Thursday, 19th December, 2013

IP strategies for start-ups on a shoestring

Smart ways to manage early-venture IP that should be on every entrepreneur’s reading list.

The reality faced by entrepreneurs is that legal services can be expensive, and intellectual property (IP) protection may not necessarily be an initial priority. However, technology-based startups depend on their IP to convey a competitive advantage and to act as a value container for the products and services which they create in the market. So what should financially-strapped entrepreneurs do to get the most from their IP while minimising pitfalls and legal expenses?

IP by itself will not make a company succeed, no more than writing a song will make someone a rock star. The value of a technology-based venture lies primarily with the founding team, their know-how and then their IP assets. However, future investors or purchasers of the company will most certainly consider the company's IP as a core business asset.

Entrepreneurs should initially focus their time on developing their venture and business strategy, while understanding that having an IP strategy will allow them to make informed business decisions, identify opportunities, improve negotiation positions, while avoiding long-term negative consequences.

Therefore during the early stages of a venture, entrepreneurs should work closely with their attorneys to formulate an IP strategy that is aligned with their business strategy. This is done by identifying the different types of IP assets that may exist in the venture and looking at how they can best be used by the business while incurring minimal legal expenses.

Trade marks

Trade marks serve as a badge of origin for a startup's goods and services and may accumulate a significant amount of value over time through commercial use. It is smart to select a mark and use it consistently. Also make sure to use marks together with their appropriate symbols (™ for unregistered trade marks and ® for registered trade marks). Using the appropriate symbols serves as a notice to others that the brand names are being used as trade marks-as badges of origin; and over time common-law rights will accrue.

There is nothing wrong with using unregistered trade marks to save costs during the early stages of a venture. However it is important to understand that registered trade marks are deemed valid and easier to enforce should a third party decide to use a similar or identical mark for similar or identical goods or services. On the other hand, unregistered trade mark rights will need to be proven first before they can be enforced. This in itself is an expensive legal step. Registering a trade mark also ensures freedom-to-use and the best way to prevent trade mark hijacking in civil-law countries such as China. Further, registering trade marks worldwide has become much more affordable thanks to cost savings made possible with New Zealand joining the Madrid Protocol in 2012.

A major pitfall for startups is to have their chosen brands slapped with a court injunction just as their goods or services are being launched into a market. Entrepreneurs working on a limited budget simply do not have the resources to recall and rebrand their goods or services in such a case, therefore whether or not a startup could use their trade marks in a given market could mean the difference between success and failure.

A cost-effective tip for ensuring peace of mind for both entrepreneurs and their investors alike, is to always check with trade mark attorneys that their chosen trade marks are available for use, not only for the New Zealand market, but also for any other major foreign markets the startup wishes to enter into in the future.

Patents

Patents may or may not turn out to be crucial to the success of a technology-based venture, but they definitely can be a key asset for a number of companies. Their importance depends on a number of factors including the nature of the technology, the business model and the type of funding required. Many startups rely on patents for the defensive aspect of establishing and protecting their core technological competency, and as a valuable asset for valuation purposes, while others use patents more aggressively to seek out joint ventures and licensing opportunities.

Without a doubt, filing and pursuing a patent application to the stage where the patent is issued can be an expensive undertaking. An appropriate IP strategy may not require you to rush in to obtaining registered IP protection during the early stages of the venture. However, entrepreneurs should keep in mind that, when the time is right, it may become worthwhile from a business standpoint to obtain registered protection for their IP assets.

The smartest strategy for a company with a limited IP budget is to ensure they do not prevent themselves from obtaining patent protection at a future date. Unless, for example, it is a deliberate tactic for the company to publish a specific technology into the public domain to ensure it cannot be patented by anyone else (i.e. one way to ensure freedom-to-operate). Otherwise, a company should never publicly disclose their invention to anyone without a non-disclosure agreement (NDA).  This means a startup should always treat a potentially patentable invention as confidential information or a trade secret.

Even if it is not part of a startup's strategy to pursue patent applications, it is always a smart idea to carry out "freedom to operate" (FTO) checks to identify potential infringement of pre-existing patent rights before charging in blindly. The cost of having a clearance search done by attorneys is minimal compared to having a company's goods and services completely shut out of a market by their competitors. The real kicker is that grant funding is available from local business development agencies (such as ATEED in Auckland and Grow Wellington in Wellington) to cover up to 50% for such legal expenses.

Companies should also understand that not all patents are created equal. The scope and strength of a patent protection hinges directly on how new and inventive a given technology is relative to what is already known in the public domain. So before committing serious resources to a patenting strategy, companies should check with their patent attorneys that the scope of patent protection for their technologies is likely to be broad enough to be commercially useful; i.e. it would be difficult for a third-party to work around their patent protection. This will likely require attorneys to conduct what is known as "prior art searches" before evaluating the likely scope of protection for a given technology. What is less known is that patent attorneys can also use data from the same search to ascertain other useful IP intelligence such as possible partners/competitors as well as patenting trends specific to a given technology.

Copyright

Copyright is an incredibly useful form of IP protection for start-ups because it is free and covers a wide range of IP assets. Copyright arises automatically as it is created and applies to assets including software codes, design drawings, logo designs, packaging designs, web pages and various forms of marketing materials. Make sure to use the copyright symbol © along with the year of creation and name of the owner. It is also wise for a startup to keep a record of its copyright assets.

Ownership

Finally, if there is one item that's worth spending money on during the early stages of a venture, it is to clarify ownership issues for IP assets that belong to the company. The cost of resolving IP ownership issues becomes exponentially more expensive as the venture starts to enjoy commercial success, and could even prevent the company from obtaining registered IP protection for disputed IP assets.  Therefore ownership of all IP should be clearly documented in writing for both employees and independent contractors. If in doubt, companies should check with their attorneys before the ownership issue gets out of hand.

 

This article appeared in the December 2013 edition of NZ Entrepreneur.