In our previous article on IP and startup financing, we looked at the value that registered IP rights can bring to a startup. In this article, we will explore the best strategies startups and growth companies can put in place to help build out their patent portfolio.

Generating and building value through a patent portfolio

Startups’ intellectual assets typically greatly outweigh their physical assets. Investing early in securing registered rights can send an important signal to potential investors of otherwise unobservable value in a startup, and in particular patents can be important IP rights to obtain for technology-led startups.

Depending on a startup’s business strategy, there are many other reasons why it might look to secure patent rights, including:

• The monopoly conferred by patents can reduce competitive pressures (improving the profitability of the startup and securing higher returns for investors).
• Having one’s own patents can be a defensive deterrent against patent lawsuits being filed by competitors.
• Patent filings can be effective indicators of the technical capabilities of a company and their employees.
• Patents will survive as assets in the event of a bankruptcy, providing security for both investors and lenders.
• Licensing patents can provide an income stream.
• Patent rights can help enable startups to enter joint research ventures with larger firms, accelerating their own research and development.

However, out of all of the IP activities that a startup can undertake, obtaining a patent is one which can require a significant investment in resources, in terms of both cost and time.

First, an invention must be identified, and a patent application drafted which captures the invention which the inventor has identified, but also to the extent possible captures the alternative ways in which the invention might be implemented.

Then patent applications are filed, often in a number of territories, with these applications then subject to examination wherever filed. After a patent is granted, there are ongoing renewal fees payable to the relevant government agency.

As a result, there can be many thousands of pounds of expense in the first few years of a patent application’s life.

Many startups understand the importance of filing patent applications but do so without considering the overall strategy behind their patent filings and without putting in place processes to manage the filings and subsequent prosecution at the patent office. As a result, patent applications can often be made on an ad hoc basis, with a push to ‘get patent applications filed’ when inventions are spotted within the company, but without an appreciation of the resources needed to ensure the maximum benefit is obtained from the patent applications.

Innovations may not be identified at an early enough stage, meaning that the opportunity to file a patent application can be lost. On the other hand, as the company’s business strategy develops or the scope of the patent application is restricted during prosecution before the patent office, e.g. because prior art is identified which necessitates an adaption of the claims, patent portfolios may become less well aligned with the commercial needs of the company.

Thus, it is pertinent to ask how can startups better build out their IP portfolio whilst maximising the value that it provides?

Innovation capture, patent procurement, and portfolio management

Rather than focus on the number of patents filed, startups can implement a holistic ‘innovation capture’ process – a systematic approach to maximise the chance of patentable inventions and other IP being identified and protected at an early stage, but also allowing resources needed to generate each patent application to be deployed in the most efficient and effective manner.

Innovation capture is the first step towards building a patent portfolio for complex technology development projects. It involves working through the technical information arising from the project to identify potentially patentable subject matter, guided by knowledge and experience of the legal requirements for patentability. The output of the process is a collection of ‘innovation records’, each of which can be commercially evaluated and subsequently converted into a patent application if the decision is taken to do so.

It’s important to note that there’s no ‘one-size-fits-all’ approach to innovation capture – it has to fit into the culture and working practices at any given company. However, innovation capture is best achieved by a collaborative approach in which patent attorneys and development teams work together, bringing both technical and legal expertise early on in the process. By asking the right questions, attorneys can often pick up on strategically important aspects which might otherwise go unprotected.

Commercial input is also vital. Each innovation that is identified needs to be evaluated from a commercial perspective so as to decide whether it is worthwhile to invest in patent protection, and to determine filing plans. This work can be streamlined by developing a commercially-grounded evaluation process which ensures that the relevant factors are considered before a decision is taken as to whether, how, and to what extent patent protection should be sought.

This collaborative, full-picture approach to innovation capture also leads to benefits during the later patent application process. Because the patent attorney team understands the commercial context of the innovation, they can implement a prosecution strategy which is aligned with the product and commercial objectives for the application, achieving best protection in a cost-effective way.

There may be innovations which are not suitable for patent protection. Innovations in the appearance of a product may be better protected with a design filing, or the innovation may have a software feature which could be covered by copyright. Alternatively, the decision may be taken to keep an innovation entirely confidential and treat it as a trade secret. Even if innovations are not taken forward to patent procurement, they will still be itemised, allowing for appropriate action to be taken – designs can be registered, ownership of copyright ensured, and the correct mechanisms put in place to maintain the secrecy of confidential innovations.

Moreover, with the correct innovation record keeping in process, companies will have a full picture of their intellectual property (both registered and unregistered), allowing for regular audits of their IP assets. Not only can companies see what IP they have, but crucially the records are project- and product-oriented, meaning that companies can regularly appraise the value of their IP assets, and make sure that their resources are appropriately allocated. This allows companies to maximise the value from their IP budget, ensure their IP strategy is on track, and readily identify their IP assets for valuation purposes.

Maximising the value of IP expenditure

As mentioned, expenditure on individual patent applications can run to many thousands of pounds. If a startup places value on its IP, the upfront investment in spending time with patent attorneys drafting high quality patent specifications which can endure the rigours of patent examination in multiple jurisdictions, whilst ensuring that commercially valuable patent rights can be obtained, will pay dividends in the longer term.

Cutting corners at an early stage by not filing well drafted patent applications will more often than not end up introducing problems later during the patent prosecution process, or with patents not being obtained having useful commercial scope. To avoid this, and to reduce the burden on busy inventor teams, it can be worth embedding the patent attorney team into the startup’s research and development teams at an early stage, and ensuring that appropriate internal resource is devoted to managing the invention capture process and resulting patent filings.

Finally, ensuring that senior management within the company understands and values the patents being generated and pursued is critical; by implementing regular portfolio reporting via the patent attorney team, the company will have a greater understanding of its patent portfolio and how it aligns with the company’s wider commercial objectives.

Practice points

• A holistic ‘innovation capture’ process can ensure that IP is identified and protected at an early stage in the most cost-effective way.
• Using a commercially-grounded evaluation process enables startups to allocate resources to their most valuable IP assets.
• Patent protection may not be suitable for all innovations. Startups should consider both registered and unregistered rights such as designs, copyright and trade secrets.
• A comprehensive innovation record keeping process should be put in place. This will help keep the IP strategy on track, and enable startups to demonstrate their IP assets (registered and unregistered) to potential investors.

Conclusion

The patent procurement process involving the drafting, filing and prosecution of patent applications through to grant can be a critical, but expensive, exercise for technology-led startups.

By implementing a holistic ‘innovation capture’ process, and taking patent attorney advice early on in the invention identification process, startups can maximise the return on investment from their patent portfolio.

Carpmaels & Ransford’s specialist teams of IP lawyers work across all areas of intellectual property law. We are perfectly placed to provide startups with practical, commercial and holistic advice to develop effective IP strategies, and to support investors who are evaluating IP-rich companies. Please contact the team for further information.