Twitter IBM deal illustrates the importance of IP

By 2 May 2014 Insights No Comments
Twitter IBM logos

In February this year, Twitter announced that it would buy 900 patents from IBM. The Twitter IBM deal stemmed from a letter from IBM warning that Twitter was possibly in violation of three of IBM’s patents. The purchase of the patents settled the dispute between the two companies.

The Twitter IBM case is a lesson on the myriad of reasons why companies large and small need to start thinking about IP earlier rather than later. Though ubiquitous and recently gone public, Twitter has only just left the startup phase. With only nine patents, it warned its investors that it was a target for a lawsuit from another company with a bigger IP portfolio.

A “small” problem

This problem of having a small patent arsenal manifests itself in two ways. First, Twitter did not have many patents that could guarantee the safety of its current business. Ideally, if your company comes up with an innovation, you can get patent protection for it, preventing others from getting a patent that could be used against you.

Twitter’s lack of patents isn’t ideal, but it’s understandable. As a young company, it was focused more on building its business than allocating the resources to register its patents.

Second, a large or strong book of patents can help you defend your company from competitors looking to sue you. This is especially helpful against a company that may try to file a frivolous or borderline-frivolous case against you; if they know you have a big portfolio, you can respond with a countersuit alleging that they are infringing one of your patents. Just the threat of that arsenal can prevent a hostile company from attacking you in the first place.

Mutually-assured destruction isn’t pretty, but it can be effective.

You can see the value of patents for IBM as well. While Twitter is a young company with few patents to its name, IBM has been the biggest patent filer in the US for years now, and this provides value in countless ways. Not only does it use its portfolio to defend itself in the ways described earlier, but this steady stream of innovation and registration brings along substantial revenue with it; according to the article, IBM generates around US$1 billion a year in licensing income.

Are you the next Twitter?

The Twitter IBM case is a lesson on how important IP is for all companies. Though Twitter likely dodged a bullet (for now), it could have prepared by regularly registering its innovations, as well as buying or licensing the patents it needs. . For every Twitter, there are likely several startups with promising ideas that failed due to a lack of patent protection and threats from competitors.

Of course, resources are tight for startups and most would rather spend their time focusing on their core business. But with a bit of early planning and the right advice,  you can do the prep work that can help protect your company from attack from competitors.

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