Understanding Patents: An Overview [Part 2]

This is the second in a series of articles about intellectual properties. The first article gave an overview of the differences between patents, copyrights, trade secrets, and trademarks. It is recommended that you read that article before you read this one.

What is patentable?

A patent is basically granted on an innovative idea/mechanism/process that you invented, and you’re making it known to the public (for the good of society). In return for making it public, the government grants you exclusive rights to use that invention, for a limited period – and anybody else who wants to make, use, sell or distribute that invention needs to get permission from you (and probably pay royalties). The idea is to encourage inventors to make their inventions public. This results in increased innovation, as other inventors can learn from, and build on top of your invention. This also prevents the problem of an invention dying when the inventor dies.

In my experience, most people think that a patentable idea needs to be a really mind-blowing, Einstein-level idea. This is far from the truth, as a cursory reading of my own patents will show you. To be patentable, an idea simply needs to be new, and non-obvious to an expert in that field – that’s it. In fact, it is estimated that 95% of all inventions are minor, incremental inventions. Specifically, 68% of all patents are routine design problems solved by methods well known within the specialty, and another 27% are minor improvements to an existing system using methods known within the industry (but not within the same specialty). Only 4% are fundamental improvement to an existing system using methods known outside the industry. And real, inventions, i.e. a new generation of a system that entails a brand new principle are 0.26%, and only 0.06% are really pioneering inventions of an essentially a new system.

The point of giving all the details in the previous paragraph is this: if you’re a reasonably smart person, and you’ve worked on some new product or service, it is very likely that your work resulted in a number of "patentable" inventions.

Where to file for a patent, and how much does it cost?

The two major patent types that would be of interest to readers of this article are an Indian patent, and a US patent. There is also something that is informally called a ‘worldwide patent’ (which, in reality, is a procedure by which you apply for different patents in a bunch of different countries, primarily European). However, a worldwide patent is very expensive, and if you’re considering a worldwide patent, you should definitely not be getting your legal advice from a blog post by a non-lawyer.

So coming back to Indian and US patents. Obviously, you should file for patent(s) in whichever country you are planning on selling your product. Filing for a US patent will cost roughly US$ 10,000 to 20,000. Filing for an Indian patent will cost roughly INR 30,000 to 50,000. The costs can vary significantly depending upon various circumstances, but these are the ballpark figures.

Also, it is worthwhile to remember that in India, you must file for a patent before you publicly disclose any information about your invention. An enthusiastic tweet by a startup founder (or even an employee) on the successful deployment of an inventive new product, could effectively kill any chances of being able to patent the invention in India. (Assuming, of course, that the tweet gave away the key of the invention… this has already happened to a startup that I know.) By contrast, for US patents, you have some more flexibility, and you must file for a patent within one year of public disclosure of your invention. Once your patent is filed, your invention enjoys the full protection of patent law, irrespective of how many years it actually takes for the patent to be approved. The time taken for the patent to be approved varies a lot, and can be as long as 5 years in the case of US patents these days. Obviously, you don’t get any protection if the patent is rejected!

Should I file for a patent or not?

But, the real question that needs to be answered is this: for you, especially if you’re a small startup or an SME, does it make sense to patent all your "patentable" inventions. Or, more accurately, what subset of all those should you really patent.

Before answering that question, let us consider the reasons why a company files for patents:

1. Offensive patents:

   These are patents where the company is trying to prevent competitors from entering a market with a similar offering. The basic idea is that your patent prevents any competitor from entering the market, or at least, their products will be inferior to your’s because you have cool, patented technology. And if any competitor copies your idea, you sue them in court for damages. This can be a major competitive advantage is you have a truly fundamental invention.

2. Defensive patents:

   These are patents where the company is not particularly interested in preventing competitors from entering the market. The primary driver is that they want to ensure that they cannot be sued by someone else for their own products.

3. Patent portfolio:

   Here, the company is interested in ensuring that they have a reasonable number of good quality patents. This improves the valuation of the company in the eyes of potential investors and VCs.

Let us focus on point #1. A patent is useful as an offensive patent only if it is really effective in preventing a competitor from entering the same market with a different, but equally effective product. This is not as easy as it sounds, and if you were paying attention at the beginning of this article, you’ll notice that 95% of all patents do not fall in this category. Specifically, the question you should ask yourself is this: *If a competitor knew who my customers are, and they knew what is the pain-point my product is addressing, and they knew roughly how my product works, could they build a similar product for the same customers which does not use my invention? If the answer is yes, (and I’d estimate that the answer is yes in case of 95% of all startups) then you shouldn’t bother patenting your invention.

Another way to ask the same question is this: If a competing product does not use my invention, would its sales really suffer? While you may be justifiably proud of your technology, it helps to remember that most buying decisions have very little to do with the core technology, and much more to do with other business factors – including your credibility, effectiveness of your sales and marketing, your usability, your support, etc. So again, 95% of the time, the answer is going to be no, and you should not file for a patent.

Note: the reason the other 95% of the patents get filed is because for large companies, it helps to have a large number of such patents for defensive purposes. Large companies get sued, or threatened with patent litigation all the time, especially if they have a successful cutting edge product. At such times it helps to have a large number of patents related to that product to be able to scare away the opposing lawyers.
This argument does not apply to startups, because this approach would be prohibitively expensive, and a small startup is not really a very juicy target for patent trolls. Instead, a very easy and cheap way for a startup to defend its inventions (the ones it has decided not to file) is to simply disclose them publicly, by writing a blog post about them. This ensures that a competitor can no longer patent that and sue you.
In addition, your blog, which now contains a bunch of very interesting ‘inventions’ helps you to be seen as a thought leader and a visionary in your space.

And finally, should you file for patents just to improve your company’s valuation/attractiveness to investors? I think a good investor will value your patents only if they serve as good offensive patents, otherwise, such patents are useless for small companies, and smart investors will know that.

Arun’s comment: Navin is writing series of articles pertaining to copyrights & patents. This is a 2nd in the series. We will features remaining 2 in the series in this week.
Copyrights, Patents & Intellectual Property Rights: An Overview
Understanding Patents further (current)
Understanding Copyrights further
Understanding Open Source Software Licenses
Copyright issues for bloggers, website owners and other content creators