Effective patent strategies for unicorns

Given their reliance on technological advancement, these companies would seem to have every reason to treat Intellectual Property (IP) and patents, in particular, as a top priority. Yet, in reality, many face difficult decisions, and some remain cautious about patenting.

A dissenting voice

One of the biggest skeptics about the role of patents at the highest levels of knowledge economies is Elon Musk, who heads the world's largest unicorn, SpaceX. In an interview with television presenter Jay Leno in 2022, he said: "I don't care about patents. Patents are for the weak."

Elon Musk went on to explain his belief that patents are "generally used as a blocking technique," a form of technological area denial, that helps incumbent businesses more than new entrants. He has expressed similar views on other platforms since then.

This philosophy has had an impact on the patent strategy of Elon Musk's companies. For example, Tesla (which is not a unicorn as it is publicly listed) has published an irrevocable pledge that "it will not initiate a lawsuit against any party for infringing a Tesla patent through activity relating to electric vehicles or related equipment for so long as such party is acting in good faith."

Similarly, OpenAI (currently the world's second-biggest unicorn, according to CB Insights) has disavowed aggressive IP enforcement: "We pledge to only use our patents defensively, so long as a party does not threaten or assert a claim, initiate a proceeding, help someone else in such activities against us, or engage in activities that harm us or our users."

Challenges for unicorns

While most entrepreneurs will not share Elon Musk's extreme views about patents, it is likely that many will have an aversion to patenting for a number of reasons.

First, as startup companies, unicorns may lack deep experience and understanding of the patent system. This could express itself as an unawareness of what business assets may be protected by patents (or other IP rights), especially in software, algorithms and databases. Young companies without the same "gravitational pull" may also not have established contacts among relevant advisers, such as law firms, patent attorneys and IP consultants. 

Second, many unicorns grow very rapidly. Advancements may occur in quick succession, leading to business models in a persistent state of evolution. Companies simply may not take sufficient time to plan a long-term IP strategy, potentially resulting in the early disclosure of key inventions or a development cycle that cannot pivot as fast as the business itself.

Third, another consequence of brisk expansion is high staff turnover, and leadership may change at an accelerated rate (particularly as more stakeholders invest in the company). That can lead to new priorities, shifts in focus to different markets and changes in exit strategies.

Fourth, there is a common perception – not unique to unicorns – that patenting is expensive and complex. Many unicorns operate in sectors that cross geographical borders, such as financial services and online retail, and that can make the prospect of filing and prosecuting patent applications daunting, especially given that they may not yet have significant or predictable revenue streams.

Finally, many of today's unicorn leaders may relish doing things differently and bucking existing practices. This tendency distinguishes them from earlier generations of startups, such as in the biotechnology sector, which grew out of universities with established IP and technology licensing policies. 

A wealth of opportunities

While all these factors are, to a greater or lesser extent, valid, unicorns should consider developing a patent strategy regardless, ideally at an early stage in their development. Depending on the startup's circumstances and ambition, the strategy can take into account everything from invention harvesting and internal innovation audits to competitor analysis, patent filing and licensing and even the acquisition of third-party patent portfolios. In any case, where available, it should also encompass other relevant forms of IP protection, such as copyrights, designs, trade secrets and database rights. 

The most important reason for filing patent applications is to protect the investment in research and development. Unicorns need to be confident that competitors do not gain an unfair advantage by exploiting their technological breakthroughs. A strong patent portfolio can deter such behavior and offer legal remedies, as patents grant up to 20 years of protection from the date of filing. 

Crucially, having such a strategy in place will appeal to investors and prospective business partners, who often look for assurance that a company is taking steps to secure its intellectual output before they invest. For example, it is common for investors to carry out an IP audit as part of their due diligence process. 

Moreover, having a robust patent portfolio opens up new business opportunities and offers the chance to turn obstructions into windfalls. On the one hand, patents can be licensed to outside entities, generating new revenue streams. On the other, less assured side, they can be enforced against infringers, with the possibility of substantial damages awards.

Consequently, an IP strategy can also be essential for defensive purposes. Given their high valuations, unicorns may be vulnerable to attack by other patent holders. For example, it was reported in September 2024 that Databricks, a U.S. AI and analytics unicorn, accused a patent monetization company of filing frivolous patent lawsuits in order to "extort nuisance settlements."

A carefully formulated IP strategy is the first step in preparing for any such attack, allowing a company to marshal defensive arguments quickly. Additionally, having a patent portfolio in place may put a startup in a stronger negotiating position and help avoid costly litigation in the first place.

Exploding onto the IP scene

There is a widespread perception, reflected in Elon Musk's comments, that the patent system favors long-established companies at the expense of disruptors. In fact, the opposite is more likely to be the case. 

Developed strategically, patents can level the playing field and help to ensure that improvement is rewarded. These exclusive rights are powerful tools for new companies to overcome disadvantages in terms of team size and sector experience. Among startups, unicorns are indeed a vanishing minority and benefit from resources their peers can only dream of; however, whether a business is worth a billion dollars or not, it has everything to gain from developing an IP and patent strategy.