My startup is working on a consumer product (manufacture, sell, ship), where we have developed a really great improvement over our competitors. We have patent pending status, and will be entering the market shortly.
Because some of our competitors are very large corporations we're of course concerned that they may try to squash us by infirnging the patent or challenging it to create unbearable legal costs for us.
I'm interested to learn what others' experiences were if they had to defend their patents early on in their start-ups' existence and how they dealt with the main risk (running out of cash).
I have heard of patent lawyers that would litigate for a portion of the settlement, or patent insurance and the like, but I don't know much about how realistic these options are, and how well they might work.
Got one very thorough answer, but I'd like to open up the discussion and ask what it is that start ups do right to ensure they can get some value from their inventions & IP (e.g. secure licensing deals / etc).
What can a (non-software) entrepreneur do to strengthen his hand as much as possible.
I am sorry to have to break it to you, but you can't really hope to defend your patent against an 800 ton guerrilla (or a giant company).
There are a few Cinderella stories about people or companies that managed to get something out of a settlement, and people think that these occur on a regular bases, but they are extremely rare.
I heard about one inventor that got his patent stolen by a major corporation we all know (I won't share the name, since I don't want to be sued). He ended up wining $3M in court because he proved that they stole 5 out of the 8 claims he said they stole. The courts decision did not include legal expenses. Sounds like a happy ending to years and years of legal troubles, right? The corporation sued him for their legal expenses in defending the 3 remaining claims, and ended up wining $4M from his heirs, since he died over the years.
If you can scare a competitor away with a patent, more power to you, but don't expect it to work against the big boys.
What does work is their reputation. If you can threaten their reputation by taking them to court in a lawsuit, they might want to settle out of court. If for instance your patent was invented in a credible university, then you can be sure that it will not be stolen, since it doesn't look good when a corporation is precised as stealing from a university. That can be worth more then the university ends up taking for taking part in the invention.
There's not much to add to RonGa's answer. But perhaps you should look at a strategy where you develop the product and the market with the intention of selling it to the big boys. Usually they would rather avoid legal battles and just buy out the competition.