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Should Startups Invest In Patents?

One of the issues that we debate internally is regarding the value of patents.  We’ve written a lot about the subject over the years and those of you who are regular readers know that Brad hates all software patents, and I’m fairly close to that line as well.  Last night, our friend Rob Shurtleff sent us an email asking the question “what is the value to startups in filing patents?  Do VCs really care?”   

Rob’s take (and he is a VC) is that:

“1:  Software patents have in our experience not added significant value to early stage companies when they are acquired;

2:  Early stage companies can’t afford to use granted patents as an offensive weapon (this is equivalent to the rules of Mutually Assured Destruction), a few nukes isn’t going to cut it when fighting a super power;

3:   It costs a huge amount of time and money to do a high quality patent filing, there are a lot better things to spend your time and money on; and

4:  The rules are changing and making this whole area less predictable.”

I think Rob is pretty dead-on accurate.  In fact, I think patents are probably the most overvalued “asset” that startups promote when raising funds. 

Now, let me caution everyone on a couple of things:

1.  There are some business plans that absolutely require patents:  anything in the biotech / medical space, new hardware technologies, semi-conductor, new computing or interfacing languages, etc.  In other words, much of this post assumes that you are an early stage software company, or a business based on business methods; and

2.  These opinions are mine alone (although I’m betting that at least Brad and Rob won’t put up much of a fight) and some VCs may care very differently about this.  Whether they SHOULD is another issue, but I know of VCs that do exhaustive patent reviews of all of their deals.  If you are seeking funding from them, you better have your turkeys in a row.  (Happy Thanksgiving, everyone).

I’m going to get a lot of hate mail from patent attorneys.  Sorry guys, but I have to agree with Rob’s first point, above and to me that is the deciding factor.

Also, don’t underestimate Rob’s fourth point about the changing of the rules.  “Patent Reform” is becoming a sexier topic in the legislature.  “Something” will change soon.  If Google, Microsoft and others get their wish, they’ll trumpet around that they’ve fixed much of what is wrong in the system – just be prepared for the “first to file” standard that they are proposing the effects this may have on the ecosystem.  If anything, it will just further reinforce my opinions above.

November 21st, 2007 by     Categories: Intellectual Property    
  • http://www.altgate.com Furqan

    I agree. I don’t think VCs typically value patent applications as “upside” but they do view patents as a potential risk. To that end, I would add that it is worth doing a formal or informal “right to use” search before your raise your first round of professional money. This is usually pretty cheap (I agree. I don’t think VCs typically value patent applications as “upside” but they do view patents as a potential risk. To that end, I would add that it is worth doing a formal or informal “right to use” search before your raise your first round of professional money. This is usually pretty cheap (

  • http://www.neon.ai Ian Wilson

    To extend point 4, in the US at least the length of time required to validate a patent filing has become so onerous as to be almost worthless.
    I am hearing times of over 5 years for internet related technology filings. In todays web 2.0 world a company could build, grow and exit in less than that time frame making the patent a wasteful distraction.
    I just went through the process with a web 2.0 venture and while the pros and cons were thought through in hindsight it may have been a large factor in the demise of the business. 3 months of labor, $30k+ and patents filed for technology that was quickly obsoleted (another key point), what the business would have done to have that time and money back.
    I found many VC’s seem to ask about patent protection like they are reading from a script, but don’t fundamentally understand what a patent means (how broad is it, how easy is it to produce the same product using a different method etc).
    It becomes a simple mantra of “patent = good, no patent = bad” for too many people. It is therefore up to the entrepreneur to learn and fully understand what IP is all about, especially for technology businesses.
    Better yet, no software patents and definitely no business process patents. Innovate or go home.

  • Erik Unger

    In Europe you even can’t get patents for software and business-models and I think that it is good that way.

  • Saul Lieberman

    I think your post does a good job of explaining whether a software startup that does not intend to seek VC financing should invest in patents.
    But the software startup that will need VC financing needs to know how VCs think about patents today. If startups without patent applications are generally at a disadvantage in today’s VC world, then we need to acknowledge that.
    (Query: does the lack of software patents bother acquirers of software companies.)

  • http://www.divergent.com Rob

    thanks Jason for taking time over the long weekend to write up this discussion.
    one clarification point that i think you, brad and i agree on and most of our discussion was focused on is Software Patents are fundamentally different then Bio, Hardware + SW, mechanical, chemical or clean tech patents.
    rob

  • http://www.divergent.com Rob

    Jason on re-read delete my comment. you have it covered. the thanks stand
    rob

  • Dean Fragnito

    Filing a patent may be a wast of money for a software startup, but the process is extremely valuable.
    I highly recommend that every software start up go through the process, without a lawyer. You will have a better sense of what you are and where you are going.

  • Todd Vincze

    I started a patent in 1986-87 called the Multi-Phone , Which is a cordless/cell phone combined with AM/FM to FCC Regulations and articles as a private person.and want this renewed and brought back.Is there anyone that can help?

  • http://www.shelfmade.net Mike

    This is a timely post for me and quite reassuring. I woke up Monday morning to the news of Google filing for a patent on customer created print publications – here is my project, http://www.shelfmade.net. Rather similar.
    We are still moving forward for a number of reasons.

  • http://www.chide.it Matt (Mad) Chider

    There is no point in investing in patents for early stage startups in software… There are too many ways that I can chide that concept… I am adding this to my list of posts to chide.
    Matt (Mad) Chider
    http://www.chide.it

  • http://www.qrimp.com PJ

    In the four years it takes to get a software patent these days, companies are founded, built, and either fade away or get acquired for millions. Patents are expensive — in time and money — and risky. You’ll almost certainly fare better spending the time coding.