It’s About Damn Time to Put Your Patent Strategy on Autopilot (or a Patent Strategy Formula)

Written by Peter Miller

This is a patent strategy formula for startups. It is simple. And it works.

The Formula

Step 1
Start with overall budget for a time period – typically 18 months or until the next anticipated fundraising event.

Step 2
Cap the IP budget at a small percentage of the overall budget. This is usually between 1.0 - 3.0% of the overall budget. (We’ll get to why this is later.)

Step 3
Estimate the cost per patent applications. For example, in the Bay Area, you might expect to pay $4k per provisional application and $14k per non-provisional application, on average. Ideally, your patent firm operates on a fixed-fee basis for patent applications.

Step 4
Calculate a maximum number of provisional and non-provisional applications afforded by the IP budget cap. Now, we have a maximum number of provisional and non-provisional applications that we can afford to file over the time period set in the first step. (More on how to optimize the number of provisional and non-provisional applications later.)

Step 5 
Prioritize concepts scheduled for development, select a number of the highest-priority concepts equal to the maximum number of provisional applications that you can afford, and set aside the rest for consideration after your next fundraising round.

Step 6
Identify when each of those highest-priority concepts is scheduled for prototyping and populate your calendar with tags to file provisional applications around these dates. Your development timeline, or Gantt chart, should answer these questions.


It’s pretty simple and seemingly high-level, but consider what we just did: 

  • Set a reasonable IP budget.
  • Gained a definitive understanding for short- and long-term patent costs.
  • Clarified how many patent applications we can afford to file.
  • Prioritized those concepts we wanted to patent.
  • Generated a calendar of events for which patent applications to file and a timeline in which do so so.

Given our confidence that you are spending the right amount of capital on the right concepts at the right time, you can now comfortably put your patent portfolio on autopilot, resume each patent conversation according to the calendar, and reduce anxiety that comes from not having a clear plan in place. You can even present this strategy to potential investors to communicate the future scope of your patent portfolio, even if you have yet to put pen to paper.

1.0-3.0%

We have said before in Article 1 that vision, team, execution, and marketing are much stronger indicators of future success of a startup than the presence (or absence) of a patent portfolio. A successful startup will allocate the vast proportion of its time and capital to things like engineers, product development, testing, manufacturing, marketing, facilities, administration, etc. At the end of the day, there may be a small amount of capital leftover for IP.

In our previous articles here [Article 2] and here [Article 3], we probed many of the good and bad reasons that startups file patent applications. Quick recap: patents, almost as a rule, are not useful for generating licensing revenue or stopping copycats. That said, the data suggests that patents can be very useful in enabling startups to close deals with investors and acquirers, manage relationships with strategic partners, and increase valuations.

Zooming out a bit, we see that patents may be helpful in brief, key instances in the lifecycle of a startup, like during fundraising or negotiations with partners and acquirers. You might draw an analogy between patents and car insurance: you only really “need” car insurance when you’ve been involved in a car accident, but the right time to sign up is not after you’ve had an accident. So, a startup might budget resources for IP similar to budgeting for insurance – a small but consistent fraction of the overall budget over the life of the startup.

So, what is the right fraction of the overall budget to allocate for IP? We think the right answer is 1.0-3.0%. Here’s why:

Years ago, we helped clients develop strategies for large patent portfolios based on aggressive development timelines and bold go-to-market plans. We were targeting upwards of five percent of overall budget for IP, and we justified this by emphasizing the importance of IP in the space (e.g., medical devices) or the immaturity of the space (i.e., greenfield technologies). However, unforeseen obstacles, like slow technical recruiting, engineering hurdles, or altered assumptions led to fewer patent applications filed over the target time period, and those clients tended to end up in the 1.0-3.0% IP budget range. Our initial plans were simply too aggressive, and the extra two percent of the overall budget that we had originally allocated for IP could have been funneled elsewhere to provide other, possibly greater value to the company during that period. Essentially, we found that external forces contributed to bringing even the most aggressive patent strategies and IP budgets back into the realm of 2-3 percent of overall budget.

On the other hand, if we saw that a pre-Series-B tech startups that allocated less than 1.0% of its overall budget for IP, we might wonder: 1) whether this startup is actually a tech company; 2) whether this startup is actually innovating or simply rehashing old news; 3) or whether this startup has the wherewithal to become a key player in the long term.

However, this is not to say that some successful tech companies have allocated less than one percent of budget for IP. But I will suggest that we should take a hard look at why this is the case and confirm that it is the right strategy for that company.

Example

Let’s put some numbers to this formula:

It’s currently March. Your company just closed a $1M seed –close to the current average. You expect this to provide runway for 18 months.

You have a small, but agile, team and plan to be in beta before the end of the year. About 2.5 percent of your close – or $25k – seems like a reasonable amount of capital to allocate for IP. 

Hwcon Article 5 – Figure 1 Peter Miller

You found a patent firm that works on a fixed-fee basis: $4k for provisional applications and $14k for non-provisional applications. Considering your budget, you can afford three provisional applications and one non-provisional application over the next 18 months. 

Hwcon Article 5 – Figure 2 Peter Miller

Maybe you have 10 – no, 100! – concepts you want to patent. Isolate the most important three that you are working on this year and set the rest aside until you close your series-A.

Looking at your Gantt chart: Concept One is scheduled for prototyping in May; Concept Two is scheduled for prototyping in October; and Concept Three is scheduled for prototyping in March of next year. So, you schedule tentative invention capture meetings with your patent firm in May, October, and the following April. You also plan to convert your provisional application on Concept One a year after filing the provisional application, which you estimate to be around June of next year. 

Hwcon Article 5 – Figure 3 Peter Miller

If you stick roughly to this plan, you will walk into initial discussions for your series-A with two pending provisional applications and one pending non-provisional application. This should be just right to close your next $5M.

Rinse and repeat. Next time, your marketing budget increases, you need to have tooling made, and you need to hire more CV engineers, so IP drops to 1.5 percent of your overall budget, or approximately $75k for the next 18 months.

With this $75k IP budget, you can afford to convert your two pending provisional applications into non-provisional applications, file five new provisional applications on the next five most important technical concepts you are developing and convert two of these new provisional applications into non-provisional applications. This leaves a total of four pending non-provisional applications and three more pending provisional applications, which should be just right for you Series-B, or to begin leveraging your IP to develop partnerships with OEMs or retailers to sell your product. 

Hwcon Article 5 – Figure 4 Peter Miller

Patent strategy does not have to be complicated; but is does require the right jumping-off point. Start with budget, prioritize your technical innovations, and patent a small number of those innovations that are most important, given what you can afford in order to minimize waste and maximize ROI.

And now that your IP strategy is tied to a series of calendar events, you may have a little more time in the day to build your company and change the world.

About The Author

Peter Miller

Peter Miller

Founder & Partner at Run8 Patent Group

Peter Miller is a registered Patent Agent and founder of Run8 Patent Group, a San Francisco Bay Area patent prosecution firm specializing in developing patent strategies and building high-value, highly-effective patent portfolios for technology startups. He has filed several hundred patent applications on a broad range of hardware and software technologies, including medical devices, manufacturing systems, vehicle technologies, food systems, drones, Internet security, agricultural systems, IoT, and wearable devices. Corey Lynn Murphey is a registered Patent Agent at Run8 Patent Group and mechanical engineer specializing in thermofluids, manufacturing, computational analysis, and biomechanics. Together, Peter and Corey design patent strategies and build patent portfolios for startups developing the new technologies in hardware, software, and everything in between.

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