Patents and their Significance in startup valuation

The significance of intellectual property in company startup valuations is a crucial concern for both companies and investors. It can guide a startup’s intellectual property strategy and influence funding decisions and startup valuation considerations. Intellectual property is one of the most crucial factors to consider when starting a business. Your intellectual property is what distinguishes your firm and gives you a competitive advantage.

In this article, we will explain the significance of the intellectual property in startup valuation and answer several frequently asked topics. Let’s begin by discussing how patents can drive value creation.

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The innovation factor: How patents can drive value creation

A patent is an example of an intangible asset that can be valued in the same way that a software program, a trademark, a corporation, or even know-how can. A patent provides its owner with a competitive advantage by granting a monopoly and the power to forbid the reproduction of the innovation for as long as the patent is in effect. This gives the owner the ability to prevent others from making the invention. It is a demonstration of seriousness for organizations that provide financing from outside. It demonstrates the potential of the organization, the quality of the leadership, and their devotion to the company.

It is possible that acquiring a patent will raise the value of your business and provide you with additional revenue, provided that an accurate appraisal is performed.

To determine the worth of a patent, it is not required to wait for it to be put to use! Unless a straightforward accounting startup valuation is specifically required, as is sometimes the case. 

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Patents and market dominance: Securing your position in the market

For projects with a lot of intellectual property risk, the organization will come up with ways to reduce or get rid of this risk. In many instances, businesses will wish to consult with or hire experts in this field who can help them find practical solutions to their intellectual property protection requirements.

Applying for patents

In the target market, organizations might need to file applications for necessary patents as well as register any applicable copyrights and trademarks. Every target market has its procedures and laws. Organizations can consult a trademark or patent agent or the intellectual property office of the target market for more information on how to register copyrights, and trademarks, and apply for patents in a certain market. The timing of these applications can be crucial once a market has been selected, thus the application process should start as soon as possible.

Creating contractual assurance

Developing contractual safety Organizations may seek to preserve their intellectual property through meticulously crafted legal contracts. Contracts that safeguard intellectual property include the following elements:

Non-disclosure agreements (NDAs) ensure that employment contracts, licenses, sales contracts, and technology transfer agreements protect intellectual property from the start and contain clauses concerning intellectual property, such as a clear ownership provision.

Once the contracts are in place, organizations should engage with their business partners regularly to underline the significance of the terms to the ongoing business relationship and to ensure that the partners fully comprehend what these commitments entail for both parties.

Putting in Place Precautionary Safety Measures

When engaging in a new foreign enterprise, organizations may wish or be required to upgrade their security protocols. This can expedite the identification of unlawful or hostile activities by internal and external parties. Examples of security-enhancing practices include the following:

Performing background checks on important personnel or business partners Limiting access to intellectual property to critical parties, contractors, and supply chain partners Prohibiting unlawful copies of intellectual property, such as on USB devices and shared network drives encrypt everything digitally and electronically transmitted over intellectual property. 

Obtaining Insurance

Companies may wish to transfer a portion of their intellectual property risk by purchasing insurance. Intellectual property insurance often protects against the substantial legal expenses that will be incurred if an organization litigates its intellectual property claims. It can encompass both the enforcement and defense of claims. Enforcing claims against infringers that violate the company’s intellectual property Legal costs associated with intellectual property infringement include damages, such as loss of revenues or reputation, and settlements for any domestic or international intellectual property right.

Defending charges of infringement against the organization

This includes both accusations of infringement against the organization and lawsuits against its customers or licensees. Claims of infringement frequently involve copyright violations or other forms of intellectual property theft. The claims are frequently founded on plagiarism, which is when someone steals another’s original work.

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Legal considerations: Understanding the patent protection process

You may need a patent, trademark, copyright, marketing plan, or trade secret to protect your idea. When submitting a patent application, you should determine if you need a patent or another kind of intellectual property protection.

Analyze whether your invention qualifies for a patent.

You will need to know the answers to a few questions to ascertain whether you can patent your innovation.

Who may submit a patent application?

What is patentable, and what is not?

How can I tell whether my innovation qualifies for a patent?

How long is the term of patent protection?

What is the cost of obtaining a patent?

Which type of patent do you need?

Patents fall into three categories: utility, design, and plant. Identifying the type of patent you require as per your invention.

Prepare to apply

Once you’ve identified the type of Patent you require, you can examine your application strategy and whether or not to hire legal representation.

Prepare and submit your first application

Consult the Patent Application Guidelines for the specific legal requirements for submitting the type of patent application you’ve determined to be appropriate.

Work with your examiner

The USPTO will send an Office Action if your application is incomplete. The filing of the application will be timed (a surcharge may be required). If the omission is not rectified within a specified period of time, the application will be returned or otherwise disposed of, and the filing cost will be repaid, less a handling fee as specified in the fee schedule.

Maintain your patent

Utility and reissue utility patents require maintenance payments to be valid beyond 4, 8, and 12 years following the date of issuance. The patent will expire if the maintenance fee and any applicable surcharge are not paid on time.

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Future outlook on the relationship between patents and startup valuation

In conclusion, patents can have a substantial impact on startup valuation. They can offer startups a competitive edge, safeguard their original ideas, and attract investors. Yet, obtaining a patent may be a time-consuming and costly endeavor that demands careful planning. Startups must design effective intellectual property strategies, including the registration of copyrights and trademarks, the application for patents, the establishment of contractual security, the implementation of security measures, and the purchase of insurance.

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Our team of advanced patent attorneys assists clients with patent searches, drafting patent applications, and patent (intellectual property) agreements, including licensing and non-disclosure agreements.

Advocate Rahul Dev is a Patent Attorney & International Business Lawyer practicing Technology, Intellectual Property & Corporate Laws. He is reachable at rd (at) patentbusinesslawyer (dot) com & @rdpatentlawyer on Twitter.

Quoted in and contributed to 50+ national & international publications (Bloomberg, FirstPost, SwissInfo, Outlook Money, Yahoo News, Times of India, Economic Times, Business Standard, Quartz, Global Legal Post, International Bar Association, LawAsia, BioSpectrum Asia, Digital News Asia, e27, Leaders Speak, Entrepreneur India, VCCircle, AutoTech).

Regularly invited to speak at international & national platforms (conferences, TV channels, seminars, corporate trainings, government workshops) on technology, patents, business strategy, legal developments, leadership & management.

Working closely with patent attorneys along with international law firms with significant experience with lawyers in Asia Pacific providing services to clients in US and Europe. Flagship services include international patent and trademark filings, patent services in India and global patent consulting services.

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