New Evidence Shows That Patents Matter Less And Less For Startups

from the indeed dept

I was recently at a "tech" conference that focused on entrepreneurs, and I watched a panel discussion on "legal issues" where the first speaker went on at length about why startups absolutely needed to apply for patents as soon as possible. He argued that so much of a company's value was "tied up" in its "intellectual property" and you absolutely needed to "protect" it or the company could just be copied. This shows a fundamental misunderstanding of true value. The idea, by itself, is somewhat meaningless. The real issue is the execution -- and no matter what you know about the idea, the actual execution is always a lot more difficult. Focusing on "protecting" rather than executing can actually be the death of a startup.

Thankfully, it looks like more and more startups in the "soft technology" realm are recognizing this, and are getting fewer and fewer patents. TechCrunch has a post by patent lawyer Leonid Kravets who did a study of patents and funded companies, and found that each year over the past few years, startups seem to be getting fewer patents.
It may be tough to tell from the chart, but basically, each year shows fewer patent applications from startups. There's a ton of other interesting data at the link above, including some differences between certain investors. Not surprisingly, corporate VC wings seem to like companies with patents (a very big company mentality). Whereas VCs that have been investing in some of the most successful startups today (like Accel, which funded Facebook, and Union Square, which funded Twitter, Kickstarter, FourSquare, Tumblr and many others) have a much lower number of startups they invest in that have patents. Those VCs seem to recognize that it's not the patents that matter, and the general success of both of those firms' portfolios suggests they may be on to something.

Filed Under: entrepreneurs, intellectual property, leonid kravets, venture capital
Companies: accel, facebook, foursquare, kickstarter, tumblr, twitter, union square


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  1. identicon
    AC, 5 Jul 2012 @ 5:15am

    IP is very critical for startups. It's just that patents aren't really useful for them.

    For one, it's expensive to get a patent. It takes a large amount of time, money, and effort to put it together, hire a lawyer, respond to the USPTO, research prior art, etc.

    Second, you can't use it offensively. If someone steals your idea, what are you going to do? You can't sue, you have a small business with no capital to hire a lawyer for a protracted legal battle. Few small businesses can pay out a 6-7 figure legal bill when they're typically barely afloat. You can't really extort money patent troll like b/c everyone knows you don't have the cash to back up any threats.

    Third, they're useless defensively. So you get sued by a competitor, do you have the capital to fight a 3 year legal battle over defending it and pressing claims against someone else?

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