Reasons Why You Need a Patent
A patent is a legal document that protects an invention from being copied by other businesses to reduce the risk of competition with a similar product in the future.. Obtaining and enforcing a patent can make a significant difference to the profitability, valuation, and long-term success of any company. By filing for patent protection, you can ensure that your invention is protected from illegal duplicates and any infringements are dealt with legally in courts.
Here are some reasons why you need a patent.
1. Investment Opportunities
If you can show a patent or a patent-pending to a funding source, like venture capital, it is much easier to secure the funding. With a patent, investors are convinced that you are invested in your business and willing to put your own time and resources into it.Venture capital is funding provided to startups or small businesses that have the potential for fast growth. It is often provided by investment banks, trust funds, private investors, and other sources.
2. Product Portfolio
Having a strong portfolio of products and patents helps to increase your company’s valuation. This will give you leverage when you discuss funding opportunities with angel investors, venture capitalists, and private equity firms.
There are several ways to utilize patents to attract investors:
- License the rights so that you can earn royalty revenue - If you have an idea for a new product but don’t want to start from scratch, you can license the rights to your patent so that you earn royalty revenue for every product sold. Many companies exist exclusively by licensing their technology and product lines to other companies and are very profitable. For example, Truston Technologies has sold over $85 million of port security barriers to public and private customers worldwide since licensing the barrier technology from the Navy in 2008.
- Sell the patented product yourself - Selling the patented products yourself gives you an opportunity to assess its potential and time to decide whether to go it alone or license the idea. For example, Datavault, a data intelligence company that uses its proprietary technology to help organizations unlock the hidden value of their unstructured digital assets.
- Develop the invention to sell to a specific market need - Whether you want to market a whole new product or just use an idea to build on your existing product tailored for a target market, a fully developed invention can be sold to corporations, governments, schools, or anyone looking for a practical solution to a problem. For example, a smokeless solar cooker for developing countries.
- Attract a licensing partner - The right partner can be the key to your success. A licensing partner is highly likely to license a patented product or service if it is a major market contender. Your patent may also be of interest to a company looking for a new technology with which to develop new solutions. For example, presenting your invention to shark tank investors to boost your invention buildup.
3. Intellectual Property Portfolio
A diverse intellectual property (IP) portfolio are intangible assets that consist of patents, trademarks, copyrights, and trade secrets. They lack physical form but possess high value in form of written documents or concepts.
- Patents - They define your idea so you can present it to investors and companies with confidence. It is the first step towards getting your idea to market, protecting your creative works, attracting the attention of investors, and building a solid foundation for future business growth. The three-point seat belt by Nils Bohlin is an example of a patent.
- Trademarks - A trademark is a word, phrase, or symbol used by companies to distinguish their goods from similar products produced by other companies. A service mark is used in a similar way—by companies to identify and differentiate their services from other services. The Nike® logo is a combination of a word and a design that is a registered trademark.
- Copyright - This officially protects original works of expression. This means that the ideas and suggestions you write down are yours and yours alone, but the language in which you express your ideas is not. Examples include books, poems, plays, songs, films, and artwork.
- Trade secrets - A trade secret could be a formula, pattern, device or compilation of information that is used in a business and gives the owner an opportunity to obtain an advantage over competitors who do not know or use it. The Coca-Cola formula is an example of a famous trade secret.
These intangible assets are often the most important portion of a company’s valuation, especially in the high technology industry or consumer products. A strong IP portfolio is key to obtaining investors, leveraging business transactions, increasing the value of a company in mergers and acquisitions, and providing a larger sum as an exit strategy. Often, between 50 – 90 percent of a Fortune 500 company’s value consists mostly of intellectual property. The sale of patent portfolios is a very profitable venture.
How Patenting Earns You Competitive Advantage
Your patented product is the only one of it’s type available to your target audience. This permits your company to establish the market price, whether it’s a device or a technology. Companies that are first to market with a patented product are often seen as trusted experts and innovators in the field, consequently creating brand loyalty and reliability for which buyers will pay a premium.
Patents block others from entering the market with similar products that would compete with yours. By creating this barrier, you have a chance to compete against large corporations. Even the smallest of start-ups can own more market share than a large corporation. Normally, a large corporation would have a substantial advantage over a new start-up with an invention, but having a patent increases your chances of keeping large corporations with extensive marketing and manufacturing budgets from using your idea.
The Cost of Patenting
Patent costs can vary considerably based on the intricacy of the patent. The more complex an idea of invention, the higher the cost of the patent. First, you want to do a patent search to ensure you will not be subjected to a patent infringement lawsuit. A patent search also tells you if the product is unique enough for USPTO criteria. Often people think something is unique, but from the perspective of the US Patent Office, that may not be the case. The smaller investment of running a patent search will determine whether you have something patentable before you move on to the more expensive patent application.
While the costs seem high, patents will eventually make you more money compared to how much they cost you. A good idea will often have competitors flocking to the market with their versions of the product. This fear that competitors will copy their ideas will urge inventors and companies to consider applying for a patent with the United States Trademark and Patent Office (USPTO).