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Multiple studies have shown a direct correlation between a startup’s patenting strategy and the probability of its success in fundraising or commercial growth. That’s why safeguarding intellectual property for your startup in the form of patents, trademarks, or copyrights is the need of the hour. Also, the impact is stronger when you protect your innovation in the initial phase of your business than after the ideas have become successful.
Let’s look at 12 ways how having a sound IP strategy from the beginning can help your startup:
1. Prevent copycats
Most startups face stiff competition from companies of all sizes where everyone wants to gain a competitive edge with less resources and time. As a startup, you are completely dependent on your inventions, so you must protect them from potential infringements such as imitations by competitors. Patent protection puts a legal check on your competition and prevents others from misusing your property.
2. Openly discuss your product
If you have a patent, you can market your idea or product openly to prospective investors or customers without any sleepless nights over the risk of your product or technology specifications being misused. In most cases trying to keep the idea/product too vague and away from its core USP can turn off the other party. Furthermore, many companies are apprehensive about signing a NDA before the first couple of discussions. With a patent, you can overcome these situations with ease.
3. An anchor for your invention
Owning patentable inventions give startups more leverage when attracting investors and/or customers. Bigger companies are more likely to acquire or license a technology from a startup which possesses well-protected IPRs (patents). Research says that 80% of startups that entered partnership agreements and received venture capital investments already owned patents.
4. Increase monetary value for your product/process
A patented product/process increases the competitive edge of your technology and therefore its valuation. During due diligence, a company’s patent portfolio is checked to ensure that the invention is adequately safeguarded and that any investment will be secure. Patent portfolios are given a high weightage during funding rounds and M&A. Research indicates that 75-80% of a company’s market capitalization comes in the form of intangible assets.
5. Helps validate and market the USP of your product
A granted or pending patent offers more than just legal protection. It validates the uniqueness of your product. You can also creatively use patents or the “patent pending” status in your marketing strategy to drive commercial growth for your product.
6. Add new revenue channels through licensing
Having a patent opens up a revenue channel that otherwise wouldn’t exist. Licensing a patent (giving rights to sell, use or make a derivative product) is the most profitable route for startup founders. You can retain patent ownership and earn royalty payments from future sales of the product. If you aren’t able to bring the idea to commercialization yourself, you can also give an exclusive license to an established company in the space.
7. Create a deterrent against infringement cases
Owning a portfolio of high-quality patents can also serve as a powerful deterrent to lawsuits against you. In the high-tech space, most new products have some sort of technology overlap and so there is always a threat of infringement suits. With a strong patent position, you have the option of filing a counter-infringement suit against the plaintiff.
8. Facilitates technology pivots into complementary areas
Many startups pivot – either for the sake of survival or growth. If you already have a strong patent portfolio, you can look at other promising technology areas where the patents are applicable and decide to pursue them. Many startups also pursue patents for inventions in complementary areas outside their core business with the intention of selling/licensing them.
9. Get noticed by potential partners
Patenting your invention can also help it reach a larger audience. Bigger companies continuously monitor new patents around their core competency areas and your patented technologies may also get noticed by them. Those looking to enhance their existing technology/product portfolio or to fill up gaps in their existing IP portfolio could partner with you.
10. Negotiate better in JV or partnership discussions
With patents, you increase the chances of technology partnerships, mergers, or joint ventures. When discussing with a bigger and more established company, it is natural for them to use strong-arm techniques to drive down your value. Having a good quality patent portfolio, especially one that cannot be circumvented can go a long way in getting a better deal during such discussions.
11. May recoup all or a portion of your losses in case the product doesn’t succeed
In case investments in your product don’t result in the desired commercial success, and you also fail to find a buyer for the product, you can sell your patent like any other asset to recover some of the investment. You can sell your patent to established companies, patent pools or even NPEs that are in search of good quality inventions in the technology area.
12. Improves your long-term survivability
New firms with a higher stock of patents are less likely to go bankrupt. Unless your startup merges with a larger corporation, you are at a lesser risk of being wiped out from the product market if you have patents. So you should consider making your business innovative by patenting your ideas to avoid being in the 90% of startups that fail within their first five years.
