Startups, VCs and the Patent "Tax”

Tangible IP, LLC
STARTUPS, VCs AND THE PATENT “TAX”
 
I have been working closely with technology startups and investors for many years. One thing that I often comes across in our discussions is how executives and VCs believe that a startup size (or the absence thereof) matters and that their companies (and dollars) are immune from the patent wars that buzz through the media. We, Tangible IP, try to disabuse them from that illusion by giving real life, anecdotal evidence based on over a decade of experience in the patent market. Increasingly, we find support in empirical research for our contention that startups and investors must address patent strategy, and address it early on or they risk facing the IP equivalent of the IRS, the dreaded “patent tax”.
 
A recent study by Professor Colleen Chien of Santa Clara Law School does an excellent job debunking the myth that ignoring the patent market when you’re small makes any business sense, and underscores the importance of patent strategy to startups and investors. In her report entitled Patent Assertion and Startup Innovation, Chien surveyed about 300 venture capitalists and venture backed firms. Among her findings, a staggering proportion of startups and their VCs have been affected by Non Practicing Entities (NPEs, aka “Patent Trolls”). In fact, the study found that “75% of surveyed VCs and 20% of venture-backed startups with patent experience have been impacted by an NPE demand; nearly 90% of all tech VCs have been impacted.” Interactions with NPEs generally involve requests to take a license on a given patented technology or join a broader program to “protect” the company from further patent threats.
 
Clearly, VCs have a vested interest in ensuring their investment firms address patents, both potential opportunities and liabilities, prior to opening their checkbooks. Despite firms and VCs feeling the real impact of patents, our observations, supported by Chien’s findings, are that patents are still not getting the attention they deserve. The lack of a patent strategy can turn into an expensive business lesson for firms and VCs if left unattended to. As recently noted by IAM Magazine, patents can often slip through the cracks, even when they directly bear on the business interests of firms and investors:
 
“The prime concern for start-ups is to get their business up and running, and to get their innovations to market. This is also a key focus for VCs, who are keen to build traction in a business while getting a return as quickly as possible. Unfortunately, this often means that IP strategy falls by the wayside or, even worse, is seen as an irritation and an obstacle to a business’s progress.”
 
Formulating a sound IP strategy is essential for startup firms, and investors. Firms can make themselves more attractive to partners, acquirers, investors and customers by knowing what they’re doing about patents. At the same time, firms can deter potential patent threats simply by demonstrating that they understand the game and have already accounted for those threats.
 
Key aspects of any patent strategy are patentability and patent landscape assessment, as well as Freedom to Operate (FTO) Analysis. Filing the right patents can help firms commercialize technology, attract investment, achieve ROI, improve exit and effectively compete on the market by deterring copycats. Additionally, proactive measures like an FTO analysis can provide a company visibility to avoid the patent tax, i.e. having to pay a license fee to a NPE or worse, one of their competitors. Without a patent strategy, firms may lose out on potentially crucial business leverage and profitability, while increasing their risk of patent liability.
 
Startups and VCs should craft a comprehensive IP strategy early on, as part of their business concept. As startup entrepreneurs may be new and inexperienced in the market, VCs and investors are in the best position to ensure that patents get the attention they deserve. A sound IP plan shapes firms’ market path by determining business model, potential costs of business, asset monetization, partnering relationships, product development; and perhaps most importantly, peace of mind. An IP strategy can help startups and investors map out their innovation goals, and not get caught off guard by an aggressive patent market keen on monetization that feeds on all potential infringers, even startups.
Louis Carbonneau, Founder & CEO
Louis Carbonneau, Founder & CEO
Tangible IP is a premiere firm for strategic intellectual property advisory and patent monetization services. If you have unutilized patents that could be used to raise capital or reinvest into your R&D, please contact us at info@tangibleip.biz

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Tangible IP recently closed the sale of a portfolio in the lighting design area. 

Recent News

Tangible IP Announces Sale of Lighting-Related Portfolio

Louis Carbonneau Appointed Venture Partner by Cycle Capital

Louis Carbonneau Named for Second Year in a Row as One of World's Leading IP Strategists

Tangible IP Announces Sale of a Wireless Video Patent Portfolio


New Portfolios for Sale

We have several new patent portfolios for sale, most of them with detailed evidence of use (EoU). Here are the latest ones that we released to market:

- Electronic Vehicle Inspection Reporting (EVIR)
- LED Systems for Replacement Lighting and Other Illuminated Devices
- OCR Search
- Query-Based Multimedia
- LTE

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