In the last post, I highlighted some ways for gauging value of patents for a technology startup. In this post, the focus will be on thinking in terms of options to build a portfolio in an economic way.
Reiterating my earlier disclosure, my training is in engineering not patent law. Follow the advice of your patent lawyer for legal questions. My goal is simply to raise good questions.
It is a real possibility to spend a lot of money on low-value items in a patent portfolio because decisions are made with highly uncertain assumptions. Securing an early priority date requires filing an application when a concept is still at an early stage, but early-stage concepts generally do not have flushed out cost estimates, business cases, etc. Once filed, the application process can take years during which time, the startup’s situation can change substantially. The patent’s value, projected years into the future, is hard to determine.
Options Paradigm
Approaching the patent portfolio in terms of creating options can be a helpful way to manage uncertainty. After all, when you apply for a patent, you don’t bring in revenue. You create the option to make money at a later time, such as by licensing IP or deterring competition.
As an analogy, picture taking a spring trip to Boston (Well, after we’re past Covid-19). You lay out your cold weather clothes, which give you an option to dress for a potential cold snap. When you check the weather the day of your flight, it is actually going to be warm so you can happily leave the coat at home. If you can’t reduce the uncertainty before the trip, you carry the option and bring the clothes. If you never end up wearing your coat, it was still the right call to bring it since you didn’t know what the weather was going to be.
A Digression on Regulations and Cost Assumptions
A digression on regulations informs strategy (and I encourage consulting an attorney or reading regulations directly). As noted in Figure 1, a number of applications can be filed from a single patent application. A provisional application can be filed to secure a priority date. A U.S. non-provisional application must be filed within one year of the provisional to retain its priority date. To file the application abroad, a Patent Cooperation Treaty (PCT) application can be filed within one year of the earliest application, e.g. the provisional. If using the PCT process, national-stage applications can be filed within 30 months of the first application, e.g. the provisional, though this varies a little by country.
Figure 1 also notes guesses at cost ranges to file different application types (sources: IP Watch Dog, BitLaw, Patent Pilot, Keisen Assoc., and USPTO among others). Costs continue after first filing, too, with lifetime costs reaching a U.S. average of $60k. Lifetime costs in some foreign jurisdictions can be even higher, perhaps as high as $160k to $330k for some European and Asian countries. It is helpful then that the system has a number of natural stage gates since it is very expensive overall.
Mapping the Patent Applications Processes to Specific Options
While costs for patenting are high, the long periods between discrete steps can be used to delay decisions and expenses, buying time to reduce uncertainty in the value estimate for the eventual patent. Each stage can be thought of as opening up an option that can be exercised in the future. Some examples of this are noted in Figure 2. Specific cases, such as provisional applications and foreign applications, warrant discussion.
Provisional Applications
A U.S. provisional application describes an invention and provides a priority date. A subsequent non-provisional can draw matter from a provisional and retain its priority date if filed within one year. Provisionals are particularly useful to delay spending and decision making. By filing a provisional on an early-stage concept, this first provides some comfort that the concept can be shown to customers or partners without generating prior art (Publicly disclosing the invention can be used as prior art for rejection of the application on grounds of lack of novelty.). Second, it delays filing a non-provisional application by a year, which delays a spending decision and also a decision on the claim language. After a year when the provisional’s priority date is to expires, if the value proposition is clear, then a non-provisional application can be filed with claim language that can be chosen according to what aspects of the concept is most valuable. If the value remains highly uncertain or weak, a non-provisional need not be filed. In the latter case, the provisional was an inexpensive option that wasn’t exercised, and that’s okay. Also, the 1-year provisional period delays spending money on a non-provisional, which can be helpfully conserve the company’s budget.
On a side note, the USPTO does not examine provisionals upon filing, so a poorly written provisional will not be rejected. However, for the provisional’s priority date to be effective, it must describe the content referenced in the subsequent non-provisional. Wouldn’t you want that description to be crystal clear if there was any question about it? Writing a clear and thorough provisional application is a good practice.
Foreign Filing
If a concept is early stage, then it may be highly uncertain which if any foreign countries should be prioritized for securing patent rights. Faced with high uncertainty, filing “everywhere” might be tempting to cover all your bases, except this is very expensive. The PCT application process offers the option of delaying the decision of where to file for 30 months from the first application, e.g. the provisional. During this time, important questions can be addressed to build the value proposition of filing in specific countries. What option does this particular application in this particular country really provide? One piece of homework might be soliciting advice on whether the country’s legal system effectively supports patent litigation. Also, where are the competitors? Where are the markets? Another exercise would be to work through scenarios with counsel for where you would actually file suit and why. The delay in filing foreign buys time to build the case for the underlying concept too. If new information undercuts its value, the delay will have spared a great deal of expense by not filing in any foreign jurisdictions.
Review Process
Approaching an application as an option to take a subsequent step implies that each step in the life of a patent application is a decision. Engaging in a disciplined review process can hopefully correct for a few traps. First, it’s easy to get excited about a cool idea and run with it. Second, a feeling of inertia can drive just doing the next step, e.g. file a non-provisional because the 1-year provisional deadline is here. If taking the next step is automatic, then filing that provisional means signing up for spending on the full life of the patent, based on virtually no diligence. If this becomes the default process, budget-minded managers may start fighting any effort to patent anything new for fear of the commitment it represents. Third, in a startup, managers are commonly inventors since everybody wears multiple hats so a review process may counteract unavoidable conflicts of interest.
I like putting together scoring systems, flow charts, or litmus questions to add discipline to decision making. For example, a review step for filing a U.S. non-provisional could be that the concept must have a defensible “yes” to all of the questions on a previously prepared list. Some example questions might be:
- Is there enough detail in the concept to write a good patent specification?
- Is there a reasonable chance of getting a patent on the core concept (versus on something so narrow and detailed as to render the patent rights useless)?
- Is there a strong value proposition for commercial use of the concept with relatively low uncertainty?
- Is there a good chance it will be used in a product in the next couple years?
- Is it realistic that someone else will use this in the next couple years?
- Would patent protection provide a unique deterrent not covered by other patents?
By the way, follow counsel’s guidance on documentation. It may be better to limit documentation of the answers to these. Certainly, they should not be emailed about since email can be subpoenaed.
Planning During Patent Drafting to Open Future Options
It can be helpful to build in options at the drafting stage as well. First, nearly all patent applications are rejected at least once by the USPTO. Technical staff can work with the patent attorney to identify the least-onerous narrowing features of the invention. The specification can be written to support a variety of future potential amendments to the claim set.
Second, as noted in the last post, filing continuations can add value to a patent family. The option of filing a continuation can be improved during drafting by describing in the specification a variety of permutations or embodiments of the invention. If applying for a patent on, say, using a computer mouse for automobile steering (oh dear!) then permutations like mouse with track ball, mouse fixed to mouse pad, clicking functionality to do A, B, C, etc. could all be described. Flushing out variations on the concept provides more material on which to write new claim language in continuations when the time comes.
Addressing Uncertainty
Retaining an option, such as bringing a winter coat on a trip, is a way to address uncertainty. If you can learn more about what you’ll need for your trip, say by checking the weather, then you can pack less stuff and still have what you need. So, by doing the diligence on the business case questions for each decision, patent application options can be sometimes confidently foregone. Alternatively, business case diligence may show that other options should be pursued or done sooner. In both cases, addressing the uncertainty can make the portfolio stronger or cheaper or both. My earlier post comments on what sorts of questions to answer. Building the business case behind the patents will help build a great patent portfolio.
Closing
When building a patent portfolio, thinking in terms of creating options can be a helpful way to approach decisions of what to do. It helps get around the question of whether to get an expensive, slow patent first or to delay filing to build the business case for the patent first. Instead, work the system to generate options while delaying spending and detailed decision-making so that the business case can be developed. Ideally, this results in a portfolio of great patents and applications that covers what the company needs and not what it doesn’t need. And of course, take blog posts with a grain of salt and follow guidance from counsel.
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