Authored by Elliot C. Cook and Darren M. Jiron
Like fences or shields, patents exclude the unwanted. For innovative CyberTech companies, the "unwanted" is a competitor who, if unblocked by patents, will copy the innovator’s products—often at much less cost. Preventing this type of otherwise lawful copying is a fundamental purpose of patent protection.
But not all patents have blocking power. Just like fences with gaps, or shields made of papier-mâché, some patents fail to protect key technological pathways or are easily defeated. Such patents are worthless. On the other hand, patents that strategically block the competition and can withstand challenges generate astonishing value, priming a company for an acquisition, an IPO, or long-term success in the market.
CyberTech companies often fail to obtain powerful patents. Commonly, patents are seen as awards for the smart engineer or marketing sparkle to include on a website. This "trophy" approach to patents is almost guaranteed to miss the extraordinary benefits that a strategically developed patent portfolio can provide. Here is where many CyberTech companies go wrong:
Not Taking a Business-First Approach
The innovations that engineers and other technologists produce are critical to success in the competitive and quickly evolving CyberTech market. But patenting what is interesting to a company’s engineers, without considering the company’s business goals, often results in patents that fail to generate company value.
This happens when a company’s executives provide the direction, "We need patents," without more, or an investor wants to "check the patent box." Whatever the cause, letting the technology dictate the patent strategy often results in patents that do not:
- Protect the company’s revenue streams
- Cover key features most likely to be copied by competitors
- Have broad enough coverage to prevent "design arounds" by competitors
Patenting Black-Box Features
Patents directed to unseen, black-box features usually have little value. These patents are aimed, for example, at specific CyberTech algorithms or technologies buried in the depths of source code, rather than features that end users directly interact with or perceive.
Visibility of infringement matters. It makes detecting and proving infringement in court easier and cheaper. When infringement is clear (e.g., apparent from a visual inspection, rather than requiring code review), competitors are less likely to risk building competing products—and if they do, enforcing the patent is dramatically faster, less expensive, and more effective. Identifying infringement of black-box features, however, can be difficult or impossible, which can render a patent valueless or simply too difficult to enforce. In addition, monetary damages and royalties are more readily available for patents covering popular, outward-facing features than those that cover features unknown to customers. As the recent smartphone wars illustrate, patents covering highly visible features of a user interface may be significantly more valuable than patents directed to behind-the-scenes algorithms for driving the features.
Hiding Behind Numbers
Some CyberTech companies take a shotgun approach to patents—hoping to have so many patents that a competitor must infringe at least one. Smart companies and investors know, however, that a patent is only as good as its ability to establish strong blocking positions. Even one patent that effectively prevents a competitor from practicing a key technology generates immeasurably more corporate value than a mountain of patents covering trivial or easily avoidable features. A strategy that is focused on locking up essential features that others will need to compete is both more effective in boosting the bottom line, and less costly, than a scattershot approach to patenting.
Originally printed in Haaretz Cyber Magazine in June 2016. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.