Be Frugal, But Never Cheap When Locking Down Your IP

image001A version of this article previously appeared in The Wall Street Journal.

The money you pay your intellectual property (IP) lawyer should be judiciously spent. However, the potential costs associated with an IP mishap can be catastrophic. An invalidated patent or one deemed to infringe the rights of another party can devastate a startup. As such, save money buying used office furniture, not by selecting an inexpensive IP lawyer who lacks the appropriate level of experience in your technical domain.

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Fortunately, even when utilizing a relatively expensive lawyer, there are a number of steps you can take to minimize your IP legal fees, without jeopardizing the veracity of your IP portfolio.

Defensible Claims - Some companies take pride in the number of patents they own. However, there is not a direct correlation between a patent portfolio’s value and the number of patents which comprise the portfolio. A single patent with a number of comprehensive yet defensible claims can easily be worth more than a legion of narrowly defined patents. Fewer patents with readily defensible claims will help keep your legal costs under control.

Draft First - Another way to reduce your IP lawyer's billable hours is to internally make the first draft of the protectable claims. Do not rely on the IP lawyer to coax such vital information from you.

Although this approach requires a significant investment of a startup's time during the early phases of the patent process, it can reduce the overall time you expend on the process, by creating a solid foundation upon which the IP lawyers can draft the legal language. For obvious reasons, this DIY mindset also generally results in lower legal fees.

Scope - The more countries in which you seek protection, the more expensive your administrative and legal fees. Thus, carefully focus on the geographies which pose the most lucrative opportunities in the relatively near term.

Trust me. It will be painful when you are ripped off in countries in which you did not seek protection. When this occurs, remind yourself that countries with rampant technology piracy generally also have weak intellectual property courts. Thus, even with formal "protection" it may prove nearly impossible for you to prosecute your rights in such rogue nations.

Provisional Protection - Most US high-tech companies begin the utility patent process by filing a provisional patent application. The US Patent Office allows one year to elapse after filing a provisional application before you must submit a formal patent application. Provisional filings are especially beneficial for startups because:

  • You gain a year to write a thoughtful, defensible patent without delaying your filing date. The filing date is often the deciding arbiter in IP disputes.
  • It is relatively inexpensive, thereby minimizing your sunk costs if you later decide to not pursue a formal patent filing.
  • You can describe your technology as “patent pending”, which may or may not be worthwhile, depending on your product and target customers.
  • As I noted in this recent Wall Street Journal article, one of the classic mistakes rookie entrepreneurs make is protecting their IP too early. Your solution will likely evolve as you gain market feedback and validation. As such, the additional time will help ensure that your patent claims accurately reflect the technology underlying your solution.

Thus, only spend significant time and effort protecting your intellectual property when it is clear what you are trying to protect.

Prior Art- Prior art is the publicly available information that impacts your ability to claim that your solution is novel and original. As such, familiarity with the prior art relevant to your solution is one of the most important factors when crafting a patent.

In order to internally draft your claims, you must educate yourself as to which prior art to include (and exclude) in your patent application. This research will not only pay off in the form of tighter, more defensible claims, it will also facilitate your ability to influence your lawyers and the patent examiners. 

Equity Pay - Some attorneys will accept a portion of their initial fees in the form of equity. Orchestrated properly, this approach can cement your lawyer’s incentive to help you succeed. When you hit the inevitable bumps in the road, a lawyer who has an equity stake in your business is more likely to be flexible with respect to payment terms and more willing to give you pro bono feedback and guidance.

Such equity grants might seem "expensive" in retrospect, once your company is worth a substantial sum. However, a nominal equity allocation that allows you to conserve your precious cash while you are bootstrapping remains a worthwhile consideration.

Irrespective of your company's maturation stage, when managing your legal affairs, never lose site of the fact that your lawyer is your servant. Treat them as a trusted advisor, but ultimately, the onus is on you to economically and efficiently curate a valuable IP portfolio.

Legal Caveat: I am not a lawyer and I never played one on TV. You should always seek qualified, legal counsel when addressing intellectual property issues.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never Tweet about that killer burrito I just ate. 

Image: Wikipedia

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John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara's Faculty where he teaches several entrepreneurial courses.


Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.





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