Bad Patenting and Company Failure
I was delighted to be invited to take part in a European Patent Office conference in Athens last month although slightly concerned when I was given the topic of the “Don’ts of patenting” – did they think all my clients failed? The talk before me was all about the good things to do so rather than simply saying - “the opposite of what he said” I wanted to try and put the problems into context: patent issues rarely arise in isolation but are generally symptomatic of wider problems in the business.
The three main reasons for business failure are
- Technical failure
- Financial failure
- Management failure
If we first consider technical failure probably the biggest problem is patenting before you really understand the science – so for example one might patent the surmised active chemicals in a natural product such as the chemicals in calendula that you think are those that are useful in skin disorders only to find out later that those are not in fact the relevant actives. Early patenting is a particular problem in universities where there may be reward systems in place for the academics that encourage early patenting or where resources or academic interest are limited to the early stage work. Even where this early technology is “spun out” it may be protected from real world costs within an academic environment so may be continued within a “zombie company” even though in reality there is little value in going forward.
Financial failure is probably the most common source of patent problems. Even with the promise of the new Community Patent patenting is really expensive. Small companies may not be able to afford the ideal breadth of cover and if money becomes tight may have to drop some of the territories they first sought. This is a particular problem for life science companies who usually face long development times before they can start bringing in an income. Companies often fail to properly budget for on going patent costs.
Another situation may be that their application contains broad claims but the funds don’t run to completing the work on all the exemplars. They may forget to restrict the broad claims and then find they fail because they don’t have the exemplars and now they cannot claim later. Sometimes companies will remember to withdraw claims that they cannot afford to support but then disclose them in the interim as they try to pull together the necessary funds. Of course this can be a vicious circle as without a strong patent position it is extremely difficult to raise funds anyway.
Management failure can take many forms:
- Insufficient market understanding
- Inexperience
- Failure to take the right sort of risk
- Poor planning / structures
- Not taking advice
- Burn out
An issue we often find is that the inventor has not properly assessed the competition. Scientists in particular will often only look at those who are working in the same area ie those who are seeking to trying to solve the problem in the same way rather than asking how else are people trying to solve this problem. They will also often fail to understand the costs of adoption of a new technology - it is usually much easier to sell something that can be retro fitted than something that requires a major rebuild or change in process.
Inexperience can lead to a lack of understanding of the particular sector and its special rules and requirements. It may also lead to false starts and changes in business partners or the winding up of one company and relaunch under another. This in itself need not be a problem but if it is not done very carefully rights can be lost either because something cannot be proven due to missing papers or because filings were in the name of one entity and other rights in the name of a dissolved entity which were not properly transferred prior to that dissolution.
Poor structures can of course lead to missed dates or payments but can also lead to a failure to think for the long term. For example a company may initially patent a product but down the line may look to “evergreen” but patenting aspects of its manufacturing process. In the early days these features may not have seemed important and may have been disclosed at say manufacturing conferences preventing later patenting when they could have offered valuable additional exclusivity. Clear structures would prevent casual disclosure. Good procedures should also provide for regular review of the patent estate and culling of those patents or applications that are no longer considered useful to the business.
Often an entrepreneur is reluctant to take the risk of giving up some element of control so will attempt to wear multiple hats. Although generally prohibited in the US it is common in Europe for a university inventor to be an officer of the spin out company but to contract work back to his own lab of which he remains the supervising scientist. This can lead to considerable uncertainty over ownership of arising IP as it is unclear under which “hat” it was created.
Not taking advice and filing your own patent is often a result of limited funds but can also arise from arrogance but there is really no substitute for having the application professionally drafted by a patent agent with expertise in your technology. A patent agent can guide you through the often arcane rules and ensure you do not miss out because of some technicality. Finding specialist advice is important at all levels – the lawyer who helped your father build a successful construction business may not always be the right person to take forward your biotech project and to understand the issues that can arise in licensing for example or have the contacts that you need to take the project further.
So how in short do we avoid the patent “don’ts”?
- Use specialist professionals
- Agree long term goals and calculate likely costs
- Update your plans regularly
- Put in place structures and policies for the long term early on
If you would like to discuss any of the issues raised in this blog in more detail or need help with an IP audit or in developing appropriate internal processes please ring me on 0131 202 65270131 202 6527 or email me on patricia@bonaccord.eu