Often clients come to us to have their invention patented because someone has advised them that they should look into it. However, often they are not clear on how and why a patent is important. In this article, we set out:

– what happens during the patent process;

– what effect the patent actually has;

– how a patent can help you commercialise your product; and

– the different ways that you can commercialise an invention.

The patent process

Normally when you file a patent application, it lays claim to a combination of features, or a combination of steps to be carried out (if the invention is a process). The patent goes through a process called examination where an examiner at the patent office tests to see if your invention meets the requirements of being both novel and inventive, and if it is, then a patent is granted. The examination process typically takes between two and three years, but can take as little as 6 months or more than 5 years in some cases. 

What effect does a patent application or a patent have?

Before a patent is granted, it is only a patent application, and only rights that it has are the right to claim priority to the filing date that it has. These are called priority rights. They allow you to file patent applications into many overseas jurisdictions while claiming priority back to the filing date of your Australian patent application. When you do this, the overseas countries will recognise the filing date as if you had filed it in their country on the priority date.

Once the patent is granted, the effect is that the owner of the patent has the sole right to commercialise a product or process with the combination of features or steps that were claimed. That means that if anybody else commercialises a product or process that has the claimed combination of features or steps, they will be infringing the patent. 

If a competitor is infringing your patent, you have the right to:

– obtain an injunction from a court to stop them from commercialising the invention;

– demand restitution of damages that you have suffered or an account of profits;

– demand that the infringers deliver up all of the infringing products for destruction.

You can license your patent to a licensee. A license is effectively an agreement not to sue the licensee in return for them paying royalties that you have negotiated with them. It is effectively giving them permission to infringe your patent.

Before your patent is granted (i.e. while it's still a patent application), you cannot stop anybody else from commercialising the invention. However, if you approach a manufacturer with a view to having them manufacture it, they would need to think carefully before excluding you from the commercialisation loop, because as soon as you get your patent granted you would be able to stop them from any further commercialisation. So even though you don't have patent rights yet, you may still be able to leverage your priority rights to be able to license your patent application.

Different ways of commercialising a product

There are effectively four different ways of commercialising a product.

The first way involves filing a patent application and selling the patent application or patent to a buyer. A patent application or a patent can be thought of as a piece of property, like a vehicle. If you sell your patent application to a buyer, then you lose ownership of the patent application, and you have no further say and how the buyer uses the patent application, or how they commercialise the invention.

The second way involves filing a patent application and licensing the patent or patent application to a licensee. In the above analogy to a vehicle, this would be like hiring your car out to somebody. You retain ownership and you negotiate with the licensee about how long they are hiring it for, where they can use it, and under what circumstances.

For example, you may approach a manufacturer and come to an agreement with them that they will develop the product, and will manufacture and sell the products around the world, while paying you an agreed-upon amount for each one that they sell. In such a scenario, the licensee would be taking all of the risk and expense, and the payoff in the form of licensing royalties would be relatively low for the patent owner.  You should bear in mind that a licence is not a burden on a licensee, as the licence will be keeping in the licensee's competitors out of their market. They would not be paying royalties if they weren't going to be making more profit out of it than they are paying. Licensing should be a win-win situation.  In choosing a licensee, a patent owner would look for manufacturers that already make products for that market, and already have an understanding of the market with existing distribution channels and sales people servicing those channels. Many large retailers prefer buying from suppliers that offer multiple products in their product range, rather than just one. In this way, licensing can allow for the quickest commercialisation of the invention.

The third way of commercialising involves what we call "deployment". If an inventor chooses to commercialise their invention through deployment, this means that they run the commercialisation of the invention as a business or startup. They would arrange for the design and development of the product, pay for the manufacturing set up, set up a company and team to run the business, pay for the stock, arrange for suitable distributors and distribution channels to wholesalers and/or retailers (or may choose to sell the product directly, for example through online retailers or a website), et cetera. Deployment requires the most time, effort and money by the patent holder, but also typically results in the largest amount of profit for the patent owner once it is established. 

Deployment typically also involves trying to find investors to invest in the business, going through different stages of funding using investors of different types when the business has moved through different levels of risk. For example, the initial stages of funding involves "bootstrap" funding, and are typically received from the "three F's"– friends, fools and family. The second stage of funding is typically received from "angel investors". Angel investors are individually wealthy people who are prepared to invest in businesses that may be pre-revenue, and still at a high level of risk. Once the business has started, and is gaining traction, then funding to allow the business to scale may be obtained from venture capitalists or VCs. VCs typically do not like to invest at very early stage such as pre-revenue, as their appetite for risk is not as high as the angel investors.

Lastly, a hybrid form of commercialisation is possible where, for example the owner of the patent or patent application approaches a manufacturer and licenses them to manufacture and distribute throughout the world, but may reserve distribution rights particular countries (like Australia or New Zealand).

How can a patent help you commercialise your product?

A patent can help you commercialise your product in a number of different ways. The benefits of having a patent application for a patent when you are selling it or licensing it are obvious. If you don’t have patent rights or priority rights then nobody will be under any obligation to pay royalties to you.

If you are commercialising your invention by deployment, then patents are helpful in a variety of ways. Patents are typically at their most valuable once you have an established market, and the patent is protecting that market by preventing competitors from moving into that market.  

Having a patent or a patent application is often very enticing if you're trying to attract investors.  If you think about it, there is less risk for an investor to invest in a second player in a new market, once the new market has been opened up and established. The main risk of deployment can be in the opening up of the market in the first place. However, when the first player in a market has a patent or a patent application, another player in that market is not going to be able to move in and undercut on price once the market has been opened. This is reassuring to an investor whose money is going to be used to open up the market. 

If you have any questions about patents, or about other intellectual property, then feel free to contact one of our patent attorneys.

Mike Biagio

Mike Biagio has had previous experience in research and development and project engineering before becoming a patent attorney. Mike has been involved in specialist intellectual property law since 2001 in a variety of countries including South Africa, New Zealand and Australia, and has more than 21 years of experience as a patent attorney in obtaining patents and designs around the world for his clients.

Mike has been a lecturer and regular mentor at UNSW, University of Wollongong, and University of Sydney for a number of years, and has advised start-ups at incubators/accelerators on intellectual property and ideation.