The goal of many young entrepreneurs is to think of a potential new product, develop a quick business plan, find an angel or early-stage VC and launch a company. Once launched, these entrepreneurs seek to rapidly expand the business so that they can sell the company for hundreds of millions of dollars and then repeat the process over again with a new business. While it’s an enviable model when it works, the majority fail very quickly. Most fail to establish themselves as leaders.
As an industry begins to mature, the true test of a company’s fortitude lies in the planning and forward thinking in the viability of its business. In the tech industry, a company’s strength is determined by more than just the nimbleness of its marketing and engineering teams and its financial strength. It can often be found in the patent portfolio of a company.
Patents can be necessary for a company to protect its investment in research and development, ensure the value of the “distinct” features in their products, and to have assets to “trade” with other companies in business or licensing negotiations. Indeed, in the context of acquisitions or mergers, companies place great value on the breadth and scope of a patent portfolio.
Building a high-quality patent portfolio is expensive and time consuming. Patent filings typically take 18 to 24 months before the Patent Office even begins to review a patent. Therefore, young companies launch feeling they are in a new, open space, only to find years later that they are inadvertently violating someone else’s patent due to prior filings. We are seeing a growing trend of companies launching without any attempt to determine whether they are potentially using patented technology owned by another company.
Competition is healthy for markets and consumers, and fair competition requires that companies respect the intellectual property of others. Patents and other forms of IP drive companies to develop new and exciting innovations.
One of the more notorious examples is a blending of emerging technology and copyrighted music with Napster. The file-sharing service had a tremendous effect on the music industry, with the traditional business model suffering immensely. A variety of other sites recognized the new markets and sprang up with a similar value proposition, and became very popular among the general public. To protect its intellectual property, the record industry filed suit and won, which ultimately shuttered Napster’s doors.
Following additional litigation, a newer business model emerged that complied with the intellectual property terms for services like iTunes. Now many of the streaming-oriented services like Spotify, Pandora, Apple Music and YouTube Red have found ways to monetize this model, while staying within the bounds of intellectual property rights.
We are beginning to see a few similar scenarios happening within the world of sports metrics. Technology is enabling high-performance quantification of data for elite athletes and professional teams, and most teams now employ a data scientist to help make sense of what is gathered. New sensor-oriented technology has been developed, at a fraction of the cost, offering anyone data that was previously only available to elite athletes.
With patent filings on the rise, it’s more critical than ever that company leaders become educated when starting a business. While it may be easy to ignore the patent landscape in an industry, it can ultimately impact the longevity and viability of their next venture. In my experience, it’s always more profitable to do the research upfront and have a clear understanding of how you can distinguish your products in the marketplace, in the eyes of both customers and the courts.
Michael Fitzpatrick is cofounder and CEO of Blast Motion, a manufacturer of sports wearables and sensors.