V writes: Our startup is worried about IP, i.e., will we get sued? How do we protect ourselves? Do we need patents? Will the VCs love us if we do not have provisional applications for patents?
V,
First, commit to having a plan, however bare-bones and however small, on what part IP is going to play in supporting your business plan. Write it down (your thoughts will come useful in conversations with funders, partners, customers) You'll look like you do your homework.
Second, if you want a nice summary of some concepts of patent law, check out:
http://www.law.cornell.edu/wex/patent
A short succint statement on the topic from that site is:
"The five primary requirements for patentability are: (1) patentable subject matter, (2) utility, (3) novelty, (4) nonobviousness, and (5) enablement."
The link deals with the US law on the subject but don't worry, the differences between patent law in the two countries are not so large that you will be led astray. If after reading this entry, you need to talk to someone, ping me and I may be able to recommend a few good patent agents.
However, assume that you jump through the five hoops described above, and you can splash the cash for a few provisional applications, you will want to think this through carefully.
Some of my very off-the-cuff thoughts:
1. Patent applications cost lots of money.
2. Like wine, they take a few years to mature (up to seven years, however, if you get it and you could enforce it, you may get the benefit of the patent from the date of your filing). Let's hope that all those years from now, you are still around, still using the same business model, with the same business plan, so that the patent is still useful.
3. They are very expensive to enforce (patent litigation, like all litigation, is very, very, expensive.)
4. When you do get a patent years and years from now, if your competitors will try to work around the patent and compete against you, without infringing, (why wouldn't they?) well, what did you get out of it ? Yes, they may have spent extra time and money working around you, but do you know that will be the case, looking into the future from now?
My point is, this is a bit like a lottery. Yes, the very expensive dollars you spend now may not pay back many, many, many years from now. The business decision to splash the cash on patent applications may be best taken when you grow larger.
You are a startup. There are already so many unknowns in your business model. So many things that can go wrong. There are so many business models, business partner, competitive advantage, technical capability, and cash-flow issues that you have to hope and pray about.
Now, before I raise the hackles of every engineer founder who wants to make an Apple, a Microsoft, a Facebook, a Cisco, by filing patent applications, ask yourself, did the players in the patent wars get to where they are because they were patent trolls, or did they create certain business models and get really lucky to the point that they could just about print cash?
There will always be a type of company that will be creating stuff that is world-rocking cool, and so patentable, with patents that will be difficult to work around, and easy to enforce, and that type of company might be you. But companies that don't have bags of cash and are not patent trolls, need cash-flow and viable business models to live and grow. So unless your company is already cash-rich (and so why are you reading this blog?), leave the issue of patentability alone for a year (but as I mentioned above, build a plan around your IP) and focus on the business of business. And very importantly, the specific inventions you want to patent, keep them secret. Once you disclose them (ask a lawyer about what may constitute disclosure), there may or may not be a window within which you can patent the inventions (depending on which legal jurisdiction.)
On the issue of applying for patents for preening yourself for VCs - VCs invest in businesses for a number of reasons- quality of the team, the business model, the potential market, etc. They may not believe that a few provisional patent applications in one country by an early stage company, will be the compelling reason to invest. However, what they may find attractive is that you thought through the issues.
When you are building a plan (no, not yet spending the cash!), you'll be talking to ye 'old patent expert about:
1. getting patents to protect/inoculate yourself (i.e. company comes after you and you have tools against them, or some licensing to offer them.)
2. using patents like building bricks to build a portfolio.
Moral of the story: build the IP plan, save the cash, move cautiously.
Follow our posts at our blog at StartupLegals, to continue exploring important legal considerations for your small business
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