In today’s competitive world it has become a mandate for companies and start-ups to safeguard their intangible assets like they protect their tangible assets. The value of a company is determined by both tangible and intangible assets it owns. Intangible assets include all forms of intellectual property like trademarks, patents, designs and copyrights, trade secrets, goodwill, and brand value.
Protecting and safeguarding intellectual property brings with it many other added benefits to the company including recognition of brand and enhanced market value. However many Indian companies and start-ups still fail to take into consideration this increased importance of intellectual property and suffer in ignorance. They should understand that hard work and millions of money they spend in creating innovations must not go in vain instead must be utilised to make the most of them.
It is pertinent to note that maintaining a good patent portfolio is extremely important for high tech industries. A patent portfolio gives insights about future directions to which the company is heading. Without a patent portfolio development of the company becomes directionless. Moreover, companies that have a strong patent portfolio attract more investors, thereby making it easier to obtain funding to enter the market.
- Patents drive mergers and acquisitions
Patents are no longer seen as merely a means of protecting innovation but also considered as an important part of company’s assets that can be licensed or sold through strategic decision making to attack or defend the competitors. Currently, large enterprises are acquiring IP assets from other parties. Google’s take-over of Motorola is a well-known example in this context. Even after selling Motorola Mobility to Lenovo, Google has a vast patent portfolio. Without information leaking out to the public many smaller but similar deals are carried out every day.
- Competitive advantage
In today’s knowledge-driven economy, innovation has become the critical factor for determining competitive advantage and sustainable development. Patents give owner the right to restrain others from making, using, offering for sale, selling, and importing the claimed invention. This provides a competitive edge and an exclusionary right to the owner. The owner can thereby make an effective entry in the market, at the same time barring competition.
While instances of patent infringement and litigation are rare in Indian scenario, leading mobile phone seller Micromax got sued by Ericsson for alleged infringement of patents related to 2G and 3G wireless technologies. Given the intense competition with big companies having patent portfolios to their names in India; this case is a good pointer for all the innovative Indian start-ups to focus on IP protection and attain an innovative position vis-à-vis competitors.
- Source of revenue
Patents can also bestow higher profits by licensing of patented technology to other parties. In return of the license, the owner can draw royalties. Alternatively, the owner can also assign or sell their patent rights to other parties. This aspect is especially a benefit for R&D companies which are not product focused. NASA offers licenses of patented technologies to start-up companies. The Startup NASA initiative is aimed at encouraging the growth of high-tech businesses and at the same time generating revenue in the form of royalty fee.
The shares of a water soluble film maker company, Arrow Coated Products, have spiralled 3000 per cent in the past two years with the company beginning to monetise its patents. The company has monetised 3 out of 30 patents and its turnaround has been dramatic.
- Access to technology
Patents enable multiple parties to enter into an agreement for utilising other’s patented technology of interest, and in return allow the use of their own patented technology. Apple’s broad cross-licensing agreement with Microsoft has been common knowledge for over a decade in this context.
Filing patents can be a good practice for start-ups to increase their valuation. In the initial stages, filing a number of patent applications reinforces any claims to the innovative technology the start-up may have. This in turn increases the attractiveness of the start-up to early stage investors. In the later stages, owning a strategic patent portfolio (including issued patents with significant protection on the start-up’s valuable products or services) can be particularly attractive to a large company that wants to bolster their patent position relative to another large company.
Many start-ups in India still fail to recognise the importance of filing their patents at first and regret later. Patents have become essential, especially for start-ups, as they shield the company from competition and provide an opportunity to recover the R&D costs involved as well as generate revenue.