Intellectual Property (IP) is an important asset of any business, and it must be managed like all other critical resources that give a business a competitive advantage (i.e. investment capital, cash flow, people, technology, and research). For this module, we will limit our discussion about managing IP for a start-up corporation that sells physical products and some associated services that support the products sold.
To remain competitive or better as a leader in a market segment, companies need to continually create new, protectable IP which they can use to create or support new products that will repeatedly delight existing and new customers. The engine that creates new IP is a group of highly creative customer-focused employees. By default, IP is owned by the person who created it, unless specific employee-employer relationships/agreements are put in place. Consequently, it is imperative that all employees and working founders of a start-up company sign legal agreements that assign their human efforts (creative output and inventions) to the start-up company. In this way, the company can use this new IP unencumbered to build whatever new products that will support the company growth strategy. If such agreements are not put in place, then when an employee leaves the company – as often they will over time – then they may be legally entitled to take the IP they created with them. This leakage of IP can be detrimental to the survival of a company and is viewed very negatively by investors as it could greatly increase the level of competition. So, the first step in IP management is to ensure that all the existing IP needed to create and sell products is owned by the start-up company. If you are a founder and currently working for another company but considering creating your start-up company, then you must keep your new ideas generated outside of your current job responsibilities separate from your current job. You should also read all legal agreements you have with your current employer to ensure you do not have any obligations to them now or after you quit your job to become an entrepreneur.
Next, you may ask what IP should I create and protect first? This depends on the product and business model and different IP tools are used depending on what you determine are your core IP assets. Most often you want to protect anything that is critical to building or selling your new product. Most founders start by protecting any critical and secret knowledge they have that helps them build their products and company. These “Trade Secrets” are first protected by high security protocols on who has access to them and secondly by ensuring all people who need to know the trade secret sign a Non-Disclosure Agreement as part of their employment or supplier/customer relationship with the company. This enables the company to share trade secrets with those who need to use them but prevent them from being shared with competitors or being placed into the public domain for anyone to use. There is no guarantee that it will remain a secret forever since other creative people (your competition) can independently figure out the same trade secret legally and on their own. By far the greatest volume of IP in businesses is protected as a trade secret. Therefore, the first agreement you need new employees to execute is a Non-Disclosure Agreement as a condition of employment to keep those useful secrets in the company.
The product and company name may change but the functional or esthetic appearance of your product will likely remain the same for some time. Therefore, most entrepreneurs will invest in utility patents, industrial designs (or design patents depending on the country), and Trademarks (or Service marks) linked to their products. However, it can take 3 to 5 years of patent prosecution (arguing with the patent examiner) before a patent application is allowed. Being the first to file a patent application is critical to maximize the probability of it being approved. Those who file second for the same invention, have no chance of securing a patent.
Patents do not guarantee business success, but for certain products like a new drug, new smart phone, or new industrial machine, a patent may be absolutely required to secure investors and stay in business. From a strategy perspective companies use patents to slow down the competition and prevent them from making direct copies of products. Therefore, a company needs to continually file new patents to support launching new products in the future, when their old patents expire. It is an innovation arms race. If you are interested in what Google or Apple might sell in 3 to 5 years, then go and read the patent applications they are filing today. After a short 12 to 18 month confidentiality period, all patent applications are freely available to the public (visit CIPO or USPTO).
The biggest factors to consider before filing patent applications are: available budget; the potential market size of the country of interest; the probability of securing strong broad patent claims that adequately protect the invention; and the time frame needed for a patent to enter patent prosecution (i.e. be the first to file to ensure it meets the novelty criteria).
First determine if you have a deadline to file your patent application. For researchers, this may be the date of the first publication describing the invention in a prestigious journal like Nature. In most cases, patent applications should be filed before the first public disclosure. If you can wait to publish, then it may allow you to advance the invention and delay spending on patent fees until just before your first publication. However, if you are in a race with other well-funded research teams waiting to publish may allow the other team to swoop in, barring you from obtaining a patent later. It’s a judgement call.
Next, analyze the prior art (which you should have already done in great depth) to determine how novel and non-obvious your invention is. If the invention is only slightly different from existing prior art then it will be very difficult to obtain a patent with strong broad claims that protect all possible uses. A patent with narrow claims limited to one or two specific uses of the invention is much less valuable than one with broad claims that cover a platform of various finished products. If probabilities suggest you will only get narrow claims approved by the patent examiner, then it may not be worth pursuing a patent in dozens of countries, it may be more cost effective to only file patents in Canada and the USA which will provide a sufficient market size to support your business goals. Filing in Europe, to double the protected market size, can cost up to five times more. This is often why most companies file patents in the USA, because it is one large, lucrative market that can be protected with a single patent. In the future China and India will soon be this attractive too. The goal is to file in the largest most lucrative countries (markets) that fit within your budget. If you have not allocated at least $10,000 CAD to your patent budget for the first two years of patent filing and prosecution, then your options will be very limited. $10,000 CAD may seem like alot, but there is tremendous value in hiring a professional patent agent to draft the patent application and manage prosecution.
A common cost-effective approach by small companies and Technology Transfer Offices at research institutes is to first file a US Provisional Patent Application in the USA (cost approx. $2,000-$5,000 CAD depending on the quality and complexity). This application is confidential and is essentially a draft (incomplete application) that is valid for one year, but must be converted into a US Regular Patent Application (cost approx. $3,000) and/or another country’s national patent application (cost varies by country but approx. $1,000 and up each), or a Patent Cooperation Treaty (PCT) Application (cost Approx. $4,000-6,000). These regular applications or the PCT application are the final application/data that are evaluated by the patent examiners in each country.
If your plan is to protect your invention globally, then filing a PCT Application will enable you to put your application on hold for another 18 months until you must convert the PCT into individual applications for each of the potential 152 countries that you choose to enter, again costs vary, but $1,000 and up each.
Once you start filing individual patent applications in each country, costs go up dramatically as you now must argue and prosecute each of these applications with the patent examiner in each country. For example, to file in the USA, prosecute until you get a granted patent and pay for the maintenance fees for the full 20-year term will cost at least $30,000 USD.
As an entrepreneur with limited funds you can start patent filings, and maybe even patent prosecution, but if you don’t have a wealthy partner, banker, or investor on board, you can spend a lot of money before even the first patent gets approved (if ever approved!). Plan carefully according to your budget and business strategy. The cost of patent filing and prosecution is one of the reasons a researcher partners with their research institute’s TTO, because the TTO often has the funding to pay for a reasonable patent prosecution plan, providing the TTO is in control of commercialization.
So, where should the IP be protected? If you can afford it, in every country you plan to sell a significant volume of product. Patents are by far the most expensive IP protection tool, but not the only one. Alternatively, while industrial design, trademark, and copyright registrations are much less expensive, they offer less protection as well. For truly disruptive functional inventions, utility patents are the preferred tool. (Review Intellectual Property Basics section).
Rarely do start-up companies have enough funds to cover every market, in that case the largest markets are of the highest priority to file for protections in. For Canadian companies this often means Canada, USA, and maybe Mexico, but if you have a disruptive technology and strong investors, then you want to go global and generally protect IP where the greatest number of people or companies reside with disposable funds, which often means North America, Europe, China, and India. Whatever you choose, try to be cost-effective since most patents that are filed never actually get used or make any money – file carefully!
If you are creating a product that does not need to change for 10-20 years then patents are great, because they provide long-term protection for the functionality or design of your stable product. However, if your product has a short lifespan, (i.e. 1-3 years), as is the case for most software programs, then by the time a patent is approved and enforceable, the product is obsolete and replaced with a newer version. So, using encryption to keep your software product as a trade secret may work better and offer protections longer than a patent that fully describes your invention.
To protect your brand, product image, website, or advertising, trademarks are most often used. Trademarks become more valuable as your company becomes more successful and it generates a bigger more positive reputation. Being first to file a trademark is less important than having a complete package of protected trademarks in all the markets you expect to sell products. If needed, you can change your company or product name when your company is a small start-up because you have almost no reputation or customer awareness. But whatever name, graphic or logo you decide to trademark, you want to be able to obtain similar IP protection for all the major countries you plan to enter. It is important to do a detailed search for existing IP (prior art) prior to filing any new IP applications. For websites, most people register their domain name or Uniform Resource Locator (URL) address with private organizations such as Go Daddy Canada, Web.com, or Rebel.ca. Your web domain name can be very similar to your company name or very different depending on the domain availability and your advertising strategy.
Lastly, one of the drawbacks about IP protection is that the owner of the IP must police it themselves. If you are not prepared to take the time and spend the money to stop others infringing on your legally protected IP, then you are better off saving your money and protecting other assets that you will actively protect. And sometimes, you may have to secure an investor that is willing to fund you to stop infringing companies, but if the market is lucrative enough, you will find support to enforce your IP, as long as you share the rewards with them.