We will come on to strategy later, but a necessary precursor for any strategy is to have a clear understanding of the objectives. At the highest level of course, the objective has to be to generate, secure and manage the company’s IP so as to maximise the company’s value at a desired point of exit (or investment). This should be achieved within the confines of prudently spending the company’s money. Despite its spend on IP, the company needs to have sufficient financial resources to fund all of the other business critical needs. One is not much use without the other.
For the tech start-up, investors and buyers will be attracted to the company primarily by the novel products and services that it has developed, or that it has the clear potential to develop, as well as the key people within the company. Any reputation established for the company’s brands will add to the attraction. It will be the novel features and brand recognition that add value to the company’s offerings and which will drive (future) profit. The longer those features survive in a product or service the more important they will be. A feature that is only present for a year or two in version 1.0, but which is superseded in version 2.0, will be of very limited value. It depends on the size of the market of course and the market sector, but a feature that is likely to survive for more than 5 years, perhaps more than 10, will be of the greatest value. Clearly then, the crown jewels of a company’s IP assets will be those patents, as well as any utility models and Registered Designs, that afford a monopoly in the use of those long lived novel features. A significant investment should be made to protect those features. Moreover, the company should fight hard to achieve the broadest scope of protection for them; it is worth pushing back strongly with any Examiner that seeks to significantly narrow the scope of a patent or other registered right.
So if you have your patents for the key novel and long lived features, fantastic. But everyone likes an insurance policy against any future failure of those patents, e.g. if they are attacked and revoked by a competitor. This is where a second level of patent protection is valuable. These cover features that are not necessarily critical and not necessary long lived, although they will hopefully survive for more than a couple of years, but which do provide some commercial advantage over the competition. They might relate to ease of use, accuracy, or cost. Whilst the key features falling within the primary layer of protection are likely to have been developed early in the life of the company, or even before, features within the second level will likely have been developed during ongoing R&D. These features perhaps require the most careful nurturing as they can easily be overlooked.
Perhaps a third key strand to the objective is to generate IP assets that go beyond the current, or currently envisaged, products and services, and which look to the future. A company will always be a more interesting target if it can demonstrate a long-term future, i.e. a technology pipeline. This may relate to products and services that are some years off, maybe 5 years plus, and which aren’t even the subject of serious R&D at the point of exit.
Investors and buyers will make a distinction between pending applications (“Patent Pending”) and granted patents when valuing a company. Significantly more value will be attributed to the latter. Your objective should be to secure grant for at least your primary patents. Of course, pre-grant, the more likely an application is to grant the more valuable it will be.
From a registered trade mark and registered design point of view (subject to the latter being relevant), these should be focussed on current and imminent products and services, perhaps also looking 3-5 years ahead. These will represent a barrier to competition and will secure the work that has been done in preparing for market. They should be aligned with any marketing and sales activity that has taken place.
Considering unregistered rights, “unregistered” does not mean “unrecorded” or “invisible”. You should be able to provide accurate and comprehensive records. These should identify the most valuable unregistered rights, e.g. source code and design drawings, together with proof of title and date of creation.
An objective in itself should be to be able to demonstrate, at the point of exit or investment, that the objectives set at the outset and developed over time were achieved by a structured and well managed process, driven by internally developed and acquired resources including key individuals. Even the most secure IP assets are at risk if not managed properly. Investors are investing principally in future potential and being able to demonstrate well managed processes and appropriate resources will reassure them that the existing assets are safe and that there is every reason to expect that future generated IP assets will be similarly identified and secured.
In summary, the key objectives of an IP driven tech start-up, insofar as protecting its IP assets is concerned, should be to:
- Obtain patents for the key novel and long lived features
- Provide an insurance policy by obtaining patents for less significant features but which still provide a commercial advantage
- Seek patents for products and services which, while not current, demonstrate a future pipeline of innovation
- Obtain registered trade marks and potentially registered designs for current and imminent products and services
- Have in place processes and people to manage existing and future IP assets
- Have an awareness of IP at all levels and of the importance that the company places on its IP
- Have in place documentation relating to key unregistered rights.
The question left hanging here of course is how big should your portfolios be. I am sure a Google™ search will provide us with some rules; If you invest $x in R&D you should spend $y on registering IP and you should obtain $y/a patents and $y/b trade marks. There may be some merit in such an objective approach and investors may have a portfolio size in mind for a given investment. It can also be helpful to look at the portfolios of companies in similar fields that have been successful, and unsuccessful. This information can often be publicly available in listing prospectuses for example. Founders should definitely be reviewing these prospectuses and their IP sections when determining their objectives.
We have not yet considered in any detail the thorny subject of freedom-to-operate or FTO. It is thorny because of the potentially huge scale of a detailed FTO exercise and the associated costs, and because of the uncertainty of the results. Especially for complex products and services with many features and functions, some of which are novel and others of which are already part of the state-of-the-art, an FTO exercise which provides absolute assurances is nigh on impossible. Assuming we are talking about experienced investors, they will appreciate the challenges. They will however expect that all issues that the company has come across will have been thoroughly investigated and the risks assessed. This will have required expert input from the company’s advisers. Whilst an objective cannot be to determine FTO with absolute certainty, one should certainly be to analyse and assess all known risks. Additionally, where risks have been identified, appropriate products and services should have been adapted to minimise risk.