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When Companies Should Patent Their Tech

By Ellen Chang

Jan. 05, 2017
Young man wearing a helment thinking about approved patent, which could help him win over investors
Getting a patent could help protect your company’s IP and win over investors

A fintech company’s decision to patent its technology helped win over investors.

Sesie Bonsi’s decision to patent the Bluetooth payment system utilized for his fintech company has proven to be a beneficial financial decision, since it has emerged as an incentive for investors to fund his startup.

Bonsi, CEO of Bleu — a Los Angeles-based Bluetooth payment system for mobile wallets — and his co-founder, Brett Howell, filed for a patent in 2015, which gives the startup protection against competitors. The decision to commit to the arduous patent process was a no-brainer for Bonsi, a former attorney, because not only was the technology very technical, this strategy leaves potential investors with a more positive outlook and impression.

After conducting the requisite patent search, Bonsi found that obtaining one would be a “tremendous opportunity since their technology could become a standard and viable method.” He added, “Bleu could be gatekeepers, while the technology could be licensed or acquired.”

Patenting technology allows a company to prevent others from making, using or selling the invention throughout the United States and several other countries without the consent of the company, Bonsi said.

In turn, the technology will help Bleu build value and protect them from competitors who develop similar payment systems.

“You need to have some protectable intellectual property in order to gain market share,” he said. “It assures investors because it is one of a few assets which can increase in value over time. The value of your business can also rise because it is considered a valuable asset by banks and potential purchasers of your business.”

Seeking a patent when the company is smaller, more nimble, where fewer people in the entity have to sign off on it can have its advantages. Bleu’s first patent will help the company build their intellectual property portfolio and increase their value as they invest in additional technology.

“A patent has been phenomenal for us and the turning point for a lot of investors, since it is the first one in this sector,” Bonsi said.

Sesie Bonsi, the CEO of Bleu
Sesie Bonsi, the CEO of Bleu
"You need to have some protectable intellectual property in order to gain market share. It assures investors because it is one of a few assets which can increase in value over time."

- Sesie Bonsi

Determining when to file a patent

The United States had adopted a “first-to-file” system when the America Invents Act passed in 2011. Entrepreneurs should “file early, and file often,” said Jarod Marrott, an intellectual property attorney at Kirton McKonkie, a Salt Lake City-based commercial law firm.

“It places more pressure significantly on inventors to expedite filing patent applications to secure the earliest filing date possible, particularly in markets saturated with patent activity,” he said. Securing patent protection is a valuable asset for a company because it translates into a 20-year monopoly on the invention, Marrott said. Management who pursue this must determine beforehand their commitment to commercializing the invention, the potential market for the invention, and its competitiveness and how rapidly the market space is evolving, he said.

“Your inventive concept doesn’t have to be finalized and ready for commercialization, but at the time of the filing, you need to be able to describe your invention in sufficient detail, so that if you shared it with a competitor in your field, your competitor could make and use your idea without ‘undue experimentation,’” said Marrott.

Software and electronics inventions are typically ready to patent sooner than other unpredictable technologies, such as biotechnology inventions, said Patrick Jewik, a patent attorney at Kilpatrick Townsend, an Atlanta-based law firm.

Timeline and fees required

Obtaining a patent requires patience because it is a lengthy and expensive process. A U.S. patent typically takes two-to-four years to obtain once it has been filed, said Jewik, a former patent examiner at the United States Patent and Trademark Office (USPTO). It takes one-to-two years to receive an Office Action from the USPTO after the filing, he said.

After the first Office Action is received, the patent applicant needs to file a response to them. This process is repeated until the application is allowed by the USPTO or if the company decides to appeal or abandon the application, said Jewik.

The costs vary according to the technology being patented but can range from $15,000 to $30,000 over a two-to-four year period, he said.

Depending on the industry and the type of technology being patented, the costs will vary. A simple design application costs about $2,000 to file, while a provisional patent application can be filed for about $5,000, said Marrott. Filing a utility application will range from $10,000 for simple mechanical applications to over $20,000 for complex software applications, he added. Converting a provisional patent application to a utility patent application usually costs between $4,000 and $7,000.

A patent attorney who corresponds with an examiner at the USPTO will ensure that your patent is different from other published patent applications and public disclosures made by third-parties that pre-date your filing, Marrott said.

“A typical applicant should expect to spend at least as much on prosecution as they did filing the application,” he said.

Benefits of filing a patent

For many companies, especially tech ones, intellectual property is critical because it is their product. Protecting it is their first priority. Filing to protect intellectual property means the company can potentially recoup research and development expenses, increase market share, create a premium for product pricing and generate a barrier to entry for competitors, said Chinh Pham, a Boston patent attorney for Greenberg Traurig.

Patents can be the strongest form of IP protection for a company’s innovation. Compared to trademarks, copyrights and trade secrets, they can offer broad protection by covering nearly any novel aspect of a technology, including hardware, software, materials and business methods, he said.

“Patents can be obtained on improvements to existing technology—the innovation need not be radical or revolutionary in order to be patentable, merely new and not obvious,” Pham said. “For an emerging technology company, a strong patent portfolio can help attract investments. Investors often look to see whether a fledgling company has protected its intellectual property when determining whether to invest. Smartly and strategically managing your patent portfolio can all indicate to investors that the company is serious about entering the market and vigilant about protecting its intellectual property.’’

Around 70 percent of applications result in patents being issued, said Herbert Schulze, an intellectual property and patent attorney in Reno from Holland & Hart. Many companies will seek patents in other countries as well, even though their processes could be slower than the United States., depending on which markets their products are sold or distributed. The leading markets are often Germany, France, United Kingdom, Japan, Korea and China.

“Patents are territorial, and they don’t extend outside the borders of the country that issues them,” he said. “The location of a competitor may be a factor, and some pharmaceutical companies do a lot of patenting in countries like Switzerland and Sweden because that’s where the competition is located.”

Patent protection gives companies an advantage against their competitors, but they must disclose how the invention works, said Constance Rhebergen, a partner at Bracewell, a Houston-based law firm.

“During this exclusive time, you have the opportunity to establish your product or service as the market leader based on distinctive factors,” she said. “You may also choose a strong trademark to be associated with your product or service.”

Other options

Companies who opt not to obtain a patent have other legal strategies to protect their inventions. The majority of tech-related businesses protect their trade secrets through a combination of copyrights of content and software code, non-disclosure agreements in business conversations, employees and contractors, and shipping only executable software or apps to customers that cannot be reverse-engineered, said Jim Price, an entrepreneur-in-residence at Ross School of Business at the University of Michigan in Ann Arbor.

If a competitor has copied your patented technology, check with your attorney to determine what your patent does and does not cover, said Richard LaCava, a partner at New York law firm Arent Fox. “Confronting the competitor without a full understanding can actually subject you to a lawsuit,” he said. “If you learn of a competitor making a similar product to yours, and you have a pending patent application, you should immediately contact your patent attorney. There may be a way to change your patent application to be directed specifically against that competitor’s product.”

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