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Investing Against Patent Trolls


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Patent Trolls

Whether or not it is wise to invest time and money to apply for a patent, trademark or copyright on your startup’s core intellectual property (IP) assets depends on the nature of the IP itself, your industry and its competitive dynamics, and the contribution the IP is expected to make toward your startup’s ultimate success.

For instance, in certain industries (biotech or semiconductors), having a patent around the core IP can be crucial to even getting the first set of investors to the table. In some other industries, such as consumer Internet or software, I believe patents are typically an afterthought and a nice-to-have luxury as insurance against future lawsuits.

In yet other industries such as fashion and creative arts, patents are rarely mentioned, and instead trademarks and copyrights take center stage.

It is critical to have a realistic picture of the true costs of obtaining IP protection in terms of time, money, team distraction and public disclosure. Only an experienced IP attorney in your field can truly assess these costs.

To give a general picture, patents tend to be the most expensive and difficult form of IP protection to obtain and can easily cost well over $10,000 and involve two to four years of back and forth with the U.S. Patent and Trademark Office. Trademark and copyright work, however, can be registered a lot quicker and typically costs $1,000 or less.

It’s also important to consider the cost of patent trolls.

Every entrepreneur has read at least one horror story about patent infringement lawsuits brought on by non-practicing entities, also known as “patent trolls.” A recent survey estimated that in 2011 alone, companies spent $29 billion defending themselves against these suits.

So, if you are planning for success, you may need to create defensive patent strategies that would make it less likely for your startup to be entangled in expensive litigation with patent trolls.

To avoid the expensive costs, you can consult with competent patent counsel and devise a strategy that would both minimize the upfront cost to you and provide you with sufficient downstream protection as your company grows and raises its profile.

The good news is that the legal marketplace in the U.S. is currently undergoing a renaissance, and you have several options to consider.

Law Firms:

Large, established firms will often have an IP department with highly trained and experienced practitioners. The typical fee deferment that some law firms offer promising startups may or may not apply to patent work because of the high demand patent practitioners face at law firms. But it is definitely worth talking to some firms to get a sense for style and points you need to consider as you evaluate your options.

Tip: Create a list of the top 20 law firms in your area and contact attorneys who specialize in patent work.

Online Legal Marketplaces:

The recent trend of online legal marketplaces makes it easier for entrepreneurs to quickly find legal help. These online platforms typically enable you to tap into an experienced legal workforce that has a much lower overhead than law firms and can offer you better pricing and service, as practitioners on these platforms highly value their public client ratings. If you want the flexibility of working with a sole practitioner and want to potentially save money on your hourly rate, search online.

Tip: It takes only a minute to post a request on a legal marketplace such as UpCounsel and receive free quotes from attorneys. A quick search for patent attorneys located in California or New York alone delivers dozens of highly skilled patent legal professionals.

Many entrepreneurs fear asking for legal advice because they don’t believe they can afford it. It is best to ask for help and determine a budget (deferred fees or hourly practitioners) that works for you, rather than to risk making costly legal mistakes.

This post originally appeared on Atelier Advisors. Lili Balfour is the founder and CEO of the SoMa-based financial advisory firm, Atelier Advisors, creator of Lean Finance for Startups and Finance Boot Camp for Entrepreneurs. All AlleyWatch readers are automatically eligible for a 50% discount on either of the courses using the preceding links.

Image credit: CC by Brandon Carson

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About the author: Lili Balfour

Lili Balfour is the founder and CEO of the SoMa-based financial advisory firm, Atelier Advisors, creator of Lean Finance for Startups and Finance Boot Camp for Entrepreneurs, author of Master the Finance Game, and host of the Finance for Entrepreneurs broadcast on Spreecast.

After spending fifteen years in investment management and investment banking, she decided to develop a firm to cater to the specific needs of early-stage companies. At Atelier Advisors, Lili advises leading brands across industries: from tech to consumer goods. In the past, she has advised over 100 brands, including:

Bag, Borrow, or Steal, Visual IQ, Alpha Theory, Derivix, Practice Fusion, Peeled Snacks, Sustainable Minds, Firescope, Chix 6, Duchess Marden, Erin Fetherston, Eckart Tolle, and Stuart Skorman (founder of Reel.com, Elephant Pharmacy, Hungry Minds, and Clerk Dogs (sold to Netflix)).

While advising companies at Atelier Advisors, she observed a common theme – -brilliant founders avoided finance. She began writing about entrepreneurial finance to solve this problem.

As a native of Silicon Valley and a first generation Mexican American, Lili understands the importance of imparting wisdom learned in Silicon Valley to the rest of the world. Her goal is to teach the entire planet about entrepreneurial finance.

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