Patents Need To Have Real Business Value

Patents need to have real business value.

Patents should align with the business they are designed to protect.  They need to capture the business’s competitive advantage, period.  When they don’t accomplish this, the patents have no meaningful value.

Patents are a way of defending an investment in a company, as well as multiplying that investment.  Patents can be used for keeping competitors at bay, managing supply chains, enforcing employment agreements, and even dictating how open source software can be used and distributed.  Not only that, patents can be used to license technologies into other verticals, spin out new companies, offload older technologies, franchise businesses to other sectors or locations, or – the holy grail – get incorporated into an industry standard.

With a strong patent portfolio, a company is better positioned for long term success – as well as acquisition.

Patents have value only when the risks are removed.

Every business idea – and every patent – has two fundamental risks: a technology risk and a market risk.  The technology risk is whether or not the idea will work, and the market or business risk is whether nor not someone will pay for the product or service.

Until the two risks are removed, a patent only has speculative value, much like an out-of-the-money stock option.  The value only comes from the possibility that the product will work and someone will buy it.

When the product actually works and people pay for it, the product – and its patent – have real economic value.

It is easy to get patents on inventions that work.  These fulfill the technology risk.

It is much more difficult to curate inventions that overcome both the technology and the market risks.

Many people look to their technology to find patentable ideas, but they are looking at only half of the risk and half of the equation.

The real value comes only when the business finds their customer’s pain point and gives the customers solutions that they cannot live without.

For example, Apple famously has several patents[1] on a “slide-to-unlock” feature of its iPhone.  These patents are not technically challenging to implement and are actually kind of gimmicky.  However, the slide-to-unlock feature addresses a very strong customer pain point: how to unlock a phone that does not have any buttons?

The business or market value of this feature is tremendous, much more than many of the “technical” features of the iPhone.  These patents were so valuable from a business standpoint that they were asserted against Samsung.  Of all the hundreds or possibly thousands of patents that Apple could have enforced against Samsung, Apple chose the slide-to-unlock patents.  This is probably the highest validation of patents that address a customer value as opposed to a highly technical advancement.

[1] US 8,286,103, US 8,046,721, and US 7,657,849.  These patents were litigated in the ongoing Apple v Samsung patent lawsuits.

This is an excerpt from “Investing in Patents” by Russ Krajec.

Investing In Patents is available at Amazon.com.