When Should Startups Get A Patent?
Caldwell Law Video Series – Part I
Caldwell is proud to announce and release the first of many videos in our brand new informative video series regarding our work. The videos are created with the intention of educating the entrepreneurial community on patent portfolio management and strategy, and will be of use to companies and individuals who are interested in learning more about intellectual property law.
The first segment features a panel of four Caldwell clients at an MIT Enterprise Forum discussing when to get a patent. The threat of competitors reverse-engineering the product along with protecting unique ideas are discussed as key decision points. Filing patents early in the process “put us in a better position going forward”, explains one panelist who saw a competitive threat.
Joining Keegan are the following Caldwell clients:
(Transcript of panel discussion can be found below.)
KEEGAN M. CALDWELL:
We wanted help folks understand that, a little bit, at least from your guys perspectives. So, Cyrus… [laughs] I know that we picked varied people on purpose. So, tell us a little bit about what that process was like.
We decided to IP because people kept hitting us on the head and telling us we should do IP, so, it wasn’t a totally a “decision”. We were all just pretty young in college, and again, the ski industry is so similar that we thought, not that Tesla was at this stage yet but, we thought we could just kind of “out-Tesla” people, like, working faster and harder than somebody else. The problem is that we weren’t a single, like, not like “novel”, we weren’t the next snowboard, you know? We weren’t so different that it alone was going to differentiate ourselves right the bat. So, essentially, we had a lot of advisors, just people that would walk through our shop and say, “Hey, have you guys patented yet?” and like people asked us again, again, and again, and it kind of came to the point where it was very clear that what we were doing, the entire back bone like the spine, and the spinal cord and maybe part of brain was with the IP side of things. So, even though I didn’t have a lot of faith in it, I just thought it was going to be almost just to appease people to like stop asking us questions, and whatnot. Our school paid for the first, the first application was like $200, just to file it. And I think, no, I know, I wrote on the back of a piece of paper like this and it’s clearly handwritten, so… It’s before Keegan had his hands on it, by the way, obviously. So yeah, it was, super early-stage and we did it more because we didn’t know what else to do a lot of people were just telling us we should do it and, you know, then finally realized that this was the only differentiating factor because we started marketing, so, I was just telling people about our skis because they were, you know, “engineered.” Everybody engineers their skis, right? Like, what, Rossignol doesn’t have an engineer on staff? Of course they do, they’ve got tons. So, we realized very quickly, like, just out engineering a ski just really wasn’t going to happen. and there’s no… there’s zero reason why they shouldn’t just buy our ski, full price, pay $1,000 for it, then cut in half, see what’s inside and reverse-engineer in about three days. As soon as that was the case, we filed the patent, and, like I said, it was a long road. It took us, I don’t know the exact number, but it was almost five years to go from the time when I first filed that handwritten piece to the government. And, it was a lot of ups and downs, certainly, but that piece of it. I think I’ll refrain, don’t want to jump ahead too far. So yeah, I was it was pretty early stage. I think, for us, we realized that it was going to be an instrumental part of the company going forward, and then, it turned out to be a very smart idea. Now we’ve, like I said before, we’ve branched out a lot of sporting equipment, and it’s all branching, it’s not all leveraging the same patent, but, it’s certainly inspired by that. Back to the old picket fence idea, it’s, you know, it was the first stake in the ground, certainly, for something like that. Just puts us in a much better position going forward.
KEEGAN M. CALDWELL:
Sure. Jay, you already mentioned how it was a number of years before you started to think about IP with Rapid, the company that was just recently acquired. What was it that prompted you to get into IP at that point? You had so many years of going, you didn’t need to spend a bunch of capital on IP. What was it that changed your mind? Why did you end up looking into that? And, how did that process get started for you?
Well, we recognized that we had something unique. And that we didn’t want somebody to copy it, so we also thought maybe we can monetize this, because it was a software so if we put a little money into it, we could sell it to other … I don’t want to say “competitors”, but, we did sheet metal machining, maybe somebody an injection molding, another space, might want to buy that as a product from us, so protecting ourselves, I guess offensively, and looking at it as a business opportunity. I do want to, because it’s not on your question list, but one of the approaches we took in how we established the framework for the IP holding is different than I’ve heard elsewhere, and, I’m an entrepreneur. I knew at some point I would be exiting Rapid, and, I wanted to patent a bunch of ideas. I was not VC funded. It was all bank funding, so, I created a separate entity where I put all the IP, and I put that in a state where there were no business taxes. So, what that allowed me to do, and it was quite successful when we did exit Rapid, is only the IP that was relevant to the ongoing operations of Rapid went along with the transaction. I still have an IP company that holds the bulk of the patent applications that we’ve put forth. So, that was very successful for myself, as well as, there were some other business advantages to doing so.
KEEGAN M. CALDWELL:
Thanks for touching on that. Karl, your experience is, you’re coming at this, from a little bit different perspective where I know that you do a lot of work with people in biotech and you have a lot of experience in biotech, where patents is the whole game. Sometimes in software, it’s like: Do we really need to get into this? But, in biotech, it’s like, a gating issue. You’re not going to leave the starting line without something in hand. Maybe you could just touch on what that process is like? Especially since you’re always dealing with tech transfer offices.
Yeah, I think it’s partly different because of the industry and it’s also partly different because of the network in which I’m swimming in. Which is primarily, as you mentioned, spinning out startups from universities, not all the time, but more so than not, and usually that spin out is the spin out of the IP, not just the personnel. And so, quite often, whether the patent has already been filed, or not, maybe it’s more so that they’re thinking of filing the patent by the time I come in and get involved with them. I’m usually in parallel just working with the TLO patents law firm to make sure that goes along appropriately. Or, it’s building a patent portfolio. You have your core seminal patents and you know that, particularly in biotech, you need more than one, sometimes, and so, it’s out shopping for the right other type of patent assets that you might need. And so, in that respect, that’s certainly much more of looking for the patent strategy before building the business plan. But, then, when you’re looking at medical devices it may very well be more building the business plan, identifying what your market is, figuring out what are the gaps in the current product offering, and then going after that. And that’s where it’s more in line of, okay, we’ll figure out the patent strategy as we go along. So, I’ve seen both. I’ve funded both. But in both cases, it’s the strategy. You might not have the patent, you might have the patent, but it’s the strategy of thinking up, further enough ahead of time of what you’re going to need and putting that into your business plan, so that when you’re pitching the venture capitalist, you’re saying, “Yeah, we don’t have the patent, but we have the IP. Right now, it’s pre-patent. Right now, we think this is what it’s going to be, but, we have a strategy for getting there.
KEEGAN M. CALDWELL:
Thanks Karl. And Tom, what has the strategy been at Beta? You guys have a very unique situation, which, I’ll let you explain, as much as you want to, about that, I guess.
Sure, sure. So with regard to IP, or the question being When did you decide you needed a patent? It’s similar to Cyrus. It was we were kind of pushed into that realm pretty quickly. Because we had a discussion with a client where they had an interest in, uh, because this is an emerging field and because they wanted to work with a start-up like ours that was moving at the speed of a startup, as opposed to the speed of a large aerospace company, their goal was to help accelerate our business, and so, because they really wanted this technology, electric vertical takeoff and landing aircraft, to support their business, and they had no interest in the technology, outside of their business, they were interested in funding us, and, making it clear that we own all the IP that we develop on their behalf. So, their particular, they’re pharmaceutical companies, so they’re very well-versed in IP, and their particular strategy was we’re going to fund you to build this. We want to award you the IP rights to this the technology that you build, essentially on their dime, to help accelerate your business, And so… What does that help us to do? It helps us to go talk to investors about what the value of our company is when you’re trying to start a company up in Burlington, Vermont, as opposed to Silicon Valley, as you might imagine, The investment community is just a little bit smaller and just a little bit less, well, they’re a little bit more risk-averse, let’s just say. And so, it’s different. So, having a, sensible IP strategy, really makes sense. And then, to add to that fact, one of the folks that we recruited into the company, who was the founder of a company, that has a flight simulation software and also has a piece of avionics software, the core code of which, we intended to leverage to create flight algorithms, avionics, he had actually been sued by a patent troll and so, in order to get him into the company we had it sort of wade through all of his history and baggage about our-our IP. We just had to come up to speed very quickly and we couldn’t do that on our own. It was just, you know, it would have been foolish for us to just sort of wade through that. We’re not, by any stretch, experts on those things, so, in order to negotiate that on multiple fronts, and that really, tying all those things up really put us in a position to take a forward-leaning view towards securing whatever IP we possibly can around our space. So, it’s pretty interesting. There’s a lot of different angles to it.
KEEGAN M. CALDWELL:
Yeah, that was a new one for me. It’s been exciting to watch all these different kinds of things unfold.