The Evolving IP Marketplace: Aligning Patent Notice and Remedies ...

B. Patenting by Small Companies and Start-upsThe ability of patents to play several roles in facilitating open innovation can beparticularly important to small companies and start-ups because they often transfer theirtechnology to larger companies for commercialization. That dynamic, coupled with the dramaticgrowth in the amount of R&D conducted by small companies, warrants a closer examination ofhow small companies pursue and use patents to further innovation. That information can helpidentify the issues that should inform any attempts to align patent and competition policy.In some sectors, patenting by start-ups appears to be common. One study of start-upsfounded between 1987 and 1999 revealed that patenting by start-ups was common in the medical59device and semiconductor sectors. A 2008 survey of high-technology entrepreneurs also foundthat patent ownership was widespread among responding venture capital-backed start-ups in thebiotechnology, medical device and IT hardware industries, although less common in the software60industry. Patenting may be common because start-ups view it as an important means of61securing competitive advantage from their technologies.Panelists representing start-ups explained that having patents was important to their62ability to attract investment capital. Without a product, one of a start-up’s most valuable assetsmay be its patent estate, and investors may view patents as important for recouping their63investment, according to panelists. Investors may also view patents as a signal of technical59Among those that had received venture capital funding, for every $10 million invested, medical devicestart-ups filed an average of nine patents, semiconductor firms an average of 6.5 patents, and softwarefirms an average of about three patents per $10 million invested. Ziedonis 188-93 (12/4/09); RosemarieZiedonis, Startups as Sources of New Technologies . . . and Patents, presented at FTC Hearing: TheEvolving IP Marketpace (May 4 2009), available athttp://www.ftc.gov/bc/workshops/ipmarketplace/may4/docs/rziedonis.pdf. In each of the three sectors,larger, publicly traded firms have similar patenting rates per R&D spending dollar as do the start-ups ofthis study. Hall at 200-01 (5/4/09); see Bronwyn Hall, FTC Panel on Markets for IP and Technology,presented at FTC Hearing: The Evolving Marketplace (May 4, 2009), available athttp://www.ftc.gov/bc/workshops/ipmarketplace/may4/docs/bhall.pdf.60Graham et al., supra note 34, at 1277 tbl.1 (2010) (97% of responding, venture capital backedbiotechnology start-ups sought patents; 94% for medical device; 91% of IT hardware; 67% of software).Start-ups without venture-backing were less likely to hold patents. Id.; see also BREITZMAN & HICKS,supra note 32 (reporting on patenting rates by small companies).61Graham et al., supra note 34, at 1287-90.62Sousa at 89, 116-17 (5/4/09) (explaining that investors in solar cell technology company wanted to seethat a start-up has patents, but not all are sophisticated about the content and quality of individualpatents); but see Devore at 43 (5/4/09) (“Most venture capitalists use attorneys who are trained . . . toactually look through the portfolios . . . freedom-to-operate analysis is getting more and more savvy.”).63Singer at 228-29 (3/18/09) (“[W]ithout that patent estate, there’s really nothing for the venture firm tomake an investment in.”); Devore at 31 (5/4/09) (venture capitalists seek “the ability to claim the ongoing43