When Should I Patent My Idea?

The patent system is designed to give the world public access to technology. The incentive for disclosing your invention is a 20-year monopoly on making using or selling your invention – the only legal monopoly in the modern world.

But after the patent monopoly expires, the invention will still be public knowledge, and anyone in the world will be able to make, use or sell it.  So why would anyone want to disclose its technology in a patent?

The short answer to this question is that you’ll want to patent your invention if you are worried that exploiting your invention will cause someone else to figure out the invention, or you believe that someone else is about to develop the technology.

When you develop an invention, and before you file for a patent, it is a trade secret.  If you can keep the invention a secret, you can keep it forever, without having to pay any fees. The problem is that if the secret is shared, whether through you or a third party, you lose the benefit of the secret forever. So, if in exploiting the invention, there is a chance that someone will figure out your invention, for example, if the product you are going to sell embodies the invention, so that someone can purchase the product and reverse engineer it to figure out the invention, it will probably not be long after you enter the market that someone will do exactly that and begin to manufacture and sell a competing product, legally. On that same note, if you know that your competitor is working on the same technology, it’s possible that they will come up with the invention independently and patent it.  If that happens, you may be prevented from making using or selling the invention during your competitor’s patent monopoly period.

There are other reasons why you may want to patent, most of which have to do with business considerations. When an invention remains a trade secret, the only way to make money from the invention is to use it yourself and gain a competitive advantage through doing so, such as by saving a few cents in the manufacturing process.

If you obtain a patent for the same invention, it opens up a wider variety of ways that you can monetize the invention, including the opportunity to license others to use the invention. In some cases, you could get your competitors, through licensing royalties, to effectively finance your R&D efforts, or you could sell the patent rights to someone else. When Nortel and Polaroid went out of business, it was widely acknowledged that their valuable patent portfolios in wireless communications and digital imaging technologies were their most valuable assets. In hindsight, it might have been possible to sell off part of these portfolios to keep the businesses afloat. Some technology companies have an active R&D group and realize a large proportion of their revenues and profits from transactions involving their patent portfolios.

If you are a small or medium-sized enterprise (SME), your ability to secure angel or first round venture capital financing could be highly dependent upon your ability to convince investors that if they provided funding, you would be able to prevent others from appropriating your technology. You can do so by obtaining patents on your key technology.

With the growing importance of patents in the financial world, there are also new financial vehicles that can allow you to monetize your technology.  Security interests in patents and even complicated derivative vehicles involving patents are becoming more common.

Having a patent portfolio may be financially valuable, not just from the revenue it can generate, but as a hedge against having to pay royalties for infringement of a competitor’s patents. If you have a strong hedge of patents around your technology, a competitor may think twice about demanding patent royalties from you, fearful that in the long run, it may owe you more royalties than you will owe them.