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Why a $750,000 spend on patent fees wasn't worth it

Chad McDermott/iStockphoto

Erik Lindquist was principal of alternative energy at DEC Engineering in June, 2008, when he filed a patent for a new municipal infrastructure development technology.

In the past five years, the fees associated with filing that patent have reached nearly $750,000, while Mr. Lindquist continues to develop new technologies that are catching up with and improving the performance of the core product.

"It was a very arduous, expensive process," he says. "As time goes forward, what I've seen is we're developing technologies beyond that, new heat pump technologies that are more efficient and dramatically change how district energy systems are built, so all that time and expense we invested ... we can now achieve through more efficient systems."

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The District Energy Sharing System that DEC developed, in partnership with Tiger Trends Consulting Inc., can reduce a community's energy consumption by 60 per cent and its portable water requirements by 40 per cent, for an operating cost savings in excess of 40 per cent. The all-in-one sustainable development solution captures heat that is lost when buildings cool, and it uses energy sharing as well as other alternative methods.

Mr. Lindquist is now president and founder of Titus Infrastructure Services Ltd., which was set up to commercialize the District Energy Sharing System and other technologies. The Victoria-based company experienced rapid growth in its first year-and-a-half, opening offices in Boston and London. He says he believes the company could have been even further along if he had spent the past five years focused on bringing his product to market, developing partnerships and creating value added products, instead of filing for patents.

Susan Ben-Oliel, a patent council with international law firm Fasken Martineau and a registered patent agent in both Canada and the United States, says that's why it's important for early stage companies to establish a strong business case before seeking patent protection.

"My personal view, after practicing for more than 20 years in this area, is there has to be a value in order to proceed to file a patent application and to try to secure patents," she explains. "If a client is really strapped for cash, it's an early stage company or a small company or an entrepreneur, we do a patent search before we file so that you can get an idea of what the landscape is – who's filing, who's secured patents in that area, what your competitors are doing – we like to do that search up-front so that you know what the value proposition is going to be to enter this space."

Ms. Ben-Oliel says it's important for small businesses to decide whether or not to file a patent as early as possible because of what's called the first-to-file rule, which gives first-come first-served priority to patent applicants. Unfortunately, small businesses often don't have the time, the resources, or a clear enough vision of their innovation to pursue patent protection in those early days.

"That's when some decisions really do have to be made," she said. "I would say try to get some legal advice, even in a modest way ... earlier on, rather than waiting and hitting all kinds of road blocks and obstacles later."

While patents are standard in some industries, others present alternative ways to create barriers for competitors, says Andrew Maxwell, chief innovation officer of the Canadian Innovation Centre.

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"The patent is really a barrier to entry, it's a way of stopping a competitor from coming in and just replicating what you've done," he explains. "It's very important when you have a business that you have a way to do that, and there's a tendency to always think that the only way to do that is through patenting, but in practice there are other ways you can create a barrier to entry that is not patenting."

Mr. Maxwell says instead of pursuing patent protection small businesses can, in some cases, give themselves a comparable edge over the competition by being first to market, by tying up distribution networks, by securing major customers, or by licensing a brand or product to a larger company.

"You can also do things like business model innovation, so you can basically say, 'well we want to get out there, we want to be the market leader, we're going to give away our product for free, and once we've got thousands of users we're going to persuade a small percentage of them to pay a premium for premium service.'

"If the basic service is free it's difficult for someone else to come in and undercut you on price."

Mr. Maxwell also urges small business owners to consult a legal professional to determine whether or not a patent can provide better protection than other, less expensive alternatives.

"There's a whole range of different ways to make it difficult for people to come into your market space, and to be honest, there is no right way," he says.

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But what if a business owner decides not to pursue a patent and a competitor comes along, recreates the product or service, and files one as a blocking mechanism? "There's sort of two answers," says Jonathan Mesiano-Crookston, a Canadian lawyer and patent and trademark agent. "The big picture answer is that in Canada, a patent will no longer be granted for an invention when it's been disclosed by another person.

"So assuming a small business owner puts their invention out into the market as a product, and assuming the person who buys the product can reverse engineer it, that would be a public disclosure of the invention. The inventor has a one year grace period to file for that invention, so for up to a year after they start to sell they can patent that invention, but third parties can't, because they can't take advantage of the grace period."

In theory, assuming the product in question can be reverse engineered, a competitor cannot secure a patent claim. However, Mr. Mesiano-Crookston points out, the patent office won't likely be aware of what's on the market, it will only search publications and other patents. "So that situation could arise, and then what would happen, presumably, if a patent was granted, the small business owner who put the product on the market could invalidate the patent, but they would have to have a patent invalidity trial about it, and that would be very expensive."

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