Patent to Profit

Magazine: 

Making the Leap from Discovery to Commercialization

"To sleep, per chance to dream"--Shakespeare

"To invent, per chance to profit" --Reality

Few new technologies are hot licensing items or market-ready upon discovery. Before you see dollar one, your invention most likely will require significant post-discovery development as proof-of-marketability and product performance. Discovery is a milestone for successful inventions.

Scientific proof-of-concept, even if patented, usually is not enough.

Take this stage very seriously. Post-discovery development applies to most inventions in most industries. Some are more extensive and expensive than others. Remember, as soon as you introduce your new technology to the world, other inventors will scour your newly invented technology to find limitations in your design, and to find complementary, supplementary, and competitive science -- and therefore patents-- for themselves. For you, post-discovery development might reveal additional patents to file that enhance market and licensing value of your technology. What seems great in concept may not perform as well outside the lab. For example, Scotch tape didn't sell well until 3M invented the dispenser. In post-discovery development you will find and work out the kinks. Post-discovery development helps ensure that your technology is complete, practical, and enduring. If you leave science on the table, then you're leaving money and reputation on the table too.

Protect Your Rights with a Provisional Filing

A provisional patent filling protects your invention for one year. And it costs, in total, much less in dollars and days than filing a full patent application. Note that as of 2012, the United States is on a 'first-to-file' basis (joining other nations, including Europe, who have been doing so for a while). 'First to file' makes filing a provisional patent more important than it has been in the past. Without 'first-to-file', an inventor can be trumped in getting a patent approved, or retained. After filing for a full patent, another inventor can show up and prove to the U.S Patent & Trademark Office that she invented it first or established 'prior use', even if she did not yet patent the invention. With 'first-to-file' you can only be trumped by another inventor, filing either a provisional or full patent application first. There are some other benefits to filing a provisional patent, which allows for a full year of protection:

  • Before publishing or otherwise releasing your patent application to the public -- and other inventors to see for a year;
  • To enhance the technology and practical application in the post-discovery development process;
  • To raise funds from grants, contracts, or investors after you have proven concept -- after discovery -- which is usually easier than before discovery. You can share some (or all) of your discovery to investors and advise them that they might be violating federal or state securities laws if they then disclose your information to third parties without your authorization.

Funding patenting, post-discovery development, and initial commercialization

After filing for a provisional patent, and once a post-discovery development plan is in place, you will need your partners, investors, or a university to fund $25,000-$50,000 for a full patent application as well as post-discovery development. Most likely, they will ask you for a 3rd party evaluation of commercial viability (3rd party pre-cash valuation) and, perhaps, a commercialization strategy. The 3rd party commercial viability evaluation includes:

  • Identify initial 5 year target markets for end users for your new technology;
  • Determine whether it will complement, supplement, or replace the current technology;
  • Measure the market size and trends;
  • Estimate your likely market share;
  • Project your technology's performance-- the annual revenue over the initial 5 years --based on the market's size and your estimated market share;
  • Compare your projected revenue against projected costs for production and sales/marketing.

Remember, these are just estimates and projections and you will include the information and sources on which you based these estimates and projections. It just has to be reasonably cautious. It has to make sense.

Commercialization Strategy

At a minimum, your partners and investors will pay for you to define a commercialization strategy. Based on 3rd party evaluation, your commercialization strategy should develop recommendations on whether to:

  • Market organically or out-license to another company with an existing marketing infrastructure;
  • Out-license all rights, or to restrict rights to certain markets and uses;
  • License rights to one company, or to several, based on their relative capabilities in each market.

Once this has been decided, you can propose initial steps, set out the assumptions for selecting your commercialization strategy, and outline financials associated with them. Some common post-discovery development steps:

  • Translate your technology into tangible, fully functional products by constructing prototypes. You need to do it right up front, because if you don't, should a later prototype not work up to specifications, you will have lost credibility among investors and licensees; The prototype should be tested by end users through 'durability' and 'safety' testing. It should also meet the minimum required by law, standards, convention, and/or insurance, and take into account the requirements of geographies and industries;
  • During this process you can review your materials for long-term availability, price stability, and cost as compared to alternative materials. Eventually, your company - or your licensees - will manufacture the products in large quantities to sell; so this matters a lot.Sometimes the best choices scientifically --the ideal choices -- are a nightmare to manufacture.

Look into multiple product applications for your new technology because they likely exist: The main product which you have in mind might not succeed as quickly or as well as you expect;

  • You might be missing out on substantial additional sales or licensing royalties; and
  • You will be deciding on whether to license a product application or geography, and,
  • if so, how many different licensees vs. exclusivity to one licensee.

Know what you own and your legal responsibilities towards ownership

Have a legally binding paper chain clearly confirming who owns the intellectual property rights and how much of the rights each owns. Prospective investors and licensees will require the documentation before proceeding to serious negotiation steps. Note: You can forfeit the exclusive rights of ownership and licensing (per "Bayh-Dole Act" or Patents & Trademark Act Amendments of 1980; PL 96-517), because you have an affirmative responsibility to commercialize the technology and share the proceeds reasonably with the actual inventors if any of your funding came through the U.S. federal government -- grants, contracts, co-development -- or you are a university, non-profit, or small business.

Summary

Expect a substantial post-discovery development stage to prove and proceed with the marketability of your invention. Prepare a 3rd party commercial viability evaluation and commercialization strategy for investors and partners who will pay for the post-discovery development. Build working, compliant prototypes for endurance and safety testing and review the availability and cost of your bill of materials. Confirm with a legally solid paper chain that proves ownership and intellectual property rights to your invention.

About Steven J. Reichenstein

Steven J. Reichenstein holds an MBA in marketing from Syracuse University and BA in economics from Tufts University. He has 20 years experience with pharmaceuticals such as Johnson & Johnson Ethicon, Merck, Sanofi-Aventis, and US Healthcare (now Aetna Health Plans). He served as Publisher of Managed Healthcare Executive before starting Biomart Global in 2008. Biomart Global focuses on licensing for post-discovery development of technologies now on shelves at universities, non-profits, and small businesses.