Thursday 26th April marked World Intellectual Property Day, an annual celebration and acknowledgement of the role that intellectual property (IP) rights, which include patents, trademarks, industrial designs and copyright, play in encouraging innovation and creativity in businesses around the world. Innovation and creativity often play a vital role in both the launch and continued success of any new business, therefore it is important for owners of start-ups to carefully consider how a robust IP strategy will help to safeguard the commercial proposition and future growth of their business.
What is Intellectual Property (IP)?
IP is not generally a widely understood term but is one that is increasingly brought to the fore, courtesy of high profile cases such as that of global chicken restaurant Nando’s, which accused an independent restaurant named Fernando’s of IP infringement through the replication of its name and images. More recently, the European Court of Justice ruled that the iconic shape of KitKat’s four-finger chocolate bar is not globally distinctive enough to retain its EU-wide protected trademark status, meaning that it will lose this form of IP protection. IP is even playing into international relations, with the US announcing sanctions against China on account of China breaching US intellectual property.
As you can see from the above cases, depending upon the product or service your business is providing, you might consider trade marks, patents or design protection or a combination of all three.
IP protection can mean the difference between making money from an invention, design or brand or losing out altogether, demonstrated in the case of Alexander Graham Bell, who famously patented his telephone model just hours before a rival inventor. Bell, as a result, changed history and has since been lauded for his invention while his competitor remained in the shadows.
Why is IP important for start-ups?
When starting any business there are many factors to consider, from branding and target markets to raising finance and appointing suitable people. One part of the business challenge is considering IP protection. An effective IP strategy can make the difference between business success and business failure.
Whilst some SMEs may not put IP at the top of their list of priorities when starting out, ensuring these measures are in place early on in the business journey will prevent a headache further down the line. Some businesses may not think they have any ideas to protect, however this is rarely the case and consulting an appropriate organisation for advice is a good place to start.
Every business that uses a name, brand or logo should be considering trade mark protection. SMEs creating products that have a unique design should be considering registered design protection. Where a business is innovating new products or processes, patent protection may be the route to go down.
IP and your business journey
SMEs should consider the following points when embarking on their business journey:
The best time to consider IP protection is before a business is launched. This is most noticeably the case with patents, as demonstrated by the case of Alexander Graham Bell’s competitor. With trade marks and logos, considering IP early on will help ensure that you are not accidently infringing on another business’ existing trademark, and prevent other businesses infringing on your trademark.
Design applications can be filed within 12 months of your design going to market, but it is normally safer to apply for registration beforehand, especially if you may need to seek protection outside of the EU. However, for patents, it is critical that an application is on file before any kind of public disclosure, written or verbal.
Seek guidance from experts
A vast pool of information, guidance and support is available for start-ups and SMEs. For instance, the UK Intellectual Property Office (UKIPO) provides free training, case studies, short guides and even an online IP health check to get you started, and to recommend what type of IP is most suitable for your business needs. The UKIPO can also point you in the right direction of a local patent or trade mark attorney who can offer professional advice.
Silence can be golden on the path to IP
However excited you may be to shout about your innovative new product or service, it is incredibly important to keep quiet until the correct IP protection is arranged. It would be highly frustrating to lose your unique business idea to opportunistic competitors. Remember, even verbal disclosure could lose you your business success.
Be proactive and persevere
Don’t wait until a competitor copies your idea, you inadvertently infringe someone else’s IP, or it is too late to file an application. Developing a robust IP strategy does not need to be complicated. Your ideas will often be the lifeblood of your new business, so investing time and money in a strong IP strategy as early as possible in your business journey is very important. You never know, you may have more worth protecting than you first thought.
Jennifer Bailey is chartered patent attorney at Marks & Clerk.
Further reading on IP
Covering your assets: Why the value of IP matters
Rob White of Avidity IP discusses how intellectual property rights are key intangible assets to any business.
The importance of securing intellectual property (IP) protection for any relevant brands, designs and inventions is very often overlooked by SMEs. However, the fact that such IP rights are key intangible assets to any business that can be used to leverage and encourage financing of the company to aid its growth, is even more likely to be a great unknown for SMEs. And one with great potential.
Put more simply, holding registered IP rights will increase the perceived value of any business in attracting investment and financing for a company. It can even make the difference between lending and not lending for some investors. Registered IP rights act as a form of insurance that the company holding those rights has achieved the freedom to use the rights and to prevent third parties from copying them. Is it any wonder such definitive rights are attractive to those looking to invest in or buy businesses?
If a business has an exit strategy for eventual sale of the company, any prospective buyers will perform thorough due diligence exercises before purchase. A key part of this process is to determine the extent and value of any IP in the company for sale. If no registered IP is in place, the eventual value and purchase price of the company will undoubtedly be far lower. One of the reasons for this is because the buyer could be taking on greater risk by buying a company who may actually be unaware they are infringing someone else’s trade mark or invention.
Recent research commissioned by the Intellectual Property Office (IPO) on the role of IP in facilitating business finance is an important source of information for SMEs to review. The report can be found here.
As stated at Page 10 of the report, where a business is seeking equity or angel type investment for growth, ‘it is clear that IP or intangibles that provide competitive advantage are a necessary (though not sufficient) precondition.’
Crowdfunding is an increasingly important source of investment for businesses. It is worth quoting Darren Westlake of Crowdcube in highlighting the attitude of a funding ‘crowd’ to IP and the need for businesses to do their IP homework and groundwork before seeking funding, ‘We funded an alcoholic drinks manufacturer. One of the prospective investors pointed out that there could be an issue with a German branded drink with a similar name. That’s one instance where the wisdom of the crowd helped the company address the situation before they spent lots of money on building the brand.’ (at page 10 of the report).
The Business Growth Fund, established by the British Banking Association in 2010, also champions the requirement for businesses to be aware of and to properly manage their IP. They stated, ‘As investors, we expect the management team to be capable of recognising the IP in a business and exploiting it.’
The report recommends that the IPO establishes a resource toolkit for SMEs and investors to make more effective use of the value IP represents in a business. A second recommendation in the report relates to building on existing initiatives to make sure financial institutions begin to properly recognise IP as security against lending and that the IP is indeed adding value to that company.
In terms of existing initiatives, it is a little known fact that a bank or lender can actually register and record a ‘security interest’ against a registered piece of IP which will act as a form of insurance for them against their investment in the company holding the IP. These interests are recorded on the relevant Registers of trade marks or patents, for example. More awareness of this fact by SMEs seeking finance and by investors and lenders themselves can ease discussions on funding a business and recognising the IP as a true asset.
There are steps and considerations every SME and business can consider with its IP in making the assets work for you and in using them as a funding tool:
1. Even if you are not in the business of inventions, on average, all businesses have two trade marks they could register and more than 66 per cent had one potentially registrable design. Have you reviewed and considered these? Ensure searches are conducted to check that your brands are not infringing someone else’s rights. If the brand is available, registering them will give you a competitive advantage and will attract investors.
2. Once you have registered IP in place, can your business adopt a licensing model so that licensees can sell your products or diversify into new products/areas? Can you build relations and links with potential licensees overseas to sell your products into new markets? If the answer to any of these is ‘yes’, you can licence the use of the relevant IP and make money from royalties or fixed sums from the licensees. Be careful to ensure any licence contracts are carefully drafted by professionals and that licensees are controlled.
3. If you are in the inventions business or might be, find out more about Patent Box, a scheme recently introduced in the UK allowing companies to apply a 10 per cent rate of UK corporation tax on worldwide IP profits arising from an invention that comes from a qualifying patent.
4. If you are looking to sell a business or plan an exit strategy and your registered IP is in place, there are specialist IP valuation companies who can deal with the complex but recognised tested approaches to valuation of such assets. This will place an actual value estimate on the pure IP in the business. Although an extreme example, in 2013, the Apple brand alone, separate from its profits or other aspects of its business was valued at over $185 million.
5. Do not put IP on the backburner – Investors of all kinds are increasingly expecting businesses to know about their IP, have protected it and be looking to exploit it. Doing the initial groundwork and then making those assets work for your business will lead to greater rewards such as further potential investment from external sources and the resulting growth of the company.