Innovation Conversation #15 — Ilya Kazi, Patent Attorney, Mathys & Squire

I’ve known Ilya for a long time, and as my interest in innovation has grown, so his professional field has become ever more fascinating, so I was delighted that he agreed to talk to me. Our conversation ranged over a number of topics from Brexit to clotted cream, which made editing difficult —it was all so interesting I wanted to keep it all in. Here are some of the best bits for your enjoyment.

Ilya — you are a patent attorney and a partner at Mathys & Squire, a leading firm of intellectual property lawyers. Can you start by telling me what a patent attorney does?

Essentially, I advise people on how to navigate around other people’s intellectual property (IP), and develop an IP strategy that protects what they need to protect while avoiding getting sued or getting into difficulties down the line.

What sort and size of companies do you work with?

I work with some very large companies, some of whom have bought startups, and I work with a number of startups. I’ve seen startups go from a few people in a loft to a reasonable size company: some have exited for quite reasonable sums of money, and for some the IP has been a major part of that exit value.

Let’s talk about startups — do they often consider IP right from the beginning?

A lot more now than they used to, because generally they’re keen to get investment and investors want to know what they’re investing in. It depends on the field: if you’re essentially a retail business then IP is probably a lot less critical (although bear in mind that Ocado has lots of high technology in delivery and warehousing, as does Amazon), but if you’ve got a product it’s much more important. And if you’re in the medical or technology fields it’s almost essential, because many products are high margin but quite easy to copy once you’ve made them, so if you haven’t got protected IP you can’t protect your margins.

Sometimes the need for IP reflects the lead times involved: if you’re in biotech you spend many years in R&D and millions of pounds before you get to a product and before you get cash positive. In crowded fields such as engineering or technology, it’s not just about protecting your IP but also about knowing what other IP is already out there that’s going to be a problem. You don’t want to spend a few million getting technology almost to market and then find someone is knocking on your door telling you that you can’t actually use any of it.

So it makes sense to look ahead in a crowded landscape and see what your IP issues are going to be. Sometimes there might be none.

How accessible is IP advice to small companies like startups?

Well, not as much as it should be and a lot of people don’t know what they don’t know. People might have a fairly basic understanding and think they need a patent or they need a trade mark, but that’s not the same as looking at the whole picture. It does cost money and if people don’t ask the right questions then they don’t know if they’re spending it wisely.

The initial discussion shouldn’t be particularly complicated, but you need to know if you’re about to go into a minefield and you might need to spend some money on looking at what’s out there. You might have a simple idea that’s easy to protect. Alternatively what you’re doing might be on the borderline of what’s protectable and there’s a lot of other IP out there, but we should put in place a strategy of protecting what we can to create a bit of space around it.

What you need, I think, is to be able to say ‘this is my business plan, what advice do I need and what should I be looking to protect?’

Do you think there’s a perception that it’s always going to be lengthy and expensive and complicated?

I think the perception isn’t necessarily wrong: the cost to file a basic patent application is around £5k. It might be less than that if it’s simple, or more than that if there are a lot of issues to deal with. That sort of figure isn’t a big deal in the scheme of things, but if you want to get protection throughout the world for many ideas that can take several years and cost quite a bit more than that. The costs make sense if your business is developing and you’re scaling your protection accordingly. The important thing is to know what you’re doing, because if you’re filing something that’s fairly borderline then you’re going to get resistance. If you’re entering a crowded field you’re going to have to argue, and you need to be prepared for that, but if you succeed you’ve got some valuable protection.

The patent process does take time, but that can work in your favour, as you can kick the costs down the road and not decide finally what you’re doing until you’ve got a bit more idea of where your product’s going to be and how much it’s going to be worth.

Are startups where innovation happens, or are large companies driving a lot of innovation as well?

Large companies don’t always do R&D very well (although of course some do) in part because of the nature and the personalities attracted to different organisations, but you can have a healthy symbiosis between large and small. Large companies tend to buy up small companies when they’ve had a successful idea: many of my large clients are constantly acquiring startups, which are full of keen people with energy and a nice idea. The innovator gets it to a certain stage, then the large company can take it from there and has the cash to turn a nice idea into a polished mass market product, an enterprise grade product or something finished. To produce a product in large quantities requires boring attention to detail which is not the same requirement as the inspiration to design it in the first place, and some people or organisations are better at one than the other.

There are many companies now brokering partnerships between large companies and start-ups — in that sort of situation, how can small companies be sure their IP is protected?

You can’t rule out that a large company might squash you if they’re malign, but in general large companies don’t want the hassle and distraction of litigation or to risk their reputation. They can screw someone over once, but they can’t do it on a regular basis without getting a reputation and they generally don’t want that. After all, their interest in the partnership is to get a product to market, and if the partnership turns sour then no one particularly wins.

If I’m a Head of Innovation in a large company, at what point in my innovation process should I start thinking about IP?

Start at the very beginning, but it might not involve a lot of thought or time at that stage. Initially you just have to think about what you’re doing, what sort of issues might there be in terms of other people’s IP, what innovation might be created, and how you might capture that. They’re not difficult questions but you do need to have thought about them a bit. It’s also about putting your own processes in place so that anyone running a project knows what to look for to make sure IP can be appreciated and evaluated at the time, rather than suddenly realising 2 years down the line that there probably was something that could have been protected but it’s too late now.

So do you think people working in innovation need more expertise about IP, particularly if they don’t have an in-house IP department?

I don’t know about expertise, but I think awareness. It’s about being humble enough to know what you don’t know, and ask for advice. I had a client the other day asking me a fairly simple question about a collaboration, and I gave him the answer which in that case was pretty much what he thought was the obvious answer, but the fact that he’d thought about it means they probably won’t do something unhelpful in this collaboration which they might have done if they had just gone straight in. A five minute exchange that didn’t cost anything might have avoided a problem later.

If companies don’t want to acquire start ups, how can they promote and develop innovation within their own walls?

I work with a lot of technology companies where people are tasked with innovation as part of their job, so they have good programmes for rewarding innovation, for example for filing patents. Some people make serious amounts of money on those schemes and it works. For smaller companies who are doing a bit of innovation on the side with most resource dedicated to core turnover, it’s harder. Different things work for different people — some are purely financially motivated, some people want the kudos of having their name associated with a successful innovation. One drawback when you start a reward scheme is you have some ideas submitted which aren’t particularly meritorious and you have to deal with that sensitively otherwise you might discourage people. Equally you don’t want to file lots of things which are not particularly valuable commercially. So there’s a bedding-in process particularly when you’re smaller — the sample size is smaller, so if there are three ideas one month and two of them are not very good, you have to find a way of dealing with that without causing the scheme to fail.

Companies are increasingly working with virtual teams of contractors and freelancers as well as permanent employees — does that throw up any issues around IP?

This is another area where it’s about taking advice at the right time. You need to make sure that if you are contracting people, the contract covers the transfer of the IP. If you’re engaging a small design house, they have some incentive to hand over the IP because they want to be re-engaged by your company, so rather than employing an R&D team a company might commission an agency and generally the company paying will take ownership of the IP. Sometimes the contractors might retain some of the IP for use in other fields, so the company that’s paying for it gets the benefit of the IP exclusively in its field but isn’t interested in other ones. For example if you’re dealing with a fastening problem in an automotive field, you’re not going to become a generic fastenings manufacturer, so you might commission someone to solve the problem. You want a license for your field, but if they come up with a clever solution that’s usable elsewhere they have a potential upside.

How does that mesh with open source?

They intertwine, actually. It’s a case of deciding what you want to be open source and what you want to be proprietary. For software there are different sorts of licences so some IP you might want to generate revenue from and keep proprietary, but other areas might just be ones that you want done well but don’t care who does it and how it’s done. If you make those areas open source other people can contribute. If you make everything open source you can only ever compete on either price or service delivery, if you make everything proprietary then you have to do everything yourself and you’ve not got other people making the market bigger or better for you.

Yes — Tesla is on record as saying that it’s making its battery technology open source in order to expand the market.

That’s what Tesla says publicly but they’re filing like crazy on their IP in general, policies may change, and I wouldn’t always believe everything you hear.

So they’re protecting the bits where they can make money?

Actually if you’re as cynical as I am, then the automotive industry is full of established players who have huge numbers of patents and Tesla is new to the party, so it’s in their interests to say ‘people shouldn’t use patents in this field’ (because they don’t have as many as other people) and meanwhile quietly playing catch-up.

What’s interesting about the whole autonomous vehicles, robot technology and AI space is that everyone is working on very similar overlapping technology and there could be an interesting battle ahead. What happened in the automotive industry for a while was that either you’d have explicit cross licensing or you had a sort of tacit stand-off. People didn’t particularly want to start a battle because it would be expensive and only lawyers would win. There’s a sort of compromise between open source and proprietary standardisation where you have patent pools or clubs: everyone agrees to the rules of licensing on reasonable terms which are generally in people’s interests.

Another topic that comes up a lot in any discussion about IP is China — what can you tell me about that market?

The Chinese market is evolving. One of the things a lot of people don’t mention as much as they might is that China has a lot of cash. It owns a lot of US debt and there’s a lot of industry, private enterprise and quasi-private with government backing which has resources and a ready market, so they have a very large domestic market and the GDP is growing. It used to be that China was a cheap manufacturing base and so other people’s IP was an annoyance, so they weren’t particularly motivated to enforce it, but that’s changed now. Chinese companies had the largest number of European Patent Office filings last year — whether or not they’re all high quality is another question.

So China is embracing the value of having IP, there are government incentives for Chinese companies to file applications overseas which created a bit of a bubble, but they’re well aware that IP is a potential battlefield. IP has shifted dramatically over the last several years in both importance to Chinese companies and its enforceability in China.

You mentioned Chinese government incentives — what about the UK government, or the role of government generally: how can governments incentivise IP creation, and particularly in view of Brexit?

It’s tricky because the UK government is going to have a lot less cash in the near future because of Brexit. The preparations alone have already cost more than we pay the EU and nobody is now forecasting any short term cashflow good news. What can we do to stimulate innovation? We need to provide a stable framework: I know many people who were looking at starting a business in the UK, but with Brexit somewhere like Berlin is more attractive. EIS and SEIS tax breaks for funding are very good, but the government has shifted the goalposts on taxation a bit, such as with the patent box, and a tax break that is offered as an incentive one year may subsequently be treated with suspicion and that makes it less attractive. If you want to start a business you want reasonable certainty of the economic state, you want reasonable certainty of what the taxation will be, and in addition soft funding loans or other benefits would be good. Regulation is also an issue: unfortunately we’re now going to move to double regulation.

The problem is that for any business, as a matter of reality, if you don’t comply with EU regulations you’ve cut out a huge market. Also, as the UK has now given up its say in agreeing EU regulation it may drift in a harsher direction and certainly won’t be influenced by UK business needs any more. It’s fine if you’re selling clotted cream in Devon, but I don’t think clotted cream producers in Devon were overly burdened by EU regulations anyway. So most businesses will now become subject to two lots of similar but maybe not identical regulations and will have to spend more on navigating the requirements.

So what will the impact of Brexit be on IP, generally?

Fortunately we’re part of the European Patent Convention which is not part of the EU so that core part doesn’t change. For trade marks and designs there’ll be an extra cost on British businesses. There was a community trade mark and community design option which was very good value protection: you could register a design or trade mark in the whole of the EU for a relatively small amount of money compared to the number of countries it covered, and we’ll have to leave that. So it puts UK businesses at a slight disadvantage compared to other EU businesses but nothing major.

There is another issue which is that the Unified Patent Court, which the UK ratified recently, is being contested in the German constitutional court. If we’ve left the EU before that comes into force we don’t know whether we can still be a part of that. If it goes ahead, it would be a very good way for companies to resolve patent disputes covering the whole of Europe in one place, rather than in multiple courts, so that would be pretty good for business in general.

We don’t know what will finally be agreed about customs regulations but it’s not looking promising. It doesn’t really matter about the period of the free trade agreement as people are starting to realise that if there’s significantly more paperwork and delay then that’s a problem, it’s a massive cost to business. If you’re selling to the UK it will mean your products are slightly more expensive and subject to slightly more variability or delay that will have a small impact. There’s also the knock on effect — EU grants are quite significant in the technology and science sector and R&D and have funded some excellent collaborations over the years. What will happen is that UK startups and established businesses and universities will increasingly be left out of these kinds of collaborations and grants, because you need EU partners. Larger companies will of course get round the issue by relocating to an EU base.

It will be insidious and happen slowly over a few years. It’s not that everything will suddenly dry up, but in five years’ time we’ll look and see that our economy and standard of living hasn’t moved at the same pace as the rest of Europe and bigger R&D and manufacturing projects are likely to have shifted to Europe. The Galileo Project is just one example.

So the UK needs to get much better at protecting the innovation it does still generate. If we realistically expect a 10–20% reduction in R&D activity in the UK over the next few years, there is still plenty of scope to capture what we create much better. The beauty of IP generation is UK companies can still protect it in Europe and elsewhere regardless of what happens with any trade and customs agreement, and it doesn’t need to sit in a queue to cross the channel to generate revenue. So the UK could focus on being a more active generator and protector of innovation.

Thanks for reading this conversation — if you enjoyed it, why not check out the others? And if you’d like to chat about how I can help your organisation communicate, then drop me a line.