BizClarity

Here’s something I hadn’t heard before: four handy metaphors for answering the questions, “why go to the trouble of getting a patent?” I found it in a compact and loaded two-page PDF offered by Morgan Lewis on their Entrepreneur Resources website called “Sieve or Safe–How Solid is Your IP?”. You’ll see it here. (There’s a lot packed into this PDF; I’ll be expanding on some of the more interesting ideas in future posts.) The full Morgan Lewis resource site is linked in the right column of this blog page, under Law Links.

From the section on patents:

“WHY SEEK A PATENT?
• “Sword”
− Sue anyone with same or equivalent invention
• “Shield”
− Helps to defend against a patent infringement suit
• “Trading Chip”
− Trade technology rights with other patent owners
• “Walk the Walk”
− Additional credibility for investors”

I’ve worked with a lot of tech companies who own patents (or are investing a lot of time and money to get some). But most are focused on only the first reason–the Sword. It’s true that being able to protect your technology from being copied and stolen is important. The “Shield” idea points up the other side of patent value–to prevent other companies from going after you to stop what you’re doing. “Trading chip” is even more exotic, but I have seen it happen, especially with complex technologies that have many dimensions. You might compare it to “seizing higher ground,” to use another battle analogy.

“Walk the walk”–winning credibility with investors might be a stretch. I’ve never seen an investor say, “wow, you have a patent; this must be important stuff.” But what it is pointing to, I think, is that investors look long and hard at a company’s patent position before investing (in certain industries). I’m constantly learning how far they pursue the logic of a company’s patents–are they broad enough, deep enough, do they provide enough “runway” for the company to scale and exit? I’ve seen investors dismiss companies outright because they were nervous about their patent position. If you’re in an industry, or working with technology, where patents are the coin of the realm, it pays to get the best advice possible in designing your overall patent strategy. Both as a defense (you don’t want to get it wrong) and an offense (knowing how to turn patents into strategic assets).

Actually, I think this list of four misses two more uses of patents. One might be called, if we must have a metaphor, “Tribute.” Many companies create a revenue stream by licensing out all or part of the rights associated with a patent. For some, it’s a by-product of their core business, an added benefit of having good patents, “found money.” For others, it’s a key part of their business model. It’s amazing the number of clever games–er, strategic maneuvering–that can be played with patents, but because they’re so abstruse (legally and technically) you don’t hear much about them.

The second use that this list doesn’t cover is the role of patents to build up the acquisition value for a company. I can’t think of a clever metaphor for this just yet (maybe you can offer some in the comments). But I know that companies are often acquired–sometimes at a juicy premium–because of the patents they hold. The bigger fish just has to get its hand (fins?) on that particular piece of IP for strategic reasons. Conversely, a hot company with a hot technology but a weak patent position (or old, soon to expire patents) might find they can’t find a buyer; the big fish reason “we can do it in house cheaper.” These seemingly distant consequences are one of the reasons investors pay so much attention on patents: they’re trying to predict the company’s exit value in the future as part of their investment decision calculus.

These musings were sparked by one tiny section of the “Sieve or Safe.” Take a look at it. Tell me in the comments what other burning questions you have about IP. If I don’t have the answer, I’ll tap some of the people at Morgan Lewis to help out.