Written by: Keegan Caldwell

As artificial intelligence (AI) catapults us into a new era of innovation, it’s disrupting industries and revolutionizing how we define and protect intellectual property (IP) value. If your company is experimenting and innovating with AI, I recommend considering now how to protect your AI IP.

According to data from NVCA and PitchBook, 90% of 2024’s Q2 M&A transactions—a standard exit route for most—were undisclosed. Crucially, companies included in that figure raised over $3 billion in venture capital, averaging nearly $34 million per company. Among the many reasons companies keep these deals confidential is the significant competitive advantage of proprietary technology and information.

Today, companies with strong, AI-driven IP portfolios looking to secure funding or position themselves for lucrative exits face unprecedented challenges and significant opportunities. Drawing from my experience providing IP patent assistance to companies across industries, here are some insights that can help you adapt your IP strategies to maintain a competitive edge and protect the value of your innovations.

AI’s Impact On IP Valuation

The global AI market size is on track to hit $279.22 billion this year and is projected to reach $1,811.75 billion by 2030. This explosive growth is driving a surge in AI-related patents, with companies racing to protect their innovations.

However, valuing AI-driven IP presents unique challenges. AI innovations often involve evolving methodologies, and the dynamic nature of AI—where systems can learn and improve over time—can complicate the valuation process.

Consider Google’s DeepMind AlphaFold, which is making groundbreaking discoveries in protein folding. This year’s model, AlphaFold 3, is predicting the structure and interactions of all of life’s molecules. Quantifying the value of an AI system with such far-reaching implications—something that may revolutionize drug discovery and medical research as we know it—is not simple or straightforward.

The Role Of Patents In Protecting Innovations

While some argue for open-source AI development, the reality is that patents provide the legal framework necessary to secure investment and drive commercialization. They offer a tangible asset that can be licensed, sold or used as leverage in negotiations.

Case in point: Stability AI, one of the first open-source AI innovators to hit the public scene, has been facing significant financial struggles this year. In spite of its innovative prowess, in Q1, the company generated less than $5 million in revenue, with losses exceeding $30 million.

The reality is that companies with strong patent portfolios tend to have a significant advantage in securing funding and maximizing exit valuations, whether or not AI is involved. For example, when the TCA Venture Group analyzed 282 exits and other outcomes since its founding in the late ’90s, the data revealed that the probability of an exit increased along with the number of patents in a company’s portfolio. For companies with 30 or more patents, the likelihood of an exit was over 80%.

And this isn’t just about new enterprises. In my experience, large corporate entities that heavily invest in protecting their AI innovations are typically better able to maintain market dominance and fend off both traditional competitors and disruptive startups. To return to our Google example, the tech giant has been aggressively patenting AI technologies. Between 2020 and today, Google has been granted over 22,246 patents, covering everything from search algorithms to autonomous vehicles. This strategic approach not only safeguards Google’s current market position but also gives the company a competitive edge in emerging AI-driven markets.

Strategies For Leveraging IP

If your business plans to take a proactive and strategic approach to its AI IP management to maximize funding opportunities and exit valuations, here are five key strategies to consider:

1. Develop a comprehensive AI-focused IP portfolio. Beyond just patenting algorithms, consider protecting your unique datasets, training methodologies and application-specific implementations.

2. Conduct regular IP audits and valuations. The evolving nature of AI necessitates frequent reassessment of your IP assets. Regular audits can help you identify new patentable innovations and ensure your existing protections are still relevant.

3. Align IP strategy with business goals and exit plans. Your IP strategy should support your long-term business objectives. For example, if you’re aiming for acquisition by a major tech company, focus on building a portfolio that complements their existing technologies. If you’re planning an initial public offering (IPO), emphasize patents that demonstrate market leadership and future growth potential.

4. Leverage IP for strategic partnerships and licensing opportunities. A strong IP portfolio can open doors to partnerships and licensing deals. These have the potential to not only generate additional revenue streams but also demonstrate the commercial viability of your innovations.

5. Prepare for IP due diligence. Expect rigorous due diligence on your IP portfolio when seeking funding or preparing for an exit. Given the nature of AI and public anxiety over potential AI copyright infringement, I believe it has never been more important for companies to maintain clear records of their IP development processes.

By implementing these strategies, you can protect your innovations while building them into valuable assets that can significantly enhance your company’s appeal to investors and acquirers.

The Future Of AI, IP And Exit Value

Looking ahead, I believe the importance of IP in the AI era will continue to grow. Your intellectual property is often your most valuable asset, and given the nature of AI, strategic IP management may be more critical than ever. I encourage you to stay vigilant, adapting your IP strategies to keep pace with technological advancements and changing legal frameworks. By embracing a proactive approach to IP management, companies can not only protect their innovations but also unlock new opportunities for growth, partnerships and, ultimately, successful exits.

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