IP Strategy for Pre-start-ups

This is the first in a series of articles on common intellectual property strategies at different stages in business growth. This article discusses some issues to consider before a start-up has actually been formed. Some of these issues apply to spin-outs from Universities and corporations. However, spin-outs will typically start with more resources and have pre-existing intellectual property, putting them in a different position to a cold start-up by one or two people with little or no starting budget

1. First of all, why do I need an intellectual property strategy?

Business is competitive. Copying other businesses and trying to beat competitors to win business is a normal part of free market economies which is generally encouraged. The laws protecting intellectual property (IP) are an exception to this principle, designed to encourage investment which might otherwise be pointless if a business or its products could simply be duplicated by copyists.

If you are thinking of launching a start-up, it is presumably because you have an idea that you believe will give you a commercial advantage in the marketplace. What intellectual property can do is to help you to develop and keep that advantage. You will therefore need an intellectual property strategy.

2. Why do I need to think about intellectual property at such an early stage?

If you don’t think about intellectual property from the outset, you may find that you irreversibly lose the possibility to protect intellectual property later; you might choose branding which you cannot monopolise; you might fail to develop monopoly rights that you could have later used to avoid being copied; you might infringe third party rights; and you might get into difficulties around intellectual property ownership.

More positively, intellectual property can be very valuable to early-stage companies because it can assist with getting investment. Indeed, in many industries, getting investment will be nearly impossible without IP, or the possibility of generating IP. Funding applications, seed investors, business advisors and business partners will all ask about it. The very first funding rounds might accept that you will be able to develop or protect IP, possibly with the funding which you are asking for, later on you will need to actually have the IP to get the investment. Your business plans should have a future IP protection plan and associated costings.

In short, at the pre-start up stage, your IP strategy should be all about getting investment to get a company running. You will also have to know and be able to explain your IP strategy for the next part of your business plan, post-seed funding.

3. Basic education

All founders should know the basics of the main types of intellectual property. There are links below to articles describing each in more depth.

Patents protect technical inventions.

Trade marks protect the branding of businesses and products.

Registered designs protect the appearance of products.

Copyright, database rights and unregistered design rights prevent the copying of certain creations.

It is also very important to understand confidential information. While an idea is confidential, it can be kept confidential and only disclosed to others under a confidentiality agreement. Even if it is not, you can retain it as a trade secret. However, once an idea is not confidential, it is difficult or impossible to restrict others from doing what they wish with the idea. As patent attorneys, who operate under strict obligations of confidence, we are often the first people that an innovator has talked to about their idea.

This leads onto a golden rule:

4. If you might have a patentable invention, don’t disclose it

In order to be patentable an invention must be novel and non-obvious at the time that a first patent application is filed. Once it has been made available to even a single person who is not under an obligation of confidence then it is unpatentable in most countries (some territories, not the UK nor the European Patent Office, have a grace period allowing an application to be filed for a limited period of time after a first disclosure but that is not something one would rely on).

Please see our more detailed articles on confidential disclosures and patent filings.

5. Consider ownership

Founders of start-ups are usually in employment or academic study before they start their business. Sometimes they will find that their ideas belong to their employer or University, or that they have other restrictions preventing them from starting their business (e.g. restrictive covenants). IP ownership provisions vary from one University to another and between projects (for example depending on PhD sponsor).

If there are any risks of rights belonging to employers or Universities it is worth speaking to a patent attorney who will be able to establish how likely it is that there is a problem then you can make a plan as to what to do about it. Do also check your employment contract and staff and student handbooks.

Very briefly, if you are employed in a role where it is possible you will make inventions, and if an invention relates to your usual duties or duties specifically assigned to you, it would usually belong to your employer. If an invention is unrelated to your role, or employer’s interests it will usually belong to you as the inventor. If you are employed at a sufficiently senior level you may however have a general responsibility to your employer which leads to their owning inventions that might benefit the employer. If your business idea relies on confidential information which you only have access to because of your employment it is quite likely that using that would breach confidentiality obligations.

Note that some Universities are keen to establish spin-outs companies and may provide good commercialisation support for start-ups by their students and employees, however this is not universally the case. It is worth checking IP policies and what support might be available.

Therefore, some business strategies will need to consider how correct IP ownership will be obtained and maintained.

6. Be careful of the input of others

If you are going to collaborate with others, or get others to develop IP for you (e.g. to design your branding) then you need to consider IP ownership from the beginning. If you speak to someone, even under a confidentiality agreement, and they improve your inventions, suggest ideas or create copyright works for you (e.g. branding or your website), they may own intellectual property rights in what they create, either solely, or jointly with you. This can lead to complicated problems which can be difficult to disentangle.

Generally, if you are going to interact with a third party who may contribute to intellectual property development, it is best to engage with them under a confidentiality agreement which also covers IP ownership. Ideally, any IP rights which they develop would be assigned to you. It is best to ask for this when first dealing with third parties, for example when first engaging with a designer, programmer, consultancy etc.

7. If you may have something to patent, speak to a patent attorney

If you might have a technical innovation which you would like to stop others from copying, do speak to a patent attorney early on. Whether or not a particular idea is likely to be patentable is difficult to assess by yourself and you may not have much by way of funding. However, patent attorneys will generally provide a free initial consultation in confidence which can be valuable to get an initial idea on whether you might generate patentable IP and to understand the process and costs.

If you speak to other entrepreneurs you will hear their stories of what part IP played in their business. This can be helpful but it can also prove a red herring. Every business has a different context and what was right or wrong for another business may not apply to your business. It is important not to proceed on the basis of anecdotal advice. We have worked with a great many businesses, often from pre-start-up, and seen many different circumstances, which enables us to provide very customised strategic advice.

8. If patents are relevant to your business, do some patent searching but don’t try to file your own patent application

Although you might take a view that “patent attorneys would say that” it is highly unlikely that someone without relevant experience would write a patent application which gets protection similar to that which a professional patent attorney would obtain. Patent attorney firms try to hire the very brightest STEM graduates and postgraduates, and it still takes several years for them to be trained to become competent at drafting patent applications, let alone good at it. You really do need advice here.

However, it can be a good use of time to do some of your own patent searching using freely online databases, to get an idea of what is already known. Please don’t draw final conclusions as to what you will or will not get protected, or what others have protected, without speaking to a patent attorney, but having a really thorough search of the patent literature can be very helpful and will give a patent attorney a good starting point if you do instruct a patent draft in the future.

9. Think about branding strategy

Some businesses are all about the branding, particularly for consumer products. If you are setting up a drinks company, clothing brand or similar then the brand may be your primary focus. However, for many other businesses, particularly those who expect a long research time before they launch a product, branding is less important at the outset and you might even simply plan to consider branding properly at a later stage.

If you are choosing a trade mark, it is very important to pick a trade mark which are distinctive. You cannot protect and therefore cannot monopolise trade marks which is descriptive of the goods and services to be sold under the mark. Sometimes good trade mark hint at what they stand for e.g. GOOGLE is a very large number; JAGUAR hints at a fast car. Sometimes the meaning is unclear e.g. AMAZON. But brands which simply describe the goods and services to be sold can’t be monopolised and they very rarely seem to succeed (how many completely descriptive trade marks can you think of or see if you look out for brands?) There is therefore a lot to be said for trying to make branding distinctive in the first place. If you do, then you will likely have fewer problems with it later.

From a legal perspective the most important issue to consider is whether your proposed branding is free for you to use without infringing the registered (or unregistered) rights of others. You can do some initial searching yourself but for an accurate assessment of risk speak to a Chartered Trade Mark Attorney such as ourselves. If your proposed branding might be confused or associated with that of a competitor or earlier trade mark holder, you may find that your business launch is overshadowed by a trade mark dispute at the worst possible time. If you are new to choosing branding you may be surprised by how difficult it is to find a trade mark which is clear to use. In some industries most marks that we are asked to search for are available for use; in other industries, particularly the software industry, most marks that we are asked to search are not available for use.

It is then advisable to register your trade marks, to stop others from using conflicting marks, whether accidentally or deliberately. We have further articles with a lot more basic information about trade mark registration.

Branding strategy will consider issues such as the relative importance of a company name versus product or service names, whether to have a family of trade marks for related products, whether to also use registered designs to protecting branding elements, how and when to file trade mark applications and so forth.

10. Remember that designs can be registered

If you have a product which will be judged by its appearance then do consider registering that design. Most people are familiar with the basics of copyright protection for literary and artistic works but the law for industrially produced objects is quite different. Design registrations can give monopoly rights on products with a particular appearance for up to 25 years and infringement can be demonstrated without a need to prove copying.

11. Think about IP management strategy

At the outset of a new business, IP management is usually carried out by the intended founder, potentially with assistance from external advisors, such as patent attorneys, or entrepreneur support organisations. The priority is getting investment and to do so you will often find that you need to provide evidence of your intellectual property. As mentioned above, you might get some initial funding without having had to actually start registering IP but you will still need to be able to prove you will have protectable IP, and so compiling a written register of IP is a good start. It is also helpful to have a register of IP for your own record keeping, and to help with decision making and management of that IP. It is therefore good practice to compile information about your intellectual property from the start and keep your IP correspondence organised. You can consider more advanced approaches to IP at a later stage.

12. Think about the future trajectory of your business

In terms of developing an IP strategy, rather than just thinking about the IP which you have now, it is essential to think about how your business will develop, where it will need IP, when and how it will develop more IP and how it will be used. Again, it is worth speaking to Chartered Patent Attorneys such as ourselves as the most appropriate strategies for developing and protecting IP vary drastically from one industry to another.

Often, although not always, we find that the most important IP which a company develops is not the IP which it starts with but the IP which is created once the business is up and running. Will that happen to your business, or do you already have a single idea which your company will be based on? In either case, what funding will need to be in your business plan to generate, develop and protect the IP?

In addition, you should think about your future business and what it would look like. It would be a mistake to not invest in IP because you can't currently afford to enforce it. If you have a successful business in the future, that business - or a large company that acquires it - may well have the pockets to enforce it, but if you don't protect your rights at the beginning that possibility will be lost, and may fall at early hurdles such as having a sufficiently viable long-term business plan to attract investment.

Conclusion

When you plan to set up a business, you'll need an IP strategy. Right at the beginning, the strategy will be about getting funding for your business. But to do this successfully, you will need to consider what your IP strategy will be further in the future in order to write a good business plan. We will write more about IP strategy in later-stage businesses in future articles.

Author: Alistair Hindle. If you have any questions about IP strategy, please do not hesitate to contact us.