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back to index backAMERItalk April,  2017


Why You Should Spend Dollars on Patent, Trademark Protection

Despite CFOs' concerns about the costs of patent and trademark registration, the benefits can far outweigh them.

Companies pay people to think. Inventing and branding are two primary areas where this occurs regularly. But many companies fail to adequately protect the thoughts they pay for, leading to unnecessary complications and losses. This, in turn, means loss of company value and a narrowing of opportunities.

Whether you're the CFO of a start-up or a billion dollar company, the absence of a trademark registration portfolio for all of your brands, or the lack of a patent portfolio directed to your innovative products, means your company may be bleeding value.

You could be leaving money on the table or cutting off future options for protecting market share or growing revenue. If you haven't yet taken what's become a standard approach to protecting your company's ideas, it may already be too late.

Most often, patents are the best form of protection for innovations implemented in your products or services. But if you take your time in pursuing them they may no longer be available to you.

In a contest for patent protection between two applicants applying for a patent on the same or similar invention, the first applicant to file a patent application for an invention wins the race. The United States and virtually all other countries where you may seek patent protection are "first-to-file" systems, not "first-to-invent" ones.

Even if you don't believe anyone else would beat you to filing a patent application on your specific inventions, your company's inaction may actually cost you the ability to file for patent protection.

Internationally, foreign patent offices require a patent application be filed before any public disclosure of the invention. Public disclosure includes public use or sale of a product or service incorporating the invention. It also includes other public activities like publishing a white paper, a journal article, a conference presentation, or a website if the details of the invention's implementation are apparent.

In the United States, the same types of public disclosure activity start a 1-year non-extendable grace period within which a patent application must be filed describing and claiming the invention.

As such, if you don't have a routine patent filing process in which ideas are reviewed for their value and captured in regular patent filings, you may have already lost some valuable intellectual property. Consider implementing an internal invention disclosure and review program to make sure this loss of rights and value doesn't continue.

Typicall, investing $25,000 to $35,000 over three to five years to secure a U.S. utility patent (less for a design patent) results in a tangible tool that enables your company to prevent competitors from making, using, or selling products or services that are described and claimed in your patents.

Assuming the revenue stream generated by your products or services substantially exceeds such costs, why not invest that amount to protect the current and future revenue stream for that product or service containing that invention for the next 20 years?

It may also provide the opportunity for a separate royalty stream from licensing the patent, or it might serve as a trading chip when negotiating with a competitor attempting to enforce their patent rights against your company.

Branding

On the topic of branding, there may be other companies using the same or similar trademarks in a way that eats away at the scope of possible protections for your brands. They may also be confusing consumers into thinking their products are your products.

Be aware that a history of not policing your trademarks may mean you have less ability to do so in the future. Many foreign countries have a first-to-file trademark system in which the first applicant for a trademark in association with particular goods or services is entitled to registration.

Other countries, including the Unite States, consider which applicant for a trademark registration was the first to use the trademark when determining who is the senior party and the rightful owner of the trademark rights and registrations

There's also a first-to-file aspect to trademark registrations in the United States. Even before your company begins using a trademark, an intent-to-use trademark application can be filed and can serve to provide an early date of constructive use of the mark.

Such applications preserve your place in line ahead of others who haven't yet used the mark but who may be considering use. They're also a great way to initiate protection of a proposed trademark before you begin new marketing efforts.

Trademark registrations are low-cost investments when compared with the value they can provide. On average, the cost of a trademark registration can range between $2,500 and $5,000, spread over one to two years.

The additional and highly recommended step of conducting a search for competitor marks during the selection process of your new trademarks could add another $1,500 to $2,500, but can also help to identify potential obstacles and problems very early in the branding process before significant marketing dollars are allocated.

Registered trademarks protect a brand while it's growing. That's because whether or not you have had sales in every state of the United States, the instant you obtain a trademark registration you have blocked anyone else from beginning to use that same or similar mark on the same or similar goods or services.

Assuming continuous use, trademark registrations can be renewed every 10 years in perpetuity. This is a terrific tool for hindering fast-followers who copy your products or services and try to resemble your brand.

It also confirms your company's right to use the trademark in association with certain goods or services across the entire United States, making trademark registration very low cost when compared with the marketing and advertising dollars spent to build brand recognition. The best way to preserve the value of your brands, and to enable your company to build value in those brands, is to secure federal trademark registrations.

Many companies and CFOs have concerns about the costs of patents and trademarks. But sophisticated companies, including sophisticated startups, are resolute in the understanding that whether the business plan is to start a company and sell it in five years or to build a company over decades, the short-term costs of securing patents and registering trademarks are far outweighed by the boost in value to the company and by the benefits to the bottom line profitability of the company or its owners.

Securing patents and registering trademarks places the company in the best possible position to deal with unanticipated challenges from competitors, copycats, and fast-followers, who are waiting in the shadows to steal your market share.

In its publication The Bright Side of Patents, the U.S. Patent and Trademark Office states that "[f]irms that receive their first patent create more jobs, enjoy higher sales growth, innovate more, and are more likely to go public or be acquired. These positive effects of patent rights appear to be due to their role in facilitating startups' access to capital which helps them turn ideas into products and products into revenues"¦. patent rights help overcome information frictions between startups and financiers."

When they're bought outright, patents and registered trademarks can sometimes be listed on a balance sheet. When they're organically grown from within, it may not be possible to list them on a balance sheet, but nonetheless defend your company against attacks to your market shares and lead to increases in company value through the protections they offer.

Regardless of where they fall on a balance sheet, don't be deterred from securing patents and registering trademarks by their short term costs. Instead, embrace these tools with the knowledge they will have a long-term net-positive effect on the financial state of your company.

Sean D. Detweiler is a partner in the intellectual property practice at Morse Barnes-Brown Pendleton.

Source: CFO - GAI



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