Patent filings and maintenance cost money

Taffy Williams

Colonial Technology Development Co.

Name brand pharmaceuticals are created and proprietary to the inventing company for the life time of any patents covering the products. Generic drugs began to develop their products toward the end of a patent life of the branded product. The US laws allow for development of the generic products without violating any patents, but the products cannot be marketed and sold until patents lapse. It is during the time of patent coverage that margins can be maintained at levels to allow the companies to recover costs of R&amp,D and make profits that drive performance and valuation of the company. In starting a NewCo Pharmaceutical or Biotechnology company, one of the first things entrepreneurs should be looking to own is the patents estate that sufficiently covers the technology and any products.

Inventions and resulting patents are extremely important for any products a startup company intends to market and sell. The patents protect the company by preventing competition and they facilitate the potential to make money for investors. Patent estates will be one of the first items in a due diligence review by any potential partner or investor. Therefore, the patent portfolio should be as complete as possible and well maintained.

On creating a new invention, it is important to keep all information confidential prior to filing for a patent. Providing information to patent counsel or technical transfer office (for universities) is the first step in the process. It is essential that no presentations of data be made prior to filing. This includes presentations at conferences, meetings, or through publication. The data can be presented after legal counsel has filed at least a Provisional Patent, but sometimes foreign filings need to be made as well. As a rule, tell patent counsel of approaching meetings if data is to be presented and make sure patents are filed before the meeting abstracts are made public! It will take time, so do not give short notice or documents may not get completed and filed in time. Most public disclosures can prevent one from ever obtaining a patent. Once information is revealed publicly it becomes prior art in the field and it counts against the invention in the patent process. Prior art is viewed by the patent examiner as publicly available information relating to an invention and can make the invention no longer novel or obvious to the examiner. Patents are issued to cover inventions which are new, novel, and not something obvious to someone in the field. Prior art will allow the examiner to take a position that the invention was obvious due to public data!

"Most public disclosures can prevent one from ever obtaining a patent."

There are occasions where NewCos may not have the financial resources to file the provisional patent and / or foreign patents. At a minimum, keep information confidential and obtain proper non-disclosure agreements prior to discussing possible patents with potential business partners or investors.

As a cost gauge, fees one may expect to see range from $5–20K for initial filing in the US. By the time full prosecution of international rights are underway, aggregate costs may have to be more than $50K. By the time one obtains worldwide rights, total fees could have amassed to more than $100K. In addition, expect regular maintenance fees for most countries every few years. In managing the patent estate, 3-year-old startup company was paying between $250-500K per year for filing and maintenance fees just for the IP which totaled around 50 patents and applications.

There is a high rate of failure to convert patents to profits via product sales! About 1 in 5,000 patents result in a product which is launched. Roughly, two products are launched for every 3,000 ideas. Statistics, when last checked, suggested that about 3,000 patents out of 1.5m were commercially viable. This is important because the goal of NewCo is to make money for investors. Be extremely careful about the technology selection process and the IP that protects it. This is a valuable asset.

Many patents are considered very early stage technology and finding a partner or funding is difficult with only an issued patent. NewCo is very likely to need to develop the product further or obtain more advanced data to get funding. The costs vary on the type of product. Along the way, new discoveries or patent extensions should be filed to enhance the protection. This is a rather routine thought process in industry. The overall goal is to extend your exclusivity as long as possible thereby increasing your chance for profits.

"There is a high rate of failure to convert patents to profits via product sales!"

Finally, your protection mechanism is via the court system. Many inventors have told me they will sue for infringement if someone sells a product their NewCo’s patents cover. One can do this, but most legal professionals will not take the case on a contingent basis. This means costs are paid out of pocket by the entrepreneur or from NewCo. In one recent case, a startup company spent more than $5m before the case was settled! The legal process is very expensive and takes years to resolve. So, take care in your efforts to have a clean IP position and freedom to operate for NewCo’s part. When others infringe on your products, NewCo will have to find its own way at that time.

All of this comes down to a few ideas to consider when starting your NewCo.

• Do your own due diligence on the IP to the extent you can afford before you complete a licensing agreement for the technology.

• Take great care in identifying what is covered in any invention you file. Give great thought as to what they cover as well as what they could cover in the future.

• Plan for IP costs and the protection of them. The number of patents you have rights to will escalate your legal costs on an annual basis and increase your cash burn.

• Remember that having great patents is essential and costly, having bad patents is just costly.

• Plan where you want to be with your product(s) at launch. Make sure your intellectual property provides as much protection as possible in scope and duration. Make sure you do not infringe on others, and plan for patent improvements to your estate.

Reaf Taffy's next article, Forming the company and structure.

About the author:

You can follow Taffy Williams on Twitter by @twilli2861 and you can email him with questions at twilli2861@aol.com and his company website, Blog site, or photo website. You can also find him in the group Startup Group on Linkedin. Other articles can be found in the Charlotte, NC- small business section of Examiner.com.