Posts Tagged: "start-up"

Tech sector giants have been crying and moaning about how the patent system has run amok and needs to be scaled back, and continually beg for patent reform that would gut the patent system and weaken patent rights… Even mighty Microsoft couldn’t maintain their monopoly, and only the foolish would anticipate Google, Facebook and other tech giants to be on top indefinitely. That isn’t how the tech sector works, or is intended to work. But if a vibrant, robust and strong patent system is not there for start-ups today they will never become the giant, innovation shifting, growth companies of the future. That would be terrible for the economy, lead to stagnant innovation and guarantee that slothful, giant companies that have lost the ability to innovate would remain dominant rather than going the way of the dinosaur.

But how could Universities ever be characterized as non-practicing entities in the first place? If we are going to be intellectually honest there is no way you can characterize Universities as non-practicing entities. University innovations have laid the foundation for thousands of startup companies since 1980; in fact well in excess of 7,000 startup companies have been formed. These startup companies are not just high-tech companies, they are the highest tech companies based on the most cutting edge research and innovation our country has to offer. These companies are not imaginary or mythical, but rather they are real, tangible and operating companies; they exist! These startup companies are also U.S. formed companies that are located in the U.S. and employ U.S. workers. Now that is a jobs plan if I ever saw one!

In the case of product sales, 58 institutions (31 percent of the 186 respondents) reported that 2,821 of their licenses paid $662 million in running royalties based on $37 billion in product sales, implying an average royalty rate of 1.8 percent. In the case of startups, 66 institutions (35 percent of the 186 respondents) reported employment of 24,653 by 1,731 operational startups, an average of 14 employees per startup. Assuming all 3,927 startups still operational averaged 14 employees, total employment would have been 55,929.

We pick up our conversation with where many inventors stumble as they attempt to move from idea person to small business person. We also discuss lessons learned from a Big Bang Theory episode, as well as the important of taking reasonable risks, protecting your innovations (Key is a fan of provisional patent applications to start) and the importance of knowing the market for your product.

A lot of inventors and entrepreneurs might come up with an idea that solves a problem, but I’ve always took a different approach. I would let the market tell me what it’s looking for or what it needs or what’s missing. And I like to refer to it as looking for a sleeping dinosaur. By that I mean something that is old and tired. Don’t reinvent the wheel but come up with a small change in existing products. So number one, you’re guaranteed that there’s a market for it. And number two, the technology exists.

An assignment indicates who owns an issued patent or pending patent application. They are registered with the USPTO and available for public inspection. There is a special type of assignment called a “security agreement”. A security agreement indicates that a patent owner has used its patents as collateral for a loan. The security agreement says that the lender will get ownership of the patent if the current patent owner defaults on the loan. The security agreement also restricts what the patent owner can do with its patent so that the value of the patent is preserved. A patent owner might be obligated, for example, to pay the maintenance fees for an issued patent. Once the loan is paid off, the security agreement is released. If the loan goes into default, however, the ownership of the patent is transferred to the lender.

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.

Consider, for example, the old axiom that entrepreneurs must be unwaveringly fixated on a single goal. Most startups are built around a single product or service that is assumed (but not yet proven) to meet a real consumer need and offer a lucrative market opportunity. The CEO of that startup is likewise singularly focused on getting a fully-baked product out the door as soon as possible in order to start generating revenues while at the same time building a pipeline for future offerings. Given the limited resources in most startups, this often means that the engineers are building Version 2 of the product before Version 1 has even been tested in the market.

It is still early to know whether this is irrational exuberance or whether this is a meaningful event for the companies that follow LinkedIn to IPO. In all likelihood it is a little of both, namely a meaningful event that demonstrates at least some irrational exuberance. With the economy and the IPO market having been in the tank for so long a little zeal never hurt anyone, right? In any event, regardless of what LinkedIn does from here on out the fury of trading and interest suggests that good things are on the horizon for the economy and perhaps for job creation as well.

One of the costliest mistakes a startup can make is mismanaging intellectual property rights. A company needs to not only manage its own IP rights, but also avoid those of third parties, including competitors. To be on the safe side, therefore, intellectual property management should include efficiently protecting the startup’s IP rights while also avoiding the IP rights of others.

One approach to promoting IP protection at the State/regional level would be for the State/incubators to create targeted “IP Protection Funds.” These Funds could be used to both educate the entrepreneurial community about IP protection and to finance protection for qualifying local startup companies. For example, the fund may directly pay IP legal fees, either as grants or convertible loans, on behalf of a startup, thereby ensuring that IP protection is an integral focus of the company. Administration of the Funds, along with company qualification, may be handled through the grass-roots incubator networks that are already actively counseling the startup community. Such a Fund may also serve to bridge the gap between the under-funded start-ups that desperately need IP protection (yet do not always value it), and the patent practitioner community that is sometimes reluctant to accept under-funded ventures as clients.

The log jam in patents issuances is not the only impediment to start-up job creation. Although it is certainly a big one. Tax and regulatory burdens on start ups have reached a critical mass in the last 10 years. A fact recognized by President Obama when he signed an Executive order last Tuesday ordering the removal of burdensome regulatory rules on business. Also a problem are the post 9-11 immigration policies that are driving many of the world’s best and brightest scientists and engineers to other countries. But the biggest job killer beside the patent backlog is the systemic destruction of our high tech manufacturing capacity.