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Counterpoint: Patents and Defensibility

Written by: Guy Kawasaki

Article Overview: Three of my buddies who are patent attorneys disagreed with my diatribe against patents as a key component of a startup’s defensibility. Being the open-minded Guy that I am, I offered to publish their counterpoint so that you can obtain a broader perspective of intellectual property issues for startups.

Counterpoint: Patents and Defensibility

Three of my buddies who are patent attorneys disagreed with my diatribe against patents as a key component of a startup’s defensibility. Being the open-minded Guy that I am, I offered to publish their counterpoint so that you can obtain a broader perspective of intellectual property issues for startups.

Patent law is currently a sea of chaos, and the net effect is that patents simply don’t pack the ooomph that they once did—particularly for startups. For example, the Supreme Court recently issued a decision in eBay vs. MercExchange that many people expect will change the value of patents for small companies that don’t actually make and sell a product.

In the wake of the Court’s decision in the eBay case, tech startups simply cannot count on their patents as an effective and efficient tool to shut down the Microsofts of the world. And that’s after you actually have a patent. Just getting to that point could take years...and years....and years.

Also, the application backlog at the Patent and Trademark Office is at an all time high. Current statistics show that the average patent application takes longer than thirty months from the date of filing to the date of issue. Factor in some of the higher backlogged tech areas such as web business and Internet business methods, and it will realistically be at least five years before the Patent Office even starts to examine your application.

We’ve even heard of delays up to and beyond ten years in certain technology areas. Your competition could run you over by then, and it’s more than likely we’ll all be onto Web 5.0 by the time you get the pretty ribbon copy of your patent.

We’re not changing our day jobs anytime soon though because patents still play an important role in building a defensible business—they’re just not the whole enchilada. In most cases, entrepreneurs need to avoid the knee-jerk reaction of “Patent Everything!” and should instead follow a carefully planned, comprehensive intellectual property strategy to achieve defensibility.

Here are a few tips about how to do this:

Put patents in the right place. Don’t mistake this post as a statement that patents aren’t important. They are. You just need to keep them in proper perspective, which is the underlying theme of Guy’s comments. Practically speaking, this means asking “Should we patent?” at the end of the invention management. Then consider these issues:

How are your competitors using patents? In some industries like biotech, pharma, and medical devices, you can’t get past Go without them.

Is your invention better protected as a trade secret? Trade secrets are any formula, pattern, machine, or process of manufacturing used in one’s business which may give the user an opportunity to obtain an advantage over its competitors who do not know it. The formula for Coca-Cola is an example.

Not all information can be kept as a trade secret. You need to be able to maintain the secrecy in-house—limiting access to the information—and your competitors can’t be in a position to reverse engineer your product/service and figure out how you did it. One drawback to trade secrets is that if one of your competitors later invents the same thing and obtains a patent, your “secret” use will not insulate you from patent infringement.

Could making the invention publicly and freely available create greater value for the company? Making source code and API publicly available might get you that all-important community support that can lead to life-sustaining critical mass and momentum.

Can placing the invention in the public domain by making a “defensive publication” work for you? A defensive publication is the publication—essentially donating it to the public domain of select inventions (inventions you don’t want to protect with patents or keep as trade secrets), information, and knowledge with the goal of preventing a later competitor from obtaining patent coverage on the exact same invention.

Many large corporations have used this tactic; for instance consider IBM’s Technical Disclosure Bulletin One evil variation of this strategy is to publish the document not in the U.S., but instead in Elbonia, Kazakhstan, or some other far corner of the earth with the intent of keeping it generally secret but “published” for the intent of “prior art” status under the Patent Act.

This won’t give you any rock solid rights, but it might prevent your competitor from obtaining protection on it. Keep in mind that this tactic truly is a donation, though. Once released, this genie can’t be put back in the bottle.

Look beyond the value in a legal action. When considering the role of patents in your overall strategy, remember that they can add value beyond just the ability to sue a competitor. This is the fundamental point that Guy missed. For instance:

Furnishing a key selling point: “patented technology.” (Whether it is justified is another issue, but it does have some value).

Blocking your competitors from getting patents which in turn keeps them from suing you.

Providing counter-offensive weapons: if you get sued at least you can counter-sue. The threat of a countersuit can prevent a suit or force settlement out of court.

Bluffing and strong-arming smaller competitors. They should know that paying you a nuisance value settlement to license the patent is cheaper than battling you in court.

Developing a portfolio of assets that may have value for future acquirers of your company who can afford to sue.

Consider the role that inventions will play in your business. Notice that we say “inventions” and not patents. Never forget that patents come second in this game. Think of the inventions and their role in your business first: Are they an important component of the value and growth of the company?

If inventions are important in any way, develop an efficient system for identifying and managing them. You should have well-designed invention disclosure forms, clearly designed processing systems, regular meetings for reviewing disclosures, and a cataloging meeting with your internal decision-makers at least once each year.

Get trademarks that are strong and protectable. If your trademarks aren’t protectable, go back to the drawing board. Steve previously wrote about this on think Vitamin’s site: Trademark Tips for Your Web App.

As you consider trademark strength, also look at domain name availability. Time after time we counsel folks who don’t spend enough time to find out if they actually can use a word or symbol. They just assume that it is okay to use.

Get the domain name. You cannot afford to lose this race. Be creative and find something that fits in with your branding strategy. And don’t forget typos and other obvious variant domains that people might accidentally enter when seeking you out. (Did you hear about Utube.com and Youtube.com?) Spending an extra nine bucks here and there on GoDaddy today might help you avoid needing to pay an attorney thousands of dollars later. Consider this domain-name “insurance.”

Develop an overall branding strategy for your trademarks, including your domain name. Many entrepreneurs simply wait too long to consider this important and incredibly valuable aspect of intellectual property. If you’re wondering about the importance and value of a solid brand, ask yourself this question: If I were starting a search company, how great would it be if I could call my company “Google”? Guess what: You can’t. Solid branding with appropriate protections creates significant value. Period.

Branding is as important as your technology is, and it sucks to have to rebrand everything twenty months into your corporate life just because you didn’t spend the time and money to get a legal opinion on the availability of a name.

The bottom line is that if your patent attorney tells you that you must patent everything without regard to the bigger picture, do yourself a favor and find a new one. A good patent attorney looks at the bigger picture and proposes a strategy—not a bunch of disparate tactics.

Patents aren’t the end-all answer to the defensibility question. And, yes, you might look clueless if you base your defensibility on nothing more than “We’ve got tons and tons of patents!” A strong intellectual property strategy designed in the context of the relevant industry can, however, give you defensibility.

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  PATENTS, TRADEMARKS AND COPYRIGHTS

Article Tags: business methods, counterpoint, day jobs, ebay, intellectual property issues, knee jerk reaction, least five years, microsofts, minded guy, ooomph, patent and trademark office, patent application, patent attorneys, patent law, patent office, sea of chaos, tech startups, technology areas, web business, whole enchilada



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