Intellectual property explained and how to go about protecting it
What qualifies as intellectual property and how can you go about protecting it?
Innovation is one of the keystones of business success, and guarding your ideas is a vital part of this process. But what qualifies as intellectual property and how can you go about protecting it?
Companies have often claimed that people are their most important asset. In fact, it’s probably not the people themselves, but the knowledge in their heads. “Our end product isn’t actually a racing car: it’s knowledge and intellectual property,” says Steve Nevey, business development manager with Formula One team Red Bull Racing. “If we lost the cars in an accident or something, we could reproduce them from our knowledge. If we lost that intellectual information, we would be in big trouble.”
The Formula One experience is quite interesting in the context of intellectual property (IP). At the end of 2007, McLaren was fined $100m for being in possession of Ferrari IP, which had allegedly been passed on to the motor racing team by a disaffected employee. In the commercial world, it is infringement of IP rights, rather than mere possession, that is the issue.
What is IP?
Put simply, a business’ intellectual property is its original ideas, but it goes much further than that. Totally brand-new discoveries appear only very rarely and it may be some time before they become commercially viable. Even something as groundbreaking and undeniably valuable as penicillin took years to come to market.
Alexander Fleming discovered the antibiotic in the 1920s, but it wasn’t until techniques were developed that could mass-produce it that penicillin became widely used. This led to the development of the huge range of antibiotics that we have today. That process indicates where the real value in IP may lie – in the developments of an idea, rather than the original one itself.
A mistake many companies make, in particular the smaller ones, is to fail to realise the value of the tweaks, nurdles and fine-tuning they make to their products as a matter of routine, whether in developing their own or competing with someone else’s.
Design of the times
Jay Engineering, which is based in Tisbury, Wiltshire, employs fewer than a dozen people. Its leading product is PostPuncher, which does what it’s name suggests – punches posts into the ground. It is faster than traditional methods, saves labour and is safer than a sledgehammer and mate holding the post. Furthermore, it’s achieving sales in the UK and the rest of Europe, the US and Australia.
PostPuncher consists of a hollow tube with a weight inside, which is raised and dropped by a system of hydraulics and cables. In operation, it’s attached to the business end of a backhoe loader. Its component parts are not patentable at all, because everything that goes into making the machine is already in the public domain. It’s the way in which PostPuncher is put together and functions that makes the difference, and those ideas can be protected.
“We investigated patents, but we couldn’t get one – and if we had been able to it would have been very expensive,” explains Jay Engineering’s managing director Kevin Meade. “What we did in the end was register the design rights. It cost us £69. Registering them in Australia cost us A$400 – about £200.”
As anyone who has investigated patents knows, they can cost a lot of money. However, the Chartered Institute of Patent Attorneys point out that a basic UK patent can cost as little as £3-4000. This cost applies only to basic UK patent registration, not to registration in other countries and markets, and does not cover the potential costs of protecting a patent against someone who has infringed it. A lot of smaller companies certainly believe they simply can’t bear that sort of burden and have little or no faith in the system anyway.
However, this is something of a misconception and patents can act as a deterrent to companies stealing your ideas, as IP lawyer Lewis Hands, of Handsome IP, points out. “I’ve heard people say it isn’t worth investing in patents because the ‘big boys will only steal the idea and we don’t have enough money to fight them’,” he says. “But in my experience, large organisations don’t go around stealing other people’s ideas, as they don’t want litigation costs nor the bad press that goes with it.” It usually doesn’t come to litigation anyway, as people are scared off by others’ patents. “Patents can be licensed, too, which creates a stream of revenue from royalties,” adds Hands.
What is a patent?
A patent protects an original invention, which usually relates to a new principle or arrangement that allows the new product to work in a particular way. The fundamental patents registered by vacuum cleaner manufacturer Dyson, for example, relate to the basic principle of putting two cyclones of increasing efficiency into a vacuum cleaner to increase the overall separation efficiency. Having registered that patent, Dyson’s dual-cyclone invention is protected from infringement. Whatever it looks or feels like, any cleaner that incorporates the features of Dyson’s patent claims will infringe them.
Inventions can also relate to methods, such as manufacturing or industrial processes, as well as to products or their parts. To get a patent you have to: first, be sure that no one else has invented the product or process before; second, be able to provide very specific descriptions, including precise drawings; and third, have a business plan which includes the protection and expected financial costs in the countries in which you exploit your ideas. Patents have to be registered in individual countries, so there is a lot of money involved.
“The deal with the government is that it grants monopoly protection for 20 years, in exchange for telling people how to do it,” explains Hands. The reason for this is that the government wants to encourage innovation and growth in the economy, but it recognises that some level of protection is necessary or inventors will never reveal their discoveries. And that means no one else would be able to improve on it, adapt it, add to it or incorporate it into their developments.
A patent gives protection, but it doesn’t give the originator the right to do something, but rather ensures protection from other people copying the idea. The effectiveness of patents depends very much on the law in the relevant jurisdiction. In the developed economies, the legal system is pretty robust and will deliver. China, however, has accumulated a bad reputation for IP piracy, but its government recognised a while ago that it would only get real and sustained inward investment if it gave inventors better protection, but the situation remains far from perfect.
“Technology and IP are hard to protect. The rules are unevenly applied, and to think otherwise is naïve,” said Jonathan Busher, vice-president – international for Vivid Imaginations, a company that designs and licenses toys and associated products. The toy industry is more mature in China than other industries, and there is a recognised legal infrastructure, but there are still traps for the unwary, and protection is not absolute.
How do IP rights begin?
What constitutes IP depends on what is done. Any concept comes into existence when it is written down or takes concrete form – when an innovative idea, for example, is made into an object, such as a clockwork radio. This article becomes copyright the moment it is made – there’s no need to register it, just to be able to prove when and by whom it was created. At least, that’s the case in the UK.
“Copyright protection extends through a large chunk of the world, but different countries have different levels of protection,” explains Eileen McMorrow, an IP practitioner with York-based YorSolicitor. Different countries may be signatories of the Berne Convention, the universal copyright standard, or another such agreement. The Berne Convention is the best known and even China is a signatory to it. Copyright is an outstanding protection. In the case of written creative work, it extends throughout the lifetime of the creator and 70 years after. It’s also cheap and enforceable wherever it is respected. Design registration, as Postpuncher demonstrates, is pretty effective, too.
The third way of protecting IP is confidentiality – simply not telling anyone what you’re doing or how you’re doing it unless there is a confidentiality agreement in place. If you discuss an idea with an interesting dinner companion at a meeting or convention, it can be very difficult to prove any subsequent breach, if somebody starts producing before you can register your patent, for example. So keep your ideas to yourself, and don’t forget to get your casual or temporary employees, contractors and third-party partners to sign confidentiality agreements.
“Growing businesses must recognise how IP shifts in importance,” says Gus Desbarats, of design agency The Alloy. He is also involved with British Design Innovation, a private sector organisation that provides points of contact for innovators and inventors. “You can do design registration yourself for a few pounds online,” he continues. “The fact that it’s low-cost doesn’t mean it isn’t valuable. BT trades the designs we create in exchange for free tooling. It gets its equipment developed and tooled with no upfront costs. The manufacturer gets the rights to territories BT isn’t interested in. Its designs are an investment that adds value.”
But what value does design have, long term? Ask Apple Computer. The designs for all the generations of its iMac, from the original curved body through to the latest flatscreens, have all been registered. The way the hardware is put together and encased is original and protectable. When someone reckoned the original iMac looked so good that they decided to come out with something similar, Apple dropped on them from a great height in all its markets. It jealously protects the iPhone and iPod, too.
The look they love
“It’s the design rights that lead Apple’s IP,” Desbarats says. That’s design, not ‘eureka’ inventions. “It looks for existing technology and puts it together in a particular way. Steve Jobs is the visionary, while Jonathan Ive is the designer who makes it all come together.”
British industry loses a lot of IP because it underestimates the value of what it has, while overestimating the potential value of basic patents. “British companies seem to be obsessed with inventing something innovative, but original ideas (in electronics, for example) tend to commoditise and become small widgets on the corner of a circuit board,” says Desbarats.
“The technology industry is in the process of maturing, and different forms of IP need to be valued – and only when you get that value can you identify the likely return. Designs are about look and feel; patents are about what something does. The opportunity for growth is about reconfiguring and selecting from existing technology, taking the ingredients and mixing them together in new ways.”
Appearance and style can also be protected. The classic Coca-Cola bottle shape is a registered design. A logo or sign style, like Harrods, BP and Nike’s ‘swoosh’, can also be protected – and so can fonts, the typeface that a company uses. So you have original IP protected by utility patents, as Desbarats describes them, and design rights, which cover usability and appeal. Copyright for original creative work and graphic representation – which can include the appearance of an object, such as Philips’ triple-headed electric shaver – can be presented in graphic form, by a picture or a drawing, and the manufacturer can also register it as a design to prevent passing off.
Money, money, money
Where does a business with good ideas get funding and support? The first port of call is its own resources. Then come the banks and an understanding of the value of the IP a company has is important for a full and effective presentation. It can help to raise money if the value of non-tangible assets (in its broader definition) is understood. Government support, in the form of grants, technical assistance such as Knowledge Transfer Partnerships (KTP) and incubators, whether run by the regional development agency, universities and/or public bodies, can also help companies to grow.
Wales has its Technium network, which brings small businesses into one place, where they can exchange ideas and gain access to academic resources for development. Other parts of the UK have science parks, innovation centres, call them what you will. The north-west of England, for example, also has a strong network of venture capital (VC) sources.
Once companies have proved their concept, VC is often the next step, and government agencies, public bodies and established science parks, innovation centres and other incubators are also likely to have the appropriate sort of connections. But VCs are rarely in it for the long term. Their typical time horizon is around five years. They would then seek to sell up, to a management buyout, another private investment vehicle or perhaps a larger organisation in the same business – a common route with pharmaceuticals, for example. IP is important for both the first tranche and the second stage. Investors want to know where the return is going to come from and the opportunity to license and receive royalties, or to develop a unique product that can be sold at premium price, will be at the forefront of their thinking.
Venture capitalists are useful not only for the investment they bring, but also because they have business knowledge and complementary expertise that a small business needs to grow. They can help businesspeople to properly identify the real value in their company – and the best way to exploit it. They also want a return quickly, and that desire creates common ground as the owner wants the business to grow as well. In the longer term, it’s the value of the core IP and the ongoing commitment to innovation, building on the ideas, that will be the engine of growth.
Keeping it safe
Bloxx has a web-filtering technology that manages internet access on behalf of medium to large organisations, including businesses and educational institutions. The technology controls access to non-approved websites and it does so on a real-time basis. The established ‘approved’ list approach has a fatal flaw, in that bright schoolkids will regard it as a challenge to be overcome. Consequently, Bloxx is constantly shifting.
“Truview examines language, the context of language and website construction under 50 different categories,” says Bloxx founder Eamonn Doyle.
The company’s chief architect is Jim Wilson, who came on board early on. “We’re about three-quarters of the way through patent registration for the EU and the US,” he reveals. “Customers and investors see the patents as confirmation of value.”
As a small business, Bloxx simply doesn’t have the resources to fully exploit its resource itself. “We will get royalties from our patents and we’re talking to international players, too,” explains Doyle. “We run ourselves as a commercial operation. We are also keen to build our IP, because it increases the company’s value.”
However, Doyle doesn’t expect today’s patents to have value in 15 years, unlike, say, a novel pharmaceutical therapy. Intellectual property is not static. The old saying that if you build a better mousetrap, the world will beat a path to your door doesn’t hold true any more. Businesses will grow on what they do today, but the longer term depends on continued innovation, understanding the value of ideas and how to protect and commercialise them.