The recent passage of the Innovation Act and Innovative Startup Act has placed front and center the Philippine startup ecosystem. After all the lobbying for institutional support by the private sector, the government in just two pen strokes created a new regime for local technological startups to establish themselves and hopefully harness the innovation presently available to solve pressing societal problems but also to be compensated properly for their efforts.
In the agricultural sector, where 25% of the Philippine population still rely on their livelihood, the need for technological startups to exponentially increase output is more urgent. The Singapore-based startup enabler e27 rated six Philippine agriculture startups that merit attention. A pressing concern would be, given that all of these depend on the application of current technology (2 are crowdfunding, 1 is doing IoT, 2 are on e-commerce, and 1 is blockchain-based), their freedom to operate their nascent enterprises may be curtailed as more companies (both giants and startups) have been consistently filing patents that are not only enforceable in the countries where they are headquartered but also in the markets where the patent holders’ products and services are distributed.
Function of Patents
Patents, as limited monopolies granted by national or regional intellectual property offices, have been traditionally seen as sources of revenue when sold or used as generators of royalties. Patents’ function as a limitation to the exercise of commercial activities is yet to be acknowledged, especially by Philippine entrepreneurs. Foreign patent holders who applied for and registered their patents in the Philippines can prohibit third parties from using any of the patented technology in this jurisdiction. This may be a letdown for many startup founders, who just want to use the latest technology they know.
Take the case of the two startups on e27’s list: FarmOn and Cropital. Both startups offer platforms for funding the capitalization requirements of farms. Checking for any patents with the Intellectual Property Office of the Philippines on “fund*” showed 51 hits, with 15 of these shown registered as of this writing. If we assume that at least one of these patents covers the basic system of having a person pledge funds and remit the cash to the startup and show the bank deposit slip as proof of remittance, then either or both startups may find themselves at the receiving end of a cease-and-desist letter from the registered patent owner.
(It may be the case that the founders of both FarmOn and Cropital already filed patent applications for their technologies and yet to be published. A quick search of IPOPHL’s portal at the time of posting failed to produce any hits for “farmon” and “cropital” although 2 hits and 16 hits resulted from “farm” and “crop,” respectively.)
From the 2018 list of 7 agritech startups to watch out for compiled by Successful Farming, Performance Livestock Analytics, Inc. has 2 patents listed by Google Patents WO2018223102 (A1) and WO2018102592 (A1), both Patent Cooperation Treaty (PCT) applications with the Philippines as one of the designated states for entry to national phase. Another startup, Smart Ag LLC, has one PCT application WO2019094863 (A1) also designating the Philippines for the national phase. The same is true with Aptimmune Biologics’s WO2017223510 (A1).
Indigo Ag, Inc. has 17 PCT applications, with the Philippines as one of the designated states for potential coverage of protection.
If these four foreign startups pursue their PCT applications in the Philippines, all these inventions once granted patent protection, can create monopolies that will restrict how Filipino startups operate in their own country.
Searching for “crowdfunding agriculture” in Google Patents will show about 852 hits. Assuming a conservative PCT filing of 5% with the Philippines as a national phase designated state, about 40 inventions covering the same business that FarmOn and Cropital want to pursue will be off-limits from local competition for certain periods. (Philippine patents are protected for 20 years from the time of filing.)
Speeding Up Protection
IP protection should, therefore, be considered by the startup founders at or about the time that they are conducting their market research.
Performance Livestock, established in 2015, filed its two patents in December 2016 and June 2017.
Founded in 2016, Smart Ag filed its “SAFETY SYSTEM FOR AUTONOMOUS OPERATION OF OFF-ROAD AND AGRICULTURAL VEHICLES USING MACHINE LEARNING FOR DETECTION AND IDENTIFICATION OF OBSTACLES” in November 2017.
Aptimmune took its time to apply in June 2016, six years after its founding. On the other hand, Indigo Ag lost no time in filing 5 of its 17 published patents in the same year it was established in 2013.
Show Me The Money
Aside from creating potential niche markets, having patents (or even just applications) on hand from the inception of startups will signal to potential investors about how serious the founders are in pursuing the technology in the long term. Or at least long enough until the investors recoup the funds that they plopped into the venture.
In terms of VC-funding, Performance Livestock currently has USD3.3 Million in funding while Smart Ag has USD5 Million.
Aptimmune recently completed its Series B funding worth USD6 Million in 2018. Indigo Ag, with its bevy of patents, has a whopping USD650 Million as of May 2019 and a company valuation of USD3.5 Billion.
In a 2009 study of German and British biotechnology companies that filed patent applications in the European Patent Office seeking VC-funding, “financing occurs earlier” and “VCs pay attention to patent quality, financing those ventures faster which later turn out to have high-quality patents.” Patents act as “signals” to VCs who want to prioritize which companies to fund. This is further confirmed by a 2018 study, which found that, in 468 Canadian early-stage companies, “ventures match with VCs, who have the financial capacity to support their patent protection strategies.”
But isn’t patenting costly?
A startup founder wrote in 2017 that successful startups do not need patents when companies are formed because patents are expensive. Also, he continued, fast execution and other IP rights like trademarks and domain names are better alternatives to patenting. (This founder’s startup, while amassing USD19 Million in revenue yearly with 400 employees at the height of its growth, was quickly liquidated in 2018, but this is another story.)
While it is true that delivering goods and services to the market quickly to further refine a startup’s business model and having other IP rights as part of a portfolio to distinguish the enterprise from competitors are important elements in a startup’s to-do list, dismissing patents as too costly misses the point of its function, particularly for technological startups.
Patents are indeed costly when considered in terms of the R&D and prosecution expenses needed to come up with credible disclosures. But if a startup is indeed bringing a new solution to the table (and not simply recycling old business models by using mobile apps and the internet), the expense in securing monopolies in technology can be justified by the long period the startup can squeeze from the patents. This is also the reason why all the major technology companies that disrupted their respective industries like Amazon, Google, Apple, and Facebook have patents as part of their intangible assets.
And all of them began as startups.