IP Basics for Start-ups censis.org.uk 8
<strong>Intellectual</strong> <strong>Property</strong> <strong>in</strong> Bus<strong>in</strong>ess: IP basics, IP management, IP strategy IP Basics for Start-ups 1 The role of IP <strong>in</strong> a bus<strong>in</strong>ess The term ‘<strong>in</strong>tellectual property’ (IP) refers, <strong>in</strong> a broad sense, to <strong>in</strong>tangible creations of the human <strong>in</strong>tellect. A collection of codified laws, called IP rights, provides rules that govern rights <strong>in</strong> these assets and seeks to give a fair reward for creators to <strong>in</strong>centivise <strong>in</strong>novation, without unduly restrict<strong>in</strong>g competition <strong>in</strong> the marketplace. IP rights <strong>in</strong>clude: • registered rights such as patents, registered trade marks, and registered designs (known as design patents <strong>in</strong> the USA), and • unregistered rights such as copyright and unregistered design rights. From a legal po<strong>in</strong>t of view, IP rights are legal <strong>in</strong>struments that provide some limited exclusive rights to prevent others from exploit<strong>in</strong>g the protected IP. These rights can, <strong>in</strong> effect, create a legal space that belongs only to the owner of the IP rights and provide that owner with a right to block third parties from us<strong>in</strong>g the protected idea without authorisation (through a licence). 3 The effect of these IP rights is to carve out a niche that can be accessed only with the owner’s approval. In the early stages of build<strong>in</strong>g your bus<strong>in</strong>ess, own<strong>in</strong>g IP rights can dramatically improve your negotiat<strong>in</strong>g power and the perception of your bus<strong>in</strong>ess as a credible partner. As well as provid<strong>in</strong>g legal protection, they can demonstrate your R&D <strong>in</strong>vestment and prowess, technological capacity, high level of expertise, <strong>in</strong>novative approach and commercial awareness. Present<strong>in</strong>g this positive image can strengthen your hand when you are negotiat<strong>in</strong>g with <strong>in</strong>vestors or creditors, rais<strong>in</strong>g funds and <strong>in</strong>creas<strong>in</strong>g your market value. When a company takes its IP position seriously, its competitors, partners and customers are very likely to take that IP position – and by extension the company – seriously as well. A study of more than 2,000 European small and medium sized companies found that ‘value and image’ was the third most important reason for protect<strong>in</strong>g IP. 4 In addition, IP can help you attract higher-quality partners because your own IP protection can protect your bus<strong>in</strong>ess partners as well (see the section on Supply cha<strong>in</strong> and IP). Regardless of your personal views on IP rights, the fact is that IP rights matter – and they matter a lot. For example, when you pitch to <strong>in</strong>vestors, it will not be long before they ask you about your IP. They will want you to protect your technology with IP rights, among which patents stand out most prom<strong>in</strong>ently. Investors recognise value and usability <strong>in</strong> IP rights because hav<strong>in</strong>g IP protection for the most crucial and/or recognisable aspects of your offer<strong>in</strong>g <strong>in</strong>creases the value of your bus<strong>in</strong>ess. In addition to that, IP rights offer a good basis for scal<strong>in</strong>g up a bus<strong>in</strong>ess – someth<strong>in</strong>g most <strong>in</strong>vestors will want to hear about. Another reason why IP rights matter is that unlike material or hard assets, they do not wear out or lose value through use. On the contrary, they ga<strong>in</strong> <strong>in</strong> value. A bus<strong>in</strong>ess can generate a revenue stream through licens<strong>in</strong>g IP to third parties (this model applies to all k<strong>in</strong>ds of IP rights). And even if the company itself does not perform well, good <strong>in</strong>ventions protected by good patents are always valuable and saleable – and for <strong>in</strong>vestors, that matters. 3 Every agreement that covers exploitation of the technology (by manufactur<strong>in</strong>g, sell<strong>in</strong>g, export<strong>in</strong>g, etc.) <strong>in</strong>cludes a list of IP rights that def<strong>in</strong>es the technology at stake. This usually appears <strong>in</strong> an annex at the end of the agreement. 4 ‘5 reasons why <strong>in</strong>vestors love <strong>in</strong>tellectual property’ (EU Startups, 8 January 2018) accessed 2 December 2022. 9