The value of a business goes well beyond its balance sheet and physical assets. Value for businesses in all fields, big and small, is often tied up in intellectual property (IP). While intangible, a thorough IP strategy aids all businesses, such as by building a unique brand that creates further business; obtaining licensing income; or stopping competitors from intruding on market share and undercutting prices.
Neglecting to consider and utilise IP as part of your business model is the same as neglecting to acquire the necessary buildings and content insurance for your business premises. Fire escapes and sprinklers are installed to protect physical assets, not just for legal reasons, but because it’s part of the responsibility of directors to their staff and shareholders. However, unfortunately IP is often overlooked by companies, particularly start-ups, usually due to a lack of awareness of the general importance of IP, the rights available and how and when to obtain them.
Types of IP
Companies should coordinate their business plans with their IP strategy. For instance, the company’s brand name could and should be protected as a registered trademark. However, consideration must be given to trade marks already used in different territories if the plans involve taking the business abroad. A brand name available in the UK might already be used and protected in a different territory.
For example, challenger bank Mondo was forced to change its name to Monzo after failing to undergo the appropriate IP due diligence and to protect its brand.
Other types of IP that are important for businesses to be aware of and utilise as appropriate include design rights, which protect the appearance of something.
Next, there is copyright, which protects original literary, dramatic, musical and artistic work, including illustration and photography. Trade secrets are another form of IP but are not enforceable rights as it refers to information that the owner is keeping secret for their economic advantage.
Finally, patents are used to protect technical inventions. “Technical” has a broad meaning and ranges from biotech to electronics to mechanics and everything in between. For a technical invention to be patentable it must be novel and inventive over the already known prior art and it must be industrially applicable.
An important point to note in this current era of fast developing technology using artificial intelligence is that in the UK and Europe, computer programs themselves cannot be patented. However, if they produce a technical effect which is inventive, it is possible to obtain commercially useful patents which encompass the technology.
IP needs to be considered at the very beginning of founding a company. Patent applications must be filed before the invention is disclosed to third parties (unless confidentiality agreements are in place), as in the UK and Europe, the assessment of novelty is absolute.
Therefore, a non-confidential disclosure of the invention by the inventor or applicant prior to filing a patent application would render the application not novel over the disclosure and would consequently result in the application being unpatentable and rejected by the UK Intellectual Property Office and European Patent Office.
Freedom to Operate vs Patentability
A patent is a negative right, which means that the owner (or licensee) can stop third parties from using the claimed invention, however, this does not automatically grant them the right to do so themselves. Therefore, it is important for businesses to understand what rights are conferred by a patent and the further checks that should be done to ensure their technology (whether patented or not) can be worked without risk of infringing another party’s patent.
It is possible for a patent to be granted for a specific invention which also falls within the scope of a broader, generic patent.
This scenario may occur when the particular embodiments of the specific invention are not specifically disclosed together in the generic patent and these particular embodiments provide an additional or improved technical effect over the generic invention.
Astroturf, the pioneer of the artificial turf, announced its bankruptcy in 2016 due to the costs associated with losing their patent infringement court case against FieldTurf. Despite having a healthy patent portfolio themselves, Astroturf did not perform a freedom-to-operate search before installing a new type of turf, so they were unaware that this new turf infringed a patent of FieldTurf’s.
Therefore, whether you have a granted patent or not, it is important to perform a freedom to operate search and review. This is a process of searching for granted (and pending) patents that are related to your technology and ensuring it does not fall within the claimed scope of another patent.
Value and Investment
IP is also an invaluable tool to assist start-ups to secure investment. IP due diligence is a key process that potential investors go through, which evaluates a company’s IP. Not only does a solid IP portfolio increase the value of a business, but it also provides reassurance to investors that commercially useful aspects associated with the business are well protected from third parties minimising future risks.
Many businesses miss out on securing venture capital funding or receive considerably lower valuations due to neglecting their IP. A business nearly going bust due to missed funding or unforeseen costs to re-brand can be prevented if companies are IP aware before they are even founded. Equally, many companies go on to have huge success, which is strongly influenced by having their IP well-positioned.
For example, the artificial intelligence start-up, Magic Pony, was bought in 2016 for $150m, and a big influence to that purchase was their solid IP portfolio.
Consequently, it is strongly advisable to consider IP right from the outset of developing a company and ensuring it is well aligned with your commercial and business plans.
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