Do You Really Need a Patent?

Back in June 2008 I attended a seminar on intellectual property rights (IPR). A lot of the hype around entrepreneurship seems to centre around the idea that one must have patents to protect a company's IPR, otherwise the sky will fall, or at least, the company won't be worth anything if and when you want to sell it. Here are my notes on why that isn't necessarily the case, what you can do (other than patenting) to protect your IPR, and what role patents do have to play.

Patents protect functional designs by granting a monopoly to the holder, ensuring that no one is permitted to produce a product that carries out the same function in the same manner, regardless of whether that invention was independently conceived (see Out-law's article "Patents: the basics"). In principle, this means that the holder has a 20 year head-start on their competitors. The downsides are that when a patent is granted, the details of the invention are publicly disclosed, and that registration and maintenance of patents costs huge amounts of money, particularly if one wishes to hold the patent in multiple countries. Asking a friendly lawyer to waive their fees on the promise of future profits may help with drafting the document, but not with the Patent Office fees.

Do you need a patent?

Firstly, it's important to realise that there are rights for which there is no need to register. These include:

• Copyright: prevents exact copies of your work (literary, film, software) being made. Note that this does not prevent against quite similar designs, provided that these were the product of independent creativity. In the UK, copyright is automatic, i.e. there is no need to assert your claim via a legal message (though many people choose to, for clarity). See Out-law's article "Copyright law: the basics".


• Design Right: unregistered design rights cover aesthetics qualities, such as the form, colour, look and feel, or texture of a product. For software, look and feel is hard to protect with copyright (though logos can be), whereas it can come under design rights. Registered design rights (fee required) allow the holder to enforce a monopoly, i.e. even an independently created identical design would be an infringement. In contrast, unregistered design right only prevents direct copying. See Out-law's article "How design rights can add value to a business".


• Semiconductor topography right: design rights protect aesthetics, whereas semiconductor rights protect the layout of integrated circuits that are used within a product. The main reason for this is that the different layers of such circuits can be easily photographed, and then copied, but the investment required in initial design may be enormous. See ESA's article "About semiconductor products", and Mewburn Ellis' article "UK & EU Unregistered Design Rights".


• Database right: a database is essentially a systematically ordered collection. The items within the collection may or may not be subject to other protection, but the effort/costs in amassing and organising the collection is what is protected by database rights. It is important to note that such costs are solely those of collecting and verifying the data, rather than those of creating the data. See Out-law's article "Database rights: the basics".


• Trademarks: the goodwill associated with any design that can be represented graphically, such as a name or a shape can be protected against a competitor "passing off". This takes place if they use the trademark in such a way as to take advantage of the goodwill associated with the mark. Registering a trademark does cost a fee, but additionally ensures that the mark is protected more widely, in areas you may not yet be trading in. Not registering may mean that another party does register it, and later prevents you from using it. See Out-law's article "Trade Marks: the basics".

The key point is that all of these are IP rights, but they don't cost anything (at least, the unregistered versions). It might well be that you're actually better off registering (or not) one of these rights instead of trying for a patent. Note that all rights are time-limited.

Secondly, is the patent registration actually worth it? Patent ideas can (hopefully!) be commercialised, but they must generate enough cash to defend the patent! If the value of the invention (or subsequent inventions that might depend on it) isn't high enough, there's little point in patenting.

Thirdly, 18 months after filing, the idea will be revealed. Do you actually want to reveal anything, rather than relying on keeping the mechanisms of your invention secret? Competitors can catch up fast after your public disclosure! Even if you decide to patent, when is the right time to reveal? Waiting longer may mean your competitors develop a similar technology and file a patent, but may also mean that you can develop the details further, and hence file a broader and more detailed patent, which may be more defensible. Dragging out the filing process as long as possible will mean you have the protection of a patent application, and yet are not liable for maintenance costs.

General Patent Advice

As regards working with another company, the received wisdom is to never give another company joint ownership of your patent. If this happens, questions of how revenue is to be shared, or who dictates the territories that the patent is registered in, arise. Licensing to the partner company is by far the best way, particularly if your partner subsequently wishes to sell their portion of the patent (rather than having a license) to one of your competitors!

Note that a single patent may not be enough. Again, the advice is that defence in depth is a definite advantage, which guards against a "bad" court judge ruling in your competitor's favour. Of course, the more patents, the higher the costs...

Prior art constitutes any expression of the proposed invention that is already publicly known about. Hence, if you are the first to invent, prior art will, by definition not exist. The concept of "first to invent" is particularly significant in the United States. There, one possibility is to use lawyers to store date-stamped ideas in their safe, thus acting as witnesses to the statement of when the invention was created, whilst not releasing the idea publicly. Several ideas stored in such a way can later be included in a single patent, thus reducing costs.

When drafting a patent application, you could of course attempt it yourself. However, if you seriously intend it to be useful for later enforcement, it is far better to bite the bullet and contract a good lawyer. Failure to invest at the beginning may well mean a far greater loss later on.

Finally, it's worth asking why patents are regarded as so important. One reason is that investors are keen to ensure that their stakes will appreciate in value. This will not happen if the company's core product is able to be copied by a competitor. Because patents grant a monopoly, provided that the invention is in demand, the patent holder has a guaranteed revenue stream.
Hence, when, for example, a venture capital firm invests, their due diligence procedures involve checking that the source of the company's core business is patented. One corollary of this for startups is to ensure that all employees and contractors are contractually obliged to cede any IPR they generate to their employer, thus clearly stating the ownership.