Shark Tank demonstrates why every startup needs patents

Hands down, Shart Tank is one of my favorite TV shows. Each episode showcases the American entrepreneurial spirit, highlighting the excitement and challenges of launching a new product and building a brand. Furthermore, the show provides a unique insight into the discussions between the investors and startups. Although these discussions often touch on patent and trademark topics, they are usually brief and superficial. After all, the main point of the TV show is entertainment, not a lesson in IP law. However, a recent episode of Shark Tank involved a brilliant exchange demonstrating that every startup needs patents.

The product

The episode of Shark Tank to which this post pertains involved a toolbox with built-in accessories, including Bluetooth speakers, USB ports, a digital clock, and a bottle opener. The trademark for this product is COOLBOX.

There is no such thing as a “provisional patent”

After the inventors presented their product, one of the first questions from the Sharks was: “do you have patent protection?” In response, the inventors stated that they have “a provisional patent.” Wrong. There is no such thing as a provisional patent. Instead, the presenters should have explained that they filed a “provisional patent application.” To a seasoned investor, the term “provisional patent” simply hurts his ears.

The distinction between a filed patent application and an issued patent is immense. A filed patent application–whether provisional or non-provisional–does not give the applicant any legal protection for the invention. Only an issued patent creates legally enforceable rights. Communicating to an investor that your startup filed a patent application is extremely important. However, confusing a patent application with an issued patent will make you look like an amateur.

Patent Scope

Another great exchange between Robert Herjavec and the presenters involved the topic of patent scope. After the startup executives stated that they have a “provisional patent” protecting their product, Robert called them out regarding the patent scope. First, the exchange went something along the lines of Robert asking the following question: “so you are telling me that you have a patent for a toolbox with built-in speakers?” The presenters did not have a good answer. Instead, they fumbled around for a bit and then they said that their “provisional patent” covers the combination of all built-in accessories.

Next, Lori Greiner jumped in with a brilliant dagger: “so all a competitor has to do is eliminate the magnetic lid and they would not infringe?” Again, the presenters had no legible response. Clearly, these inventors did not understand the difference between a broad patent claim and a narrow patent claim. Indeed, just because a patent pertains to a particular product does not mean that patent forecloses competing products. Experienced investors understand that not all patents are created equal. Indeed, a single narrow non-essential limitation–such as a magnetic lid–could render the entire patent worthless. In patent law, we call such patents “expensive wallpaper.”

No patent, no investment

The inventors sought a $500,000 investment for 10% equity. The Sharks were immediately deterred from investing into COOLBOX due to lack of patent protection for that product. Indeed, the Sharks explained to the startup presenters that without strong patent protection, nothing would stop established tool companies, such as Black & Decker or Dewault, from selling a competing product that would kill the sales of the COOLBOX. Furthermore, without a strong patent, there is no reason for these companies to enter a licensing agreement. They can simply “ripoff” the product and sell it under their own well-established brands. In the end, the startup executives left the show with an expensive loan, rather than an investment. Great product, just not an attractive investment without the safeguards of patent protection.