Author: Lior Cohen, Patent Attorney, Reinhold Cohn Group
IP-protected Technology – fund raising is easier, quicker, and at a higher valuation
Companies with a strong IP portfolio have higher success rates, gain higher valuations and raise the probability of successful M&A events, as potential acquirers are likely to prefer buying companies that actually own their technology through IP protection, providing the acquiring company with an edge over its competitors. Investors seek companies that will reach a higher valuation within a shorter period of time, as well as for companies that will be easier to sell and they are willing to pay more to become shareholders of such companies.
Why is IP essential in the field of Medical Device?
Intellectual property (IP) is one of most important assets of a medical device startup. In this regulated field, it may take years until a product receives regulation approval and is ready to be commercialized. Throughout this period, the product is typically exposed to the public and its technical features may become known to competitors in the field. Without having a significant barrier to entry, such as strong patent protection over the product, competitors may easily copy the product and force a competitive market, which eliminates any possible advantage of an evolving startup.
An additional tier of protection may be obtained by filing an industrial design application of the final design of a device, which grants protection over the ornamental design of a functional item.
What should be considered as a business-wise significant IP protection?
The nature of a startup company is to continuously develop new improvements of a basic innovative concept and sometimes even make a pivotal change of the basic innovative concept to a completely new purpose. Therefore, a strong and broad IP foundation is essential to support such potential changes. Considering that patent rights are expected to be a significant part of a company’s value in its initial years, this aspect should be given great attention. Entrepreneurs often fall prey to the misconception of filing a laconic provisional application and feel secure to publish their technology, which can lead to an irreversible loss of rights.
Important aspects to be checked prior to an investment decision
IP of medical devices startups plays a major role in an investment decision. Existing significant patent rights are of major importance, but there are other matters to be investigated prior to investment. In many cases, the know-how held by the startup has significant value and can serve as a basis for new patent protection or can impose a real barrier to entry for competitors. The know-how of a company should be evaluated and a strategy for protecting it should be devised to secure its value for the startup.
Infringement of third-party rights may affect the freedom to commercialize a product. Early study for identifying these potential risks assist in devising a strategy to deal with them.