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Tuesday, October 29, 2013

Patent Demands & Startup Companies: The View from the Venture Capital Community

Robin Feldman, Professor of Law and Director of the Institute for Innovation Law at University of California Hastings College of the Law, today released the findings of her study “Patent Demands & Startup Companies: The View from the Venture Capital Community.” 

Among its objectives, the study sought quantitative data on the frequency of patent demands (sometimes known as patent assertions); whether those demands are made by entities whose core business involves the licensing or litigation of patents; and the dollars spent in response to demands. The survey was distributed to members of the National Venture Capital Association and the CEOs of member firms’ portfolio companies.

Patent Demands & Startup Companies finds that of the respondents, 70 percent of the Venture Capitalists and one in three startup companies report having received patent assertions. Eighty percent of survey respondents indicated that the number of patent demands they have received has increased over the last five years.

“The economic and human toll of patent demands on startup companies is substantial. When startup companies must spend time and money thinking about patent demands, they are not inventing, and they are not expanding,” Professor Feldman said.

Other study findings include:

  • Patent assertions impact various industry sectors unevenly. Seventy percent of VCs identified information technology as the industry sector most impacted by patent demands, followed by life sciences (30 percent) and clean tech (10 percent). Additionally, 60 percent of VC respondents reported that patent demands came from entities whose core activity is licensing or litigating patents.
  • Defending against patent assertions is costly. Sixty percent of VC respondents estimate that the average cost per company to prepare for and defend against patent demands exceeds $100,000, with some reporting costs in the millions of dollars. This represents a significant expense for young startup companies.
  • Patent demands often impact business operations significantly. 75 percent of VC respondents and 60 percent of CEOs reported that patent demands had either a highly or moderately significant impact on the companies that received them, including distracting management, expending resources, or altering business plans.
  • Most VC survey respondents do not perceive patent assertion as a positive influence in the startup community. Seventy percent of VC respondents said they do not believe patent assertions are positive for the startup community. Further, every VC respondent indicated that an existing patent demand against a prospective portfolio company could factor into his or her decision to invest in that company, while 50 percent said it would be a major deterrent.

The full report is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2346338

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