The role of intellectual property in early-stage businesses
From patents to copyrights, understanding the nuances of intellectual property can help early-stage businesses create a solid foundation for sustainable growth.
Starting a business is a bold and exciting step for any founder brimming with original ideas and innovative solutions. The “heart and soul” of any successful business should stem from the founder’s unique Intellectual Property (IP), which forms the foundation of the entire business. But is a business’ IP truly a solid foundation? How can a founder quantify, protect, and monetise their business’ IP?
What types of intellectual property rights (IPRs) should founders consider?
From a novel product or process to a distinctive brand, business model, or service, IP encompasses everything that is considered a creation of the mind, and which has the potential to enhance a business’ commercial value and provide market exclusivity. It is important to distinguish between Intellectual Assets (IAs), which can include any product, process, know-how, brand, workflow, software code, or competitive advantage, and Intellectual Property Rights (IPRs), which are clearly identifiable rights used to protect these assets.
For example, consider a software product. The actual software code is an IA that a business can sell as a standalone product or as Software-as-a-Service (SaaS). However, multiple IPRs can be used to protect the software, including copyright, trademark, patent, and database rights. Founders and investors must recognise that different types of IP can arise and coexist within a single product.
The easiest way for a founder to identify the IP within their business is to ask: “what is adding value to my business?” The sooner the founder audits their inventory of IAs, the faster they can protect and monetise them. For instance, in the case of a software product business, an IP audit that examines not only the software product but also other intangible assets such as business processes, know-how, and established networks of contacts can lead to a comprehensive portfolio of IAs.
Once the founder has catalogued all IAs within their business, they can then determine which IAs can or should be commercialised. This serves as the founder’s guide for leveraging appropriate IPR protection to create a strong and defensible IP position, while simultaneously maintaining a high business valuation.
The types of IPRs a founder can pursue for their business will depend on the industry, commercial plans, and ultimately, budget. An easy first step in securing IPRs is to ‘claim’ all pertinent unregistrable IPRs. These IPRs are automatic, free of charge, and typically do not require registration. In the UK, these may include unregistered trademarks, design rights, copyright, and database rights. An additional route to securing IPRs is to apply for registrable IPRs. These require some upfront investment by a business but offer higher protection and can make a business more appealing to investors.
What are the risks of neglecting IP protection in early-stage businesses?
For early-stage businesses, failing to properly identify and protect all types of IP can have serious and far-reaching consequences. One significant risk is a diminished business valuation; as the “heart and soul” of any successful business, IP is often one of its most valuable assets. Without proper IP protection, it becomes harder to attract investment or sell the business in the future. Additionally, loss of confidential information is a concern, as know-how and other sensitive business information are vulnerable to theft and exposure without adequate IP protection.
Another critical risk is the loss of competitive advantage and exclusivity. Without appropriate IP protection, a business’ unique ideas, products, processes, and brands can be easily copied and exploited by competitors, leading to a loss of market share and revenue. Furthermore, an early-stage business may find itself entangled in legal disputes over IP ownership, facing issues such as infringement of its own IP by a competitor or being accused of breaching the IP of others. These legal disputes are time-consuming, expensive, and damaging to the business’ reputation.
The bottom line is that IP is crucial to early-stage businesses, as well as to competitors and investors alike. To establish a solid foundation, founders must meticulously track every intangible asset created by their business, noting how and when each IP was developed and who owns it – the business or an individual.
While the timing of IP audits may be influenced by investment cycles, new product development, or market requirements, it is prudent to conduct regular IP audits. This practice helps identify potential weaknesses or vulnerabilities in a business’ IP portfolio and ensures all necessary steps are taken to protect its IP.
Dr Claudia M. Duffy, Patent Attorney and Founder of Innovare IP; RSE Economy and Enterprise Committee and Young Academy of Scotland member
This article originally appeared in ReSourcE summer 2024.
The RSE’s blog series offers personal views on a variety of issues. These views are not those of the RSE and are intended to offer different perspectives on a range of current issues.
