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Startups: Run Hard, Patent Later

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ENTREPRENEUR

Our country's patent system is about to get an overhaul. Both the Senate and House have proposed separate but similar bills that would radically change the way patents are filed, granted and disputed.

It's yet to be seen what version will make it to the President's desk, but as the discussion over the patent process heats up -- especially now that the two groups need to come to some compromise -- the decades-old conversation about the worth of a patent is sparking again.

I have led and been part of many technology-based startups that have benefited greatly from holding patents, in particular one mobile-based patent that was very attractive to investors and later on became a significant asset as we looked to exit.

But the truth is, getting a patent isn't easy or cheap and it doesn't by any stretch guarantee revenues.

In fact, the U.S. Trade and Patent Office has stated that only two percent of patents earn any significant dollars for their inventors. Having a patent doesn't prove you have a unique product. I would argue that a patent doesn't mean much at all for a startup if it's not protecting a truly transformative idea.

The core of any successful company is the change it creates. Great businesses create new markets or rewrite the ground rules of an existing one. If you have a product you are certain people will demand, sometimes it's better to simply run faster than any other technology company and get it on the market. Organic growth, sales and revenues should follow. Being first is a competitive advantage.

This run hard, patent later mentality is one that a lot of young, technology-based companies live by. Jon Grimm, a fellow IT entrepreneur, agrees. He, along with Bill Landers and Brian Deagan, formed Knotice, an Akron-based direct digital marketing company JumpStart invested in about eight years ago.

The team had developed a software-as-a-service product that maximizes the return on investment of direct digital marketing (interactive marketing communications that can be addressed to a specific individual) through process automation, increased relevance and improved performance. They did some initial patent research and saw that no one was bringing three key aspects of digital marketing (email, mobile, and web content targeting) into one software platform. Instead of going for the patent, they started running -- sprinting, actually with a great product. Big name companies, such as Time Warner Cable, Canon USA, and BuildDirect, became interested and Knotice's sales have increased at least 50 percent year over year since launching the product.

It wasn't until 2008, when they noticed an increase in chatter among the IT world about what they were doing, that they filed a patent. It's still pending today, but to Jon, its issuance would just be icing on the cake. "If we get the patent, it will serve as an incredible advantage in taking Knotice where we want to take it," Jon said. And if they don't? "We're pretty comfortable with the lead we've built and the list of incredibly loyal clients who have stuck with us and are spreading the word."

But the time did come when Knotice, like most companies, wanted to surround what management knew was a unique idea with some legal protection. I have one hard and fast rule about this process and that's to get counsel. Researching and applying for a patent is a time-consuming, complicated process. Not only are entrepreneurs rarely patent experts, but the time investment to file is precious time entrepreneurs could be putting toward gaining early sales and real market momentum.

For those who think a patent lawyer is too expensive, you haven't haggled enough. There are plenty of startup attorneys who can help you answer the necessary questions and are willing to accept deferred or equity stakes for developing a relationship with you at an early stage.

The "to patent or not to patent" debate will live on, well after a proposed bill becomes law. But nothing will change the fact that patents don't generate revenues, the ideas they protect do. And if your idea truly is something that hasn't been thought of before -- and will be beloved by customers worldwide -- you can probably run with it for a while. But when in doubt, ask an attorney.