Articles

Aligning With Your Investors: Why Patent-Backed Product Innovation Is Becoming the Decisive Competitive Advantage

Date: July 8, 2026
In the first quarter of 2026, petitions to invalidate issued U.S. patents at the Patent Trial and Appeal Board fell to 131 — a 64 percent drop from the year before and the lowest quarterly total in the tribunal's history. If you are not a patent lawyer, that statistic probably reads as trivia. It shouldn't. It is one of several signals from the past twelve months that the value of an American patent has shifted — sharply upward — and that shift is already changing how investors underwrite product innovation.

I see this from two vantage points. I have spent my career as a patent attorney, now leading Whiteford's Denver office, prosecuting and managing patent portfolios for technology companies. I am also a venture capitalist — a Venture Partner at Erez Capital — and a founder who has built and exited patent-driven companies, including a spinal implant maker sold in an eight-figure transaction on the strength of a portfolio of more than 75 patent and trademark assets. When I sit on the investor side of the table, the diligence question that stalls or kills more early-stage deals than any other is not about the product roadmap or the go-to-market plan. It is: what, exactly, do you own?

For attorneys who counsel operating businesses — corporate, M&A, fund formation, commercial — the answer to that question just got more consequential. Here is why.


Product Innovation Without Ownership Is R&D for Your Competitors

Every client with a differentiated product offering is making an implicit bet: that the innovation embedded in that product will stay theirs long enough to earn a return on it. Trade secrets protect what can be hidden. Speed protects what can't be copied quickly. But for most product innovation — a device, a formulation, a software architecture, an AI-driven feature — the only asset that converts the innovation itself into something a company can own, license, enforce and put on a term sheet is a patent. The product's name and the customer goodwill attached to it are owned the same way, through a trademark registration.

Investors have always known this in theory. What changed over roughly the past year is the practice: two structural developments in U.S. patent law made patents materially easier to obtain in the technology areas where modern product development actually happens, and materially harder to invalidate once granted. Together they have turned the patent from a check-the-box diligence item back into a core component of enterprise value.


The Last Twelve Months Quietly Rewrote the Patent Risk Calculus

  1. Patent eligibility for software and AI products has been clarified — in the applicant's favor
    For a decade, the biggest complaint about U.S. patents was Section 101 of the Patent Act — the "eligibility" doctrine. Under the Supreme Court's Alice framework, examiners and courts routinely rejected software, fintech, diagnostics and AI inventions as unpatentable "abstract ideas," often at a level of generality that made almost any computer-implemented product innovation look abstract. For a business lawyer, the practical effect was simple: clients in the most investable sectors were told their core products might not be patentable at all.

    That has changed. In Ex parte Desjardins, decided in September 2025, the USPTO's Appeals Review Panel held that a machine-learning invention had been evaluated at too high a level of generality and reversed the eligibility rejection — and in December 2025 the USPTO announced that examiners must apply Desjardins in every eligibility analysis, embedding it in the agency's examination manual. The same month, the USPTO Director issued twin memoranda instructing examiners to credit sworn technical-evidence declarations that demonstrate why an invention is a concrete technological improvement rather than an abstract idea, and giving applicants a playbook for using them.

    The plain-English translation: the categories of product innovation that dominate venture and growth-equity portfolios — AI, machine learning, software platforms, data-driven diagnostics — are patentable again with a predictability that did not exist two years ago. Clients who were told in 2018 that "software patents are dead" are operating on stale advice.
     
  2. The "second window" for killing issued patents has narrowed dramatically
    Since 2012, the largest discount on patent value has been inter partes review, or IPR — an administrative proceeding at the Patent Trial and Appeal Board that lets any challenger, typically an accused infringer, ask the USPTO to revoke an issued patent. For years, institution was routine and invalidation rates were high; sophisticated investors priced U.S. patents accordingly, because even a granted, examined patent could be extinguished in an 18-month administrative proceeding.

    Over the past year, that second window has been substantially closed through the USPTO's discretionary-denial authority:
  • In October 2025, USPTO Director John Squires personally assumed responsibility for deciding whether IPR petitions are instituted at all — and denied institution in his first 34 decisions. Petition filings collapsed to that historic Q1 2026 low.
  • A new "settled expectations" doctrine allows the Office to deny a challenge to a patent that its owner has relied on and invested around — a doctrine that began with older patents and has expanded to younger patents backed by substantial investment. Note the alignment: the more a company builds its product offering around its patents, the harder those patents become to challenge.
  • A March 2026 memorandum added U.S. manufacturing as a discretionary factor, directing the Board to consider whether the patent owner's competing products are made in the United States — an explicit thumb on the scale for domestic innovators.
  • Proposed rules would require IPR petitioners to stipulate away their overlapping invalidity defenses in district court, ending the era of two-forum challenges to the same patent.
     
Reasonable minds differ on the policy merits, and appellate challenges to the framework are pending. But for purposes of counseling clients, the present reality is this: an issued U.S. patent today is more durable — more like the property right your clients assume it is — than at any point since 2012.


What an Investor Actually Underwrites

Here is how this lands in a diligence room. When my fund evaluates a company, product innovation is the reason we take the meeting; ownership of that innovation is the reason we write the check. A patent portfolio does specific, underwritable work:
  • It converts a product roadmap into a defensible market position. Customized solutions and product design can be copied; claims cannot.
  • It creates a floor under the valuation. Patents are assignable assets that survive a pivot, an acqui-hire or a wind-down. In my own exits, the patent and trademark portfolio was not an accessory to the deal — it was the deal.
  • It signals operational discipline. A company that has run an invention-disclosure process and filed deliberately is, in my experience, a company that manages the rest of its house well.
  • It is increasingly a gating item. As patents become harder to invalidate, competitors' patents become more dangerous — so investors now diligence both freedom to operate and the affirmative portfolio. A company with neither is asking its investors to underwrite naked execution risk.
     
Trademarks deserve the same treatment in the same breath. A product offering's brand equity — the name customers ask for — is frequently the most valuable asset a consumer-facing company owns, and a federal registration is inexpensive insurance on it. I have watched companies spend seven figures rebranding at the worst possible moment because a $2,000 filing was deferred in year one.


Practical Counsel for the Generalist Attorney

You do not need to become a patent lawyer to protect your clients here. You need to change three defaults:
  1. Ask the ownership question early. When a client describes new product innovation — especially anything involving software or AI — ask what has been filed and when. Public disclosure, sales and even demos start unforgiving clocks; a provisional application filed before the pitch deck circulates preserves options for a modest cost.
     
  2. Retire the 2018-era advice. If a client (or a colleague) waves off patents on their software or AI product because "it's just an abstract idea," flag that the eligibility framework materially changed in 2025–2026 and warrants a fresh look.
     
  3. Put IP on the financing checklist, not just the disclosure schedule. Whether you represent the company or the investor, the durability shift means patent assets now carry more weight in valuation, and patent exposure carries more risk in the other direction. Both belong in the first conversation, not the eleventh-hour diligence call.
Product innovation is becoming a competitive advantage — on that, the fund-formation bar and the patent bar agree. But innovation aligned with your investors is innovation they can own a piece of. In the current legal environment, that means innovation with patents and trademarks behind it. The companies that internalize this in the next twelve months will raise on better terms than the ones that learn it in diligence.


ABOUT WHITEFORD | SchellIP

Whiteford and SchellIP help investors and operating companies evaluate whether a product's patents and trademarks actually hold up under diligence—assessing eligibility, enforceability and freedom to operate against the current legal landscape, and translating those findings into portfolio strategy, deal terms and valuation support. The goal is a clear picture of what a company owns, how defensible that ownership is, and what it means for leverage, risk and return.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.