Value is in the Eye of the Beholder

by: Stratford Managers

Why should a small, cash-starved start-up bother getting patents?

It can cost $15,000 – $20,000 to get a patent. Not to mention that patent litigation is an expensive game, so it’s unlikely that a start-up could even afford to defend itself should someone infringe its patent.  This is especially true if the infringer is a big company with deep pockets.

But before you dismiss the idea completely, think about another scenario involving a big company.

Let’s say a big company comes across a start-up and likes its technology enough to consider acquiring the smaller firm. The larger company will place a higher value on the technology, and hence the start-up company itself, if it is protected by patents. That’s because the acquiring company has the financial resources to prevent others from using the technology by pursuing litigation to defend these patents if necessary. Since the average price per patent within a brokerage transaction was as much as US$1.6M in 2012, according to IPOfferings, you can see how patents can contribute to the valuation of a start-up.

So when a small start-up is agonizing over whether to patent a technology, it should recognize that this decision can influence the overall valuation of the company in the event of an acquisition. Although that patent may not seem to be the most attractive way to spend money now, remember that value is in the eye of the beholder!

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