Start-ups Need to Start with IP
March 9, 2015
By Tony Orsi
Start-ups have many items to focus on when they are first starting their business including incorporation and working on a business plan. Intellectual Property (IP) may not be considered to be a priority by start-ups but IP really should be considered right from the start. This is because IP affects many business areas including choosing a business name, doing negotiations and working with third party entities, creating timelines for commercialization of services and/or products as well as competing in the marketplace.
IP is important since innovation is seen as an increasing necessity in many industries today. For example, IP can be used to create a corporate identity/brand, increase goodwill and promote a reputation of innovation. IP may also help a business protect domestic and foreign opportunities, differentiate their products and services as well as contend with competitors as IP rights are territorial and are pursued in each country where protection is desired. Obtaining IP rights may also help with raising funds whether it is from attracting VC or angel investors, generating licensing revenue to IP securitization and IP sales.
A business needs to have a clear IP strategy that is aligned with and supports its business strategy. So the first step in developing the IP strategy is to look at various aspects of the start-up including, but not limited to, the competitive advantages, the services and products that will be offered, and how the start-up will operate (e.g. manufacture in-house or work with a manufacturer), to name a few.
Step 2 is to determine what IP rights can be used to support the business characteristics identified in step 1. IP rights include copyrights, trademarks, patents, and trade secrets. Each IP right provides a certain type of protection, has an associated cost and has advantages and disadvantages. So one should educate themselves on how different IP rights work, what are the timelines and costs are for obtaining IP rights, and how IP rights can be applied to their start-up. For example, a patent application must be filed before an invention is publically disclosed (although a small number of countries provide a grace period under certain conditions) but a trade name, product name or service name may be publically disclosed before applying for a trademark.
Step 3 involves digging deeper into the IP rights that apply to your start-up to determine what is available for your start-up to pursue and what may already be covered by another business. This also provides competitive intelligence for determining your competitors and their IP rights as well as figuring out what IP rights you can obtain to beat your competitors. For example, you may want to use a certain name for your start-up but the name may already be used and/or registered by another business. Alternatively, you may have a product that you think is inventive and wish to protect with a patent, but you need to consider what knowledge is in the public domain (as this will affect the ability to obtain a patent as well as the scope of protection) and whether your product may be subject to the existing patent rights of a third party.
Step 4 involves determining how IP rights will affect your dealings with third parties and whether any action should be taken. For instance, you may have a technology that you are developing and need to work with a third party to develop it but do not want the third party to disclose any information on the technology to the public. In this case, a Non-Disclosure Agreement (NDA) (also called a Confidentiality Agreement) should be created and signed by both parties. Another example, is that your start-up may hire a third party to build a product in which case a contract with an IP clause should be put in place setting out who owns the existing IP and the IP that is generated during the contract.
Step 5 involves estimating how much IP rights will cost on an annual basis and then budgeting for these costs. For a start-up, funds are limited so lowering IP costs is important. This may include working with a company that provides services for free or at a low cost (for example some commercialization centres may conduct prior art searches for free). A start-up can also do some IP work themselves such as searching the public domain including some of the major patent and trademark databases for technology that has been described or trademarks that have been registered that are pertinent to the start-up’s products or services. In addition, a start-up can try to negotiate with legal service providers to perform certain legal services for a capped fee rather than charging by the hour – in this regard the start-up should look at what it can do to work more efficiently with the legal service provider to help reduce costs.
Step 6 involves internally tracking the IP rights that have been or are being obtained (e.g. your IP portfolio), monitoring your start-up’s activity to see if new IP rights can be obtained and policing the market place to see if anyone is infringing on your IP rights. Internally tracking the IP rights generally includes keeping track of the start-up’s IP rights in terms of any registered rights that have been obtained, any applications that are currently being examined, any upcoming due dates related to certain procedures or maintenance fees and the generation of new IP (e.g. through new product development and marketing). Policing the market place may involve looking for products that have technology which is similar to the claims of the start-up’s patented technology or looking for products, services and companies having names that are similar to any trademarks or trade names for which the start-up may have registered or common law rights.
To conclude, IP is important for any company and a start-up must consider how to use IP rights to support its business strategy right from the start. This includes having a business strategy in place, being knowledgeable about IP rights, determining which IP rights can be used to support the business strategy, determining the IP rights of others and how it may affect the start-up’s ability to obtain IP rights, and managing the IP portfolio and policing the marketplace to look for infringers.
This article was first published in the December 2014 edition of the Spark Centre Newsletter.
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