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Dinesh N. Melwani and Les I. Bookoff

IPLaw360, New York (January 07, 2013, 11:58 AM ET) – As the economy continues to improve, corporations and venture capitalists will increasingly look for opportunities to invest cash. Often, such investments are made through mergers, acquisitions and/or equity investments in startup companies pursuing new and emerging technologies. Startups looking to ensure they share in the available investment dollars can do so by making their companies attractive to investors.

But, unlike traditional brick-and-mortar corporations, today’s startups sometimes are no more than a few entrepreneurs with novel ideas and minimal assets. In such situations, however, investors might be reluctant to provide significant funding for a number of reasons. One reason often is the startup’s inability to protect future market share by preventing competitors from copying its novel ideas. To protect ideas, increase value and make itself attractive to investors, therefore, a startup company should develop and implement a strategic patent filing plan that meets the company’s business goals and budget. Patents can play a significant role in attracting investments because they often are one of the most meaningful assets of a startup company.

With the passage of the America Invents Act, the United States significantly overhauled its patent filing system. The changes to the patent filing system include (1) changes to the rules for determining whether a person is entitled to a patent and (2) the introduction of mechanisms for expediting the examination of a patent application. More particularly, prior to the passage of the AIA, the U.S. patent filing system was known as a “first-to-invent” system.

In other words, the first “inventor” of a new idea was typically entitled to the patent. As of March 16, 2013, however, the United States will convert to a “first-inventor-to-file” system. With a handful of exceptions, the new system generally is structured to award patents to the inventor that first filed his/her patent application. Consequently, it is now more important than ever to file patent applications as early as possible.

In addition, the AIA created a new mechanism for expediting the examination of patent applications. This new prioritized examination mechanism is sometimes referred to as “Track 1” examination. With the advent of Track 1 examination, patent applicants can have their applications examined within months of filing, with the payment of an additional fee at filing. Otherwise, patent applications sometimes wait one, two or more years for their turn in the examination queue.

Accordingly, it is not uncommon for patents to be granted three or four years after filing. In comparison, the Track 1 mechanism has been used to secure patents within one year of filing in some cases. If a startup company qualifies for small-entity status, the current fee for prioritized examination is $2,400. Although the changes brought by the AIA are significant, when strategically coupled with existing mechanisms, they present unique ways for a startup company to quickly and cost-effectively secure patent protection for its novel ideas, thereby enhancing the value of the company.

As a result of the change to a “first-inventor-to-file” system, startup companies should strive to file patent applications (including provisional patent applications mentioned below) as soon as practicable. Doing so helps to ensure that late inventors but early filers are not awarded a patent. Often, startup companies are better situated to quickly turn novel concepts into patent applications because they do not have to navigate the administrative procedures (e.g., review by a formal patent committee) typical of large corporation filing processes.

In addition, the startup company seeking to quickly and efficiently protect its ideas has many options at its disposal. For example, in the very early stages of the company and potentially prior to securing financing, the company can utilize provisional patent applications to secure early filing dates for its inventions without expending significant resources. Securing an early filing date can help to ensure the startup’s inventors are entitled to the patent under the new AIA patent filing system. The provisional patent application represents a lower-cost option for a company’s first patent filings. The provisional patent application also affords an ability to secure a filing date without many of the formalities required of traditional nonprovisional patent applications.

Indeed, none of drawings, a patent claim, or an oath or declaration is required to file a provisional patent application. Although timing and budgetary considerations can influence the preparation of a provisional application, it is nonetheless recommended that the description of the invention be as complete as possible, including discussion of various embodiments and alternatives.

Moreover, if a startup company already has a commercial product, the filing of a provisional patent application permits marking products related to the provisional patent application with the term “patent pending.” The provisional patent application, however, has a pendency of only 12 months from the date of filing. Thus, the startup company must file a corresponding U.S. nonprovisional application and foreign applications before the 12-month pendency period expires.

As the startup company matures and secures some financing, the company should convert all commercially relevant provisional applications to nonprovisional applications. In one instance, the company may choose to file corresponding nonprovisional applications for every provisional application it filed. In another instance, and if the circumstances permit, the company may consider filing a single nonprovisional patent application with an omnibus description corresponding to most, if not all, of its provisional application filings.

While the omnibus application may require more effort than the description of discrete nonprovisional applications, such a strategy could provide important long-term benefits. For example, the omnibus application can represent an aggregation of several related concepts, which may prove to be fertile ground for mining valuable combination claims relative to competitors in the future. In addition, startup companies should keep in mind that nonprovisional applications may be refiled several times with claims of differing scopes at minimal additional costs.

Additionally, depending on available resources, the startup should consider expediting the examination of commercially relevant claims via the use of the Track 1 prioritized examination mechanism. Commercially relevant claims may include either claims that cover the company’s commercial product or claims that may be infringed by a competitor or a potential investor/acquirer. To benefit from the new mechanism, for example, the startup should consider filing one or more applications with the omnibus description and commercially relevant claims together with a request for prioritized examination.

Through the use of thoughtful and strategic patent filing policies, startup companies can quickly secure patent protection and increase the value of their companies. Rather than waiting years for a patent to issue, companies can use new and existing mechanisms to drastically speed up the patent process. By doing so, startup companies can quickly accumulate asset(s) that may help protect future market share and profits, thereby making themselves more attractive for investment and acquisition.

-By Dinesh N. Melwani and Les I. Bookoff, Bookoff McAndrews PLLC

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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