Nov 21 2007

Should Startups Invest In Patents?

One of the issues that we debate internally is regarding the value of patents.  We’ve written a lot about the subject over the years and those of you who are regular readers know that Brad hates all software patents, and I’m fairly close to that line as well.  Last night, our friend Rob Shurtleff sent us an email asking the question “what is the value to startups in filing patents?  Do VCs really care?”   

Rob’s take (and he is a VC) is that:

“1:  Software patents have in our experience not added significant value to early stage companies when they are acquired;

2:  Early stage companies can’t afford to use granted patents as an offensive weapon (this is equivalent to the rules of Mutually Assured Destruction), a few nukes isn’t going to cut it when fighting a super power;

3:   It costs a huge amount of time and money to do a high quality patent filing, there are a lot better things to spend your time and money on; and

4:  The rules are changing and making this whole area less predictable.”

I think Rob is pretty dead-on accurate.  In fact, I think patents are probably the most overvalued “asset” that startups promote when raising funds. 

Now, let me caution everyone on a couple of things:

1.  There are some business plans that absolutely require patents:  anything in the biotech / medical space, new hardware technologies, semi-conductor, new computing or interfacing languages, etc.  In other words, much of this post assumes that you are an early stage software company, or a business based on business methods; and

2.  These opinions are mine alone (although I’m betting that at least Brad and Rob won’t put up much of a fight) and some VCs may care very differently about this.  Whether they SHOULD is another issue, but I know of VCs that do exhaustive patent reviews of all of their deals.  If you are seeking funding from them, you better have your turkeys in a row.  (Happy Thanksgiving, everyone).

I’m going to get a lot of hate mail from patent attorneys.  Sorry guys, but I have to agree with Rob’s first point, above and to me that is the deciding factor.

Also, don’t underestimate Rob’s fourth point about the changing of the rules.  “Patent Reform” is becoming a sexier topic in the legislature.  “Something” will change soon.  If Google, Microsoft and others get their wish, they’ll trumpet around that they’ve fixed much of what is wrong in the system – just be prepared for the “first to file” standard that they are proposing the effects this may have on the ecosystem.  If anything, it will just further reinforce my opinions above.