Written by: Keegan Caldwell
Though intellectual property stands as a cornerstone of success for modern businesses, many fail to recognize that IP needs are not static.
Each phase of a company’s life cycle — from idea to initial public offering — demands a unique approach to IP portfolio development, management and monetization.
The journey from concept to capital is rarely linear, and your approach to IP should adjust accordingly. IP adaptability is arguably more proactive than it is defensive, and it creates value at every stage of your company’s evolution.
By understanding the shifting IP needs throughout your organization’s life cycle, you can protect your innovations and maximize your company’s value.
1. Ideation Stage: Laying the Foundation
At this early juncture, the primary focus should be on identifying and meticulously documenting innovative concepts. This documentation creates a paper trail for future patent filings and helps establish a clear invention timeline.
Early and strategic patent filings are now more crucial than ever. The Leahy-Smith America Invents Act[1] transformed the U.S. patent system from “first to invent” to “first inventor to file,” which intensified the need for immediate action in protecting innovative ideas.
While the AIA provides a limited grace period[2] for inventor disclosures within one year of filing, relying on this can be risky, and applicants who do not publish their inventions before filing receive no grace period.
As ideas take shape, consider implementing robust nondisclosure agreements and confidentiality measures. Tailor NDAs to the specific nature of your innovation and the parties involved. Avoid a boilerplate approach, as this can leave dangerous loopholes that competitors might exploit.
Preliminary patent searches and freedom-to-operate assessments are also critical components of the ideation stage. Depending on the complexity of your IP and your method of patent search, this can cost anywhere from hundreds to several thousands of dollars.[3]
However, such due diligence is worth investing in. Globally, the U.S. has the highest patent litigation costs, with estimations around an average of $3.5 million per patent litigated.[4]
But, compare that to the $50,000 average cost of acquiring a utility patent[5], and it becomes clear that while patent searching and filing is expensive, defending and enforcing your patent is much more costly.
2. Startup Stage: Fortifying Your IP Portfolio
This stage is critical for securing foundational IP rights through patents, trademarks and copyrights.
Consider, for instance, a TCA Venture Group analysis from July[6] of over 280 exits and other outcomes since the 1990s.[7] Their findings not only demonstrate that the probability of an exit increases with the number of patents in a company’s portfolio but also that for companies with 30 or more patents, there is a more than 80% chance of an exit.[8]
At this stage, a company’s IP portfolio strategy should outline which innovations to protect, how to protect them and in which jurisdictions. Filing abroad in this stage might not be the best approach, as not all patents provide value — in certain nations, for example, patents have effectively no monetary value.[9]
And while a substantial quantity of patents can be a good thing, the quality and strategic relevance of IP assets are vital. In fact, the pharmaceutical industry is trending toward patent strategies prioritizing quality over quantity[10], as are China[11] and the European Union.[12]
An example of leveraging IP to position for growth is Brain-CA Technologies, a company that recently secured patents for a new artificial intelligence solution based on cellular automata and teleomorphic computing.[13] These patents cover a technology that promises more powerful AI systems that consume less energy while increasing portability and scalability.
By securing these patents early in their development, Brain-CA Technologies is protecting its core innovation and has potentially increased its attractiveness to investors and partners.
3. Growth Phase: Expanding and Leveraging IP Assets
Rapid expansion, increased market presence, and often, entry into new markets or product lines characterize this stage. Accordingly, your IP strategy must evolve to support these new directions.
At this time, diversifying your IP portfolio becomes even more important. This may involve expanding patent coverage to include improvements on existing technologies, filing predictive patents to capture more IP market share, formulating calculated continuation filings that are directed toward monetization opportunities and beginning to contemplate leveraging the portfolio to create favorable mergers and acquisitions opportunities.
The growth phase is an excellent time to set up formal processes for invention capture, trade secret practices and review for prioritization of possible patent filings and generally creating a culture of innovation at your company. A company’s IP can be its most valuable asset, and creating the systems and processes for success now will help facilitate monetization during the next phases of growth.
Consider WekaIO Inc., which recently announced it has been awarded over 100 patents by the U.S. Patent and Trademark Office, with its 113th patent granted in June for methods and systems for power failure resistance in distributed storage systems.[14] This significant milestone, along with over 70 pending patent applications, demonstrates how growing companies can use IP to protect core technologies, enhance their competitive position and potentially create new revenue streams.
By securing these patents, Weka has not only protected its core innovations but has also positioned itself as a leader in the AI infrastructure space, recently closing a $140 million Series E funding round at a $1.6 billion market valuation.[15]
And, as your company grows, exploring licensing opportunities and partnerships becomes increasingly relevant and potentially lucrative. For example, IP licensing in the U.S. has grown at a compound annual growth rate of 0.4% over the past five years.[16] In the fourth quarter of last year alone, biopharma licensing partnerships reached $63 billion in deal value.[17]
Remember that your IP assets can be leveraged to enter new markets, form strategic alliances, or generate additional revenue streams while allowing you to maintain control over your core technologies.
4. Maturity Phase: Optimizing and Defending IP
Conducting comprehensive IP audits becomes crucial at this point.[18] These audits provide a holistic view of your IP assets, helping to identify your portfolio’s strengths, weaknesses and opportunities.
A thorough audit can uncover underutilized assets, potential licensing opportunities and areas where your IP protection may be lacking.
IP enforcement and litigation become increasingly important as your company’s profile grows. With a well-established market position, you’re more likely to become a target for infringement or face challenges to your IP rights.
For instance, a joint report from Aon and Stanford Law School revealed that in the first half of 2023, 51% of IP cases were filed by nonpracticing entities, also known as “patent trolls.”[19] Thus, having a clear, proactive enforcement strategy can deter potential infringers and protect your market position.
And while defending existing assets is important, continued investment in research and development is vital for long-term success. For example, consider Samsung Electronics Co. Ltd., which obtained 9,036 patents last year — a 5% increase from the year prior[20] — or a company like Cyngn, which secured its 20th U.S. patent for “Adaptive Motion Compensation of Perception Channels” in September.[21]
The significance of Cyngn’s latest patent lies in its ability to enhance the reliability and precision of sensor data in autonomous vehicles and robotics. This not only strengthens Cyngn’s position but potentially opens the door to new market opportunities.
5. IPO: Maximizing IP Value
Accurately assessing the value of your IP portfolio is crucial for determining your company’s overall worth and setting an appropriate IPO price.
There are several methods you can explore for this, including income-based approaches that consider future revenue streams from IP, cost-based approaches that look at replacement costs and market-based approaches that compare your IP to similar assets in the market.
The impact of a strong IP portfolio on IPO performance is particularly visible in the tech sector. In fact, long-run returns on VC-backed IPOs in tech experience an average first-day return of 54.4%, compared to 32.8% for non-VC-backed IPOs in tech.[22]
This significant difference highlights the value that investors place on companies with robust IP portfolios and the backing of venture capital firms, which often prioritize IP development and protection in their portfolio companies.
Finally, keep in mind that organizations that make their IPO registration documents and communications with the U.S. Securities and Exchange Commission publicly available experience a 25% increase in nonshareholder lawsuits, pre-IPO.[23]
On average, every business-related lawsuit during this pre-IPO phase results in a 5.9% decrease in IPO proceeds. This suggests that it is critical to have a corporate and IP practice working together closely to ensure your company extracts the maximum value from its IP.
Final Thoughts
The needs and focus of your IP strategy must evolve as your organization grows, from protecting early ideas in the ideation stage to maximizing IP value in preparation for an IPO.
Beyond protection, a flexible, long-term IP strategy is a fundamental business asset that can drive innovation, create competitive advantages and significantly enhance your company’s value.
Whether you’re a startup founder or a CEO preparing for an IPO, your IP is the bedrock of your company’s value proposition. Investing in its development and protection is investing in your company’s potential and long-term success.
[1] “H.R. 1249 – Leahy-Smith America Invents Act.” Congress. United States of America, September 16, 2011. https://www.congress.gov/bill/112th-congress/house-bill/1249.
[2] “Leahy-Smith America Invents Act.” United States Patent and Trademark Office. September 16, 2011. https://www.uspto.gov/sites/default/files/aia_implementation/20110916-pub-l112-29.pdf.
[3] Gordon, J M. “What Does a Patent Search Cost?” The Business Professor. April 8, 2023. https://thebusinessprofessor.com/en_US/property-law/cost-of-doing-a-patent-search.
[4] Day, Gregory, and Steven Udick. “Patent Law and the Emigration of Innovation.” University of Washington School of Law. Washington Law Review, March 1, 2019. https://digitalcommons.law.uw.edu/cgi/viewcontent.cgi?article=5055&context=wlr.
[5] Krajec, Russ. “How Much Does A Patent Cost?” BlueIron IP. July 23, 2023. https://blueironip.com/how-much-does-a-patent-cost/.
[6] “TCA Venture Group 2023 Portfolio Statistics.” TCA Venture Group. Tech Coast Angels, July 1, 2024. https://tcaventuregroup.com/portfolio-statistics/.
[7] “TCA Venture Group Overview.” PitchBook. August 6, 2024. https://pitchbook.com/profiles/investor/10322-83#overview.
[8] Harbison, John. “Do Patents Affect Outcomes in Early Stage Investing?” Angel Capital Association. April 3, 2024. https://angelcapitalassociation.org/blog/do-patents-affect-outcomes/.
[9] Elmer, Michael, and Gregory Gramenopoulos. 2021. Bloomberg Law Global Patent Litigation: How and Where to Win. 4th ed. Bloomberg Industry Group. https://www.bloomberglaw.com/external/page/book_blaw_gpl.
[10] Mansfield, William. “How Patent Analytics Can Show Pharma’s Top Performers.” Pharma Boardroom. June 15, 2023.
[11] Wininger, Aaron. “China’s Quantity to Quality Shift in Patents Continues Trend in 2023 Q3.” China IP Law Update. October 20, 2023. https://www.chinaiplawupdate.com/2023/10/chinas-quantity-to-quality-shift-in-patents-continues-trend-in-2023-q3/.
[12] “Why Is There a Need for an Initiative like the Industry Patent Quality Charter?” Industry Patent Quality Charter. EU, August 3, 2023. https://www.industry-patent-quality-charter.eu/.
[13] “Brain-CA Technologies Secures Patents for Innovative AI Based on Cellular Automata.” PR Newswire. Brain-CA Technologies, August 14, 2024. https://www.prnewswire.com/news-releases/brain-ca-technologies-secures-patents-for-innovative-ai-based-on-cellular-automata-302222469.html.
[14] “WEKA Grows IP Portfolio to Over 100 Patents.” PR Newswire. June 20, 2024. https://www.prnewswire.com/news-releases/weka-grows-ip-portfolio-to-over-100-patents-302177523.html.
[15] “WEKA Financials and Company Overview.” DealRoom. May 16, 2024. https://app.dealroom.co/companies/weka_io.
[16] Ristoff, Jared. “Intellectual Property Licensing in the US – Market Research Report.” IBIS World. March 1, 2024. https://www.ibisworld.com/united-states/market-research-reports/intellectual-property-licensing-industry/.
[17] Glassman, James, and Michael Cembalest. “2023 Annual Biopharma Licensing and Venture Report.” J.P. Morgan. J.P. Morgan and DealForma, March 1, 2024. https://www.jpmorgan.com/content/dam/jpmorgan/documents/cb/insights/outlook/jpmorgan-dec-2023-biopharma-licensing-and-venture-report.pdf.
[18] “Uncovering IP Risks and Potential: IP Audit.” WIPO. World Intellectual Property Organization, January 1, 2016. https://www.wipo.int/sme/en/ip-audit.html.
[19] “Intellectual Property Insurance: Dispelling the Myths and Misconceptions.” Aon. Aon and Stanford Law School, November 28, 2023. https://www.aon.com/en/insights/articles/intellectual-property-insurance-dispelling-the-myths-and-misconceptions.
[20] “Top 300 Organizations Granted U.S. Patents in 2023.” IPO.Org. Intellectual Property Owners Association and Patent 300 by Harrity Analytics, January 18, 2024. https://ipo.org/wp-content/uploads/2024/01/2024-Patent-300-IPO-Top-Patent-Owners-List.pdf.
[21] “Cyngn Secures Its 20th U.S. Patent: Adaptive Motion Compensation of Perception Channels.” PR Newswire. Cyngn, January 18, 2024. https://www.prnewswire.com/news-releases/cyngn-secures-its-20th-us-patent-adaptive-motion-compensation-of-perception-channels-302237664.html.
[22] Ritter, Jay R. “Initial Public Offerings: Updated Statistics.” Warrington College of Business. University of Florida, May 10, 2024. https://site.warrington.ufl.edu/ritter/files/IPO-Statistics.pdf.
[23] Esmer, Burcu, N. Bugra Ozel, and Suhas A. Sridharan. “Disclosure and Lawsuits Ahead of IPOs.” The Accounting Review, SSRN. Wharton, University of Pennsylvania, July 1, 2022. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3548863.
Read at Law360.