Patents: What are they and when should you apply for them?‎

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Corporate Alert

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What are patents?

Patents are registered rights where the government provides the patent holder with a monopoly over an invention for 20 years from the filing of the patent application. Patent rights represent a bargain between the state and the applicant where the state provides a barrier for entry to competitors for a period of up to 20 years in exchange for publicly disclosing the invention.  This can be thought of as an incentive to share innovation with the general public in exchange for a time limited monopoly. After the monopoly where the inventor reaps the financial reward ends, the general public benefits as a whole from the innovation to advance technology in the broader society.

Patents and patent applications are generally considered as property and may be treated similar to any other asset.  For example, they may be bought, sold, encumbered, licensed, and traded.  Accordingly, patents and patent applications inherently have value and can increase the value of a company.

Although patent law varies between jurisdictions, the general requirements to obtain patent rights are:

  1. ‎ Be clear on what you want to accomplish, and distinguish short-term ‎and long-term objectives. When is it ‎more important to win the battle, or keep fighting the war? For ‎instance, it may be worth settling litigation ‎in order to speed up the sale process of a company ‎.
  2. ‎ ‎ ‎
  3. ‎ ‎The invention must be useful, which is generally satisfied for ‎most inventions with an application.‎

  4. ‎ ‎ The invention must be new, which generally means that the exact ‎same invention must not have ‎been publicly disclosed by anyone in the world.‎‎‎
  5. ‎ ‎
  6. ‎ The invention must be non-obvious, which generally means that the ‎combination of known ‎features that make up the invention would not have been combined together by a ‎person skilled ‎in the art without an inventive spark‎‎.

As long as the above criteria are satisfied, the invention will be granted patent protection for a period up to 20 years from the date of filing.  Inventions are not limited to mechanical devices and a wide variety of arts may receive patent protection.  For example, software, business methods, drugs for treating diseases, chemical compositions, medical devices, industrial processes, and others can generally be protected under patent laws (there are exceptions and limitations in some jurisdictions).   

Innovation takes many different forms and, in general, are minor improvements over something that exists.  All businesses innovate at some level to separate themselves from their competitor and to convince customers to select their goods or services.  However, many of these businesses do not recognize that they are creating ideas that can be patented; therefore disclosing their ideas with no protection allowing for anyone to copy their product.

Furthermore, it is important to note that applying for a patent (or even being granted a patent) may not necessarily provide the business with the right to sell a product having the patented feature.  This is especially true for improvement patents.  As an example, if an modification to a machine improves the efficiency of a machine by increasing its rate of output, a patent may be successfully obtained for this modification.  However, if a third party has a pre-existing enforceable patent on the original machine, the new modification cannot be sold or practiced without a license from the owner of the machine patent.

Why do you need to file for patent protection?

Filing for patents provides protection of innovation generated by the business, whether it be an innovation in the aesthetic appearance (design patents / industrial designs) or innovation in functionality of a businesses products or services.  Four common reasons for building a patent portfolio are:

  • Barrier to entry - An issued or granted patent provides a strong deterrent to any potential competitors from entering. This is especially true in markets with a strong patent system and courts that are willing to enforce patent rights, such as the United States, Europe, and Canada. This barrier to entry may be crucial to businesses to prevent competitors from stealing the innovation and implementing the innovation without having to develop the innovation themselves; it is much easier to copy a good idea than to come up with the good idea‎.
  • Licensing opportunities - Owning issued patents allows the patent holder to enforce their patent rights against infringers. If another party makes, uses, or sells anything that is covered by an issued claim, the patent owner has a right to demand a license from the party. This may provide an additional revenue stream for the business.
  • Valuation of a business - As mentioned above, patents and patent applications are considered assets of a business. Accordingly, by filing more patent applications, additional assets are added to the business. In addition, patents are attractive to investors because it demonstrates that a business is willing to protect the innovation that provides them with a competitive edge over their competition.
  • Defensive patent strategy - In contrast to providing offensive strategies, such as creating a barrier to entry or demanding licensing fees, a robust patent portfolio may also be used defensively to discourage competitors from attempting to enforce their patents against a business.

It should be noted that the above reasons to seek patent protection are not exhaustive and that other reasons may exist depending on a businesses unique position.

When should you file for patent protection?

The exact timing for filing a patent application is a complicated issue.  On one hand, a patent application needs be filed before anyone discloses the invention and before anyone else files a patent for the invention.  In active areas of research and development where innovation constantly happens independently and in parallel, such as in consumer electronics, it is possible that a third party may come up with your idea independently. Accordingly, it may be advisable to file applications as soon as the idea is crystallized.  On the other hand, the idea must have progressed sufficiently such that the invention can be adequately disclosed in the patent application.  Without adequate disclosure, the patent application may be susceptible to rejection during prosecution or to attempts to invalidate the patent for improper disclosure.

There are different filing strategies that can be employed, such as filing a provisional patent application, the PCT system, deferred or accelerated examination (available in some jurisdictions), priority claims, and continuing applications (specific rules for continuing applications vary between jurisdictions) that can be used to control costs and to introduce subject matter to the patent application as development of the idea continues.

Where to file for patent protection?

Patents are limited to the jurisdiction in which it was issued or granted.  Accordingly, to enforce patent rights in multiple countries, patents must be issued or granted in those countries.  To prosecute and maintain a patent application across multiple jurisdictions can become costly.  For example, to enforce a patent worldwide may cost over $300,000 over the life of that patent.  Therefore, narrowing the scope of protection to countries where it is expected that the patent will be infringed by a third party may be sufficient to a business.  Accordingly, strategic decisions to evaluate where a third party may primarily make, use, or sell an infringing version of the invention should be made.

Concluding remarks

Patents are often overlooked by businesses as patents are expensive and the return on investment is not immediately clear.  However, ignoring patents is short sighted and may adversely affect the businesses ability to remain competitive and expand in the future.

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