A High Tech Hub – Should start-up companies consider patents as part of their strategy?

binymainLast night I attended an event in that was focused on the establishment of a High Tech Hub in the Binyamin region which is just North of Jerusalem.

As in other areas of the country, there seems to be a feeling that if there is office space available that is constructed on a “We Work” type model, with conference rooms, sofa and coffee table informal meeting space, and high chairs at a bar, preferably with a stair case in the middle just for show, then the dynamic modern high-tech environment will generate commercial success.

panel of expertsThere was a panel of experts, including mentors, a representative from the ‘Our Crowd’ crowd funding venture capital fund,  a representative of government funding for small businesses and various entrepreneurs of varying degrees of success.

One of the esteemed speakers explained the importance of discussing your idea and not being afraid of someone stealing it, and if they do steal it, so what? Most people have more than one idea. This same erudite presenter went on to note that when talking to venture capital firms like that represented by the honorable expert next to him, don’t expect them to sign an NDA.

After the presentations, there was an opportunity for feedback. Introducing myself as a patent attorney, I noted that if one is going to discuss one’s inventions and ideas without an NDA, one should be aware that unless one first files a patent, one cannot subsequently protect the idea. This means that if you set up a team and some disgruntled employees leave and set up a competing entity, there is nothing you can do to stop them. It also means that if you develop and sell a product for a price delta above the manufacturing costs, anybody can compete and sell at a lower price. Not bearing the R&D costs and possibly having lower labour costs, such as if they manufacture in China, they will be able to undercut the price and erode profits.

Sometimes it is possible to argue that certain disclosures are made under conditions of implied confidentiality and the lack of a formal NDA may not be insurmountable obstacle. Pitching to a Crowd Funding organization seems to me to be the type of disclosure that most judges would find difficult to accept a construed confidentiality. In the words of Samuel Goldwyn, a verbal agreement is not worth the paper it’s written on.

I didn’t think I was suggesting anything controversial. Indeed, I think that was I was saying was self-evident, and that experienced entrepreneurs and investors would agree. Instead, the 8 or 9 experts derided patent filing and protection. It was expensive. Very few patents get litigated, and those that do tend to be from universities. The tool was not appropriate for start-up entrepreneurs. One self-styled expert said that maybe there was room to write  a provisional application oneself and to file it with the USPTO for $10.

I am not a major fan of provisional applications, but agree that they have their place. Under certain circumstances, a do-it-yourself job may be acceptable. However the cost of filing them is $140, which made me wonder how up to date, the expert was in his strongly held opinions.  A patent application is a legal document. Whereas a provisional application may not need claims, it does need an enabling disclosure of the invention if it is to serve as the priority document for an examined application.  I have come across inventors who have competently documented their invention in a way suitable or filing as a US provisional application, but they are few and far between. Sometimes only a couple of hours is required to strengthen the document.  No one is obliged to take professional legal counsel. One can obtain will forms on the Internet, and can represent oneself in court.  Is it a good idea? – Generally not.

One of the panelists noted ruefully that some of the government funding initiatives earmarks a percentage of the funding for protecting intellectual property. He clearly saw this as a mistake. I, however, am delighted that someone in a position of importance in the public sector funding has more sense.

I note that none of the experts on the panel answered either of my questions:

  1. Without a local Israel patent, how does one prevent employees leaving the company and setting up in competition?
  2. If one is successful, how does one prevent established players from copying the product without IP?

Now there is an alternative to registering property rights, which is trade-secrets. However, one has to take extraordinary care to protect these for courts to uphold trade-secret rights.

psagotThe event was held in the Psagot Winery Visitor Center. A winery is an example of a business that needs trademarks for branding purposes but does not generally need patent protection. The terroir, climate, altitude and the like effect the produce and these are not easily replicated. Patents are not necessary for every successful business, but it seems to me that where an entrepreneur is trying to innovate, it makes sense to consult with a patent attorney about whether patent protection is appropriate, the costs involved and the timetable for them.

Categories: entrepeneurs, start-ups, Uncategorized

1 reply

  1. Yes, IP protection should be part of any startup. Having said that, it is an expensive and extremely difficult part to “get right”.

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