The stimulus package recently passed by Congress and signed into law by President Obama (the American Recovery and Reinvestment Act of 2009) includes billions of dollars for energy grants and loan guarantee provisions that are intended to enhance the use of renewable energy as well as energy efficiency. This includes substantial funds for R&D in "cleantech" technologies. This funding, as well as the existing global interest in reducing the use of fossil fuels and increasing energy consumption efficiency, should lead to an explosion of new cleantech products and technologies.

These forces are already creating a "land grab" scenario in the cleantech space, where players are racing to reach the market as quickly as possible. In this environment, it is critical that cleantech companies appreciate the importance of developing a patent portfolio to protect their innovations. While this is generally true for most high-tech startups, it is particularly important in a land grab situation. A similar situation existed in the computer industry in the 1960s and 1970s, where IBM amassed a huge computer patent portfolio, and reaped benefits for years in the form of licensing revenue. If history is any guide, we know that companies with cutting-edge technology and an aggressive patent strategy in a rapidly emerging market will amass an arsenal of valuable patents.

Patents are a valuable asset even before a company enters the market. Pending and issued patents can help a company obtain financing or better financing terms. Patents can protect a new company's place in the market, and can dissuade and even exclude potential competitors from entering that market. Patents can deter other companies from asserting their own patents against a new company still in startup mode, or can place it in a better strategic position should there be patent litigation. Finally, patents can be translated into real economic value through licensing, an outright sale of the patents, or assertion in litigation.

Overview of a Patent

A patent is an intellectual property right granted by the federal government to give inventors an incentive to publicly disclose their inventions. In return, the federal government grants the patent owner the right to exclude others from making, using, selling, offering for sale, and importing the invention during the term of the patent. Generally, patents are applied for and issued on a country by country basis (Europe being an important quasi-exception). Patent rights extend only to those activities within the issuing country or that eventually affect the issuing country in certain ways. In most countries, a patent issued today will expire 20 years from the date the application is filed with the Patent Office. Once the patent expires, the invention is dedicated to the public domain for anyone to exploit.

In the United States, there are two types of patents: utility and design. Utility patents cover new and useful processes, machines, manufactures, or compositions of matter, or improvements thereof. Utility patents are prevalent in nearly every engineering field, such as electrical engineering, software, biotechnology, and pharmaceuticals. In contrast, design patents cover the ornamental (non-functional) designs of an object, such as the appearance of a consumer electronic device (as opposed to its functional features). Design patents are prevalent in industries where the unique appearance of a product serves to differentiate its source from other competitors. Patents are granted if the invention is useful, novel (i.e., new and different from what has been done before), and unobvious (in light of all known or used technologies).

Why Patents are Desirable for Cleantech Startups

Patents have substantial inherent, economic, and deterrence values. The inherent value of patents validates the worth and viability of a company's products or ideas. They provide proof that the government believes the ideas are inventive. They also provide a right to exclude others from copying the innovations over the life of the patent. Angel investors, VCs, potential suitors, and Wall Street professionals appreciate the inherent value and importance of patents.

A patent also can translate into tangible economic value in the following ways:

* Patents can be sold outright to another person or entity;
* Patents can be licensed to others to practice the patented invention;
* Patents can be asserted against others in lawsuits to obtain damages for infringing the patent.

Patents can also have a significant deterrent effect against other entities filing patent lawsuits. Any entity who is sued can counter sue by asserting its own patents to level the playing field. A diligent patent holder will research the patents of the potential target to determine if they own patents that could be asserted against the patent holder. If a company owns patents that pose a threat to the products or services of others, then others will think twice before suing that company, and often times will instead pursue easier targets who do not own any threatening patents.

Strategies for Developing a Patent Portfolio

Any company has the option to keep its inventions trade secrets of the company instead of publicly disclosing them in patents. However, since most inventions can be reverse engineered from the resulting products or services, patents are usually the only effective way to keep others from using the inventions. Therefore, once a company decides to build a patent portfolio, the following guidelines should be considered:

* Identify the key market space, and where the company and the market are headed. It is critical to identify the key space within the market that should to be protected (e.g., solar cells using material X). It also is critical to identify the areas where the company, its competitors, and the market are headed in the future (e.g., solar cells using material Y). A good patent attorney can draft the claims of the patent (which define the ultimate patent rights) in a way that protects both existing market space as well as future market applications. Obtaining broad patent claims is akin to grabbing a large area of land.
* Develop a budget. Decisions are best made with a budget in mind. The U.S. Patent Office filing fees start at approximately $600 per patent, and can exceed $1000 for lengthy applications. The legal fees for a patent attorney to prepare an application typically range from $3,000 to $15,000 (depending on the complexity of the invention). Additional fees will be incurred as the application is "prosecuted" before the Patent Office because initial rejections are commonplace (typically on the basis of prior art discovered in the Patent Office search and/or perceived technical deficiencies in the application). A budget will help to determine how many applications to file and how to prioritize them. A budget will also help determine whether counterpart patents in other countries should be filed.
* Decide which countries are critical to the business. Each country has its own patent system that requires a local patent application be filed in order to be enforced there (i.e., a U.S. patent can only be enforced in the U.S. based on activities in the U.S.). For each filed U.S. patent application, the company will need to decide whether to file that application in other countries as well, which can be expensive. In general, a patent application should be filed in any country in which the invention is made, used, sold or imported. While the company should focus on those countries that contain a significant customer base for its products or services, filing applications in other countries can add value to the portfolio.
* Identify inventions. Almost every company will have a new technology or product as the foundation of its business model. This technology or product likely will be based on one or more patentable inventions. It is always advisable for a company to consult with a patent lawyer to determine if it has developed patentable innovations. It is also advisable to have regular "patent meetings" with key technology employees to identify any new inventions. These employees are usually focused on productizing the technology, and will generally not place the proper priority on pursing patent applications without a structured internal patent program.
* Document inventions. In many fast-moving technologies, the same invention can be developed by two different companies around the same time. Most countries will award the patent on the invention to the first inventor who files for a patent (i.e., creating a race to the patent office). However, under U.S. law, the patent will be awarded to the first inventor to "conceive" of the invention, presuming they were diligent in filing for their patent. Therefore, it is often critical to be able to provide hard evidence as to the dates when inventors first conceive of their inventions. This evidence can also be used to overcome otherwise fatal prior art rejections by the Patent Office, as well as defeating challenges to the validity of the patents in litigation, by proving the invention was conceived before the date of a prior art reference. Signed and witnessed engineering notebooks, electronic files with their metadata, and revision histories for source code are good forms of evidence.
* Identify key events that will trigger patent deadlines. In the United States, a patent application must be filed within one year after the inventor (or anyone else) first publishes the invention, makes it available to the public, sells it, or offers it for sale. Almost all other countries are stricter, requiring that a patent application be filed before any such activity occurs. Thus, before a product is ever launched or demonstrated, or before any inventor attends a conference in which technologies are revealed, it should be determined if a patent application should be filed first (or that the one year anniversary date be calendared if there is only an interest in filing a U.S. patent application).
* Consider a strategy for revenue generation. Often times an aggressive patent licensing and/or patent sales program can be a business unto itself. It is well-known that IBM generates approximately $1 billion per year in licensing revenue from its patent portfolio. (See Bruce Bigelow, "By cultivating revenue growth through licensing, more U.S. companies are marketing their intellectual property", The San Diego Union-Tribune, May 14, 2006.) Other companies have successfully licensed and/or sold their patents, either one at a time or as an entire patent portfolio. Of course, if a company practices the patented invention, it will need to get a license or covenant not to sue from a purchaser of the patent to continue such activities.
* View patents as an asset. Patents are not just pieces of paper. They are assets just like stocks or real property. Investing $15,000 now in patent preparation and filing fees can reap rewards that are tenfold (or even hundredfold) greater than the initial investment for the company -- or perhaps more importantly an acquiring company -- in licensing fees, patent sale proceeds, and/or court judgments in the future. Patents can help lure potential investors, acquirers, or Wall Street underwriters when the company is at a critical stage in its growth.
* Be mindful of obligations to government funding sources. Most government funding grants provide the granting agency with certain rights to any inventions (and patents thereon) developed using the grant funds. Usually those rights are in the form of a royalty free, non-exclusive license back to the government. Given the proliferation of government grants for funding cleantech technologies, cleantech companies need to carefully consider how such government rights in their inventions might affect their business plan (and the value of their patents in particular) before accepting the funds. Such governmental rights prevent the company from granting exclusive licenses to others, and may allow their competitors to use their inventions without compensation. Additionally, any such grant rights must be identified in U.S. patent applications. Companies with other funding sources will need to carefully track which inventions are not developed using the government funds, and thus not subject to the grant provisions.

Conclusion

Due to significant infusion of government funding, the cleantech industry is one of the economic sectors that can expect significant growth and competition despite the global economic downturn. This is creating a patent land grab situation that makes it more important than ever for any cleantech company to carefully incorporate a patent procurement plan as part of its overall business strategy.

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