IP101 – salient points for start-ups to consider
Monday 28th November 2016
Article written by: Duncan Schaut
Intellectual property rights are an indispensable consideration in ensuring your start-up has the best possibility to succeed in the future. Read on to find out about the importance of protecting and securing intellectual property rights, and how to avoid common mistakes made in the journey to market.
This article was originally produced as part of Baldwins’ support for the ASB Bright Sparks technology competition. Each year school students from all over New Zealand submit their inventions in ASB’s competition, one that aims to foster high-tech education, careers and entrepreneurship.
We have adapted the information into a useful article focused on the importance of intellectual property for start-up companies. Below we discuss some commonly made mistakes and tips for how to best protect your valuable ideas, inventions and brands.
What is intellectual property?
Intellectual property is about creations of the mind. This includes new methods, products, expressions of ideas, trade secrets, brands and logos. Some intellectual property rights exist automatically upon creation such as copyright. Others require formal registration, such as patents, designs and trade marks.
A patent is a monopoly for an invention, which confers on the rights owner an exclusive right to use the invention in New Zealand for up to twenty years. After this timeframe, the public can use and develop the patented technology. In order for the rights in a patent to be granted to the owner, these need to be formally created through registration at a patent office. An invention is able to be patented when three requirements are met – it’s novel, useful and has an inventive step.
- Registered Designs
A design is similar to a patent in that it needs to be registered and is for a monopoly, but a design protects the way in which a product looks. An example of a well-known design is Apple’s iPad, which has a registered design for a rectangle with curved corners. A registered design can last up to fifteen years in New Zealand.
- Trade Marks
A trade mark is third type of registrable intellectual property right. The prime function of a trade mark is to act as a badge of origin of particular goods and services, distinguishing your goods and services from those of other businesses. Trade marks also serve as valuable tools to advertise, promote and develop start-up businesses. There is no legal obligation to register a trade mark, however, there are a number of advantages in terms of protection and value in obtaining rights in a registered trade mark rather than relying on rights in an unregistered trade mark.
An example of an unregistered intellectual property right is copyright. Copyright protects many forms of original expression, including writing, art, photographs, music, films and broadcasts. Copyright arises automatically without any need for registration, provided certain requirements are met under the law. If someone uses an original work you have created without your permission, you can take action against them to protect your work.
Why is intellectual property important?
To retain a competitive market position, start-ups need to invest in intellectual property in the early stages of their growth. Start-ups should consider protecting their own intellectual assets through the use of patents, trade marks or other registered and unregistered rights. The proper and strategic use of intellectual property rights will provide a start-up with protection and security, and can be used as leverage with prospective investors.
In addition, secure intellectual property rights will provide your start-up with more protection against potential infringers seeking to copy and unfairly benefit from your original ideas. Registered intellectual property rights can improve your ability to take action against potential infringers and obtain compensation if a third party does use your ideas without permission.
A well-protected business results in protection for your end users too, as customers know they are purchasing from a legitimate company that will uphold their consumer rights. Registered intellectual property rights can also prevent counterfeit products from causing you greater problems down the road, once you have a product in the marketplace.
Another indispensable benefit for start-up companies is the improved attractiveness to investors of companies who have registered their intellectual property rights. For investors, these rights can increase the value of a start-up, thus improving your ability to secure investment and raise the funds needed to support your start-up. Registered trade marks, for example, convert the goodwill of your business into a protectable property right and this is important when it comes time to assign or licence these rights in the future. You don’t necessarily need a fully-fledged intellectual property rights portfolio, but you should be able to demonstrate to investors that you at least understand the importance of intellectual property and know how you plan to go about securing your rights in the future.
Common mistakes to avoid with intellectual property and planning tips
Intellectual property can create trouble for start-ups in their early stages, and getting it right is a crucial aspect to running a successful business. While many large companies invest millions to protect their intellectual property portfolio, start-ups in their early stages can forget to look into their intellectual property altogether or make decisions that have a negative impact later on when the business develops.
The following section will look at commonly made mistakes in regards to intellectual property rights and how start-ups can avoid making these from the outset.
i) Assuming your intellectual property is not important
Amongst the greatest of the mistakes that many start-ups can make is assuming that intellectual property is not important to their business.
As soon as you have a business or product idea and you’ve spent some time planning what this may look like in reality, start looking into intellectual property protection. Reversing a lack of intellectual property rights at a later stage is very expensive and in some cases impossible, it is more efficient to invest the time and money sorting your intellectual property out from the beginning.
As a starting point, begin by educating yourself as much as possible about intellectual property and the protection that is relevant for your business. For example, you can begin by performing your own searches of existing intellectual property owned by third parties. These searches can guide your research and development investment and help you avoid infringement of others’ rights, saving time and money in the early stages of developing an invention or brand. www.google.com/patents brings up a plethora of information for finding out about existing patents and The Intellectual Property Office of New Zealand has a search engine to look up existing trade marks in New Zealand. A marketplace search on Google can also be useful to identify others’ intellectual property rights which may not be officially registered.
Conducting thorough research and developing a plan in relation on your start-up’s products and services will be useful to ensure you understand which aspects need protection and also helpful when you need to articulate these to an intellectual property professional.
ii) Assuming other’s intellectual property is not important
Thinking about your own intellectual property isn’t just a good idea – it is crucial to protect yourself from infringing on others’ intellectual property. Even if you make the decision not to protect your intellectual property, this will not insulate you from possible infringement of others’ granted patents, registered designs, or registered and unregistered trade marks. Infringement proceedings can be very costly and time consuming.
It is wise to research others’ intellectual property to save you breaching their rights. For example, a professional freedom-to-operate search will show you whether your intended product will infringe any patents or designs that are already in force, and/or ensure that your chosen logo is sufficiently different to those being used by your competitors.
You may not think this information is important if your intent is to exit the start-up before manufacturing or sales begin. However, it may be an important question potential purchasers of your business may ask. If you do intend to stay with the start-up to the manufacturing and selling stages, then you and your investors will find early comfort in knowing that the intended product is unlikely to infringe on others' intellectual property rights.
iii) Timing – the balance between rushing through the process and delaying the inevitable
There is no need to rush the process of getting your intellectual property rights protected. In fact, it is far from a quick process and can take many years to establish a firm intellectual property portfolio. You also want to avoid rushing your product development and making mistakes for the sake of sorting out intellectual property matters.
The process of getting your intellectual property applications through isn’t always a straightforward process. The process can be complicated and costly and it is important to get it right the first time in order to avoid doing it more than once. As a start-up owner, you need to understand what components of your product may require intellectual property protection and in what order of priority. For example, you can minimise costs by only seeking patent or registered design protection for the components of your product that add commercial value. Likewise, your business may be better suited to obtaining trade mark protection as a priority, particularly for example, if you plan to manufacture goods off-shore or you are offering a service which is going to be highly publicised in the near future.
Notwithstanding the above, you cannot sit still and ponder about intellectual property issues forever. It’s important to act reasonably swiftly to ensure it isn’t too late to start protecting your intellectual property and preventing others from stealing or profiting from your ideas. This is particularly important where your start-up is already running tests or market research and other people are now involved in the development process. The novelty of your product can also be destroyed through your own disclosures, for example by publishing your ideas on a blog or website or talking about your start-up at an event.
iv) Signing the wrong contracts
Start-ups tend to be organic and often have a culture of informality. While this is great for fostering innovation and sharing ideas, you still need to make sure the formal aspects of running a business are taken care of appropriately. In turn, this will lead to greater protection of your intellectual property rights and increase your ability to leverage them as a valuable business asset. It is easy to overlook the importance of having your intellectual property rights sorted and including clauses specific to ownership of intellectual property in all the agreements you sign with your suppliers, employees and business partners.
Patents and designs – important specifics to consider
i) Disclosing your idea
Public disclosure of an invention or use of an invention prior to properly setting up an intellectual property protection strategy can render any subsequent patent and design applications invalid. For example, for a patent application to be granted, the idea needs to be novel and inventive, when compared to what has been published or used (the prior art base) before the application date. The prior art base, will also include your own publication or use before the application date.
Applying for patent protection after already operating a business can be a long and drawn out process which is often not very successful. While some countries do allow grace periods for filing a patent following public disclosure, other countries do not provide these exceptions and obtaining grant of a patent will likely become impossible in many countries in Europe and New Zealand.
Therefore, ideally, before disclosing your idea publically, you should obtain advice on your potential intellectual property rights, including how you might commercialise these and any protection you need to support that commercialisation.
In most cases, you will also need to present your idea to third parties, for example venture capital investors. We recommend when discussing your idea with any third parties you should make sure to explain that what you are about to disclose is confidential. Better still; get them to sign a non-disclosure agreement before you disclose anything.
ii) Using open source software
Open source software can be useful in terms of development of a project. However, while it might sound like a great idea, you can quickly jeopardize your potential to obtain intellectual property protection by using open source software.
You will need to be wary of crucial mistakes when opting to use open source software. For example when using open source codes, even in small bits, you might need to disclose this source code to your competitors. Unfortunately, using open source software may also prevent you from obtaining registered intellectual property protection to protect your newly developed idea.
Our advice is to as much as possible, avoid using an open source software altogether. Or if you do need to use it, use it only for the non-crucial aspects of your project. If the scenario does arise and you are thinking of using open source software, you should considering seeking the advice of an intellectual property professional before doing so.
Trade marks – developing your start-up’s brand
Selecting a good trade mark is synonymous with choosing a good brand, and is an important intellectual property right a start-up business can establish early on. Trade marks can become valuable assets, representing the goodwill in a company and can later be sold or licensed. Trade marks allow you to begin building your reputation in the marketplace, attracting more customers and assisting in gaining more venture capital to grow your business.
The most important consideration when choosing a trade mark is to ensure the trade mark is distinctive. This is because the main function of a trade mark is to act as a badge of origin and distinguish one business’ goods and services from those of others. A trade mark which is non-distinctive is one which describes the goods or services, or a quality or characteristic of these. For example, a descriptive trade mark may be “Delicious” for a food delivery service.
The more distinctive and creative your trade mark is, the more likely it is to obtain registered protection and translate into a strong marketing brand for the future of your company.
Copyright – valuable protection for your expression and creativity
Copyright protects many forms of original expression, including writing, art, photographs, music, films and broadcasts. Copyright protection provides you with legal ownership in the original works that you produce and is an important intellectual property right for start-ups. Copyright comes in to play automatically when original works are created, and ensures that only you as the copyright owner and third parties who gain your permission can copy, perform or alter these works.
As discussed above, signing the right contracts is particularly important when it comes to copyright. For example, you might engage a contractor to design a website or logo for your start-up company. Having the correct contracts in place for the commissioning of the work is vital to ensure you secure ownership of the copyright in the website and logo going forward.
This article has outlined not only the importance of protecting and securing intellectual property rights, but also how to avoid common mistakes in relation to these. Intellectual property rights are an indispensable consideration in ensuring your start-up has the best possibility to succeed in the future.
Please contact Baldwins if you have any questions or wish to discuss any of the above points in more detail. We are more than happy to help start-ups understand the basics of intellectual property and to assist with the ongoing management of your intellectual property portfolio as your business develops.
This article was written with assistance from Vicky Mullins.
This article is intended to summarise potentially complicated legal issues, and is not intended to be a substitute for individual legal advice. If you would like further information, please contact a Baldwins representative.