IP Strategy: The Difference Between Startups and Large Companies

On some issues, IP strategy for startups as compared to large companies can differ like night and day.

On some issues, IP strategy for startups as compared to large companies can differ like night and day.

It is important for entrepreneurs to understand that IP strategy for a startup may differ significantly from that of a large technology company.  Accordingly, entrepreneurs should make sure their IP counsel is familiar with startups and their unique circumstances.  Here are a few examples of how IP considerations differ between startups and large companies:

Provisional Patents:

Startups are more likely to file provisional patent applications than large companies.  A provisional patent application is a temporary application that can typically be prepared less expensively than a nonprovisional application because it has fewer formal requirements (for example, no claims are required, no formal drawings are required). The applicant must file a nonprovisional application within twelve months of filing the provisional application in order to receive the benefit of the provisional filing date.  A provisional application can avoid problems from publicly disclosing ones invention (because a public disclosure of technology that is adequately described in a filed application will not constitute prior art).

Filing a provisional application, followed by a nonprovisional application will typically cost more than simply filing a nonprovisional application.  This is because there will be some overlap in work by the patent attorney.  Additionally, once a nonprovisional application is filed, the patent examiner will at some point begin reviewing the application, thus leading to additional patent attorney expenses as the patent attorney communicates with the patent examiner.  Therefore, large companies are much more likely to be willing to pay the larger upfront costs of a nonprovisional application and to earlier incur the costs of patent prosecution.  Such companies are more concerned with limiting their total patent expenditures.   Startups, however, may be willing to pay a higher total cost in order to defer the large portion of the expenses by twelve months.  For example, a startup may lack the resources to file a nonprovisional application (which can easily cost $10,000-$15,000 just to prepare and file), and may therefore opt for the less expensive up-front cost of the provisional application (typically costing less than half of a nonprovisional application).  After filing a nonprovisional application, a startup can then seek capital to see if it can finance a more robust patent filing strategy.

Note that while well-prepared provisional patent applications are typically a sound strategy for startups, it is extremely risky to file a “cover-sheet” provisional application (i.e., consisting of a filing cover sheet on top of an existing document such as a slide deck), as discussed in this prior post.  If a provisional application does not adequately describe the invention, future patent claims may not benefit from the filing date of the provisional and may be subject to prior art subsequent to the provisional filing but prior to the nonprovisional filing date.

Competitive Patent Intelligence

Technology companies are often concerned about the threat of willful infringement which can result in a federal judge tripling an infringement damages verdict.  Generally speaking, willful infringement occurs when one knows about a patent and recklessly proceeds to still infringe that patent.  In order to avoid being found to be a willful infringer, some companies might purposefully avoid becoming aware of other patents.  For startups, though, the benefits of knowing about a problematic patent at a point in time when the startup can take corrective action typically far outweigh the relatively small risk of later being found to be a willful infringer.

If a startup learns of a patent that covers its contemplated product or service, the startup can possibly “design around” that patent be altering its product or service in a way that avoids infringing the claims of the problematic patent.  Most startups cannot afford to receive a cease and desist letter (which can scare away investors or other partners), let alone the cost of years of patent litigation.  So, most startups will not survive to get to the point where they have: (1) received a cease and desist letter from a patentee; (2) chosen to litigate the issue and survived years of patent litigation; (3) then have been found to infringe a valid and enforceable claim of that patent and received a damages verdict; and (4) then have been found to be a willful infringer and had the court increase the damages amount up to 3x.  Most startups will not make it past #2 in the above list.

In addition, most early-stage investors will expect a startup to have at least some idea of the  competitive IP landscape and its impact on the startup’s freedom to operate.

Drafting the Written Description

Experienced patent prosecution attorneys will tell you that preparing a good written description is an art.  The attorney first has to adequately describe the invention in a way that satisfies the written description and enablement requirements of section 112 of the patent act.  The attorney also has to avoid using any language that could be used to later narrow the scope of the client’s patent rights.  When a court assesses the scope of a patent claim, the court will read the patent claim in light of the patent’s written description.  If the written description makes clear that a certain aspect of an invention is a critical aspect of the invention, a court might interpret the patent claims to only cover technology having that aspect.  Accordingly, most patent attorneys will seek to cautiously avoid any language that a court could later construe as making any single aspect or embodiment of the invention seem  critical.  This will often result in a vanilla and bland document.  A patent will be in force for twenty years after its nonprovisional filing date, and it is hard to predict what direction the market for the technology will take.  A written description that methodically and plainly describes multiple embodiments without adding much color to the importance of any single feature can often be the best way to maintain the flexibility for the client to later assert that its patent claims cover slight modifications that a competitor makes to the patented technology.

An initial patent for a startup, however, is likely to have a much broader audience than a federal judge in a patent infringement suit.  Long before that patent is ever read by a judge or jury (in the highly unlikely event it is ever subject to a lawsuit), that patent is going to be read by investors, potential partners, and possibly even potential key employees of a startup.  Accordingly, patent counsel for startups may choose to draft a patent application with language highlighting the importance of some of the features of the invention.  The benefits of an investor understanding understanding the novel aspects of an invention covered in a patent application may outweigh the risk of a judge adopting a narrow interpretation of the patent claims down the road.  Also, if a startup is successful with fundraising and selling products to its customers, its first patent application is not likely to be its last.  It can then adopt a more traditional patent drafting strategy in its subsequent patent filings.