On Tuesday, NVCA and Robin Feldman, Professor of Law and Director of the Institute for Innovation Law at University of California Hastings, released the findings of a survey of VCs and portfolio companies regarding their recent experiences with patent assertions. Titled “Patent Demands & Startup Companies: The View from the Venture Capital Community,” the study confirms what we’ve been hearing anecdotally from our members: The current patent system is working well for some portfolio companies, but not for others. Specifically:
- Among respondents, 70 percent of venture capitalists and one in three startup companies report having received patent assertions. Eighty percent of survey respondents indicated that the number of patent demands they have received has increased over the last five years.
- Seventy percent of VCs identified IT as the industry sector most impacted by patent demands, followed by life sciences (30 percent) and clean tech (10 percent). Additionally, 60 percent of VC respondents reported that patent demands came from entities whose core activity is licensing or litigating patents.
- Sixty percent of VC respondents estimate that the average cost per company to prepare for and defend against patent demands exceeds $100,000, with some reporting costs in the millions of dollars.
- Seventy-five percent of VC respondents and 60 percent of CEOs reported that patent demands had either a highly or moderately significant impact on the companies that received them, including distracting management, expending resources, or altering business plans.
- Seventy percent of VC respondents said they do not believe patent assertions are positive for the startup community. Further, every VC respondent indicated that an existing patent demand against a prospective portfolio company could factor into his or her decision to invest in that company, while 50 percent said it would be a major deterrent.
As more startups are targeted by patent monetizers, more resources will be devoted to litigation rather than to innovation. Lawmakers such as Rep. Bob Goodlatte (R-VA) have taken notice, but balancing the need for reform with the need to maintain strong protection for patent-dependent startups will be a critical challenge going forward.
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