What Most People Get Wrong About Inventions, According to a Leading Patent Lawyer The most lucrative patents don't necessarily go to novel, cutting-edge innovations.
By Frances Dodds Edited by Frances Dodds
This story appears in the July 2024 issue of BIZ Experiences. Subscribe »
Here's the most important question a company can ask, according to a leading patent attorney: Do we anticipate others will also use this in the future?This question is helpful because it reframes the way we think about patents, which can unlock many millions of dollars.
"Companies looking to achieve the greatest success understand that patents are their greatest asset," says Keegan Caldwell, founder of Caldwell, a corporate law firm that specializes in patents and intellectual property.
According to new data from PitchBook, there's a compelling connection between patents and earnings.
For example, between 2011 and 2020, in the pre-money stage, companies with patents received 93.2% higher valuations than those without. When companies with patents are acquired, their median exit value is 154.9% higher. Between 2011 and 2022, VC exits from companies with patents accounted for 78.6% of profits — despite making up just 24.1% of the companies those VCs invested in. And patent-seeking companies go public five times more than those without.
Related: How to Ensure High-Quality Patent Filings — 5 Key Steps for Portfolio Managers
All of this is correlated to the fact that "intangibles" (like technology) account for a much bigger slice of our economy than they used to. In 1975, "intangibles" made up 17% of the total assets of the S&P 500. By 2020, that number was 90%.
So why don't more companies patent their innovations? Caldwell says it's a perception problem: Most people think that patents are for groundbreaking innovations — when the most lucrative inventions are actually kind of dull.
"Many engineers dismiss the patentability of what they're working on because they're so immersed in it," Caldwell says. "But companies should establish a process for capturing ideas as they arise, treating them as valuable potential trade secrets until they're evaluated for patenting."
A great example, Caldwell says, is the Amazon "1-Click" button. "All they did was take your profile information and auto-populate it, but back in 1999, that was novel," he says. "So [until 2017 when that patent expired], your information wouldn't autofill on other websites because Amazon wasn't licensing it to those entities."
That kind of quotidian patenting can transform all kinds of businesses, Caldwell says. "Imagine you've owned a wealth management business for a long time, and you've come up with these unique processes for your clients. Now imagine someone else did the same thing, but they have patents on those processes. Which company is worth more? One's just a wealth management company, and one's a fintech."
Related: Unlocking the Market Potential of Your Patent Portfolio — A Guide for BIZ Experiencess
It's important to note that patenting isn't cheap — legal and filing fees can reach $60,000 or more — so you don't want to pursue it when your resources are better spent elsewhere. A 2024 study from the University of Iowa found that early-stage companies that sought patents but had no strong market focus saw lower revenues than those without patents. But if you're "already selling something," Caldwell says, it's time to start thinking like the United States Patent and Trademark Office.
"The patent office doesn't concern itself with our personal opinions of what qualifies as an invention," Caldwell says. "They focus on what is actually patentable. Even minor tweaks to processes, methods, or machines can qualify for patents, and the most valuable patents aren't necessarily the most flashy or cutting-edge inventions."
That's why Caldwell loves that question: Do we anticipate others will also use this in the future?
"Patents covering processes utilized by others hold significant value, since they can be used to prevent competitors from adopting similar methods," Caldwell says. This is why boring, in-the-weeds patents can be so powerful. "Patents with the greatest commercial impact appear mundane because they can be widely adopted by numerous companies or industry giants, whereas bleeding-edge innovations are often niche and not widely adopted."
In other words, one-click your way to success.
Related: You've Got a Great Invention. Now How Do You Get People to Buy It?
