IP as an exit strategy

By Leonid Kravets

For any entrepreneur starting their company, the reward for a lot of hard work is typically a great new product that hopefully leads to customers, sales and wealth.  Of course, the end goal also often includes an exit strategy.  Generally, the exit strategy has been to be acquired or to have a successful IPO.

The acquisition exit strategy depends on being an appealing target because of some great asset that the competitor may be missing, such as a great product, management, team and/or customer list.  Not many entrepreneurs think of their Intellectual Property as such an asset.  However, as the value and importance of a strong IP portfolio has skyrocketed, companies such as Apple, Google, Microsoft and Facebook have looked to acquire IP as part of their growth strategies.  This has created an opportunity for startups to be noticed through their great IP.

Of course, being noticed for your IP is not always easy.  Thousands of patents get issued weekly.  WhoGlue, a Baltimore startup,  got noticed by Facebook in 2009 when they sued Facebook for patent infringement.  The patent in question was U.S. Patent No. 7,246,164, directed to a method of managing the sharing of personal information between users by assigning the users differing access rights.  If this sounds familiar, it is because Facebook’s privacy settings have just such a feature.

After two years of litigation, WhoGlue has “big news,” Facebook has settled the lawsuit with WhoGlue and acquired the company.   While details of the deal are not available, it is clear that WhoGlue’s IP put the company in an excellent position with respect to their competitors and they were able to successfully use their patent as part of an exit strategy.

It is likely that a similar path will become a popular option for startups looking to be noticed by the bigger players.  Thus, while IP has always provided startups that chose to actively pursue it a strong foundation for operating their business, going forward, IP is likely to become an even greater tool for attracting potential suitors.

[This post originally appeared at Startups and IP Strategy]

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