Intellectual property: Why you need to protect your business idea
Fail to prioritise IP and you prepare your start-up to fail. Here, patent attorney Peter Finnie discusses why you should consider patents and trademarks...
In the cut-throat world of start-ups, where securing venture capital to sustain growth is often an ever-present concern, founders and management teams will aim to calibrate their business plan and budget tactically so as to extract the greatest possible value from any funding received.
Budgets will typically be built to focus primarily on two core areas of the business: product development on the one hand, and sales and marketing on the other.
It’s an approach that makes a lot of sense: create something fantastic that will improve consumers’ lives then get the word out and sell people on your vision.
Yet something that a lot of start-ups aren’t prioritising, as they rush to build something and bring it to market, is the development and implementation of a strategy to protect any intellectual property (IP).
Better to get your IP right at the start
There are a number of different types of IP. This article will focus on patents which protect technology solutions, and trademarks which protect names, logos and brands. With the stakes as high as they are, start-ups really need to consider both.
I’ve seen a number of high-growth businesses whose valuations have been slashed – sometimes by as much as 70% – at both investment and exit stages because the business hasn’t protected its IP in a proper and timely fashion.
For some it’s a lack of understanding that an IP strategy should be developed in line with, and as an integral part of, their overall business plan. Others aren’t properly aware of how to protect their product or brand; what protection is available and what rights are and aren’t conferred?
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Even those who understand the landscape face difficult decisions when it comes to timing: when should they file for protection knowing that to do so will make their ‘secret recipe’ public knowledge?
Learn from Mondo Bank – or rather Monzo Bank
From a branding point of view, the recent public example of Mondo Bank – or rather Monzo Bank, as it is now known – should be instructive.
The record-breaking fintech business, which raised £1m in 96 seconds via crowdfunding and recently secured its full banking licence, had to change its name due to a trademark issue having already spent heavily on branding and issued 25,000 cards to customers with the Mondo moniker emblazoned across them.
To add insult to the injury of having to spend time and money rebranding, Monzo competitor Starling hijacked the rebrand. Starling acquired the ‘getmonzo.co.uk’ domain and directed visitors to a message from Starling CEO Anne Boden encouraging readers to use Starling.
There could yet be a further twist as another fintech start-up, Monizo, has suggested on social media that it may not be too happy about Monzo’s rebrand. Though these issues are not likely to ruin Monzo – it has too much brand equity with enthusiastic early adopters, and too much momentum as part of the new digital banking movement – this could have been much more damaging to a less well established start-up.
You can be sure that a rebrand will be a lot more expensive in terms of both capital and time than getting the IP right in the first place.
Firstly, having a coherent and comprehensive IP strategy in place is imperative for businesses looking to raise finance. Even at pre-seed stage, a start-up needs to demonstrate an understanding of the IP landscape to give investors confidence that capital won’t be wasted. For those looking to build an entire business model around innovation, this is especially important.
Once a business starts looking for seed investment and beyond, it should already have undertaken at least an informal review of the Freedom-to-Operate (FTO) issues and have protection in place around new technologies or know-how.
FTO determines whether a service or product can be commercialised across certain jurisdictions without infringing existing IP rights. As a start-up founder, you shouldn’t bury your head in the sand over FTO as you will eventually be asked to explain you awareness of the risks. To the same end, any technology or know-how that is integral to you core business model needs to be adequately protected to make for a viable investment.
A funded business needs to stay true to its IP strategy and invest money into robust protection for its IP.
Businesses that have taken large rounds of funding will be looking for explosive growth, which can mean diversification of offerings or expansion into new markets. Both of these strategies can present IP-related challenges to be addressed to avoid problems down the road when looking for further rounds of funding or an exit.
FTO, for example, should be a constant consideration for businesses looking to grow internationally. A product or brand that is protected in your home market is also likely to require protection abroad.
The unfolding Brexit scenario is likely to add uncertainty to the process of securing IP for UK-based businesses over the short to medium term.
The current IP landscape is rooted in EU legislation – EU patents and trade marks currently cover the UK market. With no concrete decisions having yet been made by the EU or our own government as to the continued application of EU-wide design and trademark protection in the UK, or the introduction of new UK-specific protections, you should look to get ahead of the curve by consulting legal counsel and ensuring the continued validity of your IP strategy before it becomes a problem.
If you’re looking for an acquisition or merger as part of your long-term vision for your business, all of the above applies tenfold. Much in the same way that an investor will require a transparent and detailed look at the business and its assets, a potential buyer will also want to thoroughly go through the books of a prospective acquisition and IP will be a big part of this process.
Not risk but returns
It’s easy to understand why a fledgling business might view IP costs as an unnecessary financial burden and would focus on growth first, and worry about patents, FTO, and trademarks later.
However, IP is one of those things with which timing is everything – without a little investment at the beginning your business could stand to lose a lot more later on.
There are many misconceptions within businesses and investors alike around IP. My advice would be to find someone who understands your aspirations for your start-up just as well as they understand how to file a patent or a trademark, allocate some budget to it, and protect the business you are working so hard to build.
After all, given a choice between investing a bit money at the beginning or losing a huge part of your perceived valuation at the end, I know which I’d choose.
Peter Finnie is managing partner of Gill Jennings & Every LLP.