Patent plan: how to maximize your invention's return on investment.

• Author: Fillmore, Sterling
• Position: Legal Brief

For small companies, there's never a shortage of business expenses. Faced with choosing whether to spend capital on staff, sales, marketing, inventory or product development, entrepreneurs must constantly ask: Are we putting our money where it will bring the greatest return?

Prioritizing amongst costs, companies often invest in patents to protect their inventions and innovations. Put simply, a patent gives a patent holder the right to exclude others from the use of a patented invention. To effectively leverage these exclusive rights, a patent strategy is needed. Patent strategies can vary as widely as differing business models, but there are basic factors that should be included in any patent strategy.

Consider Company Goals

First, a patent strategy should consider a company's goals. Companies often seek patents to prevent competitors from simply copying the products they've worked so hard to develop. Although headlines of million-dollar infringement lawsuits make exciting news, most patent disputes are settled privately for unknown amounts outside the courtroom.

If patents are compared to real estate, patent claims serve as fences that define an encroachment of the patent holder's territory. Often the effect of a patent on a competitor's behavior remains unannounced and unknown, even to the patent holder. Many companies keep apprised of their competitors' patents as the "fences" in their technical field and avoid crossing them to reduce the uncertainties and risks of potential litigation.

On the other hand, to gain licensing revenue, some companies encourage others to use their patented inventions. A license on a patent is a promise not to sue for patent infringement in exchange for payment of royalties or other consideration. IBM, who last year obtained for the 22nd straight year more U.S. patents than any other company, is said to generate nearly $1 billion a year in licensing revenue from its extensive patent portfolio.

As a defensive strategy, some companies seek patents on improvements of patented foundational technology. The patent on the improvements can be asserted when the patent holder of the foundational technology attempts to assert his patent, or a license to improvements can be offered in a cross-license in exchange for a license to the foundational technology.

Some companies file for a patent because they believe it gives them a marketing advantage. They consider that a patent number or "patent pending" implies the product...