We love stories of simple ideas making millions: think Post-it Notes, Frisbee and eBay. Ideas need nourishment and protection as they move from R&D to the open market. Turning knowledge into profit is a serious business. Jodie O’Keeffe casts a critical eye on the trying journey from A-ha moment to market-ready Intellectual Property.
A NOVEL IDEA
Successful or otherwise, every entrepreneur knows that the inspiration for a brilliant business idea is just the beginning. The idea spins around in the inventor’s head, daring its owner to dream of what could be. Between birth and superstardom, the idea must surmount a myriad of challenges. Will it work? Is there a market? How much will it cost to develop? Where will the money come from? Where will the skills come from?
Before answering these questions, the savvy inventor will ask one more: can this idea be protected?
When he was 16, camping enthusiast Gary Lewtschenko told his Dad about an idea for an all-terrain tent. Lewtschenko senior went to the patent office to search for prior art and found none. So, Gary paid $80 to file a provisional patent application, protecting his idea for 12 months while he further developed the business strategy.
According to Joss Evans, this is a smart move. As CEO of Innovic, Victoria’s leading provider of services to innovators and entrepreneurs who are in the formative stages of commercialisation, Evans assists early stage companies like Gary’s to get their ideas off the ground.
“We suggest our clients do a patent search initially, using various search engines,” says Evans. “They need to do a quick scan to see if anything like their product has already been protected.”
With registered IP rights now easily searchable online, the quick scan is actually quick. It’s also essential. It may seem obvious but, to be eligible for a patent, an invention must be novel, inventive and useful. Your idea might have struck like lightning, but with 40 million patents in the world and a million new ones each year, it’s best to double check the novelty aspect. Also, to receive a standard patent, an invention must be considered new: if you demonstrate or discuss your idea in public, you may lose the ability to patent it. Though most inventions are inventive, if someone working in the industry can easily come up with the same idea, it’s not inventive enough to warrant a patent. And, if your invention isn’t really useful, revisit the drawing board.
THE PLOT THICKENS
Having established the unique status of your invention, instead of rushing to the patent office, try a more strategic approach.
“Do a bit more research; make sure there is a market for the product. Don’t spend all your money taking out international patents, then find nobody wants your product. If that research checks out, IP will form part of the overall business strategy. It’s time to get some professional advice,” says Evans.
An established business will usually have a strategy in place, and the prospective new IP should be incorporated. Research and development, branding, marketing and financials will affect (and be affected by) the new invention. Before securing patents, a new business being built on the strength of a great idea should develop an overall business plan, in which IP will play an important role.
Intellectual property is complex. While there is a wealth of information out there, unless you are a trained lawyer or an incurable insomniac, it’s probably best to engage a patent attorney to develop an IP strategy and advise on the details.
An integrated IP strategy will consider the levels of protection available: patents, designs, trade marks, copyright, circuit layout rights, plant breeder’s rights, confidentiality and trade secrets. Of these, only copyright and circuit layout rights are automatically assigned to the creator, the others must be registered or formally acknowledged. Business, company and domain names are registered separately and, beware; registration does not reserve trade mark rights.
Deciding what, when and where to register are key points in a company’s IP strategy. For example, a business being built around a new product might apply for patent, design and trade mark protection, as well as registering the business, company and domain names. An established business might apply for an innovation patent for an improvement made to an existing product or technology. The innovation patent has a lower inventive threshold than standard patents and is quicker and easier to obtain.
Even when the best type of protection has been determined, there’s more to it than just filling in the forms.
“The lay person may not have the expertise to consider all the modifications to the invention that a professional would include. The patent attorney has the experience to say ‘well, this could be simply modified, so you should make claims against these other small modifications’,” says Evans.
The timing of a patent application is also strategic. Too soon and the idea may not be sufficiently evolved; too late and you risk violating the novelty aspect of the invention.
“One of the biggest pitfalls for innovators is seeking advice too late to get protection. There’s a lack of awareness of the IP process and the need to seek a level of protection,” says Graham Cowin, Managing Partner with patent and trade mark attorneys Phillips Ormonde & Fitzpatrick. “There’s a mistaken belief that, if I’ve invented something, it’s automatically mine.”
After filing the provisional patent himself, Lewtschenko enlisted the services of a professional patent attorney to secure further IP rights for his Anywhere Touring Tent.
“Before the provisional patent expires, you need to apply for a standard patent. My attorney carried out advanced patent searches and wrote up the international patent applications,” says Lewtschenko.
This stage tests an entrepreneur’s commitment.
“You have to be prepared to spend at least $15,000 over the life of an Australian patent. To make it worthwhile, you have to invest the time and energy to make your idea work,” he says.
To secure return on investment, you might need to take your invention to the world stage. There’s no such thing as world rights; they must be registered separately in each country. There are several treaties and agreements in place to simplify this process, notably the Patent Cooperation Treaty (PCT).
The PCT allows an inventor to file a single application with the effect of filing individual applications in each of 126 member countries. A single international search is carried out, and then the applicant nominates specific countries in which to proceed.
Apart from cutting down on paperwork, the PCT allows deferral of expenditure while setting the ‘priority date’ – the date from which your patent is valid – as the filing date of the original Australian patent application.
“The PCT allows the inventor to defer the filing of national patent applications in individual countries, and thus defers the expenditure required to secure those patents,” says Cowin. “Patents have a different scope in each country: they still need to be enforced at a national level.”
As Director General of IP Australia, the keeper of Australia’s IP register, Dr Ian Heath would like to see the international system further simplified.
“We’ve been doing a lot of multi-lateral and bi-lateral work, to increase the degree to which the system is common, so that unnecessary differences are removed. It’s a fairly slow process,” says Heath
“But we have also been working with a number of countries, like Japan and the US, to move down a path of mutual recognition. Our aim: for one invention, there should be only one search and one examination, done somewhere in the world and done properly. Given where we are at the moment, it’s within our grasp to do it in five years. That’s ambitious, but certainly within our grasp.”
Cultural differences make harmonisation of IP law difficult. Australia has long history of IP protection, with the Australian Patent Office celebrating its centenary in 2004. Prior to that, each colony maintained its own system.
“The notion that intangible property exists and can be protected underlies our economy,” says Heath. “In countries like China, for example, culturally they’ve had a different view – what people created, others were free to use. The concept that an idea could be expressed in such a way that you claim it to be personal property was quite foreign. In China, they only introduced the first IP laws in the early 1990s, so while the legal framework is getting there, their ways of doing business are certainly different to a country like Australia.”
Once your IP is appropriately protected and your invention becomes known to the world at large, a couple of scenarios might unfold.
First, someone’s legal representative might send you a letter claiming that you have stolen their idea. This is where the painstaking research of prior art becomes relevant.
Says Lewtschenko: “I’ve had two companies claiming prior art after seeing my tent, one from Germany and one from the US. But, I’m not worried because I submitted information on their products when I applied for my patent. While there are similarities, my product is different to theirs.”
Next, a new product, very similar to yours, might appear on the market. To minimise this problem have potential business partners, such as manufacturers, sign a confidentiality agreement.
From a legal perspective, the value in registered IP is two-fold: you avoid infringing others’ rights, while reserving the option to enforce your own. To maintain the commercial value of your IP, you may need to exert the legal muscle to which your registered IP entitles you. Often a carefully worded letter from your attorney is enough to warn a competitor of possible infringement.
However, the legal bills can stack up and, for a small business, it can be difficult to put your money where your mouth is. If you are serious about defending your IP rights, look into an IP-specific insurance policy. Most professional indemnity insurance policies cover unintentional infringement of others’ rights, but exclude funds for defending your own rights.
Legal defence of your IP will help maintain its value, but there are other, more strategic ways to make your portfolio work for you. Start with a complete inventory of your intangible assets, detailing status and value. Valuing intangible assets is a highly specialised area of accounting, but most large accounting practices offer valuation services. Research the market landscape and search the IP databases to get an insight into competitors’ new IP applications. Assess the options for commercialisation of your IP, including a critical look at the IP gaps of potential collaborators and licensees. Draw your findings together to formulate an overall business strategy and align your R&D accordingly.
Development of new IP through targeted R&D expenditure can offer lucrative returns. The 2005 R&D and Intellectual Property Scoreboard, compiled by business information analysts IBISWorld, ranks the innovativeness of Australian companies by aggregating R&D spend and patent, trade mark and design applications.
Referring to a study of 30 of the Top 50 most innovative Australian companies over the past five years, IBISWorld Chairman, Phil Ruthven, commented: “Their spending on R&D was 1.19 percent of revenue, or more than four times the national average for the same timeframe. The result was a weighted average return on shareholder funds after tax of 17.1 percent over five years – compared with just 7.7 percent for the nation’s Top 1000 enterprises.”
Speaking of Australian companies in general, Ruthven was less buoyant.
“For too long now, Australian companies generally have failed to realise the value of investing in, developing and protecting their intellectual property. And the key to competing on the global stage goes beyond straight R&D spend to business’ ability to exploit the results of that R&D.”
EXTRACT AND EXPLOIT
When it comes to IP value extraction, your options are limited only by your imagination, and the IP rights of others. The path to commercialisation diverges markedly depending on the resources of the company, the inventor, the industry, the IP involved and the competitive landscape.
In broad terms, commercialisation options available include divestment of IP, licensing, joint ventures, alliances, strategic trades and direct exploitation. The complexities involved in these scenarios generally require the attention of qualified legal and business advisors.
As a rule of thumb, when entering into a legal agreement with a ‘commercialising party’, the inventor can expect approximately 25 percent of profits made by the commercialising party as a result of the inventor’s IP, but this varies with industry.
Any legal agreement regarding your IP should address the following: remuneration structure – royalties, lump sum, fixed payments; duration of the agreement and IP expiry dates; geographical boundaries; knowledge transfer from inventor to commercialising party; enforcement, infringement and maintenance responsibilities; modifications to the original invention; product liability; exclusivity and assignment of rights.
Intellectual property rights get tricky: it’s a great achievement coming up with a brilliant and original idea, but seeing it through to commercial success requires commitment, stamina and good advice. You can improve your chances by gaining an understanding of the system and learning when to keep your mouth shut.
As Gary Lewtschenko discovered, a bit of IP self-help combined with sage advice from a patent attorney can literally open up a world of opportunity for a simple but smart idea.
“In the beginning, it was just me learning about the IP system – there was no-one teaching me. The best thing you can do is go and talk to a lawyer. I can build you a tent, but these guys know about patents. Seek professional help right from the word go.”
IP SNAKES AND LADDERS
For many entrepreneurs, a failed venture is a badge of honour: each foiled attempt is a step closer to the holy grail of commercial greatness. Often, the fatal mistake appears in the form of an Intellectual Property blunder.
Here, we discuss with Stuart Smith, Managing Partner of patent and trade mark attorneys Shelston IP, how to manage your company’s IP to avoid some common ‘learning experiences’.
Develop your IP strategy
- The IP strategy must be developed in tandem with the core business strategy. “It’s not just about obtaining patents or trade mark certificates,” says Smith. “We understand our client’s business and develop a comprehensive IP strategy that dovetails with their core business plan.”
- Understanding the IP landscape avoids infringing others’ rights and provides a smart starting point. “Landscape mapping will assess the state of the art, so your R&D starts at the forefront of technology.”
Protect and manage your IP assets
- File for protection before taking your invention public or risk invalidating your application. Australia offers a 12 month grace period but, beware, this doesn’t apply internationally.
- After filing for a provisional patent, any modifications or improvements will need further protection.
- Keep records of inventorship: when a team of researchers works on a project, record exactly who invents what and when.
- Avoid excessive reliance on confidential information
- Conduct annual IP audits, including unregisterable IP rights like confidential information, know-how, trade secrets and copyright.
Commercialise your IP portfolio
- “Use the IP system to full advantage,” says Smith. “Rights can be sliced and diced: complementary rights can be bundled together, making the whole more than the sum of its parts.”
- Build your patent portfolio so that separate markets can adopt different commercialisation strategies.
- Consider licensing arrangements in secondary markets to generate additional royalty streams.
Enforce your IP rights
- Often, rights infringements are settled with a ‘cease and desist’ letter, however…
- …there’s always opportunity for commercial gain: consider a license agreement or buy-out scenario.
- If events become litigious, seek a commercial partner with deep pockets. “In a David and Goliath situation, clients often negotiate a commercial arrangement with another Goliath.”
A GRANDER HAMMER
Jake Tyson started out a builder, now he’s an entrepreneur
Working around roof trusses and floor joists, Tyson was frustrated by his inability to hit the nail on the head: in tight spaces, the hammer shaft kept getting in the way.
“I decided to get an angle grinder and grind out the shaft of the hammer, then I filled the back up with weld. I found I could get the nail in every time,” says Tyson.
After numerous prototypes, Tyson filed for an Australian patent. His company, Redback Tools, now holds international IP rights to a range of innovative tools.
“I came up with the name Redback because I wanted to use the slogan ‘Put the sting in your swing’. But someone in America was already using ‘Take the sting out of your swing’. So, I couldn’t use the slogan, but it was too late to change the company name,” he says.
Tyson didn’t make the same mistake twice.
“I wanted to call my hammer ‘Swing Right’, but someone had used that for a golf club. It took a long time and two grand to find that out, but it was worth it in the end. IP is like building a house, if you skimp in the first place, it’s going to fall down.”
CHOOSING THE RIGHT RIGHTS
Just like the bricks and mortar variety, Intellectual Property comes in all shapes and sizes:
- patents for new or improved products or processes;
- trade marks for letters, words, phrases, sounds, smells, shapes, logos, pictures, aspects of packaging or a combination of these, to distinguish the goods and services of one trader from those of another;
- designs for the shape or appearance of manufactured goods;
- copyright for original material in literary, artistic, dramatic or musical works, films, broadcasts, multimedia and computer programs;
- circuit layout rights for the three-dimensional configuration of electronic circuits in integrated circuit products or layout designs;
- plant breeder’s rights for new plant varieties; and
- confidentiality/trade secrets including know-how and other confidential or proprietary information.
AUSTRALIAN IP RISING STEADY
Australia’s R&D spend, at around 3 percent of GDP compared to a 4.3 percent OECD average, is below par, according to the 2005 R&D and Intellectual Property Scoreboard. Despite this, IP Australia Director General Dr Ian Heath is encouraged by steady growth in the use of IP in Australia.
“Growth has been particularly strong in the trade mark area, at 18.4 percent, while patent activity has grown by 5.7 percent in the past year. This reflects what’s happening in our economy: it isn’t built on the back of scientific breakthroughs; it’s built on service industries like retail, food and entertainment. These areas are using trade marks to help set up their businesses,” says Heath.
While patent growth is slower, this shouldn’t cause concern.
“It’s very hard to predict the patent pipeline,” says Heath, “depending on the nature of the invention and the industry, the time lag between R&D and successful patenting of a product is quite large. In the patent system, the fastest growing areas are the biotech and IT industries. Particularly in biotech, though, it can take a lot of R&D before you’ve got something patentable.”
So, there’s swift trade in trade marks, but patents take patience.