21/01/2019
Many of our clients are startup companies who are looking to secure funding from investors who can help them develop to a point at which the investor can ‘exit’. Typically this may involve a buyout from a larger company.
There are three core categories of an effective patent strategy that may be scrutinised by investors or potential buyers:
- Patent filing strategy and patentability/validity
- Ownership; and
- Freedom to operate.
Under each of these strands, I provide our comments on some common questions we get asked by startups. Of course, an appropriate patent strategy is very much geared towards the particular needs of a startup and so we recommend that you seek advice from a patent attorney on what might be an appropriate strategy for your startup. At Reddie & Grose LLP, we have patent attorneys who are very experienced in advising startups on their patent strategy, and we would be happy to discuss this with you
1. PATENT FILING AND PATENTABILITY/VALIDITY
This concerns filing patent applications in territories of interest which sufficiently cover your invention(s), obtaining useful patent protection by convincing patent offices that your claims are novel and inventive over the prior art, and potentially defending the validity of patents against challenges by third parties.
- I want to speak to potential investors about my invention. Is this ok?
Inventions should be kept confidential at the very least before the filing of a patent application, and we usually advise that they should be kept confidential for longer than this (see below). Any public disclosure of the invention, whether this be orally or in writing, can invalidate a later-filed patent application. Often, the best approach is to get a patent application on file as early as possible, before speaking to potential investors. Even though meetings with potential investors should be undertaken under a confidentiality agreement, getting a patent application on file beforehand preserves the company’s position should there be any dispute over what may have been covered by the confidentiality agreement, or should any of the discussions be inadvertently leaked to the public.
We appreciate that some startup companies have very limited funds which mean that it may not be possible to file a patent application before speaking to investors. In such circumstances, as a bare minimum, any discussions with investors should take place under a confidentiality agreement.
- Is it ok to do a basic first patent filing to save costs?
Usually, we advise that the initial patent application (typically a UK patent for our UK-based clients) is professionally drafted and is as comprehensive as possible, including as many preferable features (fall-back positions) as possible and supported by as much data/experimental evidence as possible.
In order to save funds, it may be tempting for startups to file an initial patent application (which they may largely draft themselves) which includes only the basic disclosure of the invention, with the aim of substantiating the initial filing during the priority year (see below for more detail). However, this can be a false economy. If the initial filing is not comprehensive, it may not be able to support a valid priority claim. For example, the claims of a patent application must be sufficiently supported by the application. Including only limited disclosure may not satisfy this requirement, such that the effective date of the invention can only be considered the date of the subsequent updated patent application, rather than the date of the initial priority filing.
- Should we do a prior art search?
To get an idea of how likely it will be to obtain patent protection for your invention, one option is to undertake a patentability search before committing to filing a patent application. There are some free, publicly available databases that may help to provide an initial indication of potentially relevant prior art documents such as esp@cenet. However, unless one has experience with patents, it may be difficult to establish the relevance of a document and the true contribution your startup may have made in a particular technical area, because an invention often lies in a subtle (but crucial) improvement over what is already known. We can assist startups in undertaking a more comprehensive patentability search and analysis, and help with their ‘invention spotting’.
Depending on the specific circumstances, undertaking a prior art search may not be the best use of what is often very limited funds. In a lot of cases, many of our clients often feel they have a good grasp of existing technology in the field, such that an early patentability search may not be the best use of their limited funds. Rather, funds may best be spent putting a patent application on file.
Once an initial patent application has been filed, one may request a patent office search (the fee for which is very low on a UK patent application). The results of this search provides an initial indication of potentially relevant documents.
- Now I’ve filed a patent application, is it ok to publicly disclose my invention?
Once an initial patent application has been filed, there is a 12 month ‘priority’ period within which one or more updated patent applications can be filed to include any improvements, modifications or further data that strengthen the patent application. If the invention is publicly disclosed after the initial filing, this can make it extremely difficult to obtain patent protection for any subsequent improvements or modifications, because any improvements or modifications would have to be both novel and inventive over the public disclosure. Some prior art may come to light which means that the improvements or modifications take on greater significance.
At the end of the 12 month priority period, most startups typically file one or more foreign patent applications and/or an international (PCT) patent application. The foreign patent application(s) and/or PCT patent application are able to claim priority back to one or more earlier patent filings which occurred in the 12 months prior. Subject-matter in the foreign patent application(s) and/or PCT application which is supported by the subject-matter in the earlier patent filings maintains its earlier ‘priority date’, meaning that any publications (such as third party publications, or the startup’s own publications) occurring after the priority date is not prior art against such subject-matter.
Once the 12 month priority period has passed, it is not possible to file updated patent applications which claim priority back to the initial filing. However, there are still benefits to keeping the invention confidential until the 18 month publication date. For example, if any further developments or improvements are made to the invention between 12 months and 18 months, one may consider filing a new priority application directed to those developments or improvements. In certain territories, such as Europe, if a new patent application includes improvements or modifications to the invention in the earlier application, but has a filing date before publication of the earlier application, the claims of the later-filed patent application only have to be novel over the disclosure in the earlier application. This is a significantly lower hurdle compared to if the earlier disclosure in the earlier application were relevant to both novelty and inventive step.
We appreciate that startups are often keen to present their ideas in a public forum, to garner interest in their technology. In some circumstances, it may be possible to present aspects of your invention in such a way that it is not possible to find out how your invention works. For instance, if your new invention concerns a new method, this may involve presenting results from using that method without actually indicating how the method was carried out. ‘Publishing’ in this way may not have a detrimental effect because if a ‘person skilled in the art’ is unable to deduce how the method was carried out, it is not an ‘enabling’ disclosure.
- Should we try and get a granted patent as soon as possible?
The process of obtaining a granted patent (a process often referred to as “patent prosecution”) can take a significant amount of time, involving rounds of examination by the patent office in which they scrutinise the patentability of the claims. For example, the average time to obtain a granted European patent is about 3 to 5 years. However, there are certain measures that one can take to ‘accelerate prosecution’ in an attempt to shorten the time until grant.
Having a granted patent can be attractive to potential investors or buyers because it can be seen as an indication of the invention’s underlying patentability. Indeed, granted patents in major markets such as Europe and the US may be particularly attractive to potential investors or buyers.
On the other hand, accelerating patent prosecution may not always be desirable because it brings costs forward which can put a lot more pressure on startups that are seeking funding. Also, it may be a disadvantage to do this if the startup is not yet settled on their proposed commercial product, such as if the invention is still as a conceptual stage. When patent applications are examined, the claims (which define the scope of protection sought) often require amendment to restrict their scope in order to adequately distinguish over any prior art that comes to light, such as prior art identified by patent offices when examining a patent application. As prosecution progresses, it may be more difficult to broaden the scope of protection, and in most territories, once a patent is granted, it is not possible to broaden the scope of protection. Consequently, in some circumstances, there may be a benefit to not accelerating prosecution, such that the claims remain broader for longer, and the startup maintains some flexibility over what they may be able to protect, particularly if funds are limited.
In some circumstances, and depending on the funds available to a startup, an appropriate strategy may be something that combines elements of obtaining quick patent protection whilst maintaining flexibility.
For example, a startup may choose to accelerate patent prosecution in selected territories. In the past, some of our clients have chosen to accelerate prosecution of a UK patent application. In our experience, it is often easier to obtain a granted patent quicker in the UK, with broader claims and at a much lower cost than in many other territories. A granted UK patent application may look good for investors. Furthermore, a granted UK patent may be used to accelerate patent prosecution in other territories using a program known as the ‘Patent Prosecution Highway’ (PPH).
If a startup has sufficient funds and is settled on their proposed commercial product, one potential strategy is to pursue narrower claims in a patent application in the hope of obtaining quick patent protection, and then pursuing broader protection subsequently, in a divisional patent application or a continuation patent application. A divisional patent application or continuation patent application is one created when a ‘parent’ application is ‘divided’ in order to seek protection for subject matter disclosed, but not (or no longer) claimed, in the parent application. A divisional or continuation application retains the filing and priority date of the parent application, but thereafter is treated independently.
- Should we try and get patent protection for all our inventions?
Often, the best strategy may be to try and seek patent protection in as many different ways as possible around your innovations, Having a patent portfolio around your technology can add real value as it can make it a lot more difficult for competitors to clear the way and operate in the same area of technology. If you put all your eggs into one basket and only have one patent, a competitor could successfully challenge its validity and clear the way for their own operations. If, however, you have numerous patents covering the technology a competitor may have to successfully challenge the validity of all of the patents, which can represent a significant barrier.
However, depending on the technology, obtaining patent protection for all innovations may not be the best strategy. Take, for example, a startup concerned with drug discovery for a particular disease. Part of their innovative technology may be a drug discovery platform based on a new screening method. Although it may be possible to seek patent protection for the screening method, if patent protection is sought for the screening method, and the technology is published at 18 months from the first ‘priority’ filing, this may disclose the method to all your competitors, and it may be difficult to establish whether your competitors are infringing a patent directed to the screening method. In such a situation, a more appropriate strategy may be to keep the screening method secret, but seek patent protection for drug candidates identified using the screening method. If managed properly, confidential information can be a valuable part of a startup’s IP strategy.
The most appropriate strategy for a startup obviously depends on its commercial aims and budget.
- In which countries should I pursue patent protection?
Most of our clients choose to file a PCT application 12 months after filing the original ‘priority’ patent application. A PCT application is a single application which designates the vast majority of the world’s territories. 30 months after the original priority filing (usually 18 months after filing the PCT application), one has to decide in which territories to pursue patent protection because at this stage, the PCT application ‘splits’ into national/regional patent applications in the territories of choice.
This choice is a commercial decision for a startup and depends on many factors, not least the available budget, because this stage can be costly. The choice is also dependent on which territories are expected to be important markets for that area of technology.
Many of our startup clients choose the US and Europe as a minimum, and this is often supplemented with some of the world’s other major markets such as Australia, Canada, China, India, Japan and South Korea.
2. OWNERSHIP
It is important to establish whether or not your startup owns rights to the invention. If your startup does not own the rights, or if there are any doubts about whether your startup owns the rights, then this is may put off investors or potential buyers.
- How do I know if my startup owns the patent rights?
Establishing ownership of patent rights begins with establishing inventorship, so it is crucial to establish inventorship as early as possible. Determining inventorship on a patent application is not comparable to the process of naming authors on an academic paper. On patent applications, an inventor is someone who actually devises or conceives an invention. Also, in some circumstances, an inventor can be someone who is involved in establishing the physical means for accomplishing the new idea (sometimes referred to as ‘reducing to practice’), if doing so involved an inventive act, e.g. if it required non-routine techniques. Even if someone has carried out extensive and valuable experimental work, it does not necessarily mean they are an inventor. For example, if one merely carries out routine experimentation under the instruction of another, or suggests standard or straightforward modifications to an invention, they are unlikely to be an inventor. Inventors may thus be considered persons who have contributed something beyond “ordinary skill in the art”.
Once the inventor(s) has/have been identified, it is important to establish when the invention was made, and the contractual obligations of the inventor(s) when the invention was made. In the UK, for example, the ownership of the rights to a patent will pass from the inventor(s) to their employer(s) by virtue of their employment, particularly if the employee is expected to make inventions, for example if they are employed to do research. So, if an inventor made an invention whilst employed by the startup, then rights would automatically pass to the startup.
However, for many of our clients, the situation is not this straightforward. For instance, a common occurrence for startups is that at least some aspects of the invention were made whilst one or more inventors were employed by a university. In such circumstances, for ownership of rights to reside in the startup, an assignment would be required to transfer rights from the university to the startup. Different universities have different policies on ownership of intellectual property. Some universities may be willing to assign the rights to the startup, but in return they may insist upon a stake in the business or future royalties.
A further complication often associated with research undertaken at universities is that some external funding bodies may also claim rights to IP conceived whilst undertaking work that has been funded by them, or they may insist upon future royalties.
- I’m not sure whether the startup will own the patent rights. Can we sort it out later?
A startup may be keen on filing a patent application, but they may not be sure on whether they may be entitled to rights to the patent. For example, another party (e.g. a university) may have a claim to the rights, but assignment of their rights to the startup may not yet have been agreed.
It is certainly preferable to resolve any ownership issues at the outset. If you are not confident that your startup will own the rights to a patent, why risk paying for a patent application that you may not ultimately own?
- We believe that patent rights would be jointly owned by the startup and another party. Is this OK?
In most cases, joint ownership of patent rights is not desirable because it can be rather restrictive. In the UK, for example, the default position is that joint owners cannot assign or licence patent rights without the permission of the other party or parties. Joint ownership also raises other questions about who funds the patent application and resulting patent, and what might be an appropriate patent strategy for one party may not be appropriate for the other.
Generally speaking, joint ownership may not be attractive to investors, as it is often easier to deal with one party rather than several parties.
- Mrs Smith is an inventor, but she is rather modest and is not insisting that she is named as an inventor. This will probably work out quite well because she was employed as a postdoc by a University when she made the invention. If we don’t name her as inventor, the university can’t claim any patent rights. Will this cause any problems?
Inventorship is a question of fact. It is a legal obligation to name all inventors and incorrect inventorship can have serious repercussions.
Firstly, in this specific situation, by virtue of the fact Mrs Smith is an inventor, the University would appear to have rights to the patent. If the University is not named as proprietor (and there is no assignment from the University to the startup), they could take legal action. In the UK, for instance, a patent can be revoked (by the UK Patent Office or in court) on the grounds that the patent was granted to a party who was not entitled to be granted that patent.
Secondly, the fact the inventoship is not correct can put the validity of a patent at risk. In some countries, such as the US, if inventorship is incorrect, a patent can be held invalid and unenforceable.
3. FREEDOM TO OPERATE
This concerns whether a company may be at risk of infringing another party’s patent rights. If there are major hurdles in this regard, it is likely to discourage potential investors or buyers.
- Does having a granted patent mean we have freedom to operate?
Just because you have a granted patent, it does not necessarily mean that you have freedom to operate. Patentability and freedom to operate are distinct concepts.
As a simple example, assume that A invented the bicycle and obtained a patent for it. Shortly afterwards, B invents a bicycle with gears and obtains a patent for it because a bicycle with gears is deemed novel and inventive over a bicycle without gears. However, B’s bicycle with gears falls within the scope of the claims of A’s patent (which covers a bicycle whether or not it has gears). So, B does not have freedom to operate for the bicycle with gears, despite the fact that B’s bicycle is patentable over A’s bicycle. If B were to sell their bicycle with gears, they would infringe A’s patent. In summary: B’s bicycle with gears is patentable over A’s bicycle, but B does not have freedom to operate over A’s patent.
- Will the patentability search undertaken by the patent office identify patent documents relevant to our freedom to operate?
Not necessarily. Although some patent documents identified for patentability purposes may also be relevant to freedom to operate, this is not necessarily the case. A patentability search and a freedom to operate search consider different issues, so we would recommend that a distinct freedom to operate search is undertaken to establish potential freedom to operate risks.
- When should we do a freedom to operate assessment?
On the one hand, doing a freedom to operate assessment early on may be beneficial because the earlier one becomes aware of a potentially relevant patent or patent application, the easier it may be to design around and avoid infringement. Also, if one identifies major hurdles, not to progress a particular project.
On the other hand, a useful freedom to operate assessment often relies on knowing what the final proposed commercial product or method is likely to be. For some startups, this will not be apparent in the early stages, meaning that an early freedom to operate search may be of limited use.
Of course, the choice whether to do a freedom to operate assessment also depends on how much money a startup is able to spend on intellectual property. In the early stages, given budget constraints, most of our startup clients primarily focus on filing patent applications (without which they would not be able to develop their company), and consider freedom to operate at a later date when they receive more funding.
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.
