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


I receive this question umpteen times every year. I have written about this issue in here.

Are patents really required for start-ups?

This is similar to asking: "Do you prefer cholera or plague?"

Short answer: No.

No, a patent is not needed for you to sell your product. There is no legal obligation that you can sell a product only when it is patented.

For staying afloat, what a start-up needs in the first place is 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 capital from third parties', you may be able to live without patents. Still, you may prefer to have patent protection in place over going unprotected.

However, please take note that we have a 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 investing in a firm is to ensure that inventors do not run away and set up a similar business next door, after the investments are made.

"Patents can help a startup get ready for an IPO."

Yes. Institutional investors would purchase shares of a new company only after having done a due diligence, of which an Intellectual Property (IP) due diligence part is compulsory part. An IPO of a company with a bad IP situation would obtain a bad rating so that conservative financial service providers would rather not get involved in such activities, leading to a low IPO price.

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

Indeed, this is very true. Without a patent application in place, it will not be easy 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 obtained through clients whom are willing to put money on the table. Marketing activities are required in order to find such clients. Being 6 months earlier in the market than the direct competition even can even outweigh the advantages of patent protection. Patent protection should be used for safeguarding early marketing activities of an invention.

What is not a valid reason to have patent protection

At times, I do hear other reasons why patents are needed by start-ups, but most of the time, I hear nonsense. A few examples of such nonsense are:

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

No. A patent is a sword, 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. Or else, which is the normal case - no, it will not.

"Patents can ensure a startup’s freedom to operate."

No. In the first place, a patent is a sword and not a shield. At times, but rarely, it can be used to generate a costly deadlock situation with a business rival.

"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 established firms don't have active IP. Imagine asking your barber whether he had IP when he opened his shop.

"Patents can help a startup launch a billion-dollar empire."

This logic is wrong. Billion-dollar empires have patents. Yes, that's true. However, most patent owners are not billion-dollar empires.