How Small and Mid-Market Firms Can Navigate Patent Purgatory

CEOs of small and medium-sized companies face very different challenges than Apple and Samsung do.

Goodway holds 35 patents that cover designs or methods it uses to repair heating and air conditioning equipment in factories and it has applied for about 20 more. It is now engaged in a technology dispute with a larger U.S. competitor it declines to identify. “The legal assets that the larger companies have and their familiarity with the nuances of the system all lead to their advantage,” says Kane. “We have to fight for everything we get in the marketplace.”

Without a general counsel on staff, Kane relies on a three-part strategy to fight for his intellectual property (IP). He has long had a patent application attorney who understands how to describe the company’s products, but more recently Goodway added a patent litigator to review the patent applications in the event that they are ever litigated. That builds in another layer of protection.

“There has to be a bit of saber-rattling to make sure your competitors are on notice that you will defend your IP.”

The third, and most recent, component of his IP protection strategy is the hiring of HaystackIQ, founded by Jay Walker, the inventor of and many other innovations. The firm has access to the U.S. government’s database of existing patents, issued by all companies, and searches them to find technologies that would help Kane sharpen his competitive edge or to help find new uses for Kane’s existing patents at other companies, which might choose to license them.

Add it all up and Kane believes his company has developed a reputation in his industry for vigorously protecting its intellectual property—and reputation really matters to companies either thinking of suing Goodway or stealing one of its ideas. “There has to be a bit of saber-rattling to make sure your competitors are on notice that you will defend your IP,” he says.

In technology fields evolving as rapidly as 3D printing, the uncertainty over patents may prevent small startups from getting funding from angel investors or venture capitalists, says Scott DeFelice, CEO of Oxford Performance Materials, based in South Windsor, Connecticut. With about $10 million in sales, which are growing at a 40% annual clip, DeFelice says his company has 12 patents or patents pending in the U.S., Europe and Japan. About half his sales are outside the U.S.

“There is a sort of headwind against technology start-ups because you have a technology and you go to your investors and try to raise money,” DeFelice says. “You tell your story and the investors start the due diligence. They start talking about intellectual property. You tell them, ‘We have a patent.’ But everyone sort of grimaces. Investors just don’t have the stomach for these fights. At the end of the day, many new technologies are just not protectable.”

DeFelice raised $6 million in funding in 2015 and his sales are growing rapidly, so he believes Oxford Performance Materials is past the point of being a cash-starved startup. But he knows that larger companies are trying to figure out how his company uses a variety of different metals and plastics to make 3D parts for the biomedical industry, such as artificial pieces of a human cranium, as well as lightweight parts for the aerospace and space industries. “We are a test case,” he says. “What happens when a small company has something disruptive to large companies and industries? Can we protect ourselves through the patent law?”

Patent-2-compressorIncreasingly, he says, the answer to that question is no. “Patent law is to the benefit of a few large companies but it has become a detriment to many smaller companies,” he asserts. So although Oxford pursues patents as a kind of hedge policy, it concentrates on doing things internally that will prevent the leakage of technology. DeFelice says he structures the company so that only a few people understand its “secret sauce,” using firewalls between different groups of employees. He also uses stock options to retain the loyalty of key players. He figures that one of the biggest threats to his IP would be if a larger company were able to lure away top technical talent. “The lawyers are going to hate to read this,” he says, “but patenting as a way of protecting one’s intellectual property is becoming more irrelevant.” So far, his strategy has worked.

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