Benefits of patents
It would be fair to say that the past year has been a golden age of initial public offerings for Israeli startups and tech companies. Biotech offerings are also on the rise, both in terms of the number of offerings and the overall capital raised.
A look at recent Israeli biotech companies shows that most companies held patent portfolios with dozens of families of patents – an indication that both investors and companies recognise the importance of protecting their intellectual property in general, and their patents in particular. In fact, research has shown that every patent registered by a company before its initial public offering raises market value by 1%.(1)
Patents serve to:
- protect a company's technological advantages;
- distinguish a company from its rivals; and
- provide a company with significant marketing and commercial opportunities.
Patents protect new technology or products and block rivals from entering the market, thereby raising profits and market share. A patent, as a company asset, provides companies with exclusivity for up to 20 years from filing the first application and prevents rivals from competing with them. Alternatively, companies can collect royalties in exchange for licensing a patent.
Research demonstrates that the sale of significant patent portfolios has a positive influence on a company's value. In addition, filing a patent infringement lawsuit often leads to a rise in the share price. It is also important to map and analyse rival patents to anticipate potential technological changes and the advent of new rivals.
The clear advantages of intellectual property warrant the allocation of major resources to build a patent portfolio in advance of an initial public offering. This requires the company to define short-, medium- and long-term quantity and quality targets.
To protect the company's developments prior to market launch, it is important to have a patent plan in place in the early stages of a company's growth. Significantly, a patent application can be submitted after preliminary development results are obtained for a product or technology. Unfortunately, in too many cases, companies understand the need to patent their innovations only after the product is on the market or has been disclosed in an article or presented at a conference. This can limit the company's ability to patent its innovations to only future improvements of the product. The Patents Act 5757-1976 states that only new inventions may be patented and that an invention is deemed to be "new" if:
it was not published, in Israel or abroad, before the application date –
(1) by written, visual, audible or any other description, in a manner that enables a skilled person to make it according to the particulars of the description;
(2) by exploitation or exhibition, in a manner that enables a skilled person to make it according to the particulars thus made known.
It is also important to consider the time it takes from filing for a patent to be registered. In 2020, the time from the first examination to the final decision in Israel was 14.99 months on average.(2) The Israel Patent Office (ILPO) allows for expedited examination, which can be important when companies need to show the market – and, in many cases, the investors – that their patent portfolio includes registered patents found innovative by patent offices. The following circumstances are considered a "reasonable justification" for a request for expedited examination in the Patents Act:
(1) The applicant's advanced age or medical condition;
(2) A notice by the Commissioner on a possibility to expedite the examination due to an examination of a parallel application under the conditions and in the states the Commissioner notified thereof;
(3) Another person had started exploiting the invention under the claim of the patent application, without the consent of the patentee, or there is an established concern that he may do so;
(4) the passing of time since filing the application to the Office under section 15 or since the date of entry into the national stage under section 48D is unreasonably lengthy, and more specifically significantly lengthy time has passed as contrasted with the beginning of examination of other application of the same type.
(5) Public interest;
(6) Extenuating circumstances which provide justification.
Conversely, there are also cases where it is important to carefully manage the patent registration process. This enables a company to ensure that its patent applications are published and later registered at the appropriate time from the company's standpoint.
Finally, it is important to select the right countries in which to file patent applications. A patent is a territorial right that prevents the use of the invention in the country in which the patent is registered. For example, patents granted by the ILPO apply only in Israel. Patent applications should be filed in the main markets in which the company operates or plans to operate and, at times, countries in which the company's main rivals are active. A company should evaluate filing countries independently for each patent application, based on the company's budget and overall strategy. It may be advantageous for a company to file patent applications in a number of countries (eg, during the preliminary stages of the technology's development) but there are times when a patent application should be filed only in one main country or a limited number of countries.
The path to Wall Street represents a significant springboard for Israeli companies growing on a global scale. Precise patent planning can raise the value of company shares after an IPO.
For further information on this topic please contact Dr Tamar van der Boom or Yoav Alkalay at Pearl Cohen by telephone 972 3 303 9000 or email ([email protected] or [email protected]). The Pearl Cohen website can be accessed at www.pearlcohen.com.
(1) Empirical research carried out by the University of Bordeaux conducted in the United States and Europe a decade ago.