Startup Patents: An Asset or A Liability?

The value of intangible assets, such as patents, is increasing exponentially. Here are the pros and cons of patenting your intellectual property.

Posted February 1, 2022

Intangible assets account for around 90% of the S&P 500’s market value. Investment in these intangible assets in the form of intellectual property (IP), software, technology, and research has increased dramatically over the past few decades with the COVID-19 pandemic accelerating this shift.

Among these intangible assets are patents — a critical form of IP for technology-centric companies focused on innovation. A study by Research Centre Paristech Mines on small and mid-sized enterprises (SMEs) suggests startups have higher chances of succeeding if they have a patent and are five times more likely to succeed if they have multiple patents.

But are patents really an asset, or are they a liability? In this article, we discuss the pros and cons of patenting your IP and how you can mitigate risk with appropriate literature analysis.

When are patents assets?

Patents are key intangible assets, but how do they aid startups in leveraging their intellectual assets to prosper? The following are some scenarios highlighting the importance of patents:

1. Forge Partnerships: A patent is granted for an invention which is novel, non-obvious, and has industrial applicability. A granted patent application can persuade investors of the uniqueness and market applicability of an invention. From Angel Investors to Venture Capitalists, the inherent worth of a patent is appreciated which can tip the scales in a startup’s favor during funding rounds. A patent also enables a startup to forge licensing deals with established players in the market, thus utilizing their technology to create an added steam of revenue.
2. Competitive Edge in the Market: A granted patent gives a startup an opportunity to distinguish itself from competitors and make a mark with its invention. It also empowers a startup to stop other companies from illegitimately using their innovative technology or products. Further, with an exclusive license to sell a patented product, a startup can charge a desired price for their claimed invention in the market.
3. Leveling the playing field: A patent establishes distinctiveness, and value of an invention, which can be benefited from while negotiating business prospects with larger corporations. Additionally, if a larger company infringes on a startup’s technology, the patentee can sue the larger corporation and seek damages.
4. Protection during infringement: In case of an alleged patent infringement, patents can also be used to dissuasive the claimant. A patent entitles a startup to file a counter infringement suit against the company.

While patents can be a great additional to a company’s balance sheet, lack of a well-researched and strategized patent portfolio can open an organization to frivolous expenditures.

When are patents a liability?

If prudent decisions are not made along the way of patent portfolio creation, patents can turn from an asset into a liability. Here are a few scenarios where patents can hinder a company’s growth:

The Patent Process is Taxing: Obtaining a patent is a lengthy and expensive process. From filing a patent application to a successful grant of the same, the filing and attorney fees can run up to thousands of dollars. Further, lack of extensive research can lead to the persuasion of patent applications which may never yield the desired outcome. For instance, an ill-researched patent application can be forced to be abandoned during the prosecution stage.

Hefty Maintenance Fees: Once a patent is granted maintenance fees, the fees need to be paid by the patentee periodically. Failure to do so results in loss of rights for the invention. Paying for maintenance of economically non-lucrative patents can cause unnecessary strain on a startup’s limited resources. About 50% of patents applied with the USPTO expire prematurely due to failure to pay maintenance fees.

Risk of Lawsuits: While patents legally empower inventors to sue competitors for infringing on their claimed technology, patents also open an organization to a greater risk of lawsuits. Competitors in the field may try to invalidate a patent with the intention of utilizing the invention for their own benefit. Or competitors may also try to claim that a granted patent infringes their own patent in order to seek damages.

Patent analytics to mitigate the risk:

Startups need to consider both the benefits and the drawbacks of patents. The above risks can be mitigated with appropriate literature analysis. A thorough understanding of the patented and non-patented literature in a technology area will equip a startup to make prudent a patent portfolio creation decision. Patent analytics will also allow a startup to direct research towards new and lucrative technological endeavors.

To learn more about how to simplify the patent analysis, download this free worksheet. It guides you through six steps you can take to uncover relevant insights and make more informed patent analysis decisions.

Author Bio

Poorvi Thakur has experience in patent searching and analytics across multiple domains. She has worked with IP attorneys, Patent Agents, and R&D professionals to facilitate formulation of patent portfolio and R&D strategies. At PatSnap Poorvi enjoys helping innovators achieve their intellectual property objectives by empowering clients to derive essential value form the platform and by providing analytical reports with focus on Patent/R&D/Business strategies in a technology landscape.