pic-trent.jpgCONTRIBUTED BY
Trent Dykes

A great reminder compliments of our colleague Mark Radcliffe: On March 16, the US patent system will undergo a fundamental change from the current “first to invent” to a “first to file” system.

By way of quick background, a “first to invent” system means that even if another party files a patent application on your invention first in the US Patent and Trademark Office, you will still be entitled to obtain a patent on your invention if you can prove you created the invention first. The new “first to file” system, which becomes effective on March 16, 2012, provides that you can no longer get a patent by proving that you actually created the invention before the filing date of the first patent application.

Patents have become an increasingly important part of the assets of startups, especially since most startups exit through merger. PwC, in its recent report on US technology M&A, explains that “companies with strong patent portfolios continue to be likely targets for future acquisitions, as modern competitive pressures force businesses to acquire and defend intellectual property rights.”

In addition to their role in merger exits, patents can be used to finance a company’s pivot: we assisted one startup sell its patents (and retain a license) as they pivoted to a different business model. Several large organizations are willing to purchase patents and license them back to the startup in order to keep the patents from being sold to non-practicing entities (i.e., patent trolls). Here is an article on patent monetization strategy by our colleague Craig Opperman (he performed the valuation of the Kodak patents): although focused on companies with significant portfolios, it is useful to frame the issues for startups.

As an interesting data point, a recent report on public sales of patents in 2012 from IP Offerings LLC found that the average price for a patent in 2012 was $373,000 (the median was $220,000) [noting however that we think that these numbers are high because many private sales are significantly lower].

Companies should consider the following actions:

  1. Adopt a patent strategy which reflects the increase value of patents as a corporate asset.
  2. Review their current products and services to determine if they should try to file a patent application prior to March 16.
  3. Modify their patent strategy after March 16 to reflect the change to a first to invent system.