The Patent Light

When investing in a small company, part of the critical information that investors need to know are (1) whether the product or products produced by the company infringe or will infringe patents owned by others, and (2) the strength of the company’s own patent portfolio.

While these questions seem related because they both deal with patents, they are actually very different questions.  Unfortunately, many investors are often confused because some companies, either knowingly or unknowingly, combine the issues to give investors a false sense of security.

For instance, assume your company of interest has a patent application pending on their main product.  Also assume that a competitor has a patent application filed at a later date on a similar product.  When you ask about the competitor’s patent you are told: “Our competitor’s patent is irrelevant to our patent application because our patent application was filed first.”  You assume that because your company’s patent was filed first, you can quit worrying about the competitor’s patent application.  This line of reasoning sounds logical, but it is WRONG!

While your company told you a true statement, the statement only related to the relationship between company’s patent and its competitors patent.  It did not relate to the question of whether the company’s products infringe the patent of their competitor.  Confused?  You are not alone.

First, remember that there is a difference between patents and products.  Sometimes when a company submits a patent application describing their product, the patent office refuses to grant coverage on the entire product.  Often, all the company can get is coverage on a small feature of their product – not the entire product.

Second, remember that the patent office only checks to see if the invention is patentable.   The patent office does not check to see if the invention infringes upon patents of others.  It is possible to get a patent, but not be able to actually use or sell the invention described in the patent because your invention infringes on the patents of others.

Also, remember that products change because of research and market needs.  Features covered by the original patents may or may not be included in newer versions of the products.  It is also possible that a new feature in the actual product is or will be covered by the patents of competitors.

How can you tell what is covered by a patent?  First, be sure you are looking at a patent and not a published application.  Then, look at the claims.  The claims of the patent define the actual coverage of the invention and they may or may not correspond to actual products.

Are you still confused?  Then at least insist that your company bifurcate their statements to you.  When you want reassurance on whether their products might infringe the products of others, make sure they limit their statements to that issue.  The strength of their own patents can and should be discussed separately to eliminate confusion.  Often, you will find that the company’s management is equally confused and will also be enlightened  when forced to bifurcate these questions.

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