Why 95% of U.S. Utility Patents Never Make Money

I'll wager that nearly everyone here has heard the word "patent."

That word can mean a lot of good and bad things for founders, and you might easily overlook how patents affect your business.

This impact is especially significant if you aren't thinking about patents at all, which often means founders in manufacturing, software, or sales. And this makes sense because you have so many other things to do, risks to mitigate, and expenses to pay.

But founders should know it's fairly common to infringe patents, and your risks go up if you're an online seller. Patent holders can contact online retailers, such as Amazon, and spend a few thousand dollars to initiate a listing takedown.

Products can range from everyday items like glassware and pillows to the more obvious software and electronics. The patents you may violate might belong to companies you already know, but they often belong to people or companies you didn't even know and that have no products on the market.

And this risk only grows as your products sell more and your company grows. The costs can stack up quickly because of blocked sales, stranded products in warehouses, hiring an attorney, and more. A good starting point is to estimate $3,500 in attorney fees, a $4,000 deposit for the Amazon Patent Evaluation, plus 1-3 months of lost sales.

Fortunately, this problem is entirely preventable with a low-cost, hassle-free solution…when done early. Talk to an attorney about your infringement risks and whether a Freedom to Operate search makes sense. Be sure to discuss whether you need to consider your product's function and appearance.

Understanding other people's patents is one side of the equation. The other is deciding whether it's worth pursuing your own patent.

In fact, 95% of issued US utility patents never generate any net profit.

Getting a patent doesn't guarantee customer demand or a licensing deal. The invention still needs to generate enough revenue to cover the costs of bringing it to market and protecting it.

The good news is that getting a utility (functional) patent may be easier than you thought! I say this because the odds are roughly 50% that your US patent will be issued. And for those who receive them, they can be a valuable addition to protecting your future marketplace and generating additional revenue streams through licensing.

While this is exciting, founders need to keep in mind a few additional caveats:

• It's expensive (a minimum of $8k upfront and another $6k when your application's review starts, in about a year and a half).

• Other forms of intellectual property protection such as copyrights, trademarks, trade dress, etc. are likely to be less costly (but still important).

• Your patent could be rejected.

• 80% of inventions we encounter are ideas that aren't patentable.

Discussing these caveats early helps clarify whether a patent is worth pursuing and, if so, how to approach the application.

One final comment. AI is tempting many founders to save money by using it for patent research. We've seen our share of these reports, and every one has produced very bad results in a beautiful-looking report.

Whether you're considering a patent or researching potential infringement risks, the research is only useful if you can rely on it to make decisions.

Want to learn more from Steve about patent research and what it can tell you about your business?

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