Patents defend your business
If you don’t build your own patent portfolio, you might regret it when you can’t defend your business from aggressive competitors.
Patents have lots of uses for a growing technology business. They can demonstrate value to investors and acquirers. They can stop competitors from exploiting your company’s innovations. They can help you take advantage of a reduced rate of corporation tax.
But there’s another use that’s not talked about so often. They can act as an insurance policy against aggressive competitors that try to assert there own patents against you. If a competitor has their own patents and they think you infringe them then life can get very uncomfortable very quickly if you don’t have your own weapons to fire back.
Let’s work through an example.
Background
SeatEasy Ltd. sells innovative office chairs. They have spent a great deal of time and effort during the R&D process and their chairs are changing the market. They help workers improve posture, resulting in proven increases in productivity and efficiency, and fewer days off. They have generated a lot of positive press and won many design awards.
Big business is impressed and Tech Giant Inc. in the US are ready to sign an exclusive deal for SeatEasy to supply their Silicon Valley Campus.
Things look really good for SeatEasy and getting this deal is a huge springboard to bigger things.
A competitor, Steady Chair Inc., sells their own office chairs and have noticed SeatEasy beginning to get traction in the US market and be a threat. Their product is inferior to SeatEasy’s, but they have a weapon up their sleeves. They have a US patent application to their product. They notice that the claim of their patent application is broad enough to capture the SeatEasy chair. They also work with their patent attorney to create other claims that are designed specifically to make sure SeatEasy office chairs infringe.
When their patent is granted, Steady Chair writes to SeatEasy informing them that they infringe and seeking a discussion to agree the terms of a licence.
Despite having an inferior product, Steady Chair are in a position to prevent SeatEasy from selling their chairs in the US, or to extract a royalty from them on US sales. What’s more, Tech Giant has heard from industry sources about the potential infringement and wants an assurance that SeatEasy is does not have any issues with Steady Chair’s patent.
Scenario 1 – SeatEasy has no patents of their own
This situation looks bad for SeatEasy.
They are informed by their patent attorney that there is a strong risk that they infringe Steady Chair’s granted patent. The attorney advises them to stop selling the SeatEasy chair and begin discussions about a licence with Steady Chair if they want to continue doing business in the US.
The negotiations are tough for SeatEasy as they have the weaker position. In the end, Steady Chair insists that they stop selling chairs that infringe their patents.
SeatEasy begins to look at designing around the patent, but Tech Giant has been scared off and the deal is no longer on the table. They redesign their chair so that it does not infringe Steady Chair’s patent, but a lot of momentum has been lost.
Also, in the meantime, Steady Chair has designed a rival chair that incorporates a lot of the innovative features of the SeatEasy, which they were able to do because those features were not protected in any patents filed by SeatEasy.
Using the rival chair, Steady Chair approaches Tech Giant and signs a deal to supply their Silicon Valley campus.
Scenario 2 – SeatEasy has its own patent portfolio
In this situation, SeatEasy has a few more options.
They review their own patent portfolio and discover that Steady Chair infringes one of their patents by selling their own chairs. Sales of the chairs in question represent 60% of Steady Chair’s revenue.
What’s more, SeatEasy is able to file new claims in a continuation application that specifically capture other products sold by Steady Chair.
Now when SeatEasy begins talking to Steady Chair, their position is much stronger. The prospect that they infringe SeatEasy’s patents means there is jeopardy for Steady Chair in pursuing SeatEasy for infringement of its own patents. If they go after SeatEasy, then SeatEasy will likely go after them.
In the end, both companies agree to leave each other alone and get on with business.
In addition, the features of its own, market leading chair are well protected so SeatEasy and so that could not be copied by Steady Chair.
The deal with Tech Giant is completed now that there was no risk for them in using SeatEasy’s chair. This led on to even bigger contracts coming the way of SeatEasy.
Things are rarely as easy or simple as the scenarios discussed above, but you can see how SeatEasy’s patents provided some insurance against the aggressive action of Steady Chair and allowed them to neutralise the threat.
I understand that paying for insurance can sometimes stick in the throat, but we all know that if we don’t buy insurance then we’ll regret it when a pipe bursts or our roof falls in.
Steve Blake
