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Good Patent Practice For A Venture Capital Financed High-Tech Start-Up.

Article Excerpt
By Dr. Malte Kollner, Patent Attorney, Triangle Venture Capital Group

What should a venture capital financed high-tech start-up do on the patent field to become a strong company. Is it worth spending money on patents? (You might guess that the answer is yes, the author is a patent attorney, but wait!) Is it of strategic importance or is it more a marketing tool on the investment market? Do patents have any influence on turnover and profit?

One way of answering this question would be by trial and error: gather experience. However: how many years and millions do you need to find out with sufficient significance? Will the company still be alive until you finally found out? You could ask your patent attorney. He may not have a very convincing argument but he will be in favour of patents. Or you can ask experienced managers. Probably, they won't be of much help either, telling different stories.

Help might come from empirical research in business administration. And here are the answers:

A number of studies have shown a significant influence of patents on the success of a company. With success of a company we mean vague things like turnover or profit.

Is it enough to just file patents, to just file anything? You will guess the answer to this rhetorical question: Of course not.

Quality matters

High quality patent applications significantly increase the turnover of a company two to three years later. The effect increases with the quality of the patents [Ernst, H. (1999): Fuhren Patentanmeldungen zu einem nachfolgenden Anstieg des Unternehmenserfolges? Zeitschrift fur betriebswirtschaftliche Forschung 51. Vol.(12), page 1146-1168].

One reason for this increase could be the fact, that good inventions covered by high quality patent applications are more often commercialized than others [Shane, S. (2001): Technological Opportunities and New Firm Creation, Management Science 47(2), page 205-220].

No wonder, therefore, that patents with a broad scope of protection increase the value of a company [Lerner, J. (1994): The importance of patent scope: an empirical analysis. RAND Journal of Economics Vol. 25(No. 2), page 319-333].

And, grouping the individual patents to a "portfolio", you find that a valuable, high quality patent portfolio increases the stock price and market capitalization of a publicly traded company [Deng, Z./Lev, B./Narin, F. (1999): Science & Technology as Predictors of Stock Performance. Financial Analysts Journal 55(5), page 20-32].

Strategy and management matter

The implementation of a patent strategy in the R&D department together with corresponding patent management processes almost doubles the profit margin of a company, in particular if it is combined with a systematic use of patent information [Omland, N.: "Patentmanagement und Unternehmenserfolg - eine empirische Analyse", Mitteilungen der deutschen Patentanwalte (2005) 402].

One reason for this could be the fact that a well managed patent portfolio has a higher quality and thus increases the turnover of a company (see above). At the same time, systematic use of patent information can safe R&D expenditures by avoiding spending money for reinventing things already invented elsewhere [Omland, N.: "Patentmanagement und Unternehmenserfolg - eine empirische Analyse", Mitteilungen der Deutschen Patentanwalte (2005) 402] [Ernst, H. (2003): Patent information for strategic...