"Patent Fight Erupts Over Kids' Fad" barked the title of the WSJ article.
Three-year old Rainbow Loom -- a rubber-band jewelry-making kit that is a blockbuster seller this fall--sued rival Zenacon LLC and Toys "R: Us inc, and others.
Will the patent holder win?
History suggests it will not.
These are the main reasons:
- Patent wars take years to fight. This may be simply a fad market, over in less time than it takes to get a judgement from a trial.
- Patent defense costs a LOT of cash. Lawyers are expensive. They bill by the hour. A patent lawsuit can cost millions of dollars. That's more than most startups can afford.
- No one can predict the outcome of the trial. People on a jury are wild cards, capable of all sorts of different decisions. It is like gambling to bet on the outcome.
- You will get countersued. Already the founder of the Rainbow Loom has been sued by another larger corporation. The mess spreads like rings from a stone thrown into the water.
- No investor will finance patent litigation. Once your startup begins patent wars, the end has come for fresh investors.
- It can backfire on you. I was part of a startup who sued a rival that had recently gone public. The spat was over blatant miss-use of patented technology of the startup. The result ended up in shutting down the startup. That happens regardless of how the founders feel about how wrong the bad guy is.
So when is a patent helpful to a startup?
Here are some I've observed in serial entrepreneurs:
- Patents are bragging rights for the VP Marketing. "We have 12, they have only 3!" Meaning your products must be far superior to theirs. People believe bravado like that.
- In ten years, the patent can become useful. Amazon blocked one-click ordering by rivals. Most are helpful after you go IPO and have tons of cash to spend fighting patents.
- Life science business models require patents. They need the monopoly profits to pay for the duds and dead ends in other research efforts.
So bottom line:"Patents are nearly worthless for startups."
BOTTOM LINE: Build your unfair advantage on more than a patent or two. Use multiple elements to construct your battle star. Let intellectual property propel you to great products, creative marketing and a dozen more power boosting elements. When you can do that, you'll hear the cries of your opponents, "That is unfair!"
I wish you The Best on your Adventure!