What startups need to know about IP

Aird & McBurney LP | Tony Sabeta | Aug 1, 2019

startups and patents - What startups need to know about IP33%. That’s the percentage of funded startups that have filed a patent application; also 19% of all funded companies filed at least one patent application prior to receiving any funding[1].

There is an ongoing debate about the advantages and disadvantages of patent protection for early stage companies.

You have no doubt heard some say that you should not waste your time, money, or effort on a patent, while for some venture capitalists one of the overriding factors in whether they choose to invest in a company is defensibility.”[2]

These opposing views thus make it difficult to decide which path to follow, however, to paraphrase an old adage: you don’t need a patent until you need one.

In 2007, Steve Jobs introduced the iPhone® to the world in a keynote at Macworld[3], and one of his slides had four smart phones, a Motorola® Q, a BlackBerry®, a Palm® Treo, and a Nokia® E62, which all had physical keyboards “which are hard to use and have limited functionality” he said.

With the audience at the edge of their seats he unveiled a revolutionary new user interface, saying, “And we have invented a new technology called multi-touch, which is phenomenal. It works like magic. It’s far more accurate than any touch display that’s ever been shipped. You can do multi-finger gestures on it. And boy, have we patented it.”

The majority of the audience did not realize that Apple had not actually invented the multi-touch screen, in fact in 2005 Apple had acquired a gesture recognition startup, FingerWorks, Inc., with a sizable multi-touch patent portfolio. Without a doubt this was Apple’s most important acquisition, as multi-touch displays became an industry standard, and the iPhone has been the main source of revenue for the company.

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The Fingerworks acquisition is a textbook story of the need for startups to patent their inventions. In 2001, Wayne Westerman and his co-founder John Elias were struggling to keep their dream of gesture-operated gadgetry alive when big companies came knocking.[4] Fingerworks managed to attract the attention of IBM®, Microsoft®, and NEC®, but Apple® was very interested.

Initially, Apple struck a licensing deal with Fingerworks, however, once they realized what a game-changer this technology would be[5], Apple wanted their patents, the technical know-how and the expertise all to themselves, and within eight months chose to acquire the small company. The value of the deal was never disclosed, however, it has been reported that the Fingerworks’s stock grew 20 times its value after the sale.

Any startup founder has heard the following countless times, “if you want to raise capital you have to be solving a really big problem with a ginormous market, and you need to have an exceptional team that can execute.”  It is evident that FingerWorks had all of these prerequisites, but their ace in the hole may have been patents!

Even when they were at the verge of going out of business having sold only 1,500 units of their device, they still had their patents. Had they not secured patents, IBM, Microsoft, NEC, and Apple could have simply ‘stolen’ their technology, and improved on it; and Apple would not have approached FingerWorks for a licensing deal.

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The key takeaways from the FingerWorks journey are that having patents makes your startup look attractive to investors by signaling that you have something of value; patents are valuable assets that can be monetized though licensing or sale.

In addition, having patents increases your valuation; deters potential infringers; increases your leverage over strategic partners, and increases the likelihood of an exit event, such as an acquisition.

 

TS - What startups need to know about IPTony Sabeta, B. Eng. (Elec.) is a partner and patent at Aird & McBurney LP. He advises clients in various high technology industries, and has extensive patent preparation and prosecution experience in the following technological fields: computer architecture, software, communication systems, robotics, mixed reality, artificial intelligence/machine learning, blockchain, and medical diagnostic equipment.  He also provides clients with guidance geared towards developing, maintaining and exploiting their patent portfolios, including conducting due diligence for clients involved in mergers, acquisitions, and public offerings. Tony is a co-director of the firm’s startup team, and supports the startup community through free educational resources, seminars, speaking engagements, and sponsorships.

[1] https://techcrunch.com/2012/06/21/do-patents-really-matter-to-startups-new-data-reveals-shifting-habits/

[2] https://hackernoon.com/the-real-value-or-lack-thereof-of-your-tech-startup-patent-d5b592cb9a6a

[3] https://www.youtube.com/watch?v=vN4U5FqrOdQ

[4] https://www.engadget.com/2007/01/22/some-iphone-touchscreen-roots-splained-by-fingerworks-inventors/

[5] https://technical.ly/philly/2013/01/09/jeff-white-fingerworks-apple-touchscreen/


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