Author: Paula N Chavez
Congratulations to Alan Noble on the AFR coverage of StartupAUS today 21 April 2015, discussing its second Crossroads report which includes regulatory recommendations to bolster the Australia’s nascent start-up community. See here for more information.
A topic typically overlooked in the start-up conversation, particularly in Australia, however, is that by creating a patent portfolio, a start-up can increase its valuation while gaining many other benefits. Israel was mentioned in the article. Israelis patent at 5.6 times the patenting rate per capita of Australians (filing in the USPTO statistics). With global patent application filings increasing by 6% yearly over the last ten years, and the alternative energy sector by 24%, a tech company that is not building a patent portfolio is missing opportunities including funding, wealth building, liquidity and being perceived as innovative. Australians are still filing patent applications at the same rate that they did 20 years ago.
While the government can be doing more to bolster Australia’s nascent start-up community, it can also help itself by patenting up.
Speaking of liquidity (exit strategy), Google’s purchase of Nestlabs was reported by the Licensing Executives Society (LES), June 2014:
“Nest’s recent acquisition by Google for $3.2 billion has been getting headlines; but one of the real stories about Nest has to do with their execution of a very effective patent strategy. Many start-ups are reluctant to dedicate significant time or resources to their intellectual property. Investors want their money to go for engineers to develop products and sales & marketing to gain customers and grow revenue. Spending precious money on legal expenses to rapidly build a patent portfolio or paying millions to acquire them is typically low on the list of priorities. Nest’s patent strategy was one that appears to have been very deliberate and well played. They benefited from the fact that the founding team came from Apple where patenting is an established and important part of the culture. They knew that they would be facing challenges from established incumbents (i.e. Honeywell and BRK Brands makers of First Alert Alarms with whom they have been in litigation), so they made sure they raised enough capital to not only create insanely efficient thermostats, but also to make meaningful investments in their intellectual property. Nest licensed patents from Intellectual Ventures, and owns 92 US issued utility patents, 21 US design patents, and 160 US and foreign patent applications.”
Australia lags behind all developed countries of similar or smaller size when it comes to capturing innovation as transferable assets, that is, patents. Australians cannot participate in the knowledge-based capital economy with little to trade. Only five Australian entities are in the top 1000 US patent assignees: Cochlear, Resmed, Aristocrat, CSIRO and Kia Silverbrook. No wonder Australia has a yearly $3.25B IP deficit.
Patenting up needs to be part of this start-up conversation as well. It is true that the government can take steps to bolster the start up community and it does. The government offers grants for IP development and procurement. Click here for more information. However, the R&D Tax Incentive does not include incentives for IP development and procurement. Since so many companies utilise the R&D Tax Incentive, the government maybe should consider that capturing the innovation from those activities in the form of transferable assets, patents, is worthy of a tax incentive.
The bigger picture is this: Australian business, including start-ups need to consider that the value of a corporation’s patent portfolio (typically based upon its size) can be a significant fraction of the overall value of the corporation. For example, “Ocean Tomo 300 Patent Index” lists 300 corporations whose market value is governed in large part by their patent portfolio value. Companies such as IBM, Microsoft, eBay and Amazon are on that list.
Start-up companies complain that patent application preparation is too expensive. However, what is missed is that a company can create a patent culture, like those of Apple, IBM and Microsoft, and streamline the patenting process within the company for the least possible expense for the greatest possible outcome. The first trick is to learn what we mean by a patentable invention. Most are surprised how low this bar really is. In this way, any company can increase their valuation by capturing their innovation as transferable assets, and help themselves be attractive to investors and buyers and at the same time create wealth.