26 Apr Intellectual Property 101
Intellectual Property (IP) is something that is discussed regularly during pitches and conversations with investors, but what actually is it?
Intellectual Property itself refers to any kind of intellectual asset that you have – and own – that has intrinsic value attached to it. This asset may be physical or it may be intangible, but protecting it is vital, particularly for startups. Not only does this protection set you apart from competitors, but it also allows entrepreneurs to protect their offering and futureproof their business.
Most people have heard of IP through trademarks and patents, but it could also be written work that an individual or company have a copyright on. It could also be an art piece or a design. James Dyson, for example, is known for protecting every design concept he creates after an infringement in the 70s that cost Dyson one of his designs. Essentially, anything that has been created as a result of an intellectual endeavour can be classified under intellectual property.
For entrepreneurs, the most common types of IP are trademarks, patents and trade secrets. One of the biggest global industries, as well as one of the most accessible for entrepreneurs, is software, but protecting this isn’t as simple as you would think. Henley Business Angels member, Dr Anthony Harris, IP expert and 30-year IT industry veteran, considers how intellectual property can be protected within software.
First of all, it’s very difficult to patent software and the patent officers don’t like doing it. Secondly, however, and something that entrepreneurs don’t necessarily realise with patents is that after a year your patent will be published and become public domain. If you’ve got a cleverly written algorithm that does something very special, everyone is going to be able to see what you’re doing. Even though your patent hasn’t been granted yet, it’s published first and then may take several years to grant. During that time, competitors can see what you’ve done and copy it.
In the case of my own company, we had a handful of patents, but generally, we protected our IP through trade secrets. That meant we kept it close, didn’t publish it and didn’t tell people what we were doing. By the time our competitors had figured out what we were doing, things had progressed and we would leapfrog to the next idea. That’s another strategy that business owners and entrepreneurs take, particularly in software companies. A classic example is Coca-Cola: their formula isn’t published, and very few people know what it is. Aero are another example as the process of producing an Aero chocolate bar is not published, it’s a trade secret; lots of companies use this type of protection for their IP.
When beginning your startup journey, it can be difficult for entrepreneurs to know where to start with IP and how much budget they should be setting aside for its protection. When it comes to Intellectual Property protection in the UK, the cheapest option is typically trademarks.
Trademarks cover words, logos, sounds, and colours, and can be registered for a minimum of £170 through the Intellectual Property Office. An entrepreneur can refrain from enlisting a trademark attorney in most cases to register these. Not only this, but the Trademark Office have an online service to allow you to check the trademark you’re hoping to register for £100 before you commit to the full fee. It’s a quick, cheap way to protect a startup’s IP without breaking the bank, and the protection lasts for 10 years before renewal is required. Find out more about trademarks, how to register them and what can be protected here.
Patents are another vital protection of IP, protecting inventions, processes and designs rather than words and symbols. However, compared to trademarks they can be starkly more expensive. In most cases, to file a patent you require a specialist patent attorney or advisor, which can range from anywhere between £4,000 to £7,500. This figure can be even higher if the case is complex or is an international patent – a cost not in the budget of every startup. Some companies have fixed-price schemes for startups; if a patent is the protection your business needs, you can shop around until you find the right fit.
In some sectors, patents are essential. According to Beauhurst, 13% of the patents granted in the UK were in the energy sector. With the rise in demand for cleantech, it is expected that R&D investment will in turn also rise. Beauhurst’s data also outlined that ‘17% of cleantech companies have one or more patents, demonstrating that the energy sector is innovating not only to meet demand but also to stay competitive’. A similar trend can also be seen in the medical technology and pharmaceutical sectors. Find out more information about patents, including how to apply for them here.
When it comes to software, patents can be used to protect algorithms, however, aside from the publishing of the IP as mentioned above, they’re tough to defend. In an instance where a company has an algorithm protected by a patent, and a competitor delivers the same product with a slight difference to the algorithm, has there been a patent breach? Patents are better utilised for tangible assets that are easier for the Patent Office to identify as unique – it’s much easier to patent a vacuum cleaner than a piece of software. Perhaps that’s why Beauhurst found that software, SaaS and e-commerce were the sectors with the lowest number of patents per company in the UK.
The most common protection within software, as Dr Harris mentioned above, is trade secrets. Trade secrets are keeping detailed, catalogued records of all the information, and then vitally, keeping that information a secret.
Whilst a simple notion, Dr Harris recalled a time this was not executed despite the entrepreneur thinking it was:
A few years ago, I was talking to an individual that had developed some software. I asked how they were protecting it to which they responded ‘trade secrets’. I asked where this was being kept and they stated it was being kept on a website. When I went to that website, all their software was written in Java on the front end, and by going into Developer Mode, their code was listed for all to see. Anyone could have done this, including competitors. In this instance, the protection mechanism would be to have the ‘client-side’ as the front-end, which is just rules on the back-end of the ‘server-side’ that nobody could see. There are all sorts of techniques that you can use to protect your trade secrets, but you need to make sure, above all else, that they are being kept secret (unlike in this instance).
For information to be protected as a trade secret, it needs to meet a small number of requirements to be legally upheld. The first requirement – and the most obvious – is that it must be a secret. Whilst at first glance this may seem to mean complete secrecy, this is not the case. In terms of trade secrets, ‘secret’ means that it is ‘not generally known among, or readily accessible, to circles that normally deal with the kind of information in question’. In some companies, several individuals are aware of the intellectual property, but it cannot be shared with others working in the field. The second requirement is that the trade secret must have ‘actual or potential commercial value’ because it is a secret. Finally, reasonable steps must have been taken by the rightful holder of the information to keep it secret such as through confidentiality agreements.
By meeting these conditions, the IP can be sufficiently protected, and the owner has the right to lawfully prevent the information from being disclosed, acquired or used by others without their consent. Trade secrets can also be licensed, allowing sufficient implementation in the software sector. Find out more about trade secrets and ensuring yours are protected fully, here.
When it comes to seeking investment, and how angel investors view IP, entrepreneurs need to consider their proposition and what the investor is investing in. Whilst there are several reasons angels may choose to invest in a company, a core reason will be the technology and/or the idea. If it’s easy for competitors to replicate your work, and you have no protection, does this present as an attractive offer to investors?
Getting as much protection as possible for their IP should always be a central goal for entrepreneurs. This will make presenting your proposition to investors easier and will provide an attractive defence of the business. The stronger your arsenal of protection – trademarks, patents and trade secrets – the more value is added to your business, both intrinsically and financially.