Graphos Project

Episode transcript:

Laurier: Hey innovators and product marketers. If you’re concerned about protecting your ideas, you’re going to love this episode.

Welcome to Product: Knowledge, the podcast about branding and marketing products that improve people’s lives. I’m Laurier Mandin, founder and CEO of Graphos Product.

One of the biggest fears is in the minds of innovators and marketers getting ready to launch a breakthrough product is protecting their intellectual property, or IP. Product counterfeiting and knockoffs are not a new thing. Copycats have probably existed since shortly after the first original idea. But in a time when someone half a world away can steal your idea and beat you to market, or produce cut-rate imitations that erode your sales and harm your brand reputation, there’s probably no single fear that keeps inventors awake at night more than having their ideas ripped off. How much protection does a patent afford you? And is it even a good idea? Visionaries like Elon Musk have spoken against patents saying they slow innovation, and filing and supporting patents all over the world is time consuming and expensive.

It all seems to beg the question: is it worth it? And if so, what is the right approach? That’s where today’s guest can help. Back in episode 13, we talked to IP strategist Trevor Prentice about licensing products to create new revenue. In his consulting work, Trevor also helps clients research and develop intellectual property strategies for products, including hardware, software—even chemicals.

Trevor’s goal is to guide and facilitate better decision-making before you engage a lawyer and commit to bigger costs. It’s a deep topic, and although we just scratched the surface in our discussion, I think you’ll find this episode fascinating, regardless of the type of products you work with.

I started our conversation by asking Trevor about the two main types of patents and what they cover.

Trevor: There’s the two main sorts of categories of patent protection. And like you alluded to there for a process. So that’s, if you’re protecting, any kind of process: manufacturing process, something that you do in your business behind the scenes, even a business process, or sometimes this applies to software too.

A lot of people think, Oh, I’m working in software. So, I might as well not even consider patents, not even worry about it, but you can patent processes and software is an instantiation of process in that code. So, it’s worth considering even if you’re working in software. And then the other type is when you’re considering filing a patent on a physical object.

There are a few other things too.

So sometimes if you’re doing interesting chemistry, you can patent what’s called a “form of matter.” So, if you’re creating new materials or new chemistries or different things like that. That one doesn’t come up as much with product companies, with a lot of the businesses I work with, but sometimes there are… I’m, chatting with a company now that’s doing an interesting new kind of epoxy resin. But anyway, yeah, so there’s the general types, but the thing to keep in mind is in any given patent application, you don’t necessarily have to focus in on just one or the other.

At the bottom of your application, you would typically write what are called “claims.” And these are succinct portions of the patent that touch on exactly what you are claiming is new and innovative. And what you are claiming you do that no one else has done.

So, the part of the patent that’s protectable, and you can have multiple claims. So, the first claim might be about a process or maybe a device. And then the second claim could be the opposite of that. And you can have as many as you’re willing to pay for. Sometimes it takes a little bit more time and money to draft more claims, but it’s sometimes worth it as well.

Laurier: So, in addition to the claims you’re making, you also have to cover what is called “prior art,” which is what other inventions might encompass and what is already out there.

Correct? So, you have to go over and list those other inventions that your product might be competing with or whatever exists in that space in the market already.

Trevor: Yeah, when you’re writing the patent or when you’re working with the lawyer or professional to write your patent, there’s one portion of the patent called the background section. And you should touch a little bit on how the problem that you’re solving with your invention was solved previously.

You don’t actually have to go into that much detail. And in fact, sometimes if you go into a lot of detail in this section, then it can actually hurt you more than helps. Because when the patent office, finally, and sometimes it can take a few years before they get around to reviewing your patent, but when they finally review your patent, they are going to be looking for prior art or other publications that are similar to your invention. And if they find some that are the same, then they would reject your application because it doesn’t meet one of the criteria for patentability, which is that it has to be completely new. Something that’s never really been done before. So that’s why, a lot of times, especially as you’re working with the patent lawyer and they’re helping you draft your patent, they actually downplay this background section a little bit.

Now there’s another requirement in the patent filing process that you send the patent office: any existing publications or prior art that you’re aware of, that it’s relevant to your patent. And it’s a legal requirement, so you do have to actually send them everything, but you don’t have to put it right in the patent draft necessarily.

Laurier: So, you don’t want to give them too much. You want to give them just enough to show that you know that what you’ve got is truly novel, but not enough to make your case more difficult.

Trevor: Especially in that patent draft. And if you, of course you do have to send everything you’re aware of in this, it’s called a “document disclosure process.” But that comes later and, even there, it really only has to be the documents that are specifically relevant to the patentability of your inventions.

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Laurier: Welcome back to Product: Knowledge, the podcast about creating and marketing products that improve people’s lives.

I think a lot of people misunderstand the protection a patent really affords them. And a lot of innovators, even people like Elon Musk, believe that patents are bad because they slow down innovation. Let’s talk about what a patent does NOT do for you.

Trevor: Yeah. There’s a lot there, I guess it does depend on your business model to some degree. And it also depends so much on the specific patent that you get because not all patents are created equally. You could end up getting a patent that’s very broad in a new field or new industry.

And that industry really starts taking off. And you’ve got that one of those key sort of linchpin patents, and coming back to the idea of these claims, again, if you have one of your claims quite broad, it describes a really important part of that invention. And without that specific examples here it gets a little trickier to explain, but that’s a far more valuable patent.

And if you end up patenting, or even if you’re broadest claim ends up being something that’s a very narrow piece of your invention, you’re not going to have nearly as much protection. So, it depends a lot on that. Yeah. I don’t know if that answers your question or not.

Laurier: It does. But I understand that something like three quarters of all patent infringement cases are dismissed. And in some industries, it’s more like 90%. So that means there’s a huge amount of waste of time and even more money for the patent holders. So, if suing for infringement isn’t a really productive way forward, what does a patent do for the owner?

Trevor: Part of that I think is going to be due to the fact that a lot of people, when they’re filing patents, they just jump right in. They go to a lawyer and say, “Hey, I’ve invented this awesome thing. I need a patent. Can you please write it up for me? And how much is it going to cost?” And this and that.

And the lawyers a lot of times say, “Oh yeah, that sounds great. I charge this much for a patent and, let’s write it up. Let’s file it.” But they’re missing a few steps there, in my opinion, because I think there needs to be a bit more of a review or assessment done.

And some strategy developed in advance of working with the lawyer. Some entrepreneurs and inventors are sophisticated enough to wrap their head around this themselves and do some searching and review, whether or not their invention might meet the criteria for patentability, and how. And develop a bit of a strategy around how they’re going to extract value from this patent if they do file, because it’s an expensive process. So, taking a close look and making sure in advance that you at least have some confidence that your patent will meet the criteria for patentability. Again, it has to be completely new, has to be useful, and it has to be what’s called “non-obvious.” And that’s a legal term the patent office uses to reject a lot of applications. So, the people who don’t do this is why you hear these crazy numbers, like huge percentage of rejections, especially when lawsuits come up.  If you’re suing someone for infringement of your patent, the first thing they’re going to do is try and invalidate your patent.

Because even if the patent office does accept your patent or they issue it, your competitor might after the fact to come back and say, “Actually they made a mistake there, Cause look, they missed this one piece of prior art that existed before you filed your patent, and it’s very similar to your patent. So therefore, your patent shouldn’t have been accepted and now we’re rejecting it through this lawsuit.”

So that’s why doing a much more in-depth assessment and, developing a bit of a strategy first can really go a long way to avoiding, that huge chunk of people whose patents get rejected.

Laurier: Well, I think a lot of the value that I’ve seen with patents goes beyond just the direct IP protection. Having a patent gives you something that now you can license in that you’re in a much better negotiating position when you’re getting partners, bringing others into the deal. And when you’re capitalizing on the value of your IP, having a patent augments the value of the IP you have on a product.

Would that be true?

Trevor: Exactly. In almost all cases, trying to get into a situation where you’re suing someone for patent infringement is really the wrong way to go about it. Because there’s so many more amenable ways to work with a potential partner, let’s say through licensing or through some type of partnership, where having that patent still really helps, because it adds to your credibility and it improves your negotiating position, whether you’re negotiating a license, where your partner is paying you some percentage to access the idea or the invention that you’ve developed, some percentage of whatever they make on the product that they sell, or whether you’re just working in some other type of partnership.

Let’s say you’re continuing to develop your idea or doing research and development and move, that forward with a partner. If you have some background IP or a few patents that you’ve already filed, then when you go into negotiating for the co-development agreement or some sort of research agreement, potentially you’re working with a university or something, then you’re going to be in a better position. In fact, if it’s a partner in industry, they may even need to license that background IP from you in order to move forward with the project. So, you could get a better result at the end of the project. Maybe you’re getting a higher percentage of whatever revenue comes back from the end of the project.

So, there’s a lot of these other reasons. And again, it depends a bit on your business model because if you’re pursuing investors, potentially angel investors or venture capitalists to grow your business more quickly, then having that patent again, it adds to the credibility of your business.

It’s only one piece of that package, but it’s an important piece. Sometimes I think most investors ask the question, once you prove the market, once you prove that this is a viable opportunity, what is put in place that’s going to prevent your competition from just sweeping in, and especially if you have some some much larger entrenched competition, what’s going to stop them from sweeping in and stealing your idea and just developing their own version of it, and then pushing you out of the market. The answer to that question is not always patent protection, but it can be in some cases and that can definitely be a piece of it.

A lot of reasons to consider a patent that are separate from that idea of eventually just suing your competition for patent infringement.

Laurier: I don’t think anybody really gets excited about the prospect of suing. But if you’re the inventor, you just want to protect your idea and this massive investment that you’re putting into the idea. And even having that patent-pending status is quite valuable.

It can be even more valuable, I think, than the actual patent. Is that not true?

Trevor: it’s almost like a bit of a game, which you know, a lot of business is, but it’s bringing your business to that higher level and showing that credibility and showing that you’re doing things proper way and professionally, because yeah, like you said, even having, provisional patent or patent-pending status, a lot of especially smaller businesses might not fully understand exactly what that means. And they’ll just see that stamp either on your product or on your website or somewhere. And then they’ll think, “Ooh, these guys are, at least serious about their invention. Maybe we’ll just go and try and knock off a different product.”

Because there’s more than enough out there. I’m sure that they can find to knock off.

Laurier: It allows you to kind of be in stealth mode when you’re in that patent-pending status. And you know, there are pirates out there. There are people who go around prospecting and looking for sitting ducks that are kind of the low-hanging fruit in the pirate world they know they can knock off with impunity.

And you just don’t want to be perceived as one of those. If you have a really great idea, then this is something you can do, and you should do to protect it. But one thing that I’ve experienced with my clients is they often grossly underestimate the cost of filing and renewing patents and maintaining these things.

It can be really costly. How can a startup budget around protecting its IP to avoid coming up short, and to avoid having that be just this massive albatross on their shoulders that they’ve got to carry financially after they commit to it?

Trevor: That’s a great point. And I think it does depend a lot on the business model that you’re planning to use and even a bit more about your financial plan and financial strategy. So, if you’re looking for, investment from a VC or some large chunk of investment, maybe not right away, but in the next year or two, then usually, especially if it’s on the order of hundreds of thousands or even millions of dollars, then that would be more than enough to dwarf the cost of especially one patent application or even a few. So, if you’re aiming. For that direction, then I think it makes a lot more sense to take care of patent protection anyway.

Certainly, do the proper assessment and determining which aspect of your invention is the most likely to lead to an issued patent or an accepted patent. But it probably makes a lot of sense to file anyway, because the eventual funding that you’re going to get is going to be more than enough to cover those costs. But then if you’re really trying to bootstrap things and you want to build up revenue as quickly as possible, it’s important to look at your margins and how much you think you’re going to be able to make on the patent.

And is it going to be, let’s say in a year, is it going to be far greater than the cost of the patent, which could be, you know, an initial patent application could take two to three thousand dollars for a bit of a review and assessment and building a bit of a strategy, and then five to ten thousand dollars for the actual initial filing.

And that’s just the first year. And then, usually after a year later, you’re, you’ll need to spend another five to 10 for either an international application or starting to file in individual countries that you eventually want protection in. And it doesn’t end there, there’s maintenance costs and, prosecution costs and all these different fees that start coming on a per country basis, over the lifetime of the patent.

So, it’s definitely an expensive thing. So that’s why you really need to be thinking, “In that first year, are we going to get our revenues up, above 10 to 20 grand profit?” And not only that, but is the patent actually going to increase your revenues by 10 to 20 grand per year, at least, because if it’s not, then what again, why are you getting that bent?

And there could still be other reasons. Because maybe having that patent will increase your likelihood of getting investment, or it could increase your likelihood of being able to work with a big partner that you otherwise wouldn’t have the opportunity to work. And so, it’s harder to nail down the exact number of how much is that worth to your business, but it’s probably more than $10,000 or $20,000 or whatever the cost of that patent will be.

So, these are the types of thought experiments or thought processes I go through with my clients when I’m developing patent strategy. And I think, whether they work with someone like me, or another patent support or IP support company, or even if they just do that themselves, that kind of thinking is really important to do before you jump in and spend the 10 grand on having your patent actually drafted and filed.

Laurier: A lot of entrepreneurs go straight to their lawyer and start incurring big costs right off the hop. And most people don’t even know there are IP consultants, people like you who can guide them through, help them make good decisions, help them define their strategy before they start going into those large costs. At what point do you recommend somebody come to you, and how early in this journey do people start talking to you about their IP strategy for an idea?

Trevor: Yeah, sure. So really the earlier the better, I’m more than happy to have, an initial chat with anyone for half an hour or an hour, just to figure out where they’re at. and of course, I wouldn’t charge for anything like this. This is just more, I give as much advice as I can in a half hour or an hour meeting and just try to see where the entrepreneur or the inventor is at, and then just give them some advice as to when they really need to be thinking about this. Cause it is pretty specific to the company and the entrepreneur.

One thing that’s really important to keep in mind is with patents I’ve been talking a little bit about the fact that when you file a patent, it has to be completely new, so no one else has really publicly released that idea before. And that actually includes you. So, if you publicly release your idea, put something on your website, or if you start selling the product, then you immediately lose the ability to file a patent in most countries in the world. Now there’s a few countries, namely US and Canada, and a few others around the world, that give you a one-year grace period. So even if you do disclose your idea, you could still get a patent in those countries for up to one year after your initial publication.

But you really don’t want to take that approach. You want to try and get an initial patent application as soon before you do that or really right before you do that.

Laurier: You don’t want to go and have your big media event before you’ve filed the patent application, because then you can render it null and void in a big chunk of the world just by doing that.

Trevor: Yeah. Yeah, exactly. And I mean, this is something, well actually coming back a little bit to the idea of doing this business strategy, thinking a little bit from the financial perspective, how are you going to bring that value back from the patent before filing? That’s something the lawyers don’t really do a lot of the times. Some really good ones, maybe, if you find a great lawyer, they might say, well, are you sure you really want to file this patent? Uh, but most of the time, like you said, it’s important to do this yourself or find someone like me or someone else who can give a bit more of a business perspective on intellectual property, as opposed to just strictly the legal perspective.

Laurier: Well, and that’s something that we haven’t really touched on is, we talk a lot and think a lot about the costs of filing a patent and, people see it as a necessary expense, but you need to really look at it from the standpoint of that investment, that it can lead to that additional revenue and, that better negotiating position competitive differentiation, all those things that the patent brings beyond the cost of that investment, and weigh the value of that. It’s not just money that you sink into this bottomless IP pit.

Trevor: Exactly. And I mean, a lot of people do that and there could still even be some longer-term benefits. For example, if you start to build a bit of a patent portfolio or IP portfolio more generally, then, that could increase value of your business. If you’re looking for a sale, or if you do a public offering or go IPO, then you know, that could actually increase the value. Or even if you’re getting investment, when you’re negotiating you can say, “well, our business is worth this much now because we have a bit of a patent portfolio developed.” But it makes sense to also consider the shorter term, in terms of can you increase pricing on your product? Because now you’ve kind of got a bit of exclusivity in the market and you can increase it to that premium level. And by how much can you increase the pricing of your product, and is that enough to cover the cost of the patent? If not, then the patent might not make as much sense for you.

Laurier: That’s it for this episode of Product: Knowledge and my conversation with intellectual property strategist Trevor Prentice. Find out more about Trevor and what he does at theIPlink.com and check out episode 13 of Product: Knowledge, where Trevor talks about earning revenue, reducing risk and expanding your market through licensing.

Be sure to visit GraphosProduct.com, where you can listen to all the podcast episodes, read the transcripts and get insights from our blog. Reach out to us on twitter @graphosproduct or email us through the form at graphosproduct.com. Thanks for listening. I’m Laurier Mandin.