Filing a patent is one of the fastest ways for entrepreneurs to strike it rich.
But you have to understand the written, and unwritten, rules.
In the US, the entire patent system changed in March 2013. Now it doesn't matter who was the first to invent, it now matters who was the first to file the patent application. So if you have some innovative ideas in your company, it is now much more important to file your patent as soon as possible. There's lots written about that.
What you won't find written anywhere else is this:
if you have a valuable patent, and
if you don't have $10 million in the bank,
you should sell the company as quickly as possible
What!? Didn't I just suggest you should protect your intellectual property by filing a patent as soon as possible? And then in the same breath say that now you should sell the company?
Yes, in fact this is the only reasonable business strategy, if you have a valuable patent you should sell the company as quickly as possible.
The reason is that the probability of having to defend a good patent is simply too high--and the costs of defending it are too great. The risk-reward ratio is just too high to make sense for a small company--it's not a sound business, or investment, strategy.
Defending a patent can cost over $10 million and take a decade. Even if you had the money, it's not a good business decision for a small company because the odds of losing are too high. According to PwC's 2012 Patent Litigation Study, patent holders have a nearly 40% chance of losing their case.
The other reason that it doesn't make sense for a small company to take the risk of owning a patent these days is that the attitudes of big companies around patents have changed. In our hyper-competitive global economy too many big companies have the attitude that they should just take valuable IP regardless of whether it's patented. I've seen this happen many times. Here's just one example:
While I was an investor in Brightside, the company showed its technology to one of the largest manufacturers in the world hoping to negotiate a licensing agreement. They'd done this under a very good non-disclosure agreement prepared by one of the biggest law firms in the country. But as some Brightside executives suspected later, this company must have taken Brightside's technology and put it into production the same week it was shown to them. This was well before they knew whether they were going to license Brightside's technology.
The big manufacturer knew the technology was valuable, but they decided they couldn't delay putting it into production. So they built the technology into the next generation of their products immediately. Like a lot of big companies their logic was that they would either agree on a licensing deal eventually or fight it out in the courts.
I suspect this big company knew that Brightside didn't have enough money to defend their patents. Brightside got lucky--the company was sold to Dolby just a few weeks before the big company's products appeared in stores.
This situation is not unique to Brightside. As a VC I saw this happen to several other small innovative companies, but none of them were as lucky to sell just before they knew their patented technology had been infringed.
I am convinced the optimum strategy today is to file the patent and then start the exit process. In my experience, that's the window of opportunity for almost every small company when patents have the best risk-reward ratio.