Everything Startup Investors Need To Know About Patents

A patent is an exclusive right granted to an inventor by the government, which allows them to protect their invention from being used, manufactured, or sold by someone else without their permission. For startup investors, understanding patents is crucial as it plays a significant role in determining the value and potential of a startup. In this article, we will provide a comprehensive overview of what startup investors need to know about patents and how they can leverage this knowledge to make informed investment decisions.

1. Importance of Patents for Startups

Patents are a valuable asset for startups as they offer a competitive advantage and protect the intellectual property (IP) of the company. By securing a patent, a startup can prevent competitors from copying or stealing their innovative ideas and technologies. This exclusivity gives the startup a monopoly over their invention, allowing them to commercialize it and generate revenue without worrying about imitation or infringement.

Furthermore, patents enhance the value of a startup, making it more attractive to investors. Investors often look for startups with patented technologies or unique products as they offer significant market potential and a strong barrier to entry for competitors. Having a patent portfolio also indicates that the startup has invested time and resources in developing groundbreaking innovations.

Investing in Patents: Everything Startup Investors Need to Know About Patents

by Russell Krajec (Kindle Edition)

4 out of 5

Language	:	English
File size	:	927 KB
Text-to-Speech	:	Enabled
Screen Reader	:	Supported
Enhanced typesetting	:	Enabled
Word Wise	:	Enabled
Print length	:	215 pages
Lending	:	Enabled
Hardcover	:	339 pages
Item Weight	:	1.32 pounds
Dimensions	:	6.2 x 0.9 x 9.4 inches

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2. Types of Patents

There are three main types of patents: utility patents, design patents, and plant patents.

2.1 Utility Patents

Utility patents are the most common type of patent granted by the government. They protect functional aspects of an invention, such as its structure, composition, or process. Utility patents have a validity period of 20 years from the filing date and are subject to maintenance fees to keep them in force.

For startup investors, utility patents are particularly relevant as they cover a broad range of innovations, including software, pharmaceuticals, medical devices, and mechanical inventions. Understanding the scope and strength of a startup's utility patents can help investors assess the potential market value and competitive advantage of the startup.

2.2 Design Patents

Design patents protect the ornamental, non-functional aspects of an invention. They focus on the aesthetic features and visual appeal of a product. Design patents have a validity period of 15 years from the grant date and do not require maintenance fees.

Although design patents may not be as common in the startup world, they can be valuable for startups in industries where product design plays a significant role, such as fashion, furniture, or consumer electronics. Investors should consider the design patent portfolio of a startup when evaluating its potential for market success and differentiation.

2.3 Plant Patents

Plant patents protect new and distinct varieties of plants, which can be reproduced asexually (e.g., through cuttings or grafting). They have a validity period of 20 years from the filing date and, similar to utility patents, require maintenance fees to remain in force.

While plant patents may not be relevant for most startup investors, they can be crucial for investors considering the agricultural or horticultural industry. Startups involved in genetically modified crops or new plant varieties should possess relevant plant patents to protect their inventions and secure market advantage.

3. Assessing the Strength of Patents

When evaluating the patent portfolio of a startup, investors should consider several factors that determine the strength and value of the patents. These factors include:

• Scope of claims: The broader the claims, the more protection the patent offers. Startups with patents covering multiple aspects of their technology have a stronger position in the market.
• Validity: It is crucial to ensure that the patent is valid and enforceable. Investors should assess the likelihood of the patent being challenged or invalidated by competitors.
• Competitor landscape: Analyzing the patents held by competitors can reveal the level of competition and the potential risks of infringement lawsuits.
• Market potential: Patents should align with the market demands and have the potential to generate revenue. Understanding the market size and growth opportunities related to the patented technology is essential for investors.
• Inventor expertise: Evaluating the expertise and credibility of the inventors can provide insights into the strength of the patents and the potential for successful commercialization.

4. Patent Due Diligence

Before making investment decisions, startup investors should conduct thorough due diligence on the startup's patents. This process involves assessing the validity, scope, and infringement risks associated with the patents. Investors can seek assistance from patent attorneys or intellectual property experts to ensure an accurate evaluation.

During the due diligence process, investors should also evaluate the startup's patent strategy. It is crucial to understand whether the startup has a proactive approach to protecting its IP and whether it actively monitors and enforces its patents. This information can shed light on the startup's commitment to innovation and its ability to defend its market position.

5. Patent Strategies for Startups

Startups should adopt effective patent strategies to maximize the value of their inventions and attract potential investors. Some key strategies include:

• Early filing: Startups should prioritize filing patent applications as early as possible to secure their rights. Public disclosure of an invention before filing a patent application can limit its potential for patent protection.
• Prior art search: Conducting a comprehensive prior art search can help identify existing similar inventions and assess the novelty and inventiveness of the startup's technology.
• Patent portfolio development: Startups should focus on building a strong patent portfolio that covers various aspects of their technology. This diversification enhances their market position and strengthens their IP protection.
• Continuation applications: Continuation applications allow startups to expand the scope of their patent protection by filing additional patent applications based on earlier-filed ones. This strategy can be useful to cover new developments or improvements.
• Licensing: Startups can monetize their patents by licensing them to other companies in exchange for royalties or licensing fees. This can provide a steady stream of income and increase the startup's valuation.

Understanding patents is essential for startup investors as it influences the value, competitiveness, and market potential of a startup. By considering the types of patents, assessing their strength, conducting due diligence, and analyzing patent strategies, investors can make informed decisions and identify startups with valuable and protectable intellectual property. Patents are a crucial component of a startup's success, allowing them to thrive in a highly competitive market.

Investing in Patents: Everything Startup Investors Need to Know About Patents

by Russell Krajec (Kindle Edition)

4 out of 5

Language	:	English
File size	:	927 KB
Text-to-Speech	:	Enabled
Screen Reader	:	Supported
Enhanced typesetting	:	Enabled
Word Wise	:	Enabled
Print length	:	215 pages
Lending	:	Enabled
Hardcover	:	339 pages
Item Weight	:	1.32 pounds
Dimensions	:	6.2 x 0.9 x 9.4 inches

FREE

Most patents are worthless.

By some estimations, this could be true of 95% of patents. Startup companies don't help themselves by making fatal mistakes, from filing provisional patents (almost always a bad idea) to treating their first patent as the most important one in their portfolio (it almost never is).

How can an investor help their portfolio companies navigate the system?

"Investing In Patents" discusses the patent process from an investor's view, but with insider knowledge.Investment-grade patents do not just happen by chance, they are curated through due diligence prior to filing the patent, then careful and consistent management through the process.

Good patents are clear, straightforward, and easy to read. Understandable patent applications are easier to examine, meaning the issued patent is legitimate and defensible.

Good patents have real, solid commercial value. The value of a patent only comes when it captures commercial value - not when it captures some cool technology.

BlueIron IP's business is investing in patents, and this book discusses BlueIron's techniques and tools for evaluating inventions and managing portfolios specifically for startup companies.

Startup companies have specific characteristics and needs that dictate strategies that often do not apply to larger companies with established products and systems. "Investing In Patents" discusses how startups need to manage their patent process, and how investors and guide them.