Are Intellectual Property/Patents Really Necessary for Startups?

Written by Shohei Hirota

Introduction

My name is Shohei Hirota, and I am responsible for providing IP support to portfolio startups at Global Brain. In recent years, the Japan Patent Office has been promoting public awareness on the importance of intellectual property including patents and trademarks, and I feel that the startup industry is gradually becoming more aware of this topic. On the other hand, many people may still be wondering whether startups really need IP and patents.

Even if startups understand the importance of IP and patents, they may need to prioritize other issues such as developing a product, growing their business, raising necessary funds, and recruiting the right people in a short period of time, consequently putting IP at the bottom of the list.

This article focuses on patents and looks at whether startups should work on intellectual property (IP)/patents and what kind of patents can contribute to their business.

What Are IP and Patents?

An intellectual property right is an exclusive right to an intellectual property or the right not to be imitated by others. A patent right prevents other companies from using the patented technology or idea without permission, while a trademark right prevents imitation of the company name or product name.

Creating and utilizing IP for business is often compared to a turf battle. In the field of patents and other IP rights, the first party that obtains the right basically wins the battle, and the party that obtains the right earlier can win the exclusive right. If you trespass on someone else’s territory, you may be subject to discontinuation of business (request for injunction) or a monetary claim (request for damages) from the owner of the right. Accordingly, each company conducts its business by fighting for its own position while avoiding the positions of other companies. This is why it is compared to a turf battle.

If you can successfully utilize IP to establish your own position, IP can serve as an entry barrier and secure competitive advantage. On the contrary, if you pay little attention to it, you may infringe the rights of others and result in discontinuation of business and monetary claims.

Can IP/Patents Be Startups’ Competitive Edge?

Even if the above logic holds true, many may wonder whether startups can take advantage of IP. In general, deep tech startups, particularly drug discovery and biotech startups, understand the importance of IP/patents. For example, in drug discovery, a compound itself that could potentially become a drug would be a patent and obtaining the patent would lead to monopolization of the compound (i.e., product). As a result, the IP/patent would become a competitive edge.

On the other hand, IT software products and hardware products cannot be protected by patents as they are made up of various elements. It is probably difficult to grasp how to build a competitive edge through IP/patents.

It is vital to protect IT/Web products’ individual features provided to users with intellectual property and patents, instead of the products’ underlying technologies such as algorithms and communication processes. These features include (1) those that provide new value and (2) those that are not new but are required for the product. It is crucial to patent (1) the features that provide new value to build a competitive edge.

This way of thinking can also be applied to deep tech startups, where you can patent product features that leverage the core technology at the basis.

Examples of Startups’ Patents

One of the most famous IT/Web-related patents in the IP industry is Amazon’s “1-Click” buying.

This is a feature that allows users to purchase with one click without going through a shopping cart on an e-commerce site, but the idea of “1-Click” purchase itself was not patented. The patent covered an information processing function where the system executes a transaction upon receiving a one-click purchase request by using pre-stored customer credentials including user payment and delivery details. In its early days, Amazon exercised its right to shut down competitors’ features when they imitated this feature.

Below are some other recent case studies.

1. SmartBank

SmartBank offers B/43, a prepaid card for expense management, and has obtained a patent for the B/43 pair cards that can be shared with non-family members. The patent covers the structure that links the users and issues the cards instead of the concept of pair cards.

Patenting the card issuance, a crucial aspect of the service, has built an entry barrier that at least prevents others from providing a service similar to B/43. (JP7195031)

2. Findy

Findy, which provides a job matching service for engineers, has applied for patents for its “Skill Score” which visualizes engineers’ skills and “annual salary forecast feature.” The company has obtained a patent for its technology that uses analysis parameters and career information from Github information, etc. and an AI model to improve the accuracy of annual salary prediction. (JP6837699)

3. UPSIDER

UPSIDER offers a payment service for companies and has patented the corporate credit card service and “shiharai.com” that enables users to make bank transfers with a credit card.

For “shiharai.com,” UPSIDER has patented the feature to pay in installments using more than one credit card if the amount to be paid is large. This patent covers the entire flow from uploading the invoice to processing the installment payment instead of the concept of installment payment. (JP7148852)

4. Luup

Luup has also obtained a number of patents. The mobility service provider has patented its feature which allows users to secure a parking area at the drop-off point in advance when getting on the vehicle (JP6785021) and another feature to give incentives to station providers by allocating the profits from users to both the pick-up/drop-off station providers (JP6781493).

Summary

Each startup has patented features that make it unique. In the case of software products, a single feature alone may not be a major entry barrier.

However, if you have multiple features that are unique to your product, together they will act as a differentiator from other products. Patenting each feature could well turn into product differentiators and major entry barriers.

Without patents, it is legally impossible to prevent such features from being imitated by latecomers or competitors. If you have any product features that you do not want others to imitate, you should consider obtaining patents.

This article covered basic information on patents. In the next post, I will introduce the "necessary concepts for obtaining a patent.”