patent signalling

In an earlier post I discussed having patents as a signal to external (potential) investors and analysts about the quality of a company’s IP and that they take IP seriously. This is because:

For some people, having a patent says: “We know about the IP system, we use it, and we are protected.” Conversely, if these same people expect to see patents and don’t (or don’t see “enough”), then they may feel that the company is not doing enough in the IP area with connected negative connotations.

Sometimes companies need patents because investors and analysts think that they should have them, and simply telling a great IP Story around why you don’t isn’t enough. One simple solution: get some patents.

While I still hold by that as an option, I’ve been thinking lately about the opposite situation:

When can having a patent attracted unwanted attention?

Same type of company in this example: a company that doesn’t rely on patents as part of its core commercial or IP strategy.  But this time, in a market where patents don’t play a major role in how companies are run, structured, and the risks in the marketplace.

An example could be a consumer internet company relying primarily on e-commerce. Sure there are patents, such as the famous (or infamous) 1 Click patent, that impact this area, but the primary model for this business is selling goods online. The most important IP would likely be branding, perhaps some proprietary software, and customer databases.

What happens if in the process of running this business they think of something patentable? And then go and patent it?

Having just one patent changes the ballgame from a VC/Investor perspective.  They suddenly start to think about the IP side of the business that much more carefully. The patent will likely receive quite a bit of attention. Costs won’t likely be a factor for an investor to do a pretty thorough review of the patent as there will be just the one.

The focus switches from the far more important stuff – strong brand, customer relationships, sales figures, expansion plans, market share – to the patent that’s not relevant to the business model. The patent then costs more than just the filings and renewals – it becomes a distraction for the business trying to raise money.

The lesson for companies: if you patent, do it well or not at all.

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