Tuesday, 19 October 2021

IP Strategy to Scale-Up

 

Author Worthhog Licence CC BY-SA 3.0 Source Wikimedia Commons




















The transition of a business from start-up to scale-up is often described as a "chasm".  That is because most scale-ups are very different from start-ups in terms of governance, marketing and funding.  One obvious difference is that start-ups can be funded by their founders themselves, possibly with the support of friends and family and maybe some grants or soft loans whereas scale-ups usually need investment from third parties such as angels, venture capitalists and in a few rare cases the AIM.

There is also a chasm in attitude towards intellectual property.  Jag Singh, Managing Director of Techstars in Berlin, wrote in How startups and SMEs should think about IP: an investor's perspective in the June 2021 WIPO Magazine
"Over the last 15 years, first as an entrepreneur and now as an investor, I’ve seen many award-winning ventures end up in the global startup graveyard. Why? In large part, because very few of them secured intellectual property (IP) rights to protect their business assets."

He explained that that was because of an inadequate understanding of IP and a belief that IP protection is inordinately expensive.  For many start-ups, IP is something that is nice to have but for those who invest in a scale-up adequate IP protection is crucial.   Without such protection, it is only too easy for a predator to swallow a market or technology that has been carefully developed by the start-up. Specialist advice and representation do not come cheap but, as Singh also observed in his article, failure to protect a business's brands, designs, technology and creative output comes with an enormous price tag.  

However, there is such a thing as having too much IP.   In my career at the patent bar, I have seen far more business failures resulting from having too much IP protection than from having too little  That is because businesses apply for patents they will never work, trade marks where they have no trade and designs for products they will never put into production.   That wastes resources because registrations have to be renewed, policed and occasionally defended and enforced. A crisis occurs when those costs amount to more than the company can afford.

To avoid either extreme businesses need to devise IP strategies and integrate those strategies into their business plans. According to Singh, that is one of the indicators for which investors look when deciding whether or not to invest in a business:

"In the modern economy, IP assets often drive current and future revenues, so investors like to see that entrepreneurs have integrated IP rights into their business plans. Evidence of some kind of convincing approach to IP will, at the very least, mean that companies are better aligned with investors on the big question of how to sell the company for billions of dollars one day."

An IP strategy should, of course, take account of a company's research and development and marketing the aims and costs of which should also feature in its business plan.

As every business is different every business's IP strategy should be tailored to its specific needs. In a tech company, the emphasis may be on patenting and trade secrecy.   If the company offers a new service it will focus on branding, data and business format.  The starting point should be the intellectual assets that the business already has and those that it intends to develop.  That will usually require an intellectual asset audit and sometimes specialist valuation.  The costs of patenting and trade mark and design registration should be factored in. Consideration should be given not only to the UK but also to the countries in which the scale-up expects to do business or from where it anticipates competition.  The strategy should provide for validity challenges and infringement actions and make arrangements for deploying an effective response.  Often it is useful to consult an IP strategist when devising the strategy. Ideally, the IP strategist should be someone other than the professional who is already prosecuting your patent, trade mark or design registration applications (see Jane Lambert What is Intellectual Property Strategy?  Updated 1 Sept 2017 NIPC Law).

On 11 Nov 2021, I will chair a seminar at the Menai Science Park (M-SParc) called "Scaling Up - Wales Enterprise Day" that will discuss how start-ups can leap across the chasm to become scale-ups.  Emily Roberts and I have assembled a panel of experts on funding, intellectual asset valuation, scale-ups, patenting and the law.   Edward French of Pinpoint Capital will tell us what VCs and angels look for in a scale-up.  Alison Orr of Inngot will discuss intellectual asset valuation and leverage.  One of BICInnovation's scale-up specialists will talk about growth strategies.  Sean Thomas of Thomas Harrison will outline the patenting and trade mark and design issues in scaling up.  Andrea Knox of Knox Commercial Solicitors will address due diligence, shareholders' agreements and other matters. If you can reach M-SParc by 12:00 on 11 Nov you can attend in person.   Otherwise, you can follow it online.  Either way, you will need to register through Eventbrite.

Later on 11 Nov 2021 there will be a pitching event for businesses that want to become scale-ups before real investors which will also take place before a live audience at M-SParc and streamed online.  This is a unique opportunity to watch angels and possibly other investors in action.   Again, if you can make it to the park by 16:00 you can attend in person.  Alternatively, you can watch over the Internet.  Again, you will need to register with Eventbrite

Anyone wishing to discuss this article further may call me on 020 7494 5252 during normal office hours or send me a message through my contact form.

Wednesday, 6 October 2021

Alternatives to Patenting

UK Patent Office at Newport
Crown Copyright   Licence  Open Government Licence


Jane Lambert

A patent offers the most comprehensive protection of new technology.  It confers a monopoly that can last for up to 20 years of the manufacture, disposal, marketing, use, importation or keeping of a new product or the use of a new process including a monopoly of the disposal, marketing, use, importation or keeping of any product obtained directly from the process.

However, such monopolies are not granted lightly.  Every invention is examined for novelty, inventiveness, utility and compliance with the relevant legislation.  That is a lengthy and complex process for which an applicant will almost certainly require the assistance of a patent attorney and, in some cases, patent counsel.  According to the guidance Patenting Your Invention only 1 in 20 applicants gets a patent without professional help.   Such help does not come cheap.   The same guidance note states that an application for a patent for the UK alone typically costs £4,000.  If the application is granted there are renewal fees which in many countries rise throughout the term of the patent.  If the validity of the patent is challenged or the patent is infringed the cost of invalidity or infringement proceedings can run into many hundreds of thousands or even millions of pounds

A condition of the grant of a patent is that the specification must disclose the invention in a manner that is clear enough and complete enough for the invention to be performed by a person skilled in the art.  Should the application be refused or should a granted patent be revoked, anyone in the world may make, market, distribute or use the invention. Indeed, anyone in a country in which patent protection has not been obtained may freely work that invention.

Not every invention can be patented.   S.1 (2) of the Patents Act 1977 excludes from patentability:
"(a) a discovery, scientific theory or mathematical method;
(b) a literary, dramatic, musical or artistic work or any other aesthetic creation whatsoever;
(c) a scheme, rule or method for performing a mental act, playing a game or doing business, or a program for a computer;
(d) the presentation of information."

That exclusion covers great swathes of innovation in our increasingly services orientated internet-based economy.    Happily, there are other ways of protecting a new technology.   

If the invention cannot easily be reverse engineered it may be better to keep it secret.   The law of confidence bolstered recently by the Trade Secrets Directive prevents unauthorized use or disclosure of secret technical or commercial information.   A restriction on unauthorized use or disclosure lasts until the information is in the public domain.    In some cases, that can be a very long time.   The recipe for Coca Cola has been kept secret for more than a century and the recipe for Chartreuse for very much longer. The information has to be secret, it must have some inherent value and it must be imparted in circumstances giving rise to an obligation of confidence. Usually, that means a confidentiality agreement but there are other circumstances where an obligation of confidence will be implied.  For instance, a patent attorney is bound by such an obligation when he or she advises an inventor on the patentability of a new invention.  The information technology industry, in particular, relies heavily on trade secrecy law to protect algorithms, source codes and other unpublished information. 

Many innovative new products, particularly in the consumer electronics, fashion and beauty, toys and novelty industries, have a very short shelf life.   For them, short term protection from copying is enough. The UK is one of a very small number of countries that protects "the design of the shape or configuration (whether internal or external) of the whole or part of an article" from unlicensed reproduction.   Such protection, known as "unregistered design right" subsists automatically in original designs.  There is no need for examination, registration or professional help.   Design right protection can last up to 15 years if the design is not exploited by the marketing of articles made to the design or 10 years where it has.    However, in the last 5 years of the design right term, anyone in the world can apply to the design right owner for a licence to use the design as of right.  Any dispute over the terms of the licence can be settled by the Intellectual Property Office.

The design of semiconductor chips is protected in the UK by a modified form of design right under The Design Right (Semiconductor Topographies) Regulations 1989 as amended by The Design Right (Semiconductor Topographies) (Amendment) (EU Exit) Regulations 2018.   The main differences lie in the qualifying countries, the term of design right and the exclusion of the licence of right provisions.

Although computer programs as such cannot be patented, computer programs, preparatory design material for computer programs and databases are specifically included in the definition of "literary work".  Copyright subsists automatically in original literary works and lasts for the life of the author plus 70 years.   There is no need for registration in the UK or most other countries.    It is however important to note that copyright provides protection against copying.  It does not prevent the making of a similar or even identical work provided that there has been no copying of or reference to the copyright work.   IT and many other industries that supply goods and services over the internet rely heavily on copyright.

The breeding of new varieties of seeds and plants is an increasingly important technology in view of climate change.  In the USA and some other countries, it is possible to obtain plant patents (see General Information About 35 U.S.C. 161 Plant Patents on the US Patents and Trademark Office website).  In the UK plant breeders' rights are protected by registration with the Plant Variety Rights Office under the Plant Varieties Act 1997 (see Plant Breeders' Rights).  

It is important to bear in mind that consumers are often drawn to a new product by its shape or reputation rather than the technology under the hood.   Designs of new products with individual character can be registered under the Registered Designs Act 1949 for up to 25 years.  They are also protected by unregistered design rights and a new supplementary unregistered design right.   The surface decoration of a fabric, wall covering or other product can usually be protected from copying by copyright.  Occasionally, the article itself qualifies for protection as a work of artistic craftsmanship.    The reputation of a product or service is its brand.  Brands are protected in the UK by the registration of their name, logo or other indicia as a trade mark and by the common law of passing off.

 Anyone requiring additional information on any of those matters should fill in the following form.