Patents Multiply Your Investment in a Company

Note: this is an excerpt from my upcoming book “Investing In Patents”, which will be published in the next couple months. More information to come.

Patents Multiply Your Investment

Patents are used to defend, but also to multiply an investment in technology. In the first case, companies use their patent assets to preserve an investment. In the second case – and this is the most powerful one – patents can have an enormous multiplying effect, using other people’s time, resources, and capital, to spread your technology far more than you could do on your own.

Preserving an investment can come out in many different scenarios, including defending against blatant copiers, defending against competitors who develop similar technology, cross licensing and negotiation with competitors, and preserving your market share through interesting licensing mechanisms.

The multiplying effect of patents can happen when you are able to license your technology to others. The best analogy is a franchise model for a restaurant, where the technology is incubated, proven, and developed, then it is transferred to other people who invest their capital to deploy that model in different areas. This type of licensing can range from an explicit business model with spin out companies, to a pooled license that may be managed by a standards body.

When we consider an invention, some inventions may appear to naturally fit in one of the various uses mentioned above. But we are often wrong.

At the time of invention, we have our view of the world, our competitors, and the current state of technology. We have guesses about where the technology will go and how competitors will react, but we are guaranteed to be wrong.

The point is that a strong patent portfolio gives an investor and a CEO options. These business options might not occur for 5, 10, or 15 years, and may never present themselves, but the purpose of the portfolio is to give you a seat at the table and another card in your hand that might be played when the time comes.