IP protection, and particularly patent protection, is critical to attracting funding for new ventures in the medical device field. Accordingly, one question asked by startup medical device companies as they develop their patent filing strategy is: How many patents and patent applications does our company need before pursuing startup financing, first-stage institutional financing, later stages of institutional financing, or IPO? The answer to this question depends on a number of specific factors such as the specific technology, the specific product, the prior art in the field, patenting trends in the field, and so forth. However, some general information can be provided based on our experience representing startup medical device companies to develop a patent strategy, our experience representing established companies considering partnership/licensing with a startup medical device company, and our research related to the patent portfolios of medical device companies at IPO during the past 10 years.
One Pending Patent Application to Seek Outside Financing
A new medical device startup company typically must own or control at least one U.S. patent application that is pending with the USPTO before seeking startup financing from outside investors (investors outside of the friends and family of the company founder). A pending patent application directed toward the company's core technology is the first step toward protecting the technology upon which the new company will be based; it stakes out the area of potential patent protection, and it also provides an indication to potential investors of the sophistication of the new company.
Intermediate Stages — Three Is the Sweet Spot
As the medical device startup seeks intermediate stages of funding (e.g., VC financing, partnership/licensing with established medical technology companies), having three patent properties is the sweet spot: one granted U.S. patent, one pending U.S. continuation application, and one pending international (PCT) or European application. The granted U.S. patent provides a zone of exclusion for the company's core technology, and it also provides an indication that the foreign patent applications also will be granted. The pending continuation application provides flexibility to seek additional patent protection. This flexibility can be critical, allowing broader and different patent protection to be pursued in reaction to changing market circumstances, the development of competing technology by competitors, changes in the technology as it is integrated into the established company's existing products, or design-around attempts by competitors. Lastly, the pending PCT or European application can increase the value of the startup by providing the potential for patent protection in markets outside of the United States.
IPO — 15 Granted Patents
Based on preliminary research, it appears that the average medical device company owns a portfolio of about 15 U.S. utility patents at the date of IPO. We looked at the U.S. patent portfolios of 20 medical device companies (after removing the outliers) that successfully went through an IPO in the past 10 years. This research indicated that the median patent portfolio of a medical device company at IPO included 15 granted U.S. utility patents. Many medical device products include multiple components and may be one part of a larger system. Thus, the multiple patents in the IPO patent portfolio may be needed to adequately protect the multiple aspects/components/functionalities of the new medical device product, and adequate patent protection for the startup's core product appears to be an important factor in successfully taking the startup through IPO.
Given the increasingly competitive financing environment, the 1-3-15 IP metrics provide medical device startup companies with a tool to gauge their own progress in an area that is important to investors. Because obtaining granted patents takes some time, medical device startup companies that are developing a business plan for both short- and long-term success should develop a patent strategy early with an eye toward building a patent portfolio that achieves the 1-3-15 IP metrics.
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