Given that most businesses aren't built on truly original ideas, patents can seem like more trouble than they're worth. However, integrating patents into your business plan, regardless of whether you're an inventor, is one of the most overlooked elements of a successful business.
Freelance licensing agent (read: Mr. I Know All About Patents So You Can't Fool Me) Stan Weston gives us an idea of how important patents can be. He came up with the G.I. Joe action figure idea, and Hasbro offered Weston a choice of either $100,000 or $50,000 upfront, with a 1 percent royalty once sales passed $7 million. Weston chose the $100,000-and lost out on an estimated $20 million in royalties over the next 30 years.
While you may not see such drastic differences in earnings, there are 10 myths about patents that may be holding you back from getting the most out of the concept that got your business started in the first place.
Myth 1: The narrowing of equivalents makes it more difficult to get investors on my side. Reliable, leading venture capital firms and lending institutions bring on board consultants with excellent technical knowledge to pick out good business plans. When you come to the table with a patent-pending idea that's been well-researched and profits projected, you're more likely to be taken seriously, even if you don't have all the connections with the big players as a newly minted entrepreneur. "I believe investors or lenders are very impressed by patent protection. Seldom will an angel invest in a project that does not offer patent protection," said Jack Lander, president of the United Inventors Association, vice president of the Yankee Invention Exposition and founder of the Inventor's Bookstore.
Myth 2: Since it's becoming difficult to avoid infringement regardless of what niche I'm in, I'm better off not taking a patent to advertise my company as bait.
True, if you took out a patent for a rocking chair, you're possibly infringing on a patent someone else took out for a chair. That's why the claims section of the patent is so important. It has to be worded carefully and with the help of a patent lawyer so that you actually end up having more protection from infringement lawsuit bounty hunters than you would without a patent.
Myth 3: There's absolutely no competition out there for my business plans, so there's no sense in spending money to patent any part of it. There is always competition out there. There may be no similar technology, but there are many things that can perform the same function. Take the humble aluminum washboard. They didn't just disappear when washing machines came on the market, and in many ways, washboards are preferable to their mechanized counterparts. One of the most beneficial things an entrepreneur can do to continually outpace the competition is to trade marketing strategies, customer-retention ideas and tips with other entrepreneurs--in different sectors, of course. Patents give you an excuse to participate in inventors-entrepreneurship conferences, which is a great way to schmooze and get ideas you would never think of otherwise.
Myth 4: If the invention is "obvious to one skilled in the art," as the United States Patent and Trademark Office terms it, the patent won't be valid. Aren't you supposed to be an optimist? The specific wording of the claims in your patent is the key to patenting an idea that is already out there or "obvious." "Just about everyone who does a patent search is amazed at all the prior art that is identical, or nearly so, with his or her invention," says Lander. Take U.S. Patent 5,771,778, for example. Just about everyone knows how to make coffee, and that the smell of coffee is welcoming and makes clients feel at home. That "obvious" application didn't stop a coffee shop owner from filing a patent of "a device within a device, one part of which contains a sensor designed to emit an aroma when it senses a person's presence." So even a marketing idea that can be essential to a business can be patented if it's carefully worded.
Myth 5: It takes a long time to license a patent, and I want to have something to show by the second quarter next year. The USPTO recognizes the time delay and is trying to speed things up by eliminating paperwork wherever they can. Go to their Web site to apply online, do prior art searches and check on the status of your patent application. It may be too early for you to boast profits in your press releases, but you can talk about how you're different from competitors and why you're the leader in your industry by grace of your expertise. Officially, they're called "inchoate rights," otherwise known as bragging rights. You can use them once your patent is pending. Darrel Adamson, founder and president of Engrave-a-Crete , a manufacturer of decorative concrete systems, cemented his company's expertise and recognition from patent on up. "While I was waiting for the USPTO to process my first patent, I coined terms for cutting shallow designs and patterns in concrete that are now commonly used and quickly spreading. The terms 'engraved concrete' and 'concrete engraving' are now used [to describe] a type of decorative concrete."
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General
Myth 6: "General" or wide-ranging patents are more likely to have higher returns or royalties than specific ones. Minutiae makes for successful niche-building, even though the thought of making your claims cover as much ground as possible is much more ambitious. Take CEPTYR 's lead, and focus on one area that is your core expertise to start off with. CEPTYR Inc. founders William Ettouati and Nick Tonks decided to focus exclusively on a very specific kind of drug, and they're now sharing a sandbox with pharmaceutical giant Eli Lily just four years post-inception. Unlike most biotech start-ups, Ettouati and Tonks figured out what their unique specialization was and stuck to it. "Our goal is to develop the first drug of this kind, and we gained Eli Lily's confidence on the strength of our proprietary drug development technology," says the 35-year old Tonks.
Myth 7: If I need to change my business focus, then the money I invested in filing a patent will be wasted. You may not make money from a patent by applying it yourself, but you can pursue licensing royalties. Craig Nabat, 32, changed his focus from marketing his own invention, FINDIT , a device for locating keys and other lost items, to including other inventors' products in his business. When determining the value of your product or service, there are two ways of pricing: "cost-plus" and "demand." Cost-plus incorporates your fixed and variable costs and adds your desired profit margin (the "plus"). Demand pricing is based on what the market will bear-or what you can "demand" for your proprietary product. That said, you'll have to find the intrinsic value in what you could've delivered to market. What cost savings, what productivity increases, does your product provide?
Once you figure out the monetary benefit, you can price your product accordingly so you deliver value, but you're also maximizing your sale price. Don't forget to factor in the lifecycle of your product or service: Will customers come back for more, and how soon?
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Myth 8: Concentrating on a single patented product is amateurish-it gives the impression of a fly-by-night business that'll vanish once the product novelty wears off. Patents can provide what is known as a "maintenance" aspect to your business that doesn't require, well, maintenance. A healthy, small, continuous income is sometimes called a maintenance brand, product or service. Inventor-entrepreneur John Janning generated respectable profits from a product that needs very little maintenance, freeing up his time for marketing and inventing. It was the uniqueness of the product-a Christmas tree light string that stays lit regardless of whether a light burns out, falls out or is placed in the socket incorrectly-that finally got it into Lowe's and Target this past Christmas. This type of underlying value attributed to your patented product prevents a low seating in terms of market share from being looked upon as liabilities to potential investors.
Myth 9: The industry I'm in is mature-I can rely on other, more certain, marketing tactics. Starting out in an industry that's already mature means you have to work harder to communicate and reinforce the consistent values of your company, instead of grafting on a mélange of different faces. There's nothing like an in-house-developed patented product or service to build long-term trust and show that, even though you're a newcomer, you definitely know what you're doing. "The patents I hold are crucial to our marketing, our status as an innovative company and [our ability to keep] competitors at bay," Adamson says.
Not only can you name a patented product or service, but you can develop a consistent and distinctive advertising message around your company's main focus instead of going with whatever promotion fads are hot at the moment among your competitors.
Myth 10: Everyone who was at the staff meeting where we brainstormed gets to put their name on the patent. You'd be paying honorariums like mad if this were true! Unless the inventor is yourself or a partner in the business, royalties from patent licenses generally go to the company, not the employees who came up with the invention. The company is the assignee-the person or legal entity that has actual ownership of the patent.
Many entrepreneurs have figured out that aggressively pursuing patents is an integral long-term strategy that pays off. There's nothing like knowing you can do something to build confidence, and holding a patent is a constant reminder to yourself that your business idea will work.
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Jasmine Pui has patents pending in the areas of horticulture, museum and curatorial arts, medical instrumentation and artificial organs.
This story appears in the February 2002 issue of Startups. Subscribe »
