Patent Financing: How startups can obtain funding for their patent applications

By Russ Krajec
April 12, 2016

lightbulb-moneyYear after year the patent laws become more complex. It seems with every decision from the Supreme Court and the Federal Circuit more detail is mandated for a patent application to be complete and for patent claims to have a fighting chance. These case law changes, as well as legislative and regulatory changes, are putting the patent system out of reach for startup companies.

The patent applications that must be filed require an enormous investment in time, money, and expertise – mostly by patent professionals who curate the inventions, write the patents, and nurture them through the examination process. To get high caliber, well researched, and well-written patents costs money – a lot of money unfortunately.

Quality is the main buzzword at the Patent Office, and increasingly so within the industry. Gone are the days that one could just get a patent and expect that it would be valuable enough to license or sell. Quality patents that cover quality technologies is the new business reality in the patent sector. But with the skyrocketing costs associated with obtaining the desired quality many startups resort to cost-saving strategies that most often only work to irreparably harm the changes of obtaining a worthwhile patent.

Filing a hastily drafted, woefully inadequate provisional patent application is a mistake, and one that can lead to a patent foundation being built on a hopelessly compromised base. The patent community was recently reminded of this fact when the Patent Trial and Appeal Board (PTAB) refused to recognize the priority of a provisional patent application filed to cover Juxtapid, a cholesterol medication. The PTAB found the provisional application defective because it did not teach the invention adequately and provided insufficient dosage information. This just proves that bad provisional applications are a very real problem even for pharmaceutical companies that should know better.

What are startups to do? There is never enough money to do everything a startup needs to do in order to succeed, so even the best, most well funded startups need to triage. As a patent attorney with over 15 years of experience, I know all too well this very real financial dilemma. Compounding this problem is the truth that most innovative startup companies are entering a marketplace where larger, well-financed corporations with giant patent portfolios dominate. Patents can be the great equalizer, but such a strategy requires high quality patents.

Another reality in the patent industry is that a client will run out of money before a patent attorney has run out of ability to make a patent application better. But what if the client and the patent attorney were not on opposite sides of the spreadsheet with different financial interests? What if their financial interests coincided and the fortune of both rise or fall based on how strong the patent is and whether the client succeeds? This is why I decided several years ago to start BlueIron IP, an investment company that finances patents for startups.

BlueIron’s non-dilutive financing for startups pays all of the patent costs, including filing fees and attorney’s fees, using a conventional commercial “lease-back” arrangement. This model has been gaining traction since its first release in the fall of 2014. After financing professional poker player Phil Gordon’s patent for his new software startup, Chatbox, BlueIron has made investments in startup companies in software, hardware, biotechnology, medical devices, financial services, and agriculture.

By financing the patents, we remove the cost barriers to getting strong, high-quality patents. This opens up the options to do a full due diligence workup, which most startups simply cannot afford. It also means the patents can be expedited and obtained more quickly. It also frees up critical capital for the startup to invest in business activities rather than paying for patents.

For expediting applications, when possible, we prefer the PCT-Patent Prosecution Highway, which often results in an issued patent within 12 months. With PCT-PPH, the costs of the patent are compressed into a 12 month window, rather than spreading them out over 3-5 years. If a patent application gets into the PPH the allowance rates are much higher, and in many cases over 95%. Given that an issued patent is far more valuable to a startup company than a mere pending patent application – especially one raising angel or venture capital – this strategy pays quick dividends, which benefits everyone involved.

The BlueIron model works because everyone has “skin in the game,” so to speak. We have every incentive to get high quality patents and to do so as reasonably quickly as possible. By having a patent portfolio that protects the startups technology additional investment becomes easier to attract, which makes much of the difficult work a startup will do much easier. By helping the innovative startup succeed we succeed. If the innovating startup company is not successful, the investment will only generate patents for products or services that never made it to the market, or which were not accepted once on the market. Patent assets covering technologies the market shunned have little, if any, value. On the other hand, if the startup company is successful the patents have real value – far more value than the cost of financing.

Through the BlueIron model I’ve attempted to create a new framework where both parties have the same goal: protect and grow a successful business. Our sole focus is to build investment-grade patents that have commercial value. By treating patents as “collateral,” our model rises or falls based on how strong the patents are – and how successful the innovative startup becomes.

If you are a startup company that is looking for someone to finance your patent activities please contact me. Candidly, we only invest in patents for operating companies, not for individual inventors for whom the invention is just a hobby. While we invest at a very early stage, the startup must have a financial commitment to bring a product or service to market for us to get involved.

If you are an angel investor or venture capital firm, we are actively seeking formal or information partnerships and relationships.

The Author

Russ Krajec

Russ Krajec is the CEO of BlueIron, a patent finance company, and author of Investing In Patents, which explains the BlueIron investment model. Russ is an angel investor, registered patent attorney, the former COO of a venture-backed startup company, and an inventor with 30+ US patents/applications.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 3 Comments comments.

  1. Ron Hilton April 13, 2016 1:00 pm

    Could you provide an example with hypothetical numbers as to what a “lease-back” arrangement would look like? Who owns the patent(s)? How much is paid and when, up to what total amount?

  2. angry dude April 14, 2016 9:18 pm

    Who cares ?

    Most of the cost is in litigation (and lately in IPR proceeding)

  3. Mike Gobble July 4, 2016 1:13 pm

    Where do I find funding for patent cost