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IP, IP Asset, Patent, Risk Mangement

How Startups Should Plan For Patent Enforcement Costs

A few days ago, as covered on GametimeIP, a UK inventor Michael Wilcox burned his patent in protest over the failure of the patent system to provide realistic protection from appropriation of his invention by others.  While the inventor’s lament is a common one, the falsehood of the so-called “exclusive right” is so well known among patent sophisticates, that most hardly bother to qualify the term anymore.  Yet the proposition still stands, the owner of the patent bears the costs of enforcement.

Joff Wild at IAM Magazine published a very righteous (and accurate) commentary on Wilcox’s situation echoing these very sentiments.  (Read Without the will to enforce them patents are worthless – and always have been.)  In it, Wild counters the complaints about UK patent enforcement costs, saying:

It is also worth noting that enforcement costs in the UK have actually been coming down since the creation of the Patents County Court, while there is also litigation insurance available and even the possibility of instructing law firms on a contingency fee basis.

Wild also explains how patent costs are just another of the many costs associated with running a business.  Even businesses that appropriately budget for patent acquisition costs, generally speaking,  fail to plan for the cost of enforcement.  Of course, such costs depend largely on factors beyond the company’s control, and can be extraordinarily difficult, if not impossible, to predict during early stages of conception.  Difficulty, however, is no excuse for lack of proper planning.

Even without knowing the precise costs, companies likely have projections for costs and revenues over following years, which can provide a baseline for how much (if any) the company could afford to set aside if patent enforcement becomes necessary.  Beyond that, institutions exist specifically to finance patent enforcement and licensing based business models. Take a little time to learn about the major and minor players in this space, and develop relationships with them.  The same goes for patent licensing specialists and contingency firms.  Find out what their typical arrangements look like, and get an idea for who you would feel comfortable working with.  Finally, know your competition.  What companies are likely to copy your products, and potentially encroach on your patents, once issued?  A law firm’s preexisting relationship with one or more of these companies potentially eliminates them as a possible enforcement partner.

With all of this information considered, any company can put together a strategy for handling future IP enforcement by knowing where and how to set aside funds, who to ask for additional financing (if necessary), and what patent advisory services or law firms to solicit for assistance.  Without a plan, a company’s IP may end up just sitting in a vault, collecting dust.  Even large companies neglect potentially valuable IP due to lack of prior planning.  Consider, for example, the letter to AOL’s Board of Directors from Starboard Partners (reported at IAM here) blasting the company for failing to develop an IP strategy:

Since our initial public involvement in AOL, we have been approached by multiple parties specializing in intellectual property valuation and monetization, some of whom believe that … AOL’s patent portfolio could produce in excess of $1 billion of licensing income …. Unfortunately, … AOL has been entirely unresponsive to their proposals …. The Company’s inaction is alarming given our understanding that many of the key patents have looming expiration dates over the next several years ….

An Atlantic Wire article posts AOL’s even more troubling response:

We have a valuable patent portfolio and several months ago, prior to Starboard’s first letter, the AOL Board of Directors authorized the start of a process, and hired advisors, to realize the value of these non-­‐strategic assets.
(emphasis added)

For AOL, this “process” should have “started” a long time ago.

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Discussion

One thought on “How Startups Should Plan For Patent Enforcement Costs

  1. Good note as usual Patrick

    I might also add that, like any other business, startups can buy insurance for intellectual property challenges. It may be expensive in some cases, but depending on your situation it may be a good investment. Despite all the hue and cry about patents being evil, they are a manageable threat nonetheless.

    Posted by J Nicholas Gross (@JNGross) | March 12, 2012, 1:05 pm

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