Saturday, October 24, 2009

The Biggest Patent Myth Debunked

There are many good articles about patents, so I just want to address what I think is the biggest misconception I've heard from entrepreneurs. It is:

Once I get a patent, nobody else can sell my product.

Would that the world were so simple. A lot of entrepreneurs have unrealistic expectations surrounding patents.

One fine day I was looking through a catalog that had my patented product featured on page 12. On page 18 there was an identical knock-off of my product that was selling for half the price. How could they do it? I had a patent for Pete's sake.

The company that had knocked off my product was called, let's say Company X. I called them and asked what they were doing. They replied that they had engineered their product to have one difference with our patent application specs. We said that we didn't think it was a sufficient difference, and that we would likely sue them. We also said that we'd tell the catalogs that they had infringed on our patent, and that the catalogs should stop selling the knock-off due to potential legal concerns. At that point Company X told us that they would sue us for making false accusations!

We consulted with several intellectual property attorneys. Even though they were "contingency based," they all wanted significant deposits. The bottom line was that Bandwagon had cleverly engineered around a design issue. We'd likely eventually prevail in court, but like most things, it wasn't about right and wrong, it was about what made sense.

And that wouldn't have been the end of the legal costs. There isn't a magic Patent Fairy who magically stops all infringing products when they arrive in port. First you have to know when they're arriving, and then be present to have a hearing in that jurisdiction to stop them from being imported.

Then of course we had to consider the ramifications of a lawsuit that we'd bring against another company in a major catalog, with whom it was critical for us to maintain a good relationship.

After considering all the costs, hassles, and potential damage to our distributor relationships, we decided not to sue. Instead, we went back to the catalog, and told them that since we had just reduced our costs, we could pass along a lower price, and asked if they'd help us out, since we were the original. They agreed to drop the other product.

In the end, it didn't matter that we had a patent. Indeed, we learned that Company X's strategy was to find cool products, research the patents, then take advantage of any design modifications that companies had done in the two years since they filed for the patent, and then design their own knock-off to exploit the difference! So in our case, having a patent granted actually created a competitor.

Does having a patent help? Most of the time, absolutely. And being able to tout "patent pending" in your marketing materials always helps. But simply getting the patent doesn't mean your new address is Easy Street.

Paul Hynek is a Wharton MBA, and creator of EZ Numbers:, software that enables entrepreneurs to create their own custom pro formas in hours.

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