Savvy investors and technologists understand the power of patents. They appreciate the extraordinary value that blocking a competitor from the market can yield, and they also understand the link between company value and sound patent protection.
Fundamentally, patents provide a right to exclude. Their exclusionary boundaries are defined by their claims, which must be precisely worded to capture the essential features of an invention while avoiding unnecessary verbiage and other perils. Strategically minded companies understand that their patents must be carefully developed and placed at critical access points to their technology in order to impact competitors. Patents directed to technological features that a competitor doesn't need in order to compete may provide little or no value to the company. On the other hand, when patents are aligned with a company's business strategy, the company can realize super-competitive power. By excluding others from practicing its technology, the company can more safely build a customer base, obtain financing, develop a brand name, establish market power, and grow revenue. Such power can set the company up for profitable operation in the marketplace or a lucrative exit.
Savvy investors and technologists also understand that not all patents are created equal. While some can offer extraordinary opportunity for their owners, others have little or no value. And, there are many ways to render a patent valueless. For example, failing to establish a connection between a company's business strategy and its patent strategy can result in patents far afield from what matters to the company's competitors. Patent value can also be impacted by missteps in the drafting and application processes. Patent "lemons" of this type represent costs without benefits.
Growing technology companies cannot afford to ignore patents and their potential for creating real company value. At the same time, however, pursuing patents without razor-sharp strategy and execution can result in patents that fail to impact competitors, and thus offer little or no value.
Originally printed in MIT Venture Capital & Innovation Conference Blog.
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