Patent Advantage: Laying the Groundwork for International Rights

Several weeks ago the United States Patent and Trademark Office (USPTO) issued a report to Congress on International Patent Protections for Small Businesses. The report examined how the capacity for American small business to create jobs is at risk due to the high costs of acquiring, maintaining and enforcing patents outside the United States. The report’s findings suggest that many small businesses may benefit from extending patent rights outside the U.S., but few are aware of the need to do so, or are unable to fund the high cost of international patenting.

The USPTO report states what virtually everyone knows — small businesses are the primary driver of job creation in the United States.  Young start-up companies create on average three million U.S. jobs per year, and one of the most significant ways these companies grow is to compete internationally.  Indeed, competing globally is a prerequisite to success for most companies in what is an ever increasingly global marketplace.  To compete globally American firms engage in licensing, franchising, or exporting. For many small companies it is patent protection that provides the only means to obtain an advantage over established industry leaders.  Patent protection prevents established industry leaders from simply copying new innovations, and aids small businesses and start-ups in attracting investor capital needed to grow, build market share, and create jobs. Unfortunately, small companies face significant financial challenges in acquiring, maintaining, and enforcing patents outside the United States.  What they need is a strategy to lay the foundation for foreign rights, building off a credible and appropriate U.S. patent filing.

Although small businesses have generated one-third of USPTO patent applications in recent years, there is not much evidence on how, why, or what share of U.S. small businesses are participating in the patent system.  The USPTO report explains that the best evidence on the use of the patent system by U.S. small businesses comes from research by the Weing Marion Kauffman Foundation, which shows that “holding patents by young start-ups in their sixth year of life is relatively uncommon.  Analysis of the data demonstrates that only approximately 2.5 percent of these small-business respondents report any patenting activity…”  Thus, despite the obvious advantages of patenting few start-ups actually pursue this path even in the United States.

Obtaining a patent in the United States can be expensive, no doubt.  It is not uncommon for small businesses to spend $10,000 to $15,000 through filing a nonprovisional patent application in the United States.  Then after waiting for several years for a patent examiner to pick up the case there will be more fees paid to the attorneys and to the USPTO.  Unfortunately, in many areas of the Patent Office is it not realistic to believe you can obtain a patent without filing at least one Request for Continued Examination, which will add at about 2 years onto the application process and can easily lead to costs of $10,000 to $15,000 post filing prior to obtaining a patent.  Thus, for many obtaining a patent in the United States is unrealistically expensive.

Of course, there are ways to proceed for less initially to file a provisional patent application and then attempt to attract investors or partners, but any way you slice it obtaining a patent is not a cheap process.  Or perhaps it is better to say that if you want rights that are meaningful and a true business asset obtaining a patent in the U.S. is not cheap.  If you are willing to accept any narrow claim on a poorly written application then you can do that for a fraction of the cost, but that will simply not result in a business asset.  You get what you pay for and if you are going to cheap out on the patent process you might as well save the money for other purposes.

As high as the cost of obtaining a patent in the U.S. is, obtaining a patent outside the U.S. is even more expensive.  The USPTO report explains that “international patenting costs are also often exacerbated for U.S. small companies because – unlike the USPTO, which gives discounts to eligible small businesses from all over the world – foreign patent offices do not generally provide discounts for small businesses.”  Patent Office fees can and do certainly add up when you want to obtain international patent rights.  While you can file an international application under the Patent Cooperation Treaty (PCT), there is no such thing as an “international patent.”  You must obtain a patent in every country where you want rights, which means that there will be separate Patent Office fees in every country where you want a patent.  Add on translation costs and the cost of needing attorneys worldwide in each country where you want a patent, and the international game can get expensive.

“With resources extremely tight for small businesses and the need to have patent protection so high, many young companies have either not been able to file at all, or were forced to reduce the number of countries to file in, leaving their innovations exposed,” said Jeff Shieh, a senior patent attorney and leader of inovia’s Small Business Solutions Team, which address the unique concerns of inventors, startups and small businesses seeking international patent protection.  “These clients have unique needs and keeping costs down is of paramount importance, which is why we created a special team within inovia to address their needs. Our goal is to make foreign filing cost-effective so inventors and startups can get the protection they need to bring their innovations to market and grow.”

Indeed, if you are going to want to proceed internationally you absolutely must work with someone who knows what they are doing.  If you go off uniformed and charge forward you are going to spent massive amounts of money with little or no strategic benefit in the long run.  If you know where you are going to want patent protection overseas you can significantly reduce your cost by going straight to those countries and not pursuing the PCT path.  But how do you know where you need protection?  That is why you need competent representation.

Many inventors will come to me saying that they want a world-wide patent.  I then explain the costs involved and they suddenly are not so interested in protection outside the United States.  For an individual, group of individuals or a small start-up on a shoe-string budget I typically advise not worrying about foreign patent rights initially and instead focusing on the United States.  For that reason it is not surprising to see that the USPTO report concludes that many young start-up companies do not pursue international patent rights.  Could they be useful?  In some cases yes, but in my opinion business needs to be understood as any other growing process.  You cannot run before you can walk.  Unless you are extremely well funded it just doesn’t make sense to spend money as if you are.  Focusing on the here and now and staying in business for the first year, the second year and the third year are what most ought to be doing.  A small business start-up that lasts 3 years is overwhelmingly the exception rather than the rule.

There is, however, a definite correlation between patenting and success.  The USPTO report explains:

While these figures suggest that patenting is relatively uncommon among young small businesses, other evidence suggests that patenting is nevertheless important to high technology companies, and can be associated with superior economic performance… Many high-tech startup executives stated that patenting was important for capturing competitive advantage in the marketplace, preventing copying, improving success at attracting investment, and increasing the likelihood of being acquired by another company or having a successful initial public offering (IPO). These last findings are supported by other economic researchers who have suggested a positive relationship between startup patenting, meaningful early investor funding, and successful transitions into larger publicly-traded firms.

The report goes on to say that is is well accepted by economists that “a well-developed system of property rights, particularly for innovative companies, is often a precondition to successful internationalization.”

The key is to understand what you need and when you need it.  Many inventors and small businesses want foreign protection initially because they will be manufacturing overseas and importing into the U.S.  They have no intention of exploiting an international market with distribution, at least initially, but they want to make sure that others can’t steal the invention and import into the United States.  These inventors are typically glad to learn that a U.S. patent can be used to prevent the importation into the United States regardless of where the product is manufactured, so you don’t need a Chinese patent, for example, to prevent the importation into the U.S. of goods made in China.  You need a U.S. patent.  Of course, if you want to prevent the distribution in foreign countries you will need rights in those foreign countries that you want to lock up exclusivity.

For many just starting out it makes all these sense in the world to pursue a U.S. strategy initially.  You should always obtain a patent search to see if there is even a realistic likelihood that a patent can be obtained.  If there is then you can file a patent application in the United States.  You then have 12 months within which to file an application overseas in a particular foreign country, or 12 months to file an international patent application.  If you file for foreign rights within that 12 month time frame your foreign filings are entitled to the priority of your U.S. patent application, so there isn’t really a need to file internationally initially for most small businesses and start-up companies.  See what the year brings and evaluate where else you might like to obtain a patent based on the economy and market considerations abroad, then act.

Of course, if you have any interest in obtaining a foreign patent you need to understand that foreign and U.S. law is not the same.  In the U.S. you can publicly use and even offer an invention for sale up to 12 months before you file a patent application.  For all intents and purposes, if you publicly use or sell the invention prior to filing a patent application, even a provisional patent application, you have almost certainly compromised your right to obtain a patent anywhere outside the United States.  For that reason if you think you may ultimately want foreign rights you absolutely need to file a patent application before you disclose your invention.

The morale of the story is this: patent protection is expensive, but offers significant advantages to long term success of a technology based company.  You absolutely should be pursuing a patent path in the United States and responsibly keeping open your options for pursuing foreign patent rights.  If and when it comes time to obtain foreign rights you should consult with professionals who know and understand the foreign process.  Through strategic planning you can keep international costs far lower than they would be if you employed a “shotgun” approach to obtaining foreign rights, and the reality is that most innovations simply don’t need to be protected worldwide.  If you lock up the United States and a hand full of other countries that is likely enough.