When it comes to intellectual property, “patents” might spring to mind. A good patent can give startups a competitive edge, and once you’ve been granted one, nobody can come and mess with your technology, right? Not so fast. A lot is changing in the patents world, and things can quickly start to get complicated.
We spoke with Michele Moreland, general partner at Aventurine, a venture fund that is taking an IP-first approach to investing. Moreland has been at the cutting edge of IP strategy throughout her career and has been responsible for $3 billion in patent verdicts as a portfolio strategist. As a trial lawyer, Moreland represented some of the most important tech companies of our time, including Qualcomm, Amgen and Nvidia.
In this article, we’ll explore what to look for when hiring patent counsel, how much it typically costs to file a patent, the difference between provisional and full patents, how patents can be an important part of your IP strategy, and why trade secrets may be a better bet in some cases.
What’s a provisional patent?
The America Invents Act (AIA) was passed in 2011, dramatically changing how patents work in the U.S. Until 2011, the U.S. was a “first to invent” system, meaning that if you were the first person to come up with an invention, the patent was yours. The new system is more aligned with patent systems across much of the rest of the world and is a first-to-file system. We went from a race to build to a race to the patent office.
Of course, writing up a full patent application is nontrivial, and that’s where provisional patents come in. A provisional patent application (PPA) is a legal document filed in the United States Patent and Trademark Office that establishes a filing date. This patent does not automatically become an issued patent: Applicants have a year to apply for the full patent (sometimes known as a utility patent). A provisional application allows inventors to secure a “patent pending” status for their invention without engaging in the full, formal patenting process.
Unlike a nonprovisional patent application, a PPA is a much simpler process; think of it as a placeholder for an invention in the patent queue while the company refines the patent and assesses how viable it is to pursue a full patent.
“A provisional application is cheaper because you don’t engage in the back and forth with the patent office, arguing about whether it’s patentable or not,” Moreland said. “It’s basically ‘Hey, I’m standing in line, and in a year, I’ll get you a full patent application that has all the details you need. The first-to-file system forces you to run to the patent office when maybe you’re not quite ready.”
It’s hard to outline how to choose which patents to file provisional applications for and which ones to mature into full patents: That’s where a good IP strategy comes in, and a really good patent attorney can give strategic advice on the market overall. Anyone working on product development can come up with a lot of things that could potentially be patented. But resources are limited at a startup, so choosing which patents to focus on boils down to being able to identify what parts of the technology is core and hardest to replicate. You have to know where the market and the technology are going and recognize that you’ll want to protect the parts of your technology that give the company a competitive advantage.
Depending on the size of the company, 25% to 75% of provisional patents are abandoned along the way, with an average abandonment rate of around 40%. These numbers hide a lot of stories. It’s likely that larger corporations with in-house IP legal divisions choose not to file provisional patents that aren’t viable. At the other end of the scale, “micro entities,” or solo inventors and small businesses, choose to spend the money on only those patents that can move the needle for them, strategically.
“My bias, as a patent litigator and an IP investor, is that if you’ve really got something that’s foundational, and new and truly innovative, you file a full-on application with what I like to call the ‘kitchen sink’ specification that has plenty of stuff in there from which to use to develop claim sets,” Moreland said.
Patent searches
A patent search, also known as a patentability search, determines whether an invention or idea is novel and non-obvious, two key requirements for a patent. This search typically involves investigating databases of issued patents, pending patent applications, and other relevant technical documents, collectively known as “prior art.”
The goal of a patent search is to identify any existing inventions that are similar or identical to the one proposed. Such discoveries may affect the patentability of the invention and inform decisions about whether to proceed with a patent application.
There are different types of patent searches. A novelty search, for example, aims to find prior art that might question the newness of the invention. These types of searches are crucial to figuring out whether what you are planning to patent is actually new and not already covered by an existing patent. An infringement search (or a “freedom to operate” search), on the other hand, is conducted to ensure that the production, marketing, or use of a product doesn’t violate existing patents.
While patent searches can be conducted by inventors themselves using online databases like the USPTO or the European Patent Office, people usually hire professional patent searchers or patent attorneys due to the complexity of the task. Although not legally required, conducting a thorough patent search is generally recommended before filing a patent application, as it can save a lot of time, headaches, and wasted resources along the way.
It’s worth noting that choosing not to do a patent search can be a strategy, too. If you do a search, and you realize that the technology you are planning to implement is patented, you have a problem: Knowingly infringing on a patent is a far worse look in court than not knowing. This is where having a good patent lawyer who can help map out the strategy comes in handy.
“Don’t ever just cross your fingers and hope for the best,” Moreland said. “But the answer may depend on the technology, the market, and a lot of other factors that go into what the best strategy is. You should talk to counsel.”
Hiring patent counsel
Hiring patent counsel is a critical step for inventors seeking to secure and maintain patent protection for their inventions. A patent attorney or agent offers specialized expertise in navigating the complex patent application process, from drafting and filing an application to responding to the examiner’s comments and enforcing patent rights.
Patent counsel can conduct comprehensive patent searches to evaluate the novelty and non-obviousness of your invention. From there, they can help draft detailed patent applications that fully describe the invention and satisfy legal requirements, increasing the likelihood of securing patent protection.
When hiring patent counsel, consider factors such as their technical background, experience in your industry, reputation and track record.
“Ask them to give you a few patents that they’re very proud of — patents that matured into issued patents,” Moreland said. “You can flip through them and see if there’s heft to them, and whether the claim seems straightforward.”
The lawyers you use to file your patents need to be intimately familiar with the product space. That means that if you’re developing a particular molecule that has a specific medical application, you shouldn’t just find someone who has any biotech experience; you’ll want someone who understands the field.
“If you are developing a cutting-edge new technology, the next evolution of X, your counsel should know X very well. They need to know why it is better, why it solves the problems, and what the advantages are,” Moreland said. “Because they know how the patents are claimed in X, they’ll be able to help you try to position the IP and the claims for your innovation.”
Covering multiple aspects of the tech
When patenting, one approach is to cover the technology from multiple angles; you could cover the core technology, the packaging, the implementation of the innovation, and much more. What you actually choose to patent depends on what the overall IP strategy is, but taking a belt-and-braces approach can be helpful. If one part of the patent application is rejected or disputed later, you can be covered through a different path.
In biotech, you may choose to claim the molecule itself, the formulation and process for creating the molecule, or the method of delivery to the patient. Assuming all three are novel, if you were to patent all three, it means that you are covering your invention through three different routes.
In semiconductors, you could patent the circuitry itself, the package it comes in, or the manufacturing process.
Think about the full life cycle of a product to figure out what would be most beneficial to protect.
How much does a patent cost?
Moreland suggests that per fully filed patent, you need to budget $25,000 to $30,000, and remember that that isn’t a single lump-sum payment: In addition to mapping out the strategy and writing the patent itself, there’s the arguing back and forth with the patent office.
That’s a pretty big sum, so some people find other creative ways to pay. Some patent lawyers will work in exchange for equity in the company, for example. You never know unless you ask, and if it’s aligned with the overall strategy of your company, giving up a slice of your cap table to protect core IP at the beginning of the startup journey might make sense.
International patents
Where you file your patents is also important. As a rule of thumb, you should file in any jurisdiction where you have a major presence. That includes core markets where your product is going to be sold, used and manufactured. If you are developing tech as a joint venture, file where your JV partners are to ensure there’s clarity on how any IP-based revenues and rights are divided.
In Europe, Germany and France are major markets. If you’re doing biotech, the U.K. is a good place to start. And all of this depends on your business and go-to-market strategies.
An “international patent” doesn’t exist per se, as patents are territorial and must be applied for in each country where protection is sought. However, international treaties like the Patent Cooperation Treaty (PCT), administered by the World Intellectual Property Organization, facilitate the process of securing patent rights in multiple jurisdictions.
A PCT application, often termed as an international patent application, doesn’t directly result in a patent grant. It’s like a provisional patent that applies to a number of countries at once, postponing the need to file separate applications in the countries of interest for up to 30 months from the earliest filing date. Past this period, national phase entry is required in each desired jurisdiction, where the patent application will be examined according to local patent laws. This can result in a patent’s fate being left in another country’s hands.
Filing patents across geographies can quickly get expensive, but not having patent protection in a core market can cause a lot of operational headaches, too.
A patent system under siege
The patent system has shifted enormously over the past decade. This is largely due to the inter partes review (IPR) process, a post-grant administrative proceeding conducted by the Patent Trial and Appeal Board (PTAB) to review the patentability of one or more claims in a patent.
Established under the AIA to improve patent quality and limit litigation, the IPR process allows third parties to challenge the validity of a granted patent on the basis of prior art consisting of patents or printed publications. The goal was to provide a faster, more cost-effective alternative to litigation in federal court.
As often happens when there are big shifts in law, there were some not-entirely-as-intended consequences. While the IPR process has successfully invalidated a number of what some might deem as “low-quality” or “undeserving” patents, many patent owners argue that IPR undermines the stability and predictability of patent rights by making them easily challengeable. The high invalidation rates in IPR proceedings have led some critics to dub PTAB as the “patent death squad.”
Startups and small inventors are particularly at a disadvantage, because there are significant legal costs associated with defending a patent in an IPR proceeding, and big companies are using the system to challenge patents at scale.
The upshot of all this is that the patent system is still bedding in after 10 years of being in this new track. The general consensus is that the new system isn’t as bad as its critics seem to think, but also not as good as its defenders claim. Still, more startups are choosing to be pickier about what they patent and what they choose to protect through different means, such as trade secrets.
So where do trade secrets come in?
Patents and trade secrets are two distinct yet essential tools for protecting intellectual property, each offering unique advantages and challenges.
Unlike patents, trade secrets involve information — including a formula, pattern, compilation, program, device, method, technique or process — that derives economic value from not being generally known or readily ascertainable. Trade secrets are protected as long as the information remains confidential, potentially offering an indefinite duration of protection, which is particularly advantageous for inventions with a long commercial life span. Unlike patents, trade secrets require no registration or disclosure, and protection is essentially cost-free. They are particularly useful for protecting know-how, business methods, customer lists, and algorithms that might not meet the patentability criteria.
It’s worth noting that reverse-engineering is possible, if you know what a system is meant to output based on certain inputs. Famously, the original IBM computers were reverse engineered by a number of competitors, including Compaq, and then sold as “IBM compatible.” They didn’t use the original source code (which was copyrighted); they had a bunch of clever engineers re-create the system from scratch.
However, the protection of trade secrets is not absolute. If the secret is independently discovered, reverse-engineered, or leaked, the protection is lost, and the information can be freely used by anyone.
Considering when and how to patent is a big, strategic decision for your startup. It can come at significant cost, both in terms of money and time spent, but granted patents can give you a real bump in valuation if someone is considering acquiring your company. Well-written patents can give you a moat, too, where you, in theory, can keep competitors off your turf. Get professional advice, and ensure that your investors and senior team buy into the strategy. Good luck — see you at the patent office!
About this series
This is the second installment in a broader series where Michele Moreland and I dive into the murky world of intellectual property for startups. The first article in this series covered how to come up with a proper IP strategy.
If you have feedback or ideas for topics you’d like us to cover, send me an email at tc@kamps.org!
Comment