Why New Startups Don’t Need Patents
Here at Appster we regularly encounter entrepreneurs who clearly believe that securing a patent is a prerequisite to launching their start-ups. In most cases, however, early stage start-ups should actually avoid the entire patent seeking process.
In this article I’ll try to explain why new startups typically don’t need patents and I’ll reveal the reasonable steps you can and should take to nevertheless protect your intellectual property.
What Is a Patent?
Ultimately, a business idea as such cannot be protected. Rather, it is the concrete embodiment of the idea for which one can seek a patent.
But what, exactly, is a “patent”?
According to Investopedia, a patent is “a government license that gives the holder exclusive rights to a process, design or new invention for a designated period of time.” Patents in the U.S. are usually granted for a period of 20 years.
BusinessDictionary provides a more comprehensive definition, noting the following:
“A patent is a limited legal monopoly granted to an individual or firm to make, use, and sell its invention, and to exclude others from doing so. An invention is patentable if it is novel, useful, and non-obvious… A patent application must disclose all details of the invention so that others can use it to further advance the technology with new inventions.”
And what is the basic purpose or function of a patent?
“By granting the right to produce a new product without fear of competition, patents provide incentive for companies or individuals to continue developing innovative new products or services” (source).
Okay, so a patent allows an individual or a company a kind of monopoly over something it has developed so as to encourage it (and other inventors) to continue creating innovative things with the knowledge that they won’t be stolen/replicated by others.
This being the case, if you’re about to launch a new start-up based on what you believe will be the next big product, e.g., a mobile app, to hit the market then wouldn’t you want to secure a patent for it?
Won’t others try to steal your app if indeed it’s going to be so successful?
No, You Shouldn’t Seek a Patent
Although it might seem counter-intuitive or downright dangerous, in the vast majority of cases we recommend that entrepreneurs skip the entire patent seeking process whilst their start-ups are still in their beginning stages.
There are three basic factors behind the claim that it’s neither necessary nor advisable to try and secure a patent to protect the intellectual property (IP) of your new company:
- The expenses of cost and time, and the realities of ongoing change
- The need to execute as fast as possible
- The availability of other means for protecting your IP
Let’s consider each of these in turn.
1. Patents: Too Costly, Too Time-Consuming, and Too Restrictive
Patents take a lot of money and a considerable amount of time to prepare and file successfully. And, of course, there’s no guarantee that merely going through the patent filing process means that you will ultimately be granted your patent.
It’s very difficult to accurately state the “average price” of a U.S.-based patent because there are so many different factors at play that can impact the final cost, from straightforward filing fees to ongoing lawyers’ fees to search fees and appeal fees, and so on.
Having said that, Gene Quinn of ipwatchwatchdog.com suggests that an “extremely simple” patent filing tends to cost $6,000 at the very least whereas Russ Krajec of blueironip.com reports that the entire process of preparation and prosecution for most patents is likely to total closer to $60,000!
And even if you manage to come up with the cash to pay for the patent and the patent itself is granted, here’s something sobering to keep in mind:
“Statistics show that up to 97% of patents generate less revenue than they cost to obtain” (source).
Patents are not only costly from an economic standpoint but also from a time standpoint.
In general, many sources report that a basic patent filing can take anywhere from 2.5 to 5 years to complete.
In 2016, the United States Patent and Trademark Office (USPTO) indicated that the average wait-time between the filing of a patent and the first official office action is 16 months whereas the total pendency period for a patent averages around 25 months.
So, you’re essentially looking at a minimum of 2 years before learning whether your application has been accepted and approved.
And if takes 5 years, as many patent applications do, then it’s entirely possible that your product will actually be out of the market (with you having moved onto a new venture) by the time your patent is approved.
Speaking of approval, what is the actual approval rate? Somewhere in the neighbourhood of 56% of all patent applications are approved; the other 44% are rejected.
If your patent contains a combination of previously patented items then the chances of your patent being accepted drop dramatically.
Here’s the point of all this:
The patent filing process costs a lot of money and takes up a lot of time: as a new start-up you should spend your cash and time on other things that will allow your business to grow and become profitable. You simply don’t have the resources when first starting out to go through the complex and unnecessary patent filing ordeal.
In addition to the fact that your focus needs to be on building a solid product that starts generating revenue as soon as possible, another reason to avoid seeking out a patent is that your ideas will inevitably change.
Paul Graham, venture capitalist and co-founder of Y Combinator, notes that anywhere from 70–100% of new start-ups have a different core idea at the heart of their business by the end of the first 3 months of operation.
Why does this happen?
Because experience teaches you things that you simply cannot know in advance. It is only by actually testing out your ideas and collecting real world feedback (especially from actual consumers) that you can gain the insight needed to tweak your product and improve your start-up’s operations.
Clearly, then, it’s not a good idea to file a patent over an idea that you are more likely than not to abandon (or to significantly change) within the first few months of running your company.
Real innovation happens in the process of executing your idea:
2. Fast Execution Trumps Patents
The majority of the most successful start-ups today are based not on novel inventions that introduced something fundamentally brand new into the world but rather on products that have effectively taken over a share of the market by successfully responding to a monetizable consumer pain.
When companies like Google, Facebook, Apple, and Airbnb began as start-ups they were not overtly obsessed with ensuring that others did not steal their ideas.
Indeed, there were more than a dozen existing search engines before Google came along; there were PDAs before the iPhone emerged; couch-surfacing existed prior to Airbnb; and so on.
Only after revenues started pouring in did these companies then begin focusing on securing patents for their different products.
Groupon, the ultra popular e-commerce marketplace, is an interesting case.
Groupon has been cloned by thousands of other companies, including the likes of Google, Amazon, and Facebook. Nevertheless, Groupon, which still operates today, made its initial public offering (IPO) in 2011 and is used by millions of people regularly.
Ultimately, the most important factor associated with the success of your start-up is execution: the sooner you execute on your idea by getting into the market and testing out your product, the more likely you are to win a share of that market and thereby start generating profit.
As we saw above, execution is all the more important considering that the majortity of new ventures change their core business ideas once they actually begin trying to create tangible products.
America painter and photographer, Chuck Close, put it best:
“Inspiration is for amateurs; the rest of us just show up and get to work…All the best ideas come out of the process; they come out of the work itself.”
For every Google or Facebook there are hundreds of thousands of unsuccessful start-ups that invested their limited money and time into the wrong things — such as filing unnecessary patents — and thereby burned their chances for success even before having the opportunity to figure out how to be successful.
Don’t worry about others stealing your ideas; instead, get to work, get into the market, get real world feedback, and start executing on your ideas.
3. You Don’t Need a Patent to Protect Your IP
Even though I’m suggesting that early stage start-ups should avoid the entire patent application process, I am not also claiming that new companies shouldn’t take any precautions in terms of protecting their IP.
If you have an IP budget then you ought to focus on protecting the following:
- Domain Names: A solid domain name is a key digital asset. Ideally, you should seek out a website that ends in .com and that represents your brand (you can read more about finding a profitable startup name in my last post). One bit of advice I’ll give you is to buy your preferred domain name early, i.e., before your company becomes successful — otherwise, cybersquatters are surely to inflate the price of your desired domain if they recognize the increasing value of your business operations.
- Usernames: The same principle applies here: secure your usernames on social media sites like Twitter, Facebook, and Instagram before they’re scooped up by other people.
- Trademarks: You can trademark company names, products, services, taglines, slogans, and so on, for as long as your company uses them. Search the USPTO’s trademark database here to determine which of your trademarks need to be registered, and then officially register them.
Summary
To sum up, you don’t need a patent to create a successful start-up.
Yes, there are exceptions where a start-up develops a breakthrough technology and thus would certainly benefit from seeking and securing a patent for it.
In most cases, though, a start-up’s innovation is rather trivial (which doesn’t mean that the company isn’t offering a much-needed product or service to the market!).
Focus on executing on your idea, i.e., getting into the market, winning a share of the market, and generating profits — then concentrate on building an IP portfolio, if that’s one of your key goals and if it makes sense for your business.
