You are starting a successful new company. You have a good product that you believe people will want to use.
You even have some funding from friends and family and some interest by an entrepreneur or mentor who you were introduced to recently.
The stage is set for success, all you need to do is stay focused, keep costs and distractions low, and execute.
Why then spend your valuable time and money exploring intangible things such as intellectual property (IP)?
Here are some common reasons you might hear as to why your start-up does not need IP:
• You can make good money without it. You have a great product or service, growing momentum, a short runway, quick scalability, and now you can easily reach to the entire world of possible customers.
• Others will want to use your product because it is good, and they will recognize it.
• You are careful to do business only with good people and good companies, who aren’t likely to turn on you.
• You haven’t found competitors doing what you are doing.
• You have far more important obligations to meet like financial regulations and labor laws.
• You didn’t invent anything and there is nothing new under the sun, so it is unlikely that you have IP anyhow, let alone IP valuable enough to warrant the costs to protect it.
• You don’t want to get branded as a patent troll, asserting bad patents for nuisance value.
• There is plenty of time to worry about such things later, when you have more money and more time.
In fact, there are so many good reasons to ignore IP, or at least to ignore it for now, that one wonders why you are still reading. It is either because you already know you are sitting on a ground-breaking technology, or you caught my hint about good coffee.
There is truth in many of these points when taken individually or when taken in certain contexts. However, collectively they don’t add up to a reason why you should ignore or delay considering the value IP can bring to your startup, especially when the up front costs are so low.
Why you shouldn’t ignore IP
Even before addressing the reasons, you should know that in the time than it takes you to make a coffee run, and sometimes for the same cost (you should pay for the coffee ), an experienced IP attorney can help you think about whether IP may be important to your particular startup: what type of IP protection you might need, when you might need it, how much it might cost, and many of the reasons it might benefit you financially.
You can probably get some useful advice in less time than it is taking you to read this article. Remember, in your business you cannot triage what you do not know. So, my lofty intention for this article is to give you sufficient reasons to budget time and money for coffee next week.
You might decide to pursue quality patents and a global strategic IP and licensing portfolio, or you might just be buying coffee. In my experience, most people leave somewhere in between, with a better appreciation about the risks and rewards, timing and costs. I am thirsty, what about you?
Whether your start-up is creating a brand new market, hoping to be disruptive to an existing market, or simply improving upon an existing product or service, you are pursuing it in significant part because you hope it to be profitable. Where there is the potential for significant money, there will be competition, and not all of it will be foreseeable.
IP is the most predictable way to protect your investments, your investors, your brand and all the hard work you put into your startup from the unknown. This trickles down in all kinds of immeasurable yet valuable ways. For example, a competitor is less likely to enter your market where it knows you have IP that may stop it.
An investor is more likely to give you money when you have something unique, and a competitor is less likely to receive funding. A potential employee is more likely to choose your startup over another when she can see you have something more definite than your high hopes and good intentions. IP also helps in your marketing and sales efforts, as it helps you stand out in a marketplace bombarded with the latest and greatest.
Start-up markets are increasingly global, which means not only that it is easier for your start-up to grow overseas into foreign markets, but also that foreign businesses are increasingly looking at your own markets.
Often, these foreign businesses have more experience and better funding, some of which can reach your customers without stepping foot on local shores: consider for example not only the size, but the disruptive nature of recent market entrants Amazon, Costco, Netflix and Uber.
These competitors are not only growing into markets like Australia and New Zealand, but they are filing to protect their IP here. Think of IP as a land rush, where if you aren’t first to squat or claim property globally, either it will never be yours or it will cost you dearly in those markets when you need them.
Foreign patents filing into Australia for example are outpacing the historical growth of filings by Australian entities. For example, IP Australia reports that U.S. residents filed more than 8 times as many patents in Australia as did Australian residents in 2015, and that Australians file only roughly 8 per cent of all the standard patent applications domestically.
You may be able to slow down a foreign entrant into your local market with local IP protection – a strong brand name, maybe even a local patent – but without the ability to swing back in your competitor’s most important markets, you are fighting for survival with only one hand and poor leverage.
You may not fully appreciate this yet, but many other Australians businesses do. Together with the fact that Australia is usually not the largest market for Australian companies, we see that according to IP Australia, in recent history Australians file roughly three to four times as many patents overseas as they do in Australia, with the largest filings being in the U.S., followed by Europe and New Zealand.
Trademarks & Branding
Basic IP advice can help you avoid early missteps from choosing someone else’s registered brand or design, from choosing a brand that will be difficult to protect yourself, as well as the costs of rebranding and redesigning your products well into your product launch.
The Predictable Pivot
Markets change and a well-run company can change the direction of its business more quickly. Over a longer time-frame a company can vary its investment in research and technology and appreciate how this affects its return on that R&D investment.
Investments in IP rights are less forgiving of change and delay. IP rights are usually lost or significantly compromised if not protected, and protected the right way from the start. The law starts various timers on your IP rights (priority dates, grace periods, latches periods, etc.) and failure to move quickly may forfeit your rights and your competitive advantage.
The law also provides you the ability to better claim your rights as you see the market evolve (your market and your competitors’ markets) evolve – if you have protected them correctly from the start. Filing dates are often determinative of value.
It may also turn out that you or your company are not the best way to make money from your ideas. If and when you decide to refocus your business or even close up a portion or all of your business, the value of your ideas and hard work can live on and serve as a continuing source of revenue for all your hard work.
If you protected your inventions with patents, you taught the world how to do it. If someone starts using your idea, you may be entitled to compensation. If one of your competitors sees that value and wants to have it to block a third competitor, again, you may have a new sources of funding. If you developed a brand and some customer good will, that too can be sold along with your business for additional value.
In conclusion, in most cases your start-up has very little reason to resist talking to an IP attorney to see what rights may be possible and what risks you may want to avoid. Use the power of the cocoa bean to kick-start your investigation into IP.
In the end, it might not smell as nice, but in most cases IP is non-addictive and it won’t become your first thought in the morning. And if you also bought your accountant good coffee, the cost of IP may even be tax deductible.
Robert Kramer’s practice in Australia and the U.S. focuses on intellectual property counseling and strategy, with specialities in U.S. trail and appellate litigation and in helping startups obtain meaningful global IP rights.