So you've got a patent. Now what?
The best steps for Colorado startups
By definition, a “startup” is a company that is in the earliest stages of its operations. These companies are often initially funded by their entrepreneurial founders as they attempt to capitalize on developing a product or service for which they believe there is a demand.
It’s no secret that Colorado has become a hotbed for startups. In fact, Boulder was recently ranked among the top U.S. cities for startups, with a whopping 22.3 patents per 10,000 people. In this entrepreneurial atmosphere, it’s not unusual to see thousands of patents filed with no real business plan around them. So what are the best steps for young companies to take to move forward once they’ve filed for a patent?
Patent Pending v. Patent Issued
First, it’s important to understand the difference between “patent pending” and “patent issued.” When an entity files a patent, it becomes “pending,” meaning simply it is under review and may or may not be granted. During this stage, companies cannot bring infringement lawsuits against their patent, nor are they guaranteed to receive all or even part of their patent request.
For example, if you file a patent on a coffee cup with a lid and a paper sleeve, you will immediately have a pending patent on that design. An examiner from the United States Patent and Trademark Office will then review your request during a process referred to as “patent prosecution”, but may choose to grant you the full patent, a portion of the full patent request or reject your application outright.
This typically happens to prevent the patenting of something that has already been known, patented or in use (“prior art”) or an obvious derivation of prior art. Because a patent application may ultimately not issue into a patent, it’s also extremely important for companies to be delicate in deciding what information they should and should not disclose to investors, manufacturers, distributors, etc., during the “pending” stage.
On average, patents move from “filed” to “pending” to “issued” in about two or three years, but the process can take anywhere from one to four years. Many companies decide not to wait until patent issuance to begin manufacturing and sales. While patent priority stems from the “file” date, it’s important to remember that infringement lawsuits aren’t possible until after the patent is officially issued. As a result, if your idea is stolen, in whole or in part, legal remedies are not immediately available.
Monetization Strategies: Production v. Licensing
After filing an application, companies generally will next want to decide how to leverage the invention disclosed in the patent application for money. There are two major and very different routes: production and licensing.
If a company decides to produce the product themselves, they will need to develop prototypes, establish a marketing strategy, identify sales channels, research manufacturers and distributors, defend the patent against any potential infringements in addition to many other actions. In short, a company choosing this route will require additional capital. Although this may require more investors and a dilution of equity, the payback could be significant.
Alternatively, patents can be licensed to other, pre-existing companies in exchange for any number of arrangements. This strategy often involves decreased risk and capital requirements. For instance, if your company holds the patent for a specific ice cream cone, you could choose to license the patent to a company such as Baskin-Robbins, essentially saying “I will charge you a certain amount to allow Baskin-Robbins to use my protected intellectual capital and produce my idea for a cone on their own.” This typically may involve an up-front payment, a royalty expressed as a percentage of sales, or both.
While both of these options are viable, specific consideration of each specific scenario is necessary to calibrate the approach to generally maximize the potential for reward while minimizing risk and capital outlay.
Execution: From Concept to Company
Whichever path you choose, it’s important to make sure that you have the pieces in place to succeed. If you intend to license, an attorney-reviewed agreement is paramount to protect the investment you made in developing your investment. If your organization intends to operationalize the invention disclosed in the patent, the company must game plan specific objectives, detailing markets, sales goals and other variables.
The company should also seek to continue innovating to develop a strong portfolio around the core intellectual assets. Moreover, the company must define and articulate its brand. These decisions will determine the direction of the company. A company operationalizing an invention should undertake a complete approach, including the establishment of financing, marketing, sales and business development channels.
Additionally, a company deciding to manufacture and market will likely require access to legal representation to enforce their patent. Sometimes inventors mistakenly believe that the mere filing of a patent application will automatically lead to protection of their invention. Unfortunately, there are no “patent police.” Remember, there are typically millions of patents both pending and issued in the United States alone. If the viability of the company is based on patent exclusivity, it is critically important for the company to aggressively enforce their patents.
The filing of the patent, while no doubt an accomplishment, merely represents the beginning of a long process of monetization of the patent and the ideas it protects.