Introduction
A new business that plans to bring a new and innovative product or service to market ought to address patents right from the first draft of their business plan.
Patents provide time-limited monopolies for the disclosure of inventions. If you’re ready to start a new business around a new and innovative product or service, you’ve likely invested time and money into research and development already. Patents allow you to profit financially from this investment. A 2012 study of patent sale data in the United States puts the average monetary value of a United States patent at over $500,000 Canadian dollars (using today’s USD-CAD exchange rate).
Patents can also deter competitors from copying your product or service and allow you to claim monetary damages from competitors who do. This gives security to new businesses which enables them to grow notwithstanding larger competitors with more resources.
The fundamental requirements for a patentable invention are that it be new, non-obvious (inventive) and useful. There are also rules around eligible subject matter, the boundaries around which are often in flux and won’t be addressed further in this piece.
For most new businesses who believe that they may have a patentable invention, the first decision is whether to obtain a patentability assessment or to file a provisional patent application. Some new businesses with greater initial capital will proceed directly to a non-provisional or regular patent application filing. I describe each of these options in more detail below.
Patentability Assessment
A patentability assessment includes a patent search, an analysis of the references uncovered which constitute prior art to the proposed invention, and a written report on patentability.
This written report gives a detailed and generally reliable assessment of the likelihood of obtaining a patent and for what scope of invention. It will also identify many of the potential barriers that may be encountered in pursuing a patent so that a business decision can be made as to whether it is worthwhile to incur the more substantial expenses to do so.
Often, if the patentability assessment indicates little to no chance of obtaining a patent, the decision will be made not to pursue a patent thereby likely saving the new business several thousands of dollars in patent application costs. On the other hand, if obtaining a patent seems likely, the favourable assessment gives confidence to the new business and potential investors and licensees that exclusive patent rights will ultimately be obtained.
Provisional Patent Application
A provisional patent application refers specifically to a United States provisional patent application. It is an informal application that can be prepared and filed at a lower cost than a non-provisional or regular patent application.
A provisional application is not examined by a patent examiner and cannot itself issue to a patent. Rather, it may serve as a priority document for a subsequent non-provisional or regular patent application filing in the United States, Canada, or elsewhere around the world. This application is typically required to be filed within 12 months of the filing date of the provisional application, or earlier where there has been a prior public disclosure of the invention.
In this subsequent application, you have the opportunity to add additional detail and refinements, which often fits in well with the development cycle in a new business. For instance, a provisional patent application may be filed with the initial product design, then prototypes built over the next 6-9 months, and a non-provisional or regular patent application filed by the 12-month deadline incorporating all the additions, changes and refinements made to the design in the first year.
In addition, a provisional patent application, like a non-provisional or regular patent application, allows you to use “patent pending” in marketing your new product or service as described in the patent application. Advantageously, this conveys to potential customers or licensees that your product or service is innovative and warns competitors that you’re in the process of obtaining exclusive patent rights.
Non-Provisional or Regular Patent Application
Filing a non-provisional patent application within 12 months from the date of the provisional application is usually the next patenting step following the filing of a provisional patent application.
At this stage, you need to identify the jurisdictions you want to pursue a patent in, or decide to file a Patent Cooperation Treaty (PCT) patent application which is discussed below. I use the term jurisdiction because although patents are ultimately national rights, regional patent applications may be filed for centralized filing and prosecution in certain groups of countries.
If the non-provisional or regular patent application is the first-filed patent application for the invention (i.e. there was no provisional application) and there was no prior public disclosure of the invention, you can file an initial non-provisional or regular patent application in only one jurisdiction and file in other countries or regions within 12 months (or later if a PCT patent application is filed).
Patent Cooperation Treaty (PCT) Patent Application
Many new businesses will not be in a position to make the substantial expenditures to file patent applications in a large number of countries either initially or within 12 months of the initial patent application filing. This is where a PCT patent application may be useful.
A PCT patent application is an international patent application that can’t itself issue to a patent, but preserves the right to file national or regional phase patent applications in most PCT countries or regions until 30 or 31 months from the initial provisional or non-provisional patent application filing. This extra breathing room can be quite helpful if a new business needs additional time to raise investment money or is trying to grow its revenues to bear these patenting costs itself.
While a PCT patent application has its own cost, it also provides an international search report and an optional international examination process, which may give the applicant further information about the likelihood that a patent will be obtained.
Non-Infringement of Third Party Patents
It is also important to consider whether your new product or service infringes on other patents as neither applying for nor obtaining a patent for your product or service precludes it from infringing patents owned by third parties.
It is usually outside of the budget of most new businesses to hire a patent lawyer or patent agent to conduct a comprehensive patent clearance search for each jurisdiction in which the product or service will be sold, but some degree of patent searching on competitive products or services is often advisable. Ideally this is done before the product or service is offered for sale in the particular market.
Conclusion
Patents are a critical part of the business plan for most innovative new businesses. Aside from the standalone asset value of patents, they also can protect the business against competition as it grows. Understanding and planning the sequence of patent application filings ahead, as discussed above, will enable you to better plan your new business’s cash flow needs for patents so that you can get the patent protection you want to optimally grow your business.
Christopher Heer is a Toronto IP lawyer, registered patent agent and registered trademark agent at Heer Law. He is one of a select few intellectual property lawyers designated by the Law Society of Upper Canada as a certified specialist in patent law.
