Patenting: Why? What? How? When?

Intro

“Patents are for the weak”, Elon Musk, one of today’s greatest innovators, said in September 2022. Patenting has seldom been as hotly debated as it is these days. In the Covid pandemic, it was even discussed whether pharmaceutical giants’ patents should be waived. Much earlier, already in 2014, Musk released all Tesla patents. He does not care about patents; should you?

You're not where Elon Musk was in 2022 or in 2014 - or not there yet - but an early stage founder. Also, you're not trying to deliver food in 3 minutes or revolutionize the lip-syncing of music videos, but you're in a space where your grandmother doubts the feasibility of your venture and your angels and early-stage investors ask for "IP". Accordingly, you're thinking about your patent strategy.

I am in a similar position, co-founder of Esencia Foods, an early stage startup, and a trained economist, i.e. trained to weigh costs and benefits, also for patenting. My company, Esencia Foods produces alternatives to seafood based on mycelium. In short: Our products taste like fish, but are made of mushroom roots. In long: We replicate the muscle meat of seafood 1:1 in a unique fermentation process. This puts us on the borderline between highly innovative biotech and the shark tank of foodtech. So the question of how to approach patenting is key for us. We are preparing a filing for Q2/23.

On the article

Google finds 4,870,000 entries when searching for "patent" AND "startups". This blog entry just adds to that amount. At the same time, the article does not explain for the 4-millionth time the difference between patent, trade secret, trade mark and copyright (as most “intros to IP for founders”-courses do), but shares my current knowledge about patent strategy for early stage founders from an early stage founder. I use  the 80/20 approach: 80% good, 20% needs improvement. Hence, I hope for your feedback. My goal is to outline what is beyond common knowledge and beyond the state of what can be easily found in the internet (or nowadays, what you find when you ask ChatGPT).

This text answers the following four key questions:

1. Shall I patent? Why?
2. What shall I patent?
3. How shall I file?
4. When shall I file?

Each segment starts with the respective question, states what is commonly known, then combines examples with own experiences, to conclude with an answer to the initial question.

This article is a founder’s perspective. It cannot and shall not replace consultations with patent attorneys, who are the real subject matter experts. In contrast, it is a summary of what I learned through discussions with three patent attorneys, attendance of different workshops plus sparring with other founders.

1. Shall I patent? Why?

“The patent process can be time-consuming and expensive; [...] in order to obtain a patent, you will need to publicly disclose the details of your invention. Consider filing for a patent to protect your intellectual property, to deter competitors, to attract investment, to increase the value of your company.” - ChatGPT:

This now establishes what is frequently repeated in the world wibe web. However, as a founder you wonder about the return on investment of your patents: Dear ChatGPT, but what shall I do? ChatGPT: "The decision of whether to file for a patent will depend on your specific goals, resources, and industry." So still: Should I patent? A resounding yes! First, I was asked about patents in every investor call. Second, there is data showing that patents increase the value of your startup and the interest to invest in your company (see e.g.  Conti et al, 2013 in Journal of Economics and Management; Greenberg, 2013, European Management Review).

2. What shall I patent?

“You should consider the unique features of your products or services that set them apart from those of your competitors. These may include new or innovative technologies, designs, or methods that you have developed.” - ChatGPT

Let’s discuss two extreme examples: SpaceX in one corner, and in the other corner: FIDLOCK. Never heard of one of the most inventive companies in Europe? The company makes about EUR20mn in revenues p.a. producing locking systems, mainly for the bike industry. However, combined founder and company hold more than 400 patents. These are more patents than are being granted for certain drugs (see e.g. Pharmaceutical Technology Magazine, 2019). Why does this matter? No company can develop a bike locking system without reading 10,000 pages of patents; and basically no company can develop a locking system without licensing a part of FIDLOCK’s tech. Licensing became a key source of revenue.

In the other corner, with more than USD2bn of annual revenue, one finds SpaceX. SpaceX holds more than 70 patents in more than 20 patent families, but exactly zero for its core technology. By reading SpaceX patents, you will not learn a bit about how to fly to Mars.

Summing up, the extremes really are: patent everything vs patent nothing. But looking at SpaceX again, you will ask, what are the 70 patents for? StarLINK, the wifi-bringing satellites. While it is not core to SpaceX’ business yet, it eventually becomes a key revenue driver, if not it’s own company, according to Musk. Consider: It is hard to build a manned rocketship (strong defensibility, even without patents), while building satellites is now a market in which globally 10,000 companies compete, according to Forbes.

Illustration from Insights Blog by GreyB

Are you FIDLOCK or SpaceX? Neither ChatGPT nor you know - at least not for sure, given that you are an early stage company. Licensing may or may not become a key revenue driver; likewise, technologies which have not been expected to become the backbone of your business may become these (once you pivot). From my point of view, you should file if one of the two following conditions is true: One, what you build is the backbone (!) of your startup at its current state. Two, what you build is relevant for your vision of the future. With Esencia Foods, so far, we only found inventions worth patenting that fulfill condition one. At the same time, we do not know, how exactly each line of our patent will look like. Which brings us to the next question.

3. How shall I file?

“1. Conduct a patent search [...] 2. Prepare a written description of your invention [...] 3. File a formal patent application  [...] 4. Respond to any office actions [...] 5. Wait for a decision.” - ChatGPT

Filing for a patent is cumbersome work.  At Esencia Foods, we did a structured search for patents on adjacent, related or upstream developments, roughly screening more than 100 patents and reading the most relevant 10.

But: Patents are not only there to secure rights. They also force you to take a close look at the subject matter and proceed systematically, defining and recombining features. You can learn from existing patents. All of a sudden, something is created that you didn't even have in mind before. At the same time, you need to make sure that you don't create any awkward workarounds to existing solutions to avoid potential patent conflicts. It is not relevant at this early stage. Your motto is: don't be deterred.

So, how to go about it? Good news first: You are not alone. Conduct the patent search (EPO database, Lens.org) yourself, write down what you invent (about 3 to 5 well-written pages). In parallel, find a patent attorney who has subject expertise in your industry. Your patent attorney (no contract required yet) has a sheet prepared to help you structure your approach. In the later steps of the process, your patent attorney will develop a clear opinion of what is innovative about your approach, whether you may harm or not harm other patents, and help you to think this through strategically.

What makes a good patent attorney then? Firstly, the patent attorney you want to work with is truly motivated to work with startups. Secondly, she has a sense of the industry in which you operate. Based on this, she will advise you to wait with filing if your approach is not well enough defined to avoid wasting your time and money. Thirdly, a good patent attorney confirms the “patentability potential” of your approach based on an early napkin draft in a non-binding letter or email, which is important for investors. Fourthly and as a rule of thumb, choose a small and engaged patent attorney over big and prestigious. You are also small. Bear in mind, the initial couple of hours are for free (it’s part of their sales process). Hence, as a founder, when your R&D strategy is defined, you cannot go wrong to have a first chat with a patent attorney.

4. When shall I file?

“If you file a patent application early, you can establish an earlier effective filing date for your invention. This can be important in cases where you are concerned about potential competitors. [...] Filing late can allow for more development and refinement of your invention. This can be particularly beneficial if you are not yet sure if your invention will be [...] viable, or if you want to gather more data.” - ChatGPT:

By now you have contact (but no contract) with a patent attorney (or two), with whom you can discuss about when to file. It is likely your patent attorney(s) will recommend you the golden middle path: The provisional patent application. If this is your path, follow it. As a pre-seed startup, you have a new product or technology, but you're not yet ready to spend the time and money on a full, non-provisional patent application. The provisional application establishes an early effective filing date, but it does not require examination and it will expire after 12 months. This allows you to conduct further research, and add to your patent. Congrats: You just hit a milestone! Your technology moved from “patent potential” to “patent-pending”. Use this to show off in front of potential customers, co-development partners and investors to sign LOIs and raise seed.

At Esencia Foods, we decided to file in Q2/23, which is about one year after the idea originated, and about six months after incorporation. If your startup is built on non-published parts of a PhD’s work, for example, you should consider filing earlier and ease your path to pre-seed financing.

Summary

To summarize, let's derive the following guideline: You should file a patent (should I file?), if it protects the backbone of your current business; or your belief in the future specific to your industry (what?), based on research, technical writing and in agreement with your patent attorney (how?), for a provisional patent, once your technological solution is clear, usually between pre-seed and seed (when?).