Sailing on a Notion

Author:Mr Gerson Panitch
Profession:Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

Originally published in Legal Times, August 14, 2000

Ideas Are the Fuel Of New Companies, And Securing Patent Protection Requires Both Watching Out For Competitors And Mapping Out An Aggressive, Solid Business Strategy

In the new economy, ideas fuel economic growth. Even before a business is up and running, venture capitalists bank on their belief that good ideas will produce significant returns on investment. Down the road, when the new business prepares to make its initial public offering, the strength of its ideas will strongly influence its share price.

Yet regardless of how good an idea is, the patents protecting that idea can make or break a high-tech company. If core ideas can be copied by competitors, the value of any investment may sour. And if a rival should obtain a patent on one of those ideas, the business may be left with the unsavory choice of pulling the plug or fighting a costly infringement suit.

Before a technology start-up goes looking for outside capital or before a new business announces its IPO, it is only prudent to ensure that the company's patent position stands on firm ground. A strategic intellectual property plan initiated at the birth of the start-up can do just that. It can identify key patentable ideas and map out ways to maximize protection while minimizing exposure to destructive infringement suits.

Think First

A new high-tech business needs to think offensively and defensively about patents. Offensively, the business must make sure its product or service is protected. It must examine existing patents and consider patenting other ideas. And it must analyze the possibility of obtaining "blocking" patents to weaken the patents of competitors.

Defensively, a new venture needs to find out whether rivals have already obtained blocking or "improvement" patents that will effectively prevent it from practicing its own patents. If such blocking patents are discovered early enough, products, services, and business methods can be redesigned to avoid trouble. But if the company is already in full operation when a blocking patent is discovered, redesign can prove far more difficult.

The new venture should ask itself four critical questions:

Is its patent protection adequate to keep rivals from copying an important part of the business?

Does any competitor hold key blocking or improvement patents preventing the business from practicing its patents?

Are its patents valid and enforceable?

Is its patent position, relative to the market, optimized, thereby decreasing its exposure to infringement suits and increasing its value?

In a perfect world, the answers will be yes, no, yes, and yes. The real answers are unlikely to be so simple.

Four Questions

Adequacy of patent protection. The first step is to open one's mind to the range of ideas that can be protected by patents. Historically, patents were viewed as a tool solely for engineering and scientific companies. Today...

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