Do I Really Need a Patent?

Ask Sherman

February / March 2010 By: Sherman McCorkle Volume 8 Number 1

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I just returned from my patent attorney's office and he said that a patent would cost me about $5,000. That seems like a lot of money. Do I really need a patent?

Patents are only important if you plan on being successful. No one will care about your idea until it is successful and at that point you will need to have the protection that a patent provides. Filing your idea with the Patent and Trademark Office, or with similar government agencies around the world, helps to establish your ownership, or intellectual property rights, over an invention or idea and gives you legal rights if someone were to steal your idea.

This protection is not cheap and for a startup with limited dollars it may seem to be too expensive. Depending on the complexity of your invention or idea,$5,000 for a U.S. patent filing is not uncommon. A successful intellectual property strategy would include patent registration in all countries in which you plan on selling your product and unfortunately you only have 18 months from the time you file in the U.S. until you have to start your filings in other countries. The interesting conundrum for a startup is that once you start selling your product to determine if your idea will be a success, it is too late to file a patent. You must file your idea with the patent office before you provide any "public disclosures" such as sales of the product or even detailed technical papers or PowerPoint presentations.

Another secret of the industry is that most patents cost more than the revenues they generate. There are many reasons why this is true but as a startup struggling with cash flow issues this makes the decision even tougher. However, patents are an asset that may hold value for an investor or potential acquirer.

Patents, because they establish ownership rights to an idea, may have value in a market where that protected idea is relevant. Most equity investors will look at a prospective investment's ability to create and protect a market. The patent can help do this being keeping potential competitors out and that could be of value to an investor.

Similarly, a potential acquirer of your company may be interested in your patent because it has limited them from selling a product or service in a market of importance to them. The value of the patent to you is in the potentially huge reward you could receive from the sale of your company.
So, is a patent important? Only if you plan on being successful.

Can't I just keep my idea as a trade secret?

A trade secret is only as good as your ability to protect it. The advantage, and disadvantage, to a trade secret is that there is no public disclosure of your idea. In this way you can keep Great Aunt Gertrude's Pig Shine Liniment recipe safe from prying eyes up until the point where someone steals the recipe or reverse-engineers the magic formulation that makes up your grandmother's sister's porcine polishing preparation.

A trade secret can be anything from a recipe, to a manufacturing process, to a method of completing a task, such as writing a brilliant advice column. And there are many ways to keep something secret. Coca-Cola made sure that only three people knew the formulation. Some manufacturers split up production between various factories so that no single factory possessed the know-how or capabilities to produce the complete product. Great Aunt Gertrude's recipe may be best kept buried in the back yard underneath the rose bushes. The problem is that with enough curiosity, motivation or money any trade secret can be uncovered. (Really, I was not watching you on Thursday night dig up the recipe from the flower garden.)

Therefore the only alternative that is left is your ability to create a market reason that the world would get their boar buff from you. This strategy has served Coca-Cola well for years. The formulation of Coke is not unknown by their competitors. However consumers who want Coke will buy Coke and avoid knock-offs largely because of Coca-Cola's huge marketing budget and the perceived superiority of the original Coke product.

So Coca-Cola may not have a problem with protecting their trade secret, but do you have the resources to protect your family's treasured hog gloss? The likely answer is no. But just like with a patent, if the market for swine shine is less than the cost of protecting the idea, a trade secret might not be a bad strategy.

Sherman McCorkle is president of Technology Ventures Corp. Send your questions through our contact page.