New Evidence Shows That Patents Matter Less And Less For Startups

from the indeed dept

Tue, Jul 3rd 2012 6:05pm — Mike Masnick

I was recently at a "tech" conference that focused on entrepreneurs, and I watched a panel discussion on "legal issues" where the first speaker went on at length about why startups absolutely needed to apply for patents as soon as possible. He argued that so much of a company's value was "tied up" in its "intellectual property" and you absolutely needed to "protect" it or the company could just be copied. This shows a fundamental misunderstanding of true value. The idea, by itself, is somewhat meaningless. The real issue is the execution -- and no matter what you know about the idea, the actual execution is always a lot more difficult. Focusing on "protecting" rather than executing can actually be the death of a startup.

Thankfully, it looks like more and more startups in the "soft technology" realm are recognizing this, and are getting fewer and fewer patents. TechCrunch has a post by patent lawyer Leonid Kravets who did a study of patents and funded companies, and found that each year over the past few years, startups seem to be getting fewer patents.

It may be tough to tell from the chart, but basically, each year shows fewer patent applications from startups. There's a ton of other interesting data at the link above, including some differences between certain investors. Not surprisingly, corporate VC wings seem to like companies with patents (a very big company mentality). Whereas VCs that have been investing in some of the most successful startups today (like Accel, which funded Facebook, and Union Square, which funded Twitter, Kickstarter, FourSquare, Tumblr and many others) have a much lower number of startups they invest in that have patents. Those VCs seem to recognize that it's not the patents that matter, and the general success of both of those firms' portfolios suggests they may be on to something.

Filed Under: entrepreneurs, intellectual property, leonid kravets, venture capital
Companies: accel, facebook, foursquare, kickstarter, tumblr, twitter, union square

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creeper, 3 Jul 2012 @ 6:20pm

yay!! first!
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Prashanth (profile), 3 Jul 2012 @ 6:26pm

Patents matter
Patents matter for startups, because they're the reason why startups are so massively disincentivized from starting in the US.
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AC Cobra, 3 Jul 2012 @ 6:52pm

Wrong reasons
It would seem like patents matter, but for the wrong reason: you will need them later to protect yourself from the trolls who descend on anyone successful like parasites.
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Anonymous Coward, 3 Jul 2012 @ 8:55pm

Re: Wrong reasons
That's not really true. Prior art is a more efficient defense than patent thickets.

If you are successful at anything, you are getting sued for IP violations. No amount of patenting "patently obvious" things will save you from that.

the best defense is clearly not a good offense. Several large companies used the defense line as a rallying point, and none have come to realize any fruits from that labor.
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Fiber Pneuman, 3 Jul 2012 @ 8:57pm

False
This article is a joke. Mike misses the mark completely. Patents are important, however, not for the reasons you say they are. Investing in protecting a company's intellectual property is a strategy. If any protection is achieved, it may be thought of as valuable. Otherwise, in what way are you going to prevent a competitor from doing the same thing. This is but one way of building up a company, aside from producing an awesome product/service. This has nothing to do with trolls or whether someone is litigious. It makes sense to invest in R&D and to protect anything that comes out of R&D. Why is that so hard to understand. Your graph has a multitude of variable that account for that slope. Get more facts and come back with a real article. USPTO fees are up. The economy is down. Money is invested elsewhere. Its not supernatural.
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Andrew Pam, 3 Jul 2012 @ 10:05pm

Re:
First to file, but not first to invent!
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Anonymous Coward, 4 Jul 2012 @ 12:30am

Patents suck..
What is a patent good for? Your guess is good as mine.

Here is why I think they are awesome. NOT

Someone has an idea that is another idea but very much improved upon. USE YOUR PATENT TO CRUSH IT

You patent an idea you were never gonna use but it's obvious someone else would have a similar idea at one point or another. USE YOUR PATENT TO CRUSH IT OR SUE THE SHIT OUT OF IT

You want to troll a inventor?
MAKE A PATENT OF A GENERAL IDEA THAT COULD MEAN ALMOST ANYTHING AND SUE THE SHIT OUT OF IT

Yeah patents are awesome right?!
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Anonymous Coward, 4 Jul 2012 @ 12:50am

In the current system, only patent lawyers are making money. If a startup spends $15,000 per patent obtaining patents, that's a lot of funds that could have gone to development. Even if a patent is granted, it's often 4-7 years in the future depending if the patent office challenges the application. Then, it's nearly impossible to defend the patent when it's granted, since legal fees are often over $1 million to pursue a case against an infringer. Once the startup with the patent fails and goes bankrupt, a troll buys the patent on the cheap and uses it with a portfolio of other patents to threaten every other company that remotely infringes.
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Anonymous Coward, 4 Jul 2012 @ 1:21am

Re: Patents suck..
Trolling inventors has to be rather unspecific since prior art trumps patents in the US.
In most european countries the damages you get from lawsuits are peanuts and it is making general license trolling hard to carry out profitably.
The only way to troll investors is through making a broad application patent and wait for someone to get trapped by it. You cannot really target anyone specifically with it.
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Anonymous Coward, 4 Jul 2012 @ 3:23am

Re:
In terms of quality posts, your comment is dead last.
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shawnhcorey (profile), 4 Jul 2012 @ 5:10am

Only for Trolls
patents only matter for patent torlls. It's time to get rid of them.
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Anonymous Coward, 4 Jul 2012 @ 7:47am

They matter less only because it takes exponentially longer to get them.
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Gene Cavanaugh (profile), 4 Jul 2012 @ 8:54am

Patents mean less to startups
Well, we can spin it the way we want to see it (currently the "American way", where we simply do the Reagan thing, "Believe with your heart" aka "Be stupid, so I can give your money to the wealthy").

OR, we can recognize the truth (anyone listening? Oh, I forgot, "Believe with your heart").

The truth is, if anyone cares, that the USPTO has bought into a "revenue vs performance" model - them that pays a lot gets a lot. So, small entities that file as small entities (or even if they file as large entities, and can't stand the expense of "continued prosecution") find that their inventions, no matter how novel, are rejected out-of-hand, and examiners that don't - get bad reviews and eventually are canned.

So, patenting has become an impossible dream for small entities. That gives the patent trolls and anticompetitive large entities the power they have always lusted after.

And, note: I am an IP (aka "patent") attorney.
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TtfnJohn (profile), 4 Jul 2012 @ 1:00pm

Re: Patents matter
But the study shows it's startups who aren't applying for patents. Obviously some people are feeling the incentive to start a business without a patent and don't feel other things are "disincentivizng" them.
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TtfnJohn (profile), 4 Jul 2012 @ 1:04pm

Re: False
Also keep in mind that the USA was knocked out of first place on the total number of patents applied for and granted for the first time since pre World War One days by both Japan and China.
It's also in the software industry, according to the article in Techcrunch, that patent use has fallen in startups. The Hardware industry is still applying for them like crazy.
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Anonymous Coward, 4 Jul 2012 @ 3:38pm

Re: Re: Patents matter
Plus patents have a high cost, even to maintain it, no wonder most start ups forgo them.

The protection angle flopped the moment patents started to be duplicated and thousands of patents for the same thing were granted.

Since you be sued anyways way incur the cost?
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Anonymous Coward, 4 Jul 2012 @ 3:43pm

Re: Wrong reasons
They are not even good for protection.

Apple just was granted a patent on the concept of Google Glass as was Google, now imagine the two trying to sort this out in court.

http://www.wired.com/gadgetlab/2012/07/apple-patent-hud-display/
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Anonymous Coward, 4 Jul 2012 @ 3:52pm

Re: Re: Wrong reasons
That also have problems, with so many patents being granted for everything, prior art is not really a good defense at all, specially since many countries don't recognize that anymore since they adopted the model of "first to apply fist to be covered".
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AC, 5 Jul 2012 @ 5:15am

IP is very critical for startups. It's just that patents aren't really useful for them.

For one, it's expensive to get a patent. It takes a large amount of time, money, and effort to put it together, hire a lawyer, respond to the USPTO, research prior art, etc.

Second, you can't use it offensively. If someone steals your idea, what are you going to do? You can't sue, you have a small business with no capital to hire a lawyer for a protracted legal battle. Few small businesses can pay out a 6-7 figure legal bill when they're typically barely afloat. You can't really extort money patent troll like b/c everyone knows you don't have the cash to back up any threats.

Third, they're useless defensively. So you get sued by a competitor, do you have the capital to fight a 3 year legal battle over defending it and pressing claims against someone else?
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Anonymous Coward, 5 Jul 2012 @ 5:21am

Re:
The other issue I didn't mention is the time scale. It takes a minimum of 4 years to get a patent. For most small businesses, staying afloat long enough to see a patent granted is a big achievement.

It's really hard to plan out IP protection strategy 4+ years in advance. For a small business/startup it's hard to even tell what you'll be doing in 4 years. For the 2 I've been involved in, their initial business plan and market focus changed substantially over the course of 2 years, let alone 4+.
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Anonymous Coward, 5 Jul 2012 @ 6:18am

Patents and Copyrights will only make sense when they create a database of all drawings, keywords and and other unique thing about the patent or copyright. Once implemented all the examiner has to do is feed the paperwork into a scanner and let the computer match it. I can quarantee that only about 1/3 or less of the applications will be considered valid.
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patent litigation, 9 Jul 2012 @ 5:36pm

shaky
Considering the shaky economy, I would guess that, if startups really are applying for fewer patents in general, then financial considerations are playing a large part in the decline. This trend may well reverse when (if?) the economy picks up again.
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Jason Daniel, 3 Aug 2012 @ 7:47am

Patents do matter! They are used to protect your company�s intellectual property for the future. If your company believes in the work they do they will patent to protect it and to encourage company growth.
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Paul Barous, 26 Dec 2012 @ 5:22pm

Patents r important
Yes, the financial aspects of fighting for an issued patent can be devastating, let alone the emotional drain. Some patents like "businiess method patents" can take over 10 years. Small businesses have a very slight chance to make it to the end of prossecusion. In the mean time big business and or VC partnering with a start up can read on the publish application while blocking an inventor from creating the business described in the application. Creating outside of a specific industry sector creates the hope that the small entity gets proper treamant at the BOA and then if issued has the opportunity for go after infringers (which takes more money) and then hopefully get a 5x past earnings
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Whereskarlo, 30 Jan 2013 @ 2:22am

Patents suck for a number of reasons
Ideas in their own right are completely useless. It is all about how an idea is executed that determines whether or not it is good or bad.

Further, your goal when doing business should be to do what you do better than anyone else. If you do it right it translates into customer loyalty and goodwill.

You fight the competition by appealing more to your customers than the competition, not by stifling competition by restricting access to your industry by multiple patents.

Patents stifle innovation and are even non-evolutionary.

It only makes sense to have patents when you reach transformative scale and have so outpaced competition that their only ability to compete is to directly steal your innovation. But then again, if you were able to go that far you can probably keep steaming ahead without patents as your competitive advantage is your ability to invent and not your ability to protect.

Just look at the decline of Apple. In the wake of loosing Jobs, Tim hasn't really been able to Cook up anything new or groundbreaking. Patent litigation is not what made them successful, innovation was.
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