Unrelated to current attention, yearly numbers of U.S. patent filings have increased steadily for years. Recently, that number reached over half-a-million per year (by USPTO count, 2013). Thus, there must be a number of good reasons to support the current numbers of filings.* Presumably, those reasons that have little to do with litigation.
If your patent filing activities have flattened out, and you need a reminder of the value proposition, here are seven (alliterative!) business reasons to file patent applications:
Copycat deterrence: Once
disclosed, if the creator doesn’t file patent applications or obtain
other IP protection, any innovation or R&D results can be copied (or
reverse engineered). In fact, absent IP, copying is considered by
judges to be a desirable activity in commerce.
Commodity prevention: Without
patent applications or other IP protection, customers are free to treat
your innovation as a commodity and look for the lowest cost supplier.
While you may obtain short-term exclusivity by contract, a patent is a
much stronger and longer way to obtain exclusivity.
Capture value: Developing IP can
be a significant investment, but royalty payments and other licensing
fees are an attractive way to recoup some, all, or multiples, of the
investment. Beyond the legal fees to set up the license, you make a
percentage on sales (or use) by some third party, while requiring no
infrastructure or further investment from you. From a business
perspective, license revenue is nearly all upside.
Cultivate margin: Given the
exclusivity that patents grant, one would expect higher margins on
products covered by patent. In fact, studies by large corporations on
patent-advantaged sales have borne this out. Moreover, margins can be
even higher in cases with good product-specific coverage and narrower
market segments, such as medical device or pharmaceuticals.
Credibility: The first step in
developing a reputation as a market-leading innovator requires a
significant number of patent filings. In some industries, patent
filings do double duty as marketing and recruiting materials, as patent
applications publish 18 months after filing, and word spreads quickly as
to who is actively filing.
Cross-licensing: Patents are
bargaining chips in disputes to act as grounds for counter-suit.
Similarly, in a license situation, a licensee’s block of patents can
help stimulate a cross-license to offset costs.
Collateral: As general intangible
property, patents can be used as collateral for loans. In many cases,
the bank takes a security interest in the patent. Typically, the bank
files a state UCC-1 financing statement, and preferably records the
interest in the U.S. Patent Office, to perfect the interest and give
notice.
* Interestingly, the biggest incentive to file patent applications
hasn’t even had time to affect the number of filings yet. Patent law
changed to “first to file” in 2013. If you invent something today and
keep it secret, and your competitor independently invents it next year
(or years from now), things are not going to pan out as you remember
under the previous system. Post law-change, given certain assumptions,
your competitor will be able to file an application, potentially get a
patent, block you, and force your customers buy their patented product.
Even though the idea was something you came up with first, but didn’t
file on. This outcome is intentional, as the law change was meant to
incentivize filing by stimulating inventors to hurry to file, which
theoretically fosters innovation.
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