Patent Strategies For Start-Up Technology Companies

By Gregory Kirsch, Partner, Ballard Spahr, LLP, Atlanta*  A start-up company may find itself competing in a marketplace heavy with protected intellectual property, such as patents. The patent landscape within the start-up company's field should preferably be analyzed before entering the market, lest the start-up be faced with a flurry of third-party licensing "opportunities" or even lawsuits. Likewise, the start-up company should consider how best to develop a patent position of its own.

There are various considerations that a start-up company should take into account when developing a suitable patent strategy. In addition to the basic need to protect turf and mitigate risks of being squeezed from the market by a competitor with its own patent portfolio, a start-up company should consider all of the offensive and defensive aspects of patents, while balancing the strategy with practical concerns such as cost. Creating effective patent policies and procedures within the company early in the process can result in gained efficiencies later in the process.

How Patents May Be Used Developing and protecting a patent portfolio can help a start-up overcome barriers to entry in a market. If the new company's products or services are unique in an area crowded with pre-existing patents, protecting the unique aspects of its product or service can help insulate the new entrant from existing competitors and thereby overcome hurdles to entering that market. By protecting the core business product or service of the new company, the survivability of the start-up can be enhanced.

Having a patent portfolio can increase the value of a company and aid in obtaining funding through borrowing, VCs, and IPOs. Defensively, a patent portfolio can serve as a deterrent to potential infringers and competitors from copying and entering the same technology areas. Defensive tactics also include identifying third-party patents in the same technology area as the start-up, and addressing them at an early stage by, for example, clearance (freedom to operate) analysis and opinions, designing around, invalidity and non-infringement analysis and opinions, or seeking licenses. Offensively, while a patent provides the patent owner with the exclusive right to prevent others from making, using and selling the patented invention, it also affords a potential stream of revenue and strategic alliances through licensing and cross-licensing opportunities. Patents also provide their patent owners the opportunity to seek judicial remedy against infringers that are unwilling to license or cease infringing activities. The development of a patent portfolio can instill a culture of innovation in a company, as well as a reputation in an industry for being a technology leader. Developing a patent portfolio can also provide a feeling of ownership among employees by recognizing their contributions to the company's well-being.

How to Develop a Patent Position One of the first steps in developing a patent position is choosing patent counsel. Inside counsel (if the volume of patent work justifies it), outside counsel, or a combination of inside and outside counsel can be used. If outside counsel is involved, the start-up must decide who they will use. Like any legal service, outside patent counsel should be chosen based on experience, capability, comfort-level, and expense. Getting patent counsel involved early in the process helps better execute patent strategy by developing procedures for invention disclosure, focusing the portfolio, and optimizing the use and value of the portfolio.

Invention "mining" within the start-up company helps grow the patent portfolio. The purpose of invention-mining is to provide a mechanism for bringing inventions from various levels of an organization to a point where a decision can be made whether to seek patent (or other intellectual property) protection. Invention mining within a company also helps create a culture of innovation and protection and instills an ownership value among inventing employees.

Invention disclosure within a start-up (or any company) may be encouraged through one or both of an incentive program and recognition systems. Typically, an invention disclosure form (IDF) may be developed with input from patent counsel for use by inventors within the company to document details regarding their inventions. A well-designed IDF can facilitate the decision process regarding patentability and lower patent preparation costs by providing much of the information needed by a patent attorney.

Another important element of the invention disclosure process is a patent committee. The patent committee within a start-up typically consists of senior management most closely related to the inventive process, such as a Chief Technology Officer. Preferably, the patent committee should also include other senior business executives, to ensure that the business objectives of the company are considered. The patent committee need not be formal in nature -- it can be as small as one person -- although it's important that both technical and business input is obtained, to be combined with the advice of patent legal counsel.

In operation, the patent committee receives IDFs from company inventors, ensures all relevant details regarding the invention are included, assesses the invention with respect to the technical and business strategy of the company, assesses the patentability of the invention (with help from patent counsel), and coordinates with patent counsel regarding whether to pursue patent protection. Other activities of the patent committee may include decisions regarding enforcement and licensing of patents, and the initial review and consideration of third-party patents regarding validity, infringement and design-around issues.

The structure of the patent committee can vary based on the size and needs of a company, but it is a good idea to work with patent counsel in developing the patent committee and in some cases it may be beneficial to have patent counsel serve on the patent committee

Having a Strategic Focus Having a strategic focus in mind with patents can be critical to a start-up company's long-term viability and success. For example, the company may want to pursue a patent-mapping process early in the patent development cycle. Patent mapping provides a landscape of patents in a relevant area of technology, and can help to identify key competitors in that space. It can be used by the start-up company to focus and tailor its research and development, by identifying "holes" in patent coverage of a given technology sector. The results of patent mapping can be used to pursue strategic patent coverage.

Patent-mapping can also help avoid litigation, the need for licensing, and costly design-arounds. Even if patent-mapping is not employed, a "shotgun" approach to development of a patent portfolio should be avoided. A group of patents that are in a related technology area are generally of greater value to a company than having scattered patents in a number of unrelated technologies. The strategic focus should be conveyed throughout the company and should be a criteria used by the patent committee when deciding whether to pursue patent protection for an invention.

Conclusion The importance of patents and other types of intellectual property to companies, large and small, is becoming more and more pronounced, as technological innovation advances and competition increases. All start-up companies should give serious consideration to the minefield of existing patents, as well as the development of a patent portfolio. A patent portfolio can protect the core business concepts of the company, thereby increasing the company's value. Patents can be used offensively and defensively, and the start-up needs to be aware of and take steps to protect itself from the patents of others. When implementing its patent strategy, a start-up should choose patent counsel carefully, develop a patent committee (either formal or informal), "mine" inventions within the company by developing an invention disclosure process, map the patent landscape, provide incentives for innovation, and, of course, manage costs associated with all of these activities. In the end, the patent strategy should be focused on creating value for the company, in order to maximize the chance of long-term success.

*Greg Kirsch is a partner in Ballard Spahr LLP, where he leads the firm's Software, Electronics and Communications Technology Patent Team.  He represents clients ranging from small technology start-ups to large international companies, as well as universities, in the U.S. and abroad.  In addition to his full-time legal practice, Kirsch has also served as an adjunct professor of patent law at Emory University School of Law since 1997.