when the large player suddenly introduced a product that is substantially the same although they had no such technology at the beginning of the discussions. There is no way of knowing, short of litigation and discovery, who knew what and when, and whether an NDA was violated. If not for the patent position the startup has been building, they would have nothing to show for their two years of innovating and building a product. However, now that they have a defensible IP position, they get to play another round and possibly benefit from their innovations by working out a patent licensing agreement. Time will tell, but the patent protection may work exactly the way it is intended in this instance by keeping the small innovator from being steamrolled by a large industry player.
As it has been covered at IPWatchdog and other forums, the changes to the patent law and legislature that’s been happening under the umbrella of ‘patent reform’ has, perhaps unintentionally and perhaps not, put small innovative companies and inventors at a further disadvantage compared to the large industry players. There is a reason the President visits Mountain View every chance he gets, there is a reason why Supreme Court has recently wreaked havoc on owners of software patents, and there is a reason why an ex Google executive is nominated to run the US Patent Office. It is not to help the small inventors and small innovators. It is the opposite. So, when I hear small companies say they believe patents stifle innovation, I say ignorance stifles innovation. This is especially true for startups and small innovators lacking the sophisticated know-how on IP protection and the understanding of how the recent changes affect it.
There are many other examples and scenarios I have seen where patents have been a key business asset for a startup. I can’t tell you how many times I heard an inventor say “I wish I had patented it”; after meeting hundreds of inventors, I assure you I never heard anyone say “I wish I had not patented it”.
So, how many patent applications should your company file tomorrow?