You are founding a startup with a great new idea to revolutionize a key health care segment, but you know the digital health space is packed with potential competitors. Your technology and first-mover advantage create barriers to entry for copycat startups and vertical integration by large entrenched players, but once your good ideas go public your proprietary edge could be quickly eroded. How can you best protect your business and the innovative approaches you are bringing to the market?
Digital health – the broad term encompassing fields at the intersection between healthcare and technology, including mHealth, wearables and more – is a hot area for startup investments. And digital health funding is growing rapidly. This area has great potential for startups, but competition can be fierce. Success requires a sophisticated strategy to sustain competitive advantages and preserve the value of intellectual property for attracting future stakeholders.
The Value of Patents
When developing technology that is novel in digital health today, but copyable by competitors tomorrow, patent protection is essential. The patent process helps clarify what is distinguishing about new ideas. Entrepreneurs are often surprised about what is (and is not) innovative enough to win patent protection, so defining key areas of intellectual property is paramount. While an overall system may not be new, oftentimes patenting small but crucial improvements enable innovators to openly pitch ideas when building companies.
Digital health companies use patents for many reasons. One reason is to protect inventions from copycats. Patent protection can also be essential during fundraising to show a proprietary edge. This is especially true for digital health inventions with a hardware component that may be slow to develop but easy to copy once available for close scrutiny. Further, patents provide defensive value. Companies may not wish to use patents to sue competitors, but competitors can still assert their own patents, especially in digital health where there are companies with overlapping ideas and large players entering the space. If a competitor sues a company for patent infringement, owning patents enables the company to countersue and potentially speed the path to settlement.
It’s important to protect intellectual property as early as possible in the startup process – even before incorporation and fundraising if possible. Digital health is a crowded space with many overlapping ideas, and it is becoming increasingly dense as companies specialize and try to establish ownership of their segments of the digital health market. With first-to-file rules now in force in the U.S., companies must carve out their niches by filing patents documenting their innovations before competitors do. Ideas not patented early on can also become unpatentable. Disclosing ideas to people who are not legally bound to confidentiality (e.g., by a nondisclosure agreement) can be deemed a “public disclosure” that can make it impossible to patent inventions outside the U.S, and that can start a one-year clock ticking for filing in the U.S. Filing in the U.S. before public disclosure, however, keeps open the option to later file in other countries. Moreover, before disclosing inventions to competitors, even those that have signed NDAs, companies should consider filing a patent application to avoid the risk that the competitor might independently file a patent on an idea. It can be difficult and expensive to prove that an idea has been stolen, so avoid even the possibility.
A Patent Strategy
To identify what to patent, companies should think through advantages over close competitors. If designing a new wearable, what is it that makes a design better than what is on the market today? Is it tracking new data or logging data with more precision? Is it better integrated with mobile phones or other technologies? An especially nice form factor? If designing a new piece of software to improve health care for patients/health care providers/hospitals/insurance companies, what is it that improves their experience over currently available options? Entrepreneurs should then narrow their thinking down to innovations that would bring value to the company if they could prevent competitors from copying them. Innovative hardware, software and their combinations are all potentially patentable. If an idea is something that seemingly has been done before, try to identify what else the company might be doing to improve it or customize it. Is the company providing a better health care experience or better access to health care in a new way? What improvements are added? Is there a better user interface or new features? The inventions protected can be incremental improvements, but protection of enough small improvements can still build a fairly effective fence that is tough for competitors to overcome.
Consider detectability. If an invention sits entirely at the backend and it would be difficult to tell if someone copied it, this may not be the best invention to patent since it will be tough to detect who is infringing the patent. Also consider trade secrets versus patents. If an invention could not be readily determined by someone with access to a product and is unlikely to be independently invented by competitors, it may be worth keeping as a trade secret. Once a list of inventions to patent is made, prioritize that list. Which ideas would be most valuable if protected? What is the timeline for using each of these ideas in products? If companies have not yet thought through how to implement certain ideas, those may not be ready for patenting and so may be prioritized lower on the list. To implement a patent strategy, startups may start by filing provisional applications on highest priority ideas. This is the right strategy if saving costs is important and if an invention is still developing or changing quickly. Later, as its becomes more developed, the company have the resources and product stability to create value by building a larger, strategic international portfolio of patents, one that is designed to build on the considerations raised above and to meet its strategic aims.
Because digital health is a crowded patent space, carving out your niche and building a fence around it is especially important. It is worth thinking carefully through competitive advantages early on and setting up a well thought out plan for building up a strong patent portfolio.
This article originally appeared in the Daily Journal on July 10, 2015.