How to Test Whether Your Patents Are Really a Moat—and Strengthen the Weak Links

In 1985, Irwin Jacobs and six colleagues founded Qualcomm around a communications technology the cellular industry largely dismissed.

Their idea was that CDMA, a signal-spreading technique with roots in military communications, could carry many more calls over the same spectrum. But U.S. companies were backing TDMA, Europe was converging on GSM, and Qualcomm had to prove that its alternative could work.

The company filed a foundational CDMA patent application in 1986 and spent years demonstrating the technology, financing the effort through another operating business, licensing agreements and eventually the public markets.

CDMA went on to become a major mobile standard and the foundation of 3G networks worldwide. Qualcomm’s patents became immensely valuable, but that didn’t happen just because they existed. They protected technology that delivered valuable performance and was difficult to reproduce without crossing Qualcomm’s claims.

That is the distinction investors are probing when they ask about your IP.

This week: how to explain whether your patents create a real competitive moat, or merely establish that you filed them.

When “We Have a Patent” Isn’t the Right Answer to “What Is Your Moat?”

Many founders mistakenly believe that filing a patent automatically creates a competitive moat. But a lot can go wrong even with a strong patent strategy. Experienced investors know that patents are only one link in the chain that creates a strong competitive moat, even when IP is critical to your competitive advantage.

Your patent might not protect what you think it does. A process claim generally protects a specific method of making or doing something. If a competitor uses a different method to reach the same result, your patent may not stop them. A composition claim may cover the claimed material regardless of how it is produced. But the real protection depends on the exact wording of the claims, whether those claims are valid, and what alternatives competitors have.

Your competitor will look for a legal workaround. No patent blocks every path to the same outcome. The question is how hard that path is. A workaround that takes three years and $5 million in engineering will buy your startup more time to establish market leadership than one that takes six months with a capable team. But you won’t know how deep your moat is unless you know what the potential workarounds are.

You might not fully own what you filed. Every person who helped create the invention covered by the patent claims must be correctly named as an inventor. The company must also confirm that each inventor’s rights have been properly assigned. If one inventor’s rights have not been assigned, the ownership chain may be incomplete. An investor or acquirer who finds that gap may walk away or use it to lower their offer.

One patent filing is rarely enough. Your product will evolve. Competitors study your published application and design around your original claims. A single filing with no strategy for follow-on claims leaves your protection frozen at the moment you filed while the market keeps moving.

Patent rights are territorial. Filing a U.S. application does not by itself give you enforceable rights in Europe, China or South Korea. A PCT application can preserve options and streamline the international process, but protection still has to be pursued, and usually granted, in the relevant countries or regions.

The Unlock

A patent becomes a competitive moat only if it starts with the right question: does it protect the specific thing that makes customers choose you? A patent on something peripheral gives competitors a clear path to your customer without touching your claims.

Only if that first question is answered yes does the rest of the chain determine how strong the moat actually is: claim scope, design-around cost, clean ownership, an evolving patent strategy, and geographic coverage in the markets that matter.

A chain with even one weak link gives a well-funded competitor a way through. Most early-stage patent portfolios have several.

Say there are two founders building the same product: a low-cost CO₂ capture membrane. They file the same provisional patent on the same day.

Founder A describes the moat this way:

“Our moat is our patents. We filed in March and have an attorney’s opinion on freedom to operate and claim coverage.”

Founder B also points to the patents, but explains how the protected technology creates value for customers, what the composition claim covers, what workaround a competitor would need, and how much time and money that workaround would take.

If they have really done their job, due diligence will also show that the correct inventors are named, all ownership rights have been assigned, follow-on claims are being considered, and filings cover the countries that matter most.

Which one do you think has the real moat?

From the Capital Playbook

Start with customer value.

Ask one question about every patent in your portfolio: does this protect a critical, specific element that makes customers choose us? If the answer is no, a competitor can reach your customer without touching your claims. Everything else in your IP strategy is downstream of this. Start here before you invest in anything else.

Measure your design-around cost.

For each patent that protects core customer value, specify the path a competitor would take to reach your market without infringing. What would it cost them in time and money?

A composition claim covering the material itself may force a more expensive workaround than a process claim covering only your method. But that depends on the exact claim and the alternatives available.

Would your most well-funded competitor make that investment if you got big enough, fast enough? If you answered yes, or can’t be sure they won’t, you’ve got more work to do to strengthen your moat.

Check where your coverage breaks.

List every geography you care about where a competitor could manufacture or sell with little or no risk from your current patent coverage. Then check whether your claims still cover your current product, not just the version that existed when you filed.

Competitors read your published applications and build specifically to avoid them. A well-planned continuation strategy may let you pursue additional claims supported by your original filing as the product and market evolve.

Confirm you own it and can enforce it.

Every inventor must be correctly named, and every inventor’s rights must be properly assigned to the company. Also ask whether infringement would be easy to detect.

A patent is much harder to enforce if the protected process happens inside a competitor’s factory and cannot be seen in the finished product.

The One Thing

Work through these four questions for your core patent before your next investor conversation:

• Does this patent protect the specific thing that makes customers choose you? Ensure it’s not just a feature, but a core source of value.

• What is the specific path a competitor would take to reach your market without infringing, and what does it cost them in time and money?

• Where does your coverage break? Which geographies aren’t covered, and do your claims still cover your current product or only the version you filed on?

• Are the correct inventors named, have all ownership rights been assigned, and could you detect and prove infringement?

If you can answer all four clearly, you have a moat story. If any answer is unclear, that is where your IP strategy has a gap.

Want Proof? Here It Is!

Patent filings can nearly triple seed-stage funding odds

A 2023 joint EPO–EUIPO study of over 100,000 European startups covering 300,000 financing events showed that at the seed stage, startups that had filed patent applications had 2.9 times the odds of securing funding compared with otherwise similar startups without patent filings. Startups with both patent and trademark filings had 3.5 times the odds at seed and 10.2 times the odds at the early-growth stage.

Receiving a first patent can help unlock capital and growth

A U.S. study by Joan Farre-Mensa, Deepak Hegde and Alexander Ljungqvist, using a rigorous random assignment method, found that startups that were more likely to receive their first patent subsequently had better access to financing and, five years later, showed 55% higher employment growth and 80% higher sales growth on average.

Patents can reduce the information gap between founders and investors

An academic study of 787 Israeli startups found evidence that patents can act as signals in startup financing: investors use patent filing information when they cannot directly judge the quality of an early technical invention.

Patents matter most when investors know the least

Research published in Research Policy found that patent activity has the greatest signaling value when investors know the least about a startup.

Investors look beyond patent counts to patent quality

A study of young biotechnology companies in Germany and the United Kingdom found that patents helped startups attract venture capital, but investors looked beyond whether patents merely existed, seeking evidence that the patents are credible, meaningful and connected to valuable technology.

Build wisely!