Let’s start with agreeing that everyone hates the patent process; and at least in software, virtually no one believes it offers much protection internationally or domestically. Now, of course, your patent attorney will disagree with that, but fine… they need work too. Having said this: what is intellectual property, what is the real value of patents and why should you care?
First of all proven, documented, true emerging technology with high barriers to entry is an incredibly valuable asset. But let’s be honest here. We all know your products are cool, but are they truly revolutionary in that they will create a fundamental shift in the market and are on the “must have list,” or are they just a new way to do something? Breakthroughs pay off, and the first ones to the market inevitably get paid more. Social media paid big when new. Now you can’t give social media companies away. Second, “proven” means “in production with customer demand,” not, “I have a few prototypes in place.” And finally, documented product with barriers to entry. How hard is it to replicate your product? A few months of clever coding for an idea that you have been refining for years is difficult to defend. Many man years of investment, unique algorithms, and true domain expertise, developed over years of experience is valuable to buyers. Other components of IP include the robustness of the innovation process, best practices, tool-sets and the culture at your company. Buyer will care about how that innovation process and culture will lead to new features, new products and better systems of innovation. These elements can make a company appear larger and more mature than current revenue alone may depict.
So what about patents? While everyone know the nebulous nature of patents in the software industry, they do serve a purpose.
- They are a proof point for uniqueness and do formalize some barrier to entry.
- They establish to a degree that you have not infringed on some else s intellectual property
- And to a lesser degree there is marketing value in “patented or “patent pending” when marketing your company,
While not having a patent is not a deal stopper, you must be prepared to address these first two areas, ideally prior to due diligence. More than one deal has fallen apart when the buyer discovers a lack of documented differentiation and/or potential patent infringement. You may not like the patent process but buyers will ask the questions. Patents, while not the final answer can help support your case.
Think of it this way: Two companies, everything about the two is the same, except one has patented technology, the other doesn’t. Which would you buy? This is potentially a big benefit for filling out the paperwork and going through the process; if you really have something unique.
For more discussion on this and other topics critical to selling your company. Feel free to download our latest white paper : Achieving Exceptional Multiples in the Sale of Your Company.