IP Strategy 101: What Startups Need to Know
Though startup founders wear many hats when they launch their businesses — innovator, creator, delegator, coder, fundraiser, and marketer — not many list patent attorney among their titles. In fact, the absence of a cohesive intellectual property (IP) strategy is a common trait of many startup teams.
With so many things to think about — building a product, hiring a staff, fundraising, marketing, sales and more — there’s often little time left for a patent strategy. The problem with this reactionary mindset is that by the time an IP problem is large enough for leadership to deal with, the entire business could be at risk.
That’s why having a plan upfront will save you from a lot of expense and legal hassle later on down the road. Here’s how to think about putting one together.
Be proactive: protect your technology and build your IP portfolio
Understand and take stock of all the IP that your company owns or uses. Then, identify what it is that sets you apart from other companies — that’s part of your competitive advantage, and what you need to protect, so that your technology can’t be used by another company without your permission.
One way to build your IP portfolio is, of course, to file patents. If you’re not certain where to begin or what specifically you can patent, you can discuss your options with a patent attorney, who can guide you through the process. You should also determine in which countries your patents should be filed. If you plan to stick to one market exclusively, such as the United States, a single filing may suffice — although many companies have an eye toward eventual expansion and may be well served to begin exploring international patents that will prove lucrative in the future.
You can also acquire patents by buying them: often, companies add patents to their portfolios by acquiring other companies. Having a solid patent portfolio in your industry makes it easier to expand your product and develop new innovations — and can sometimes be less expensive than developing the technology internally through your own R&D.
Be defensive: protect your innovation
One major reason you need a proactive strategy is to thwart off patent assertion entities (PAEs), sometimes known as “patent trolls.” Trolls tend to be shell companies with no tangible products or services that often purchase patents from existing companies or companies that no longer exist. They make most of their money by suing companies using those patents. And, over the last decade, patent trolls have ramped up their targeting of startups.
With the rise of startups in recent years, patent trolls have focused their efforts on these smaller, less patent-savvy companies in an effort to gain financial compensation.
With a single lawsuit, a troll can target multiple start-ups — most of which aren’t likely to have lawyers in-house, and don’t have the $3.2 million on average it takes to defend a lawsuit — which are likely to settle. Because of the windfall that settlements can provide, today, more than 50% of patent troll targets have less than $10 million in annual revenues.
What people don’t often know if that you don’t even have to own patents in order to be sued by a troll. Employing the third party technologies commonly used to run a modern business, such as cybersecurity software, video streaming or location tracking technologies, could put a startup at risk of a patent troll lawsuit. With the average cost to defend a software-related patent troll lawsuit sitting at over $3 million, it’s easy to see how patent troll litigation can easily put a startup out of business.
One of the easiest ways to protect your company against patent troll lawsuits is to join a community. My organization, LOT Network,, is a non-profit community of more than 500 companies that agree that if and only if a patent owned by a member company falls into the hands of a patent troll, that company grants the other members a license to that patent. That means that the patent can no longer be used by trolls to sue the members of the community. The usual uses of patents, like buying and selling, and suing companies who infringe on your IP, are still preserved. Best of all, membership is free for startups with less than $25 million in annual revenue.
There are other communities that companies often turn to after they’ve already been sued. Unified Patents looks to deter patent abuse and focuses on challenging the validity of low quality patents that form the underlying basis of many patent troll campaigns. Allied Security Trust is a community of companies who pool their resources to buy patents for defensive purposes.
Having spent more than 20 years protecting intellectual property at tech companies, I believe that an ounce of prevention is well worth the peace of mind and the pain averted in the long run.
