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Advice for Entrepreneurs: Part Three – Intellectual Property

Investors and entrepreneurs alike face real problems in the role of Intellectual Property (IP) in technology businesses. IP represents a defence, a barrier to entry and source of sustainable competitive advantage if competitors find it hard to copy or work around your IP. But the cost of worldwide filing for a single patent is in the high tens of thousands of pounds. This is hardly money that entrepreneurs have access to in most circumstances.

Very few companies come to us with a portfolio of granted worldwide patents at the stage we meet them. So what’s the acceptable level of preparation required by people like us?

Patents filed without the assistance of a patent lawyer worry us, as it’s easy to make mistakes that narrow or invalidate your claims. We can help you to find a decent, commercially focused patent lawyer, or even better a commercial IP consultancy that can undertake the following:

  • Independent analysis of your IP. This should be presented to us, together with your responses. This should provide some confidence in your approach to date and in your ‘freedom to operate’ without infringing IP held by others.
  • Strategy for developing a strong IP position. This should address (a) filing strategy (scope, territories and likely costs for your business plan), (b) landscape and freedom to operate and (c) likely work-around strategies that could be deployed by competitors.

We tend to take a simple approach:

  • Does the IP provide a fundamental barrier to competitors? This is usually evidenced by simple, fundamental and broad claims that have passed examination and preferably reached PCT stage.
  • Alternatively, does the IP only protect the particular means of producing your product or service? In this case, competitors will use alternative approaches to work around your IP. You will need to demonstrate reasons why you will dominate the market before they catch up.

If you can present this material to us at the outset of stage 2 evaluation, you’ll be giving us confidence in the validity of your approach and in the defensibility of your technology.

I know IP is troublesome and expensive. But it’s essential nowadays, and it shows your professionalism if you take it seriously at an early stage. There’s also no reason to go overboard – you need to do enough to convince your investors, not more.

4 Responses to Advice for Entrepreneurs: Part Three – Intellectual Property

  1. There is a lot of talk about IP and the importance, especially for investors, of protecting it with patents. But patenting is very expensive and most patents are not commercialised.

    I fully endorse the need to patent as part of the package entrepreneurs need to secure investment. However, truly effective IP is a combination of ideas, none of which may be unique in themselves, which together form a unique offering that meets customer needs precisely. The protection for this combinatorial IP is in its complexity, detailed knowledge of customer needs, and the difficulty any competitor will have in sorting it out.

    In this approach, of course, the IP is not simple to articulate, or protect, which makes it difficult to sell to investors. It also requires entrepreneurs to listen to and understand customer needs rather than evangelise their idea.

    My conclusion is that patents should be considered a tool for attracting investors. For growing a successful business, patents are not really relevant and a different mentality to generating, protecting, and exploiting unique IP is needed.

    • I agree a patent is not the be and end all especially when in practice few could afford to enforce but if IP is to reside in the staff they should be tied in with appropriate service agreements. As management is one of the most valuable company assets – especially in early stage, shouldn’t this be addressed anyway? Is a Service Agreement the only way? Suggest alignment of interests – eg performance options an appropriate tool too.

  2. Patents are Intellectual Properties that are legally ownable. However, they are only meaningful is adequately policed. They are simply a financial burden unless infringers can be located, and (depending on business modeal) either (a) respond to a cease and desist, (b) alternatively enter willingly into a royalties negotiation. The costs associated with patent litigation if (a) or (b) fail is exceptionally high, and not easily justified or borne by a fledgling company.

    Alternative approaches to Intellectual Properties can be just as useful, based for example on Industrial Secrecy, or the complete package incorporating know-how, access to market and so forth.

    An initial patent filing is however relatively low cost for the first year, and should give ample time to raise seed finance before reviewing patent strategy.

  3. There’s the start of an interesting debate above , and not for the first time I’m sure. As always, there are multiple sides to any story and there’s always a danger of drawing ‘one hat fits all’ conclusions.

    Personally I feel that patents do not make, or are not even key to, a good business (unless you are selling IP) but to neglect the opportunity of creating patents is a hostage to fortune. I have been involved in many patent busting exercises where blue-chip corporations have found themselves blocked from competing successfully in a market, perhaps forced to acquire or license. Without the patents, they may have been able to simply use their resources and cash to ‘steal’ the opportunity. A lot of successful businesses are cooperating with other business purely because they need to – and they are the future acquirers and partners of good start-up companies.

    When I have been involved in patent busting exercises, finding a patent that has not been written by an attorney (or written by a bad one!) has been a cause for great celebration. It’s a special skill to write patents, and to create a strong IP strategy overall. However, I take no joy from telling enthusiastic entrepreneurs how I have seen a gaping hole in the patents they proudly wrote themselves and are spending a fortune prosecuting.

    It was an interesting conversation I had the other night then with a patent attorney, when he told me that most of his prospective clients can’t afford them and they therefore don’t win the business. Everybody loses. Perhaps there is a gap in the market for patent attorneys that are prepared to engage with terms where they can share in future success. Perhaps that should be alongside other organisations that are investing time and money in promising early stage businesses. Perhaps any attorneys reading this that realise they waste a lot of time trying to sell to cash-strapped businesses, but know they can’t commit the time to decide where to share risk, ought to buy one of the Qi3 Accelerator team a cup of coffee one day. Just a thought.

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