The most valuable asset of a technology startup is often its intellectual property (IP), which makes them one of the most critical assets to manage well. As a startup, you focus on achieving product-market fit, managing your team and raising capital, but you should also focus on how to convert your technology into valuable IP rights. Some rights are easy and somewhat cheap, others are costly and time consuming to obtain. Patents fall into the latter category. Applying for a full patent might therefore be pushed out until your company has significant funding. However, obtaining the right protection for you patent application, and other intellectual property, can be a deal breaker to receive Venture Capital funding, not to mention preventing competitors from copying your solution. The good news is – there are options for filing your patent applications early, even if your company is light on cash.
Protecting Intellectual Property Before Your Company Is Funded
It is important to file patent applications on new inventions as early as possible. However, hiring a patent attorney to prepare full utility patent applications is very costly and may be beyond the means of many startup companies. This presents a challenge for early stage startups that need patent protection to protect their company’s most important assets but that don’t have the resources to hire a professional. This article explores why it is important to file patent applications early and a few strategies to file patent applications even if your company is light on cash.
Similar to other countries, the United States (US) has a first to file patent system. This means that if two people invent the same thing, the first person to file a patent application on the invention will be entitled to obtain a patent. The second person to file the patent application will be barred from obtaining a patent by the earlier filing by the first person, even if the second filer was the first to invent.
All countries have statutory bar dates beyond which a patent application cannot be filed. In most countries, an inventor is barred from filing a patent application on his or her invention once that invention is publicly disclosed. By contrast, the US provides a 1 year grace period after a first public disclosure to file a patent application (what is considered a public disclosure is beyond the scope of this article). However, to mitigate the risk of someone else filing a patent application on your company’s invention and to keep the option of filing patent applications in other countries open, it is generally advisable to file patent applications in the US before the first public disclosure.
Additionally, patents and patent applications can help significantly in securing funding for startup companies. A 2008 survey of technology startup companies by the Berkeley Technology Law Journal showed that investors such as venture capitalists, banks and angel investors prefer to invest in startups with patent pending technology. See Stuart J.H. Graham et al., High Technology Enterprise and the Patent System: Results of the 2008 Berkeley Patent Survey, Berkeley Technology Law Journal, Vol. 24, No. 4, pp. 255-327, 2009. Accordingly, it is generally advisable to file for patent protection before seeking funding.
Costs for hiring a patent attorney
The cost of hiring a patent attorney to protect your company’s intellectual property (IP) will generally vary between about $10-15K per patent application for full utility patent applications. Additionally, the United States Patent and Trademark Office (USPTO) currently charges $1600 for full utility patent application filings. Fifty percent discounts are available for companies meeting the criteria for small entity status. Startup companies usually qualify for small entity status, which can be asserted to cut the USPTO filing fees to $800. Even with the small entity discount offered by the USPTO, however, startup companies should still expect to pay about $11-16K per patent application filing for full utility patent applications.
One strategy to mitigate the cost of filing a patent application is for a startup company to prepare and file the patent application themselves, which is referred to as pro se patent application. However, drafting a quality patent application can be challenging even for professionals, and going it alone without professional help can lead to partial or complete loss of IP rights. A 2012 study showed that the abandonment rate of pro se patent applications is around 76%, as compared to an abandonment rate of about 35% for patent applications prosecuted by a patent practitioner. See Kate S. Gaudry, The Lone Inventor: Low Success Rates and Common Errors Associated with Pro-Se Patent Applications, PLoS ONE 7(3): e33141 (2012). Additionally, pro se patent applications tend to have a lower quality with narrower claims than patent applications prepared by patent practitioners. See Id. If you do decide to tackle the patent drafting and filing on your own, then I recommend that you first read a book called “Patent It Yourself” by David Pressman, which provides a step-by-step guide to preparing and filing a patent application.
Another option to mitigate the cost of filing a patent application is to work with a law firm that will take equity in your company in exchange for deferring and/or reducing the fees for preparing and filing patent applications on your company’s technology. Not all law firms offer such an option, and those that are willing to perform work for equity are generally selective about which companies they will provide this option to. Moreover, the ultimate cost of such an option to the company is frequently much higher than the cost of simply paying a patent attorney outright.
The third option of securing patent protection at a reduced cost in the US, and the one that I generally recommend, is to hire a patent attorney to prepare and file a provisional patent application. A provisional patent application is a class of patent application that is, to my knowledge, unique to the US. A provisional patent application is essentially a place holder that grants the filer a priority date for their invention. The applicant then has 1 year from the filing of the provisional patent application to file a full utility patent application that claims priority to the provisional patent application.
The attorney fees for preparing and filing a provisional patent application are generally around $1-4K, as opposed to $10-15K for a full utility patent application. Additionally, the USPTO fees for filing a provisional patent application are currently $260 ($130 for a small entity). However, to achieve these savings the inventor is generally expected to prepare a technical write-up (e.g., such as a white paper) on their invention. The attorney then edits that technical write-up and adds a few claims rather than preparing a patent application from scratch. A provisional patent application is a lot more work for the inventors, but enables a startup company to leverage the inventor’s knowledge of their technology and the patent attorney’s knowledge of the law to secure patent protection at a minimum cost.
A provisional patent application will never be examined, and unlike a full utility patent application there are no formal requirements regarding the format or contents of a provisional application. However, to be effective the provisional patent application should provide a complete, technically accurate description of the invention. When the full utility patent application is later filed, new material can be added to that patent application. However, the priority date of the provisional patent application only applies to what was disclosed in the provisional patent application. Accordingly, it is important that the provisional patent application contain a thorough description of the invention. You should keep in mind that your company will still need to pay for a full utility patent application filing within 1 year from the filing of the provisional patent application. However, the provisional patent application will provide protection for your company’s IP in that critical period before you have funding, and will enable you to claim patent pending status for your technology.
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Take-aways for protecting IP before your company is funded:
File patent applications as early as possible – “First to File”.
If your invention is publicly disclosed you can still file for patent protection, which is different than most other countries, as the US provides a one-year grace period. To mitigate the risk of someone else filing a patent application it’s best to file patent application before the first public disclosure.
Patents and patent applications can help secure funding and it is advisable to file for patent protection before seeking funding.
Filing for a patent is expensive but check if your startup meets the criteria for small entity status which reduces the official filing costs by 50%.
A startup may mitigate the patent attorney costs by
- preparing the patent applications themselves but, drafting a quality application is challenging, even for professionals, and may put the patent at risk with narrower claims and complete or partial loss of IP rights; or
- Working with a law firm that takes equity in your company to reduce the fees; or
- Filing a provisional patent application.
Provisional patent applications are unique to the US, and a place holder that grants the filer a priority date for the inventions. Within a year the applicant must file a full patent application that claims priority to the provisional patent application. A provisional patent application is a lot more work for the inventors but secures a patent protection at an (initial) low cost. After a year from filing the full costs will still occur but the provisional patent application will provide protection in that critical period before your company have funding.
