| | MARCH 20199Consultants ReviewRavi Srinivasanpercent of all startups reportedly hold patents, this percentage has been documented to rise to about 80 percent among those receiving venture capital investment.Protection of InnovationPatents can help to prevent larger rivals from hijacking a startup's innovations. In addition to providing a means for redress against infringing competitors, a patent can deter a larger company from appropriating a startup's inventions in the first place.Defence Against Incumbent CompetitorsIt is not uncommon for larger, existing companies in a particular field to attack a startup competitor by launching a patent infringement suit against them. In particular, an incumbent company can attempt to litigate a startup rival out of business by quickly running down their more limited resources. A robust patent portfolio can help to safeguard against such an attack by reinforcing a startup's intellectual property position, allowing them to negotiate with competitors and fight back more effectively.Increased Market SharePatents can enable a startup company to quickly increase its market share. For instance, a startup itself may have a limited capacity to manufacture its innovative product. Rather than restricting output to the startup's capacity, a patent allows the technology to be licensed to other players in the field. As a result, production may be increased together with the startup's overall market share. Freedom to OperatePatents can also help to maintain a startup's freedom to operate. If the startup is an early entrant to a particular field, its patent(s) can act as a barrier to entry against potential competitors. This can prevent `copycat' rivals from entering the field and filing their own patent applications, reserving it for the startup.Facilitating PartnershipsManufacturing and service firms frequently develop their products or services using inventions brought in from outside of the firm. Startups are an important source of such inventions. The possession of a patent can bring a startup's existence and technology to the attention of other firms, and serve as a legal framework for constructing joint ventures and research & development partnerships.Improved Prospects for AcquisitionAs discussed above, patents are a valuable asset for any business. Accordingly, patents may increase the likelihood that a startup will be acquired. Furthermore, startups that own substantial and valuable intellectual property may be able to use this to negotiate a lucrative acquisition deal. Initial Public Offering Finally, patents can help a startup to prepare for an Initial Public Offering (IPO). A robust patent portfolio can serve to allay investor concerns over a startup's legal risk in advance of its IPO. In addition, a startup's own patent portfolio can assist in fighting off alleged infringement attacks launched by competitors, which may be timed to disrupt the IPO, and can also protect the startup from further litigation later on. While patents are important to businesses of any size, they can confer a number of additional advantages that are particularly significant for startups
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