What new businesses need to know about intellectual property

Intellectual property is one of the most important considerations for any new business but is all too often overlooked, which can be costly further down the line. If you run a startup and are looking to protect your IP, discover the best ways to ensure it is safe and secure, and avoid potential pitfalls, with help from experts and lawyers

What is IP?

Sean Jauss, head of legal services at Mewburn Ellis, describes intellectual property (IP) as an intangible asset, which exists only on paper because of the effect on our statutory or common law. But it is, nevertheless, a form of property. Like land it can be sold, rented or mortgaged. It has the potential, therefore, to generate revenue for a business, albeit sometimes indirectly, and like land its value depends on its quality. 

Jauss explains that IP rights exist to protect a business’s effort and expenditure, in time and money, in innovating new ideas and creating new works. The IP system allows a company to benefit, usually for a time-limited period, from its innovations and creations to the wider benefit of the public. 

Know what you have

Any business’s starting point with IP is understanding what, exactly, they have. Paul Berwin, head of digital and commercial law at Berwins Solicitors, says startups all need a basic understanding of what they may have created that is valuable or new, how to protect it and whether it’s infringing on someone else’s IP.

If a business is feeling overwhelmed by IP, Jauss says, as a rule of thumb, new technical inventions for products or methods can be protected by patents; the new shape of objects can be protected by designs; trademarks protect brands used to distinguish goods and services; copyright is used to protect literary, artistic and musical works, but not the ideas they express; database rights protect databases; and trade secrets protect confidential information. 

It’s important to remember that all these types of IP have limited life spans, except for trademarks, provided the renewal fees are paid and the trademarks are used. Goods and services can be protected by more than one type of IP right and a bundle of IP protections is stronger than any one individual element.

Create an IP strategy 

IP isn’t simply a case of filling in a form. Fiona Law, partner at European IP law firm Potter Clarkson, says IP is more than a straightforward tick-box exercise of filing a patent, design or trademark. What is important, at the outset, is to determine how IP can support a company’s commercial goals and devise a clear IP strategy built around the business plan. 

A new business should ask what do we need to protect, when and where, and how will those rights help us to achieve commercial goals? Review an IP strategy regularly, always returning to the business plan. As a company grows, its IP strategy is likely to evolve.

Be investor ready

IP is important not only for a business, but also for its potential revenue and sales in the future. Law at Potter Clarkson explains that it’s important to be ready for investor-led due diligence at all times, as this will enable a business to take advantage of funding opportunities as they arise. 

Her advice for startups is to create a virtual IP data room where they write down their IP strategy and supporting procedures. Some important questions to consider are who manages the IP, how does the business capture and assess new innovation, and what is the IP budget?

Beyond this, Law also advises having a clear freedom to operate (FTO) strategy. Investors will ask what FTO searching has been done, although extensive searches and legal opinions are usually not appropriate for early-stage companies. Instead, consider what can be done to mitigate future risk, for example maintaining a watch for the publication of competitors’ patents.

Avoid potential pitfalls 

With startups, there are some common mistakes with IP that can be avoided if research is done properly. Sophie Goossens, partner at Reed Smith, and Gregor Pryor, co-chair of the entertainment and media group at the law firm, are experts in both European and UK IP law, often working with startups. 

Both stress the importance of choosing a company name carefully, which is a big factor in IP when it comes to domains, social media and product. Pryor advises checking the IP is industry specific, as each industry will have its own processes and documents of importance. He also explains the importance of getting the portfolio size right, ensuring a territorial and geographically protected portfolio, with IP covered in the countries that matter most to the business.

Get savvy with IP

Jauss cautions against publicly disclosing new inventions and designs, as if you do so they will not be protectable. He also says to take heed of Brexit, which means European Union unitary rights, including most commonly trademarks and designs but also supplementary protection certifications and plant variety rights, no longer cover the UK. Businesses now need to protect in the UK and the EU separately.

Ensure the timing right

Law says timing is everything with IP. Patent applications must be filed before the invention is disclosed to third parties unless effective confidentiality agreements are in place. However, filing an application too early, without adequate technical disclosure, could undermine the IP position. 

Another issue is around collaboration; a common growth strategy for startups may involve working with other parties. At the outset, it is important to set clear boundaries dealing with ownership and exploitation of IP. A formal agreement is essential.

Do the research and set a budget

Goossens advises keeping an eye on the budget, especially with patents as protecting IP can be costly so each new IP protection should be judged on its merits, and be wary of patent trolls who will try to claim against IP. A new business also needs to know how much it is willing to spend for any IP strategy and not to let the budget get out of hand. 

Pryor advises always consulting with a lawyer before embarking on any IP for a startup. Get referrals from trusted friends or colleagues and speak to more than one law firm. 

He suggests startups think about coverage before hiring a law firm to make sure it represents the territories that matter most to the business and is industry specific. Choose a lawyer who is knowledgeable in your particular industry. Remember, never pay for the first meeting with a lawyer; that’s a warning sign. 

One final tip comes from Katherine Zangana, senior associate at Lawrence Stephens, who says the Intellectual Property Office website is your friend. It is full of free information, including a “health check” tool to help determine a startup’s needs and a search function for patents, trademarks and more. 

And don’t forget, if you have employees or, perhaps more commonly in the case of startups, consultants working with you, do you have contracts in place that ensure any IP created by them passes to the business? Make sure you know who actually owns the IP, to overcome any problems in the future.