By Kevin Gilligan
I am a third-year law student at Drexel University Kline School of Law as well as an intern for ND Galli Law. With an undergraduate degree in Biology, I had one focus coming into law school—to be a patent attorney. Science and technology are my passions and I want them to be a focus of my legal career. The business and legal side of the startup technology companies is another passion, particularly because of its role in commercialization. This past summer, I found a position that was a convergence of my passions—in-house patent law clerk for a startup technology company working to commercialize a platform for augmenting human performance.[1] Below are three takeaways from my experience.
First, it all starts with IP protection. One very important goal for startups is to increase the value of the company. What is one of the best ways to increase value? Building the company’s IP portfolio. There are many forms of IP. A company’s name and logo could get trademark protection. The company may have a unique method of carrying out processes, which could constitute trade secret. Some companies may even be able to protect works of authorship and non-functional items through copyright. The most value for technology startups, however, usually comes from attaining patent protection,[2] which may be the strongest form of IP protection in terms of financial options. For example, holding an issued patent may provide opportunities to raise additional money, increase revenues through higher margins, and create new revenues through licensing. The startup I worked for this past summer had a few central goals—develop families of patents around their core technology, monetize their patents and expertise, and execute licensing agreements with other companies. From their perspective, patenting technologies that other companies will want or need to incorporate into their own technology provides a clear, manageable path to revenue.
Second, if a company attains a patent and wants to commercialize it, that company should complete a Freedom to Operate (or “FTO”) analysis before bringing any products to market, and preferably before moving potential products outside of the R&D process. FTO is essentially an evaluation of how a company can develop its products while avoiding potential liability to third parties, i.e., other patent holders. At the beginning of my internship, I had trouble with this concept. I thought that if the company is developing a product based on its patent, how can it possibly infringe another company’s patent? After a brief discussion with the Company’s CEO, (also a patent attorney) it became clear. Our patents may cover a specific embodiment of our technology even if some of the component parts needed for commercialization may be patented by others. Knowing who has patented what is crucial to avoiding liability. An FTO analysis uses an existing or planned product as the base, and then looks for other patents that have what you need to build the product, as well as patents that you may potentially infringe if/when bringing the product to market. In this respect, an FTO analysis may be described as a form of risk management that should be baked into the product development process. The flip side can be catastrophic, including the risk of halting a product launch or even bankrupting the company. Therefore, an FTO may cost a company money upfront, but it can save money in the long-term. In the words of Ben Franklin, “an ounce of prevention is worth a pound of cure.”
Third, and finally, the work of obtaining patents and conducting FTO analyses is also an important source of competitive knowledge. For example, after a proper patent search and/or FTO analysis, your company will be in a position to know which component parts of your device you are free to commercialize, and which component parts are protected by others. Simply because another company has protection on a part you want does not mean all hope is lost. Rather, this is the time to engage in licensing discussions to determine if there is a profit sharing or cross-licensing arrangement that might benefit both parties. Point being that lawsuits are one way that patents can create value, but patents also present transactional opportunities that can be unlocked by utilizing the patents as pro-business negotiation tools whenever possible.
In sum, never underestimate the value of your IP, especially your patents. And when looking to turn a patent into a commercialized product, spend the money to complete an FTO analysis because it will inform your understanding of the competitive landscape, may save your company from litigation downstream by guiding your product development efforts away danger, and may also help you seek out licensing opportunities.
[1] See https://www.crunchbase.com/organization/datafeel
[2] A patent gives the holder a right to exclude all others from making, using, selling, offering to sell, or importing into the United States the protected invention.
