Carson IP division leader, James W Carson, provides a basic summary about Patents to help people familiarize themselves with this important tool for protecting ideas and inventions, and developing a solid business strategy.
Are you in possession of the next great idea or invention?
Do you have a piece of equipment or technology that will set you apart from other competitors in your industry?
Is it time for you to take steps to protect yourself and your intellectual property?
If you answered YES to the first or second question above, then congratulations. You have an exciting opportunity to distinguish yourself from others in your chosen field. If you are looking for help to answer the third question, then you have come to the right place. But one thing that you should be aware of is the fact that there will likely be no cookie-cutter response as to whether you should or should not pursue a patent. In our experience, every person who has come to us looking for the same information has had to realize that the answer is dependent on their own specific set of circumstances as well as their particular business and personal objectives. Ultimately, only you can decide whether it will be in your best interests to file a patent application. In order to help you with this important decision, we are offering the following 9 benefits of patents for you to consider.
The main advantages of filling a patent are as follows:
- Secure exclusive legal rights
- To scare off, delay, or affect potential competitors
- Patents can be used as valuable assets
- Patents can be used as a marketing tool
- Improved ability to find investors, financing, or licensees
- Increased access to third party inquiries
- Establish a feeling of defensive comfort
- Reception of publication credit
- Greater sense of personal pride
1. Exclusive Legal Rights
First and foremost, obtaining a patent will provide the owner with exclusive legal rights to make, use, or sell the patented invention. Without legal exclusivity, as soon as an invention is launched into a marketplace (often at great cost in terms of product development, tooling, packaging, inventory, promotion, and advertising) and proves to be successful, then competitors will be enticed and entitled to copy it in direct competition. Further, without exclusive rights being protected, those same competitors will be able to get a free ride on the innovator’s efforts without having to incur many of the costs of product development and creation of market demand. This means that competitors would be able to undercut the innovator’s prices, thus reducing the inventor's maximum profit return and increasing the chances of their failure.
There is more than one type of business model where legal exclusivity of a product (or lack thereof) will affect the success or failure of an innovation's introduction into a marketplace. Consider the following situations:
a. The patent owner itself manufactures and sells the inventive products into the marketplace. Without a legal right to prevent competitors from copying the invention (i.e. to stop infringers), the patent owner’s investment, future profits and growth potential will all be at risk.
b. The patent owner sells or gives an exclusive license of the invention to another person (a licensee), who in turn manufactures and sells the inventive products into the marketplace and makes payments (e.g. royalty and/or lump sum payments) to the patent owner. Without a legal right to stop infringers, the licensee’s investment, future profits and growth potential (and the patent owner’s future royalty stream) will all be at risk.
c. The patent owner grants non-exclusive licenses to the invention to several licensees, who in turn make and sell the products and make payments (e.g. royalty and/or lump sum payments) to the patent owner. Unless the patent owner stops infringers, no licensees will wish to make royalty payments to the patent owner because they would then be competing with the infringers who, not having to pay the patent owner, could undercut the prices of legitimate licensees to their detriment.
2. SCARE OFF, DELAY, OR AFFECT POTENTIAL COMPETITORS
Apart from actually having to enforce legal rights, the mere fact that the innovator has a patent may scare off, or at least delay or otherwise affect, potential competitors. A potential competitor, reviewing the patent, may realize that their proposed product would be, or at least arguably may be, covered by the patent. The potential competitor may therefore realize that launching its product(s) into the marketplace may result in patent litigation. Exposure to this risk may lead the potential competitor to decide not to launch its product or to strike an agreement with the patent owner.
Short of scaring off a competitor entirely, there can nevertheless be other beneficial effects from having a patent.
a. It will take time for the competitor to assess the patent and make its decision as to whether or how to proceed. Delay of the competitor’s product launch is the usual result. To the patent owner, that delay represents additional exclusivity within the marketplace, during which time the patent owner will be continuing its efforts to buttress its marketplace position.
b. The competitor may feel compelled to try to re-design its product so as not, in its view, to infringe the patent. Such a re-designed product (whether it infringes the patent or not) may have important differences from, or may not have all of the capabilities or features of, the patented product. These facts may provide to the patent owner certain marketing advantages or opportunities, e.g. the ability to point to the better features or originality of its own product. Also, all amounts spent by the competitor on re-design and tooling and in having to launch a somewhat different product will increase its cost base, thus not allowing the competitor to undercut the patent owner’s prices by as much as it might otherwise have been able.
The above advantages can apply even in a case where a patent application has merely been filed, i.e. where the patent is merely “pending”. In the case of a patent application which is pending but made public, the scope of the patent has not been finally confirmed by the patent office in question. There is thus a higher level of uncertainty to a would-be competitor as to the potential scope of the eventual patent. The points mentioned above may be heightened further with this higher level of uncertainty.
In the initial stages of a patent application, the owner usually prefers to keep the application confidential in the patent office for the available confidentiality period. During this period, however, the owner is not prevented from marking its products with a “patent pending” notice. Seeing such a notice, and not being able to review the patent application during the confidentiality period, there is an even higher level of uncertainty to a potential competitor in assessing whether to copy a product or not.
3. Patents are valuable assets
Patents and patent applications can be considered valuable assets due to the legal rights that come with them. As such, they can be used or disposed of directly like other assets, such as by being sold or used as security or collateral in a financing transaction.
Patent assets can also be used or disposed of indirectly. For example, if owned by a business organization such as a corporation or a partnership, the patent assets can add value to the business and of the underlying shares of the corporation or the partnership interest. In turn, those underlying shares can be valued at a higher level than they otherwise would have without the patent assets. Those higher value shares can in turn then be old or used as security or collateral in a financing transaction.
In many businesses, particularly those without significant physical or other common assets, a significant patent portfolio may be among the most valuable and impressive assets of the business. Particularly in the case of a large patent portfolio, sometimes the value attributed to it will be determined according to the number of patents in the portfolio rather than on a detailed analysis of the merits of each individual patent.
In short, patent rights can be a very positive factor in the sale, financing or liquidation of a business, as well as the successful navigation of which can be critical at various stages in the development of a business.
4. Marketing Tool
Many businesses find it is extremely useful to their marketing efforts to publicly promote the fact that its products are patented — either in relation to a particular product or in relation to the activities of the business in general. These businesses consider that a product marked “patented” or “patent pending” or “The Patented BRAND X Widget” will make more of an impression on potential customers and stand out from the competition. This type of promotion also helps develop the business’s general reputation as innovative and forward thinking.
5. Improved ability to find investors, financing, or licensees
Many inventors of modest means will find it difficult to bring a new product to market without financial or other help. Thus, many will seek to have family, friends, or others (such as venture capitalists) invest in the project - either by way of loan or by way of ownership shares (e.g. especially shares in a corporation). A patent is a specific asset for the inventor to offer to potential investors to buy into, in exchange for financial contributions. Thus, without the patent rights, it may be very difficult or even impossible to move forward with the project.
Alternatively, the inventor may wish to entrust a licensee with bringing the product to market. As the person who would take on most of the financial investment and risk in doing so, a licensee can be considered as another type of investor. Again, as noted above, the exclusivity of the patent rights represents something more tangible for a licensee to “buy into” than a basic raw idea without substance.
In addition, in any of these types of situations, having a patent or pending application will at least underscore to any potential investor that the inventor has confidence in his/her own self and project, thus enhancing the chances of a successful outcome for the inventor. In other words, the patent rights become part of the inventor’s “sales pitch”.
6. Third Party Inquiries
By applying for and securing a patent, a significant amount of information about the product is submitted for review and then made publicly available. Anyone interested in the invention, such as potential buyers or licensees, can contact the patent owner via the information in the patent or through the patent office. There are certain investors and businesses who regularly search patent applications looking for opportunities to connect with innovators, so the patent process can sometimes be viewed as advertising for potential business partners.
7. Defensive Comfort
Some businesses find it useful to obtain patents on products that they do not even necessarily intend to market, at least at the present time. One reason is to prove to the world that it is the true inventor of a particular technology to guard itself from someone else, especially a competitor, from eventually independently developing the same invention, get a patent and then deny the first company the ability to use the technology (which, in fact, they may have developed it first).
Say Company A invents a new toaster but decides that it is not yet ready to introduce to the public for the sake of further development. Then, six months later, Company B coincidently and independently develops the same toaster. If Co B obtains a patent on the toaster then, even though Co A may have invented the toaster first, Co A would not be entitled to make, use, or sell the toaster. If Co A had, in the very least, filed for a patent application, then Co B may never have obtained a patent and Co A could never have been precluded from offering the toaster in the future.
Patents can also sometimes be used in cross-licensing situations.
Say Company X owns a patent on a basic mousetrap. Company Y invents an improved and very useful version of the mousetrap and wants to put it on the market but cannot because of Co X’s patent. Co Y should consider obtaining a patent on their improved mousetrap, not because they necessarily wish to maintain exclusivity for themselves, but simply because they may be able to use their own patent as bargaining leverage with Co X.
Both companies may see value in coming up with an arrangement whereby each company licenses the other. A cross-license can exist where both companies produce and sell their products without the payment of fees or royalties to each other.
8. Publication Credit
In some cases, filing for and/or obtaining a patent will be viewed by a university or other institution in the same favourable light as a publication or published work. Adding a patent or patent pending to an academic or professional’s curriculum vitae (resume) may increase that person’s ability to successfully secure a significant job opportunity or boost their status and security in his or her field.
9. Personal Pride
While the majority of these patent benefits have to do with increasing profitability or capitalizing on a business opportunity, there is also something to be said for gaining an emotional boost as well. Sometimes the ability to simply point to the existence of a patent application or patent may be important to an inventor/applicant as a matter of a personal or professional pride. In fact, many people often obtain framed or wall-mounted plaques of their patents.
While the 9 points listed above may paint a convincing picture that securing a patent for an innovative product should be an automatic part of any business strategy, it is important to understand that there are other factors that also need to be considered. Yes, we have identified a number of potential advantages of a patent or patent application, but these should be weighed against all costs and risks, such as the following:
In making the decision as to whether to proceed with a patent application or not, you should take the time to develop a very clear picture of the numerous potential advantages available to you if you do proceed and, conversely, of the lost opportunities or risks if you do not.