Sophisticated companies know that patents are indispensable in the modern economy. Patents are barriers against competitors practicing a particular technology. Without patents, companies gamble with their future by being defenseless against competitors copying their technology. But some companies go too far. Some companies—or their overzealous engineers or software developers—want to patent every potentially novel detail of their technologies. This type of unfocused, shotgun approach to patenting can be just as much a gamble as the “patent nothing” approach. Both approaches suffer from the same defect—a lack of strategy. Both lead to high costs and wasted opportunities to generate real value.

A brief illustration of both types of problems highlights their common flaw:

First, imagine a company that develops a new software-based technology or mechanical device yet decides not to patent anything. We call this a “patent nothing” strategy. And like most companies, there are no inherent barriers to entry (e.g., government regulations, massive R&D costs, an immovable customer base, etc.) protecting this “patent nothing” company. But the product they developed is innovative and customers really like it. As the company’s product begins to finally generate a profit, after years of investment and research, a competitor discovers the product on the market and decides to make a copy—for lower cost or with add-on features that customers also like. Lacking any patents to protect the product and their business, the company sees its profit erode and eventually disappear, powerless to stop this market phenomenon called “competition.” This company saved some money in the short-run by neglecting patents but loses its competitive advantage and thus fails in the long-run.

Second, consider a “patent everything” company that lets its engineers or software developers patent every new feature they consider cool and different. After spending a lot of money on patents, the company has a few dozen highly specific patents on a smattering of different features. Some of the features matter to the company’s long-term business plan, but many do not. Some of the patents are arcane or simply incomprehensible. All of the patents are easy to design around by competitors, if they are infringed at all, since they are so narrowly focused. This company also fails to realize the value of patents.

In both of the above illustrations, the companies failed to develop and implement a patent strategy. Emerging companies should concentrate on building a patent monopoly covering the most commercially important aspects of their new technologies while making efficient use of their patent dollars and the precious time of their key inventors. In short, when companies formulate their business strategy, patents should play an integral role. Patenting too sparingly or recklessly is not strategic and is not a way to generate company value.