FAQ: Should I apply for a patent on my invention?

by: Andrew T. MacMillan
May 1, 2014

Patent cover

Before you run out and spend your hard earned money on a patent application, consider whether you meet the following baseline requirements:

Ownership

There are essentially two ways to be entitled to ownership in an invention. A first way is if you personally contributed to conception of the idea (either working alone or with others) and do not have any obligation to assign your rights to someone else such as your employer. A second way is if at least one of the inventors assigns their rights in the invention to you. Patents always name the true inventors, but the entity applying for the patent (i.e., the applicant) is usually the person or company with ownership rights in the invention.

Patentability

You should also be reasonably confident that the idea is patentable meaning it must be: 1) different in a least one way than what is already available to the public, 2) useful, and 3) non-obvious given the prior art. For more information on these basic requirements of patentability see the USPTO's answers to the related questions, “What can and cannot be patented?” and “How do I know if my invention is patentable?

But just because you have ownership and the invention seems patentable does not necessarily mean that applying for a patent is always a wise decision.

Financial benefit

Money may be the root of all evil but, in my opinion, it is also an important factor in deciding whether to apply for a patent. Like any investment, the way to make money with a patent is to have the value of the patent appreciate over time so that it pays more than it cost to acquire.

One way to analyze a potential investment is to compare the downside risk with the possible upside benefit.

Downside

Say you get an estimate for a patent application in the range of $5000 to $10,000. The downside risk is that you pay this money to have the application drafted and submited but the patent either never issues (e.g., you abandon it after it is rejected by the patent Office) or it does issue but you never take advantage of it for any monetary gain. In these situations, you clearly lose what you invested and get little to nothing in return. With a patent application, the downside risk can be determined and fixed in advance. You can limit your losses by pulling the plug if you reach your predetermined maximum acceptable cost and still don't see any imminent upcoming benefit.

Upside

The possible financial upside of a patent can be much greater than the cost to successfully get an application through the patent Office. Here are some ways that patents make money for their owners:

  • Stop competitors from copying your products

    Patents give to the patent holder a government approved monopoly for making, constructing and using the subject matter protected by the patent and selling it to others to be used. Thus, one way of deciding whether to apply for a patent on your invention is to ask yourself whether you can make more money with a monopoly on your invention than it will cost you to apply for, maintain, and potentially enforce your patent. Your patent can essentially act as a barrier to entry to keep competition from driving prices too low in the market.

  • Give confidence to potential investors

    If you are trying to raise capital to finance your start-up, one of the first questions you are likely to be asked by a potential investor is whether you have any pending patent applications and/or issued patents covering the technology. If you don't have any then investors may be wary because there will be no recourse if/when a competitor decides to enter the same market and copies your success.

  • Protect you from employee theft

    How would you feel if you invent a new kind of website and hire a developer to implement it for you, but, after you explain the idea, the developer quits and builds it for himself as if it were his own idea. Or another example, what if you already have an established company but a group of key employees rebel and threaten to start a competitor doing the exact same thing right across the street unless you give them some ownership. A patent covering key features in your company's products would give you a virtual hammer to slam down in these types of situations.

  • Protect you from patent lawsuits

    A defensive patent portfolio covers not only your own products but also subject matter that is outside of your current business but that competitors may incorporate into their products. Say you come up with an idea that would be beneficial to your competitor's product line; even though you don't plan to sell that product yourself, you may still want to patent every possible way you can think to implement it. That way, in the event you ever need a weapon to assert against that competitor, you have one ready. They sue you for one of their patents, you sue them right back with one of yours.

  • Increase the intrinsic value of your business

    When it comes time to sell your company, it's no secret that the more patents you hold the higher valuation your company will receive. Competitors or other entities may be willing to pay a significant premium to acquire your company along with its patent portfolio.

  • Show that your company is innovating

    Issued patents on features of your products is clear evidence to existing and potential customers that your company is innovative and not just selling the status quo. Your marketing material can boast about the patented features and customers will know that only you can provide those features.

  • Generate licensing revenue

    If another company is using your patented technology you have the right to sue them. Assuming the patent is valid and infringed, they will lose and could be liable to you for large damages and even your legal fees to boot. Rather than take the case all the way through trial with the risk of a huge loss, the infringing company will typically be very interested in licensing your patents at a lower cost to get rid of the problem.

  • Enable converting ideas to cash

    Issued patents and pending applications can also be bought and sold just like regular property. If you hold a patent that is of interest to another entity, you can convert it to cash by selling your rights. Buy low, sell high is a typical way to make money with physical property and this can also work with patents.

As with any business investment you need to have a plan for financial gain and be convinced that your plan has a good chance of success. Patent applications have a fixed maximum downside with an open-ended upside making them attractive investments assuming you can capitalize on their potential.

So, to answer the original question, you should consider filing for a patent on your invention if you own the rights, feel the invention is patentable, and believe you have a sufficient probability of benefiting financially by making the investment.