Hobson’s Choice: Why Startups Need Patents. Or not.

Hobson’s Choice: Why Startups Need Patents. Or not.

I am answering this question dozens of times per year.

Do start-ups really need patents?

This is similar to asking: “Do you prefer cholera or plague?”.

Short answer: No.

No, you don’t need a patent to sell your product. There is no legal obligation that you can sell a product only when it is patented.

For staying afloat, a start-up needs in the first place paying customers and not expenses for patent work.

Long answer: it depends. Very likely you will need patents.

Only if you can survive on your own – without third parties’ capital – you may be able to live without patents. Still you may prefer to have patent protection in place over going unprotected.

But please note that we have an entirely different situation when professional investors need to come in.

The following statements are true.

“Patents can increase the chances that a startup will be acquired.”

Yes. The main reasons why professional investors want to have patents in place before they invest into a company is to make sure that the inventors don’t run away and open a similar business right next door, after the investment has been made.

“Patents can help a startup get ready for an IPO.”

Yes. Institutional investors would buy shares of a new company only after having done a due diligence, of which an IP due diligence part is compulsory part. An IPO of a company with a bad IP situation would receive a bad rating so that conservative financial service providers would rather not engage into such activities, which results in a low IPO price.

“Patents can help startups form joint ventures and R&D partnerships.”

Yes. This is very true. Without a patent application in place, it is very difficult to share technical information with other companies. I have written an article about this issue here.

Patents as a marketing support

“Patents can help a startup rapidly increase its market share.”

Yes, market share is only gained through clients who are willing to put money on the table. In order to find them, marketing activities are needed. Being 6 months earlier in the market than the direct competition even can even outweigh the advantages of a patent protection. Patent protection should be used to safeguard early marketing activities of an invention.

What is not a valid reason to have patent protection

Sometimes I hear other reasons why start-ups need patents, but most of the time I hear nonsense. Here are a few examples of such nonsense:

“Patents can help a startup defend itself against attacks by incumbent rivals.”

No. A patent is a sword and not a shield.

“Patents can help a startup stop the theft of its innovations by larger rivals.”

Only if the start-up can afford that lawsuit, yes. Otherwise – which is the normal case – no, it won’t.

“Patents can ensure a startup’s freedom to operate.”

No. A patent is in the first place a sword and not a shield. Sometimes, but rarely, it can be used to generate an expensive deadlock situation with a competitor.

“Startups with intellectual property achieve greater long-term success than startups without it. Firms without patent protection are much less likely to survive.”

No. Most newly set up companies do not have active IP. Ask your barber whether he had IP when he opened his shop.

“Patents can help a startup launch a billion-dollar empire.”

Wrong logic. Billion-dollar empires have patents, that is true. But most patent owners are not billion-dollar empires.

After you have read this article, and if you need more information, please watch this free video lesson:



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