What is the value of a patent?

First of all – patents require that you disclose to the world exactly what you are doing. So if you are building value in your company by having a trade secret manufacturing process that allows you to make more widgets in less time and at a lower cost than any one else you have two choices: (1) exploit your trade secret and make a lot of money selling widgets, or (2) disclose your secret and make a lot of money licensing the process to others.

Either strategy can be useful, but you should have a clear idea of where you want to concentrate.

Additionally, patents can be used to defend your technology. With a patent you can potentially ward off possible litigants by establishing that you have a right to use, or prevent other from using, your invention. However, consider just these recent famous cases:

• Having patents didn’t stop Research In Motion (RIM) the makers of the famous Blackberry devices from paying a $612 million dollar settlement to NTP, a company who didn’t make anything, but held similar patents.

• Having patents on the underlying technology has so far not been able to help Vonage, the industry leader in retail consumer based Voice over Internet Protocol (VoIP) Service, prevail in the on-going lawsuit launched by Verizon who holds different patents in the same technology.

• And having patents on the famous BowFlex personal home gym did not help maker, Nautilus, convince a federal judge that the copycat CrossBow machine infringes its patent even though the design and operation of the two machines are almost completely identical.

Also, many entrepreneurs believe that a patent (or several) may help to add value for a future acquisition. If the goal is to build the value of a company one strategy could be to spend years and thousands of dollars trying to get a patent, which might ultimately not be issued anyway. Another strategy is to get on the market and prove the viability of the technology. That is, how well can you convince the public that your business or products are worth something. After all a portfolio full of patents that nobody wants are not going to fetch a big price.

This is not to suggest that Patents should be ignored. Nearly all technology startups and many other businesses need to think about patents as part of an overall Intellectual Property strategy.

Since a typical patent will cost between $12,000 and $20,000 in legal fees and take three to five years to complete, the undertaking is a considerable commitment for most small businesses. If you intend to invest the time and money to secure the monopoly rights over your invention that the patent provides, the return on that effort and investment should be clearly reflected in your business plan.

A patent, by itself, doesn’t do anything. To establish the market value of your monopoly, and to protect the enforceability of your patent, you will need to file lawsuits against any known infringers, and, unfortunately, these battles are often won by the party who has more money and can withstand litigation the longest.

To learn more about the patent process and to get started drafting your own patent to save money BEFORE you see an attorney, see our section on Intellectual Property.

Tags: Intellectual Property, market value, patent, Start, trade secret