Debunking patent myths on aerospace innovations

Large organizations fully understand the value of patent protection, but smaller organizations often do not and sometimes subscribe to several myths concerning the purpose and value of patents. The specter of these prevailing myths can be seen in aerospace and defense industries, with the major manufacturers, including Boeing, Raytheon, and Lockheed Martin, holding a total of 29,139 patents in 2018. In 2021 alone, the United States Patent and Trademark Office granted a total of 327,798 utility patents. (In contrast to design patents, which protect ornamental features of a product, utility patents protect functional aspects of the product.) Although large and small companies invest billions of dollars in research and development (R&D) in support of their innovation, overall, small businesses produce more than 14x more patents than large businesses and universities. So, while small businesses have improved their efforts to obtain patents to protect their valuable intellectual property (IP), they can still gain more with a full understanding and debunking of prevailing myths about patent protection.

Debunking common myths about the value of patents for small businesses
For instance, smaller businesses may incorrectly believe that only litigious companies should file patents. Contrary to this myth, however, only a small number of patents lead to costly litigation each year. On the other hand, holding a large and strategic portfolio of patents can not only increase a company’s revenue stream through licensing, it can contribute to the value of the company by increasing its assets. As an example, Internet search giant Google acquired Nest Labs for a whopping $3.2 billion, and it is widely believed that the Google purchase happened, in part, because of Nest Labs’ extensive patent portfolio. It’s been reported that Nest has been granted 40 patents and has also filed for an additional 200 patents, in addition to licensing several more.

A patent portfolio can also dissuade infringement suits by industry competitors because the portfolio can ensure the company can use its innovation without risk of a competitor patenting the same innovation and then seeking to sue the company.

Another common myth is that the subject of a patent must be directed to a ground-breaking invention, for instance, the Wright Brothers’ first airplane or the first personal computer. While patents certainly can protect groundbreaking innovation, patents can also protect improvements to already-existing innovation, which is especially important in the competitive and rapidly advancing aerospace industry. In fact, most patents are directed to improvements to existing innovations. Although the helicopter was first invented long ago, thousands of patents have been directed to various improvements to the helicopter, including inventions directed to the type of propeller, weight control, various structure materials, stabilization, etc. What may initially seem like minor improvements can end up being paradigm-shifting technology, which is why knowledgeable patent counsel can be invaluable for securing strong patent protection on key innovations.

Another myth believed by smaller companies is that a company should only invest in patents if it has an allocated budget to sue infringers. But it should be noted that patents can increase a company’s assets and lead to additional revenue. Moreover, patents have a 20-year lifespan, and there is no mechanism for recapturing a patent to an invention once it is disclosed to the public. Basing decisions to protect IP now based on the likelihood of imminent litigation fails to account for the full potential of patent assets.

Finally, perhaps the most popular myth is that patents are for the weak – the wrongly believed notion that patents are used by fearful competitors to prevent or stifle strong competition in the industry. This myth is based on a fundamental misconception about patents – that patents protect ideas. Patents, however, do not protect ideas, and thus their primary (and proper) use is not as a weapon to shut down or eliminate competition, although some try. Instead, the U.S. patent system was designed such that only applications of ideas can be patented, leaving the free market the ability to develop other applications of the idea.

For instance, assuming that Gottlieb Daimler was the first individual to develop the automobile, he could not have patented “a four-wheeled, four-stroke engine.” He would have had to seek patent protection on a particular detailed implementation of a four-wheeled, four-stroke engine. But his unique implementation still would have had great value. As another example, at some point, an engineer may have had an idea for a powered-lift aircraft such as a convertiplane. Although the technology involved may be patented, the patent would be on a particular application/implementation of the idea of a powered-lift aircraft, not the general idea of powered-lift aircraft. Even after the engineer received the patent, another innovator would be free to invent in this space, for instance, creating a different type of powered-lift aircraft (e.g., the Tiltrotor) or an improvement on the convertiplane, thereby leaving opportunities for others in the industry to innovate and to protect particular applications or implementations of the overall idea.

Using patents to store value in IP
Contrary to the above-identified myths, patents can be an integral and valuable part of a small business. And smaller companies, like their larger counterparts, should implement a patent portfolio development program. Funding such a program may be accomplished in a variety of ways. For instance, funding can be obtained via a partnership with an angel investor that invests in early-stage development of small businesses. After the company develops a portfolio, the company can use the developed patent portfolio as collateral to obtain additional investment. Another method of maintaining funding for a patent development program is licensing a patent or portfolio to create a revenue stream.

An angel investor is typically an individual or company who provides capital for another business in exchange for convertible debt or ownership equity. In 2021 – even in the midst of the pandemic – angel investments totaled $29.1 billion, an increase of 15.2 % over 2020. Companies can communicate the potential value of their IP to angel investors through a strategic patent creation plan. The plan should include a requirement that all technical employees sign IP agreements in which they agree that any technology developed while employed with the company is owned by the company. Such an agreement should include a statement from the employee in which the employee agrees to assign any rights that the employee may have in such development to the business. Under U.S. patent law, the individual(s) who create the novel invention owns the invention, but companies can require that such individuals agree to assign any rights in any IP to their employers and then have these individuals actually assign their rights to the company each time they create technology or an improvement.

Additionally, the plan should include either hiring an individual (e.g., a U.S. patent agent or patent attorney) with knowledge of how to mine innovation for potential patenting, or engaging with such an individual as a consultant. This individual should understand patent protection and how to spot and develop potential inventions. Invention disclosure forms should be created so that employees are encouraged to identify potentially inventive technology (or improvements to existing technology) early and often. The hired individual can then review all invention disclosure forms and discuss the potential invention with the relevant employees. Any invention disclosure forms including patentable inventions should be set aside and the potential inventor should be interviewed to obtain details on the inventor’s innovation to allow eventual patent protection.

Small businesses should be prepared to let angel investors know of their business plans involving patents. But steps should be taken to protect any disclosure of particular inventions – such as ensuring that potential investors sign non-disclosure agreements or that provisional patent applications are filed before disclosing the subject of any inventions – before speaking with angel investors or anyone else. A provisional patent application is a document in which an invention is disclosed to preserve the invention’s filing date and rights to the invention while a more formal patent application can be prepared. Filing a provisional application is often much cheaper than filing a formal application, and the provisional can serve as a valuable placeholder until funding can be obtained to file a formal application. A provisional patent application can also serve to increase valuation of a small business for purposes of negotiating how much equity will be exchanged for funding. Under the U.S. first-to-file patent system, it’s imperative for applicants to file patent applications as soon as possible to secure their patent rights.

Another manner of funding the creation of a patent portfolio is discovering a valuable invention, patenting the invention, and licensing the patent to others. A patent license is an agreement between a patent holder and another entity in which the patent holder gives the other entity permission to use the patented technology while the holder retains ownership of the invention. In exchange for permission to use the patented technology, the licensee typically agrees to pay an ongoing royalty fee or a one-time payment to the patent holder. Patent licensing can increase the revenue stream of small businesses, just as it does in large businesses.

In addition to increasing revenue streams, licensing patented technology offers several other advantages. For instance, a patent can be obtained without incurring the expense of implementing the inventive technology. Thus, instead of incurring the financial expense, time commitment, and inevitable delays in the production of the patented technology, licensing can afford a small business an opportunity to permit others to incur these burdens while lending its invention to profit from their work. Another advantage of licensing is that the small business retains ownership of its invention and can experiment with licensing to determine whether it is cost-effective, and depending on this determination, use licensing to generate enough revenue to begin production efforts of its own.

Patent licenses can be exclusive or non-exclusive. A non-exclusive license allows the patent holder to also use the patent rights or also grant the patent rights to others. A small business patent holder could license a patent to multiple other entities, thereby creating multiple streams of revenue and using this revenue to generate funding for more patent protection (e.g., to pay attorney fees for patent application drafting).

For the same reasons that larger organizations invest in patents to protect their innovation, create revenue streams, and manage competition, smaller organizations should also invest in patents. Patents should first and foremost be thought of as investments. Just as small businesses recognize the value of having an official R&D department and earmark funds for funding R&D, these businesses should recognize that patents are the way to protect the valuable work that often results from R&D efforts. A sound intellectual property protection program can allow a small company to significantly increase its wealth and better position it as a competitor in the marketplace.

About the authors: Finnegan, Henderson, Farabow, Garrett & Dunner LLP Partner Lionel Lavenue ,Of Counsel Reginald Lucas, Of Counsel Benjamin Cassady, and Associate Joseph Myles are patent attorneys who have experience in the aerospace sector.