For tech startups, the most valuable assets are often invisible. While businesses have traditionally been built on physical assets, today’s economy is increasingly driven by intangible assets. This is how the chip company Arm earned a valuation of $40 billion and a reputation as the UK’s leading technology company – despite never manufacturing a single chip. Instead, the company designs the processor architecture used in countless devices.
This intellectual property based business model has transformed the stock markets. In 1985, less than a third of all assets in the S&P 500 were classified as intangible by 2020, that share had risen to about 90%. However, startups may overlook IP protection in their original plans.
According to Robert Lind, patent attorney at IP firm Marks & Clerk, they are taking a big risk. Lind recently wrote an e-book about how to protect their intellectual property and monetize it. He shared his best tips with TNW.
1. Start your research as soon as possible
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According to Lind, technology companies often ignore IP until their company is exposed to creative and financial dangers. He advises them to start researching before they really need it.
Of course, Lind suggests that their study materials include his e-book. But he doesn’t recommend relying on professional advisors all the time.
“Arm yourself with the knowledge from the start so you know when to call in the experts — and when not to call them in,” says Lind.
For tech startups, patents are the primary form of IP that can be protected. Founders must educate themselves on what a patent is, how to get it, how to enforce it, and how to interpret third-party patents.
2. Keep it confidential
It goes without saying that your brilliant idea should remain private, but that’s easier said than done.
“Going public doesn’t just mean selling a product,” says Lind. “It could be presenting a conference paper, publishing an article in a journal, or posting some information on your website. Be very careful about publishing your ideas before taking a position on whether something is patentable.”
3. Carefully identify your innovations
Innovations are the lifeblood of patents, but they are not always easy to identify. Many researchers and engineers do not realize that their work can be of valuable IP.
“It’s very important that you have regular internal reviews and milestones in your project plans to see what innovations have been made and whether or not they should be patented,” says Lind.
Once you have identified an asset, you can get professional advice on whether or not to patent it.
4. Protect your rights
Experienced investors are well aware of the value of IP. Venture capitalists will use patents as proof that a company is well run, is in a certain stage of development and has a market niche. Their due diligence will likely differentiate between filing an application and receiving a granted patent.
However, startups often prioritize investing in R&D over protecting their IP. Lind remembers this problem occurring at a green technology company. The team had a very small IP portfolio, raising questions about its value to investors.
“It’s the protection that really crystallizes the value of the R&D you do,” says Lind.
5. Devise a clear IP strategy
An IP strategy should start with clear objectives. Broadly speaking, this means maximizing value at a desired time of exit or investment while remaining within the bounds of financial prudence.
Registered rights are territorial, so you must determine where to register your IP assets. This analysis may include the size, potential, cost and effectiveness of the area.
A prudent strategy can postpone costs and obligations, but keep in mind that the registration process can be slow. To avoid delays, file early in key areas, respond quickly to objections, and take opportunities to discuss issues with patent examiners. Careful cost forecasting and budgeting help to bridge any potential pitfalls.
“You have to follow your strategy pretty aggressively,” says Lind. “But unless you know where you want to go at the start, you’re probably not going to get anywhere useful.”
6. Assign your IP to your business – and the future
You need to make sure your IP address matches the technology you can sell. According to Lind, it’s surprisingly easy to get patents that don’t match your most valuable assets.
“Make sure your patents actually cover what the efficient and smart parts are – that’s very important,” he says.
Your IP also needs to be future proof as the final product can be very different from the original vision. One of Lind’s previous clients, DNANudge, raised $60 million after building a patent rights portfolio of diverse capabilities. While the company already sells a consumer product, the IP address can also be integrated into several other devices or apps.
“Make sure your IP is wide enough to cover not only what you’re doing now, but also what you’re going to do in the future,” suggests Lind.
7. Keep building your portfolio
Lind advises startups to look beyond those first few patents for their big idea. After all, each patent only lasts 20 years.
“A slow-burn startup might take 10 years to get their product to market, leaving them with only 10 years left on the patent,” says Lind. “They need to keep innovating and patenting so they can keep that pipeline going.”
8. Solve your property problems
Staff cooperation can be crucial to registering IP. Signatures of inventors, designers, directors and owners may all be required on legal documents. If you can’t get a name on the dotted line, you could be in big trouble.
To escape this fate, Lind recommends making the necessary agreements while everyone is happy and cooperative.
“Make sure you clear all that property and keep proper records throughout the process,” he says. “And do it while everyone else is still friends – and before you start making money.”