For a start-up, intellectual property (IP) can be intimidating and may seem like an unappealing prospect, requiring a company to spend time and money in its furtive early days when growth and scalability are the main focus. And for those start-ups that do pursue their initial IP optimisation exercise with a sense of enthusiasm, that same zeal may soon begin to wane as day-to-day business tasks result in IP issues being placed on the backburner.
However, failing to implement and optimise an IP strategy in a start-up’s nascent stages may have serious consequences for its exit value, as its most valuable assets may be underdeveloped, undervalued or, worse, may not actually be theirs to sell. But while there is some distrust of large corporates – particularly their motives behind investing in a start-up and their novel IP – corporate venturing units can often play a key role in encouraging and supporting start-ups in getting their vital IP protection and strategy in place.
Imagine the following scenario. While at your old job, you come up with a novel idea for a technology or application and work on it in your spare time before leaving to set up your own business. But as people often build on what they know best when starting a new venture, this may very well result in IP contamination – and though unintended, this mistake means that a former employer may potentially assert rights to the IP. Similarly, commissioning a third party to help develop certain aspects of the IP may result in a claim for joint or sole ownership where a proper agreement or transfer of IP has not been recorded – hardly ideal if you ultimately plan on selling that IP.
Even talking about crucial IP underpinning a company’s potential competitive advantage may, in fact, make that advantage valueless. While new companies are understandably keen to share their novel ideas with others, public announcements may compromise their ability to secure their IP rights appropriately.
Disclosure of key IP may lead to a loss of critical trade secrets and, for those companies that plan to patent their innovations, may result in a forfeiture of patent rights. Without properly inventorying and securing essential IP assets, it becomes impossible to determine what the impact of public disclosure on a company’s IP will be.
Conversely, the benefits of a robust IP policy can be profuse. Recent exits by mobile network optimisation business Arieso and mobile navigation app developer Waze have shown the immense value in not only a great idea but the proper protection of such. In terms of the latter, registered trademarks and patents – in the name of the company, mind, not the individual developers – certainly dictated the “aggressive premium” Google was willing to pay, but it was the lesser-known form of IP which may have formed the bulk of it.
The mapping data, which the company collated from its network of 50 million users, was likely to be a significant selling point. Worldwide maps are difficult to create, which is why there are so few of them, making the crowdsourced data Waze collected particularly valuable. And its widespread user base also provided another type of highly sought-after data, namely that of customer data, which has proven to be highly valuable for companies in the advertising sector among others.
But these acquisitions would not have been completed at such high valuations had Waze and Arieso failed to secure their critical IP assets. Large companies are often hesitant to acquire a start-up which has not sought formal IP protection, and a robust IP strategy can go a long way to providing comfort to a buyer regarding the IP ownership and scalability of the business model. A robust IP strategy also serves to identify critical IP assets underpinning the competitive advantage, thereby allowing a decision to be made regarding IP-related spend on IP assets no longer deemed critical.
So while time and money are necessarily involved in IP strategising, it is time and money well spent.