10 words to understand what Intellectual Property is

Understanding and utilising Intellectual Property can be a key factor in the success of a business. A strong IP portfolio can provide many benefits, including a competitive edge, revenue generation, and protection from legal disputes. Taking steps to protect it early on helps create a foundation for turning IP rights into revenue-generating assets and building confidence with investors.

Intellectual Property, often shortened to IP, refers to creations of the mind, such as inventions, literary and artistic works, symbols, names, images, and designs. It is a legal concept that gives the creators of these intangible assets certain exclusive rights to use, sell, and profit from their creations.

But what Intellectual Property actually is, in layman’s terms?

INVESTMENT

Intellectual Property certainly is an investment. For a high-technology startup it might be a hefty one, especially in the early stages of the venture building when one turns every penny. However, taking adequate steps to protect your intangible assets early on will create a foundation for turning this investment into revenue-generating assets. You might decide, for instance, to licence or divest your patents. It has recently been reported that Huawei has earned more than $1.2 billion for patent royalties in the last 3 years.

INSURANCE

Just like house insurance, you might never have to use it (touch wood!) despite paying the annual instalments. Yet, should an accident occur you will be thankful to your younger self for sticking with the annual premium. A similar reasoning can be applied to spending money on building your IP portfolio. Depending on what kind of IP strategy you decide to pursue and what your competitors are doing, you might too end up with an IP portfolio that lives a stable life, left alone in a spreadsheet somewhere in your legal department. In all honesty, this is probably a more desirable scenario than having to shell out thousands of pounds defending your rights.

INCENTIVE

I spoke with dozens of investors and asked what they mostly look at when investing into an early stage business pre-revenue. The most frequently heard answer was in the lines of: “Team, their ability to deliver, their confidence level. I want to know that they know what they are doing”. Whilst getting a few trade marks or patents filed will unlikely be the sole deciding factor for getting your startup funded, it will certainly help in building confidence for your prospective investors, especially if you can explain the reasoning behind your IP actions.

STOP-SIGN

Intellectual Property also serves as a “stop-sign” for competitors, prohibiting them from using or copying your unique ideas and creations without permission. Your registered rights such as trade marks and patents  set the exact limits between what your business has the exclusiver rights to, approved by official authorities such as Intellectual Property Offices. While you can pursue copycats based on passing off (i.e. without registered rights) it is a much more difficult case to prove than simply pointing at the legal boundaries set by your public and registered rights.

STRATEGIC TOOL

In my opinion, the beauty of Intellectual Property lies in the fact that you can still use it strategically, even if you think you have very litle IP of your own. Did you know that you can speculate and file patents on your competitors potential technology improvements (assuming you are able to prepare a sufficient technical disclosure). Did you find a competitor’s patent that could block you and threaten your business continutity? Some would panic and close the shop, others choose to find ways to invalidate this patent by finding earlier disclosures of the same technology (i.e. prior art). There are many ways to use IP for your business’ advantage.

VALUE-DRIVER

Intellectual Property can play a role in driving the value of a company. Investors like to see registered trade marks and pending patents because they indicate the business is taking appropriate steps to secure their future Return on Investment. Studies show that companies that doubled the number of patents in their portfolio get 28% higher valuation than those who didn’t.

ASSET

Intellectual Property can also be considered a valuable asset for a company, similar to physical assets such as property or equipment. It can be licensed, sold, used to secure investments or even as a loan collateral. I have seen businesses on the brink of going under, able to secure bridge loans simply on the basis of their IP portfolio. Valuing Intellectual Property is still a black box, though. There are well established methods of performing IP valuation but at the end of the day, it is very much dependent on the currect economic climate, industry and potential acquirors willingness to pay a certain value.

SHIELD

Having a strong IP portfolio serves as a shield for a company, helping protect it from legal disputes and infringement claims. However, do remember that having your own IP rights does not mean that you are in the clear. Your IP portfolio allows you to stop others from using your IP rights  rather than giving a free licence to commercialise them. It will certainly be helpful to have your own patents when you are accused of infriringement as you might be able to build a cross-licensing case (now you see what Apple and Samsung have been doing for years).

DETERRENT

Having a strong IP portfolio can also act as a deterrent for others from attempting to infringe on your rights, as they may fear legal consequences. You might even decide to build a portfolio so big that the sheer effort required for other to analyse it and establish whether they infringe on any of your rights might be enough to deter them from entering your space.

STIMULUS

I was THAT person who was trying to make the argument against the patent system. I was preparing my master’s dissertation on “How do patents hinder innovation and how can we do better?” Catchy yet not true. I read tons of research papers, statistics, blogs, articles, opinions. Patents are a stimulus for innovation and creativity.  Creators and inventors are encouraged to develop new ideas and creations knowing the legal system is there to protect them. Imagine spending millions on Research & Development only to let your competitor rip off your technology and sell it at ridiculously low prices. They might well afford to do that, considering they did not bear any R&D costs. That’s why you need to have patents. On the other hand, the IP equivalent of “rules are there to be broken” would be “patents are there to be invented around”. That’s how innovation works, regardless if we like it or not. We are being forced to move forward, to innovate because we don’t like the way things are or are annoyed with the limits of the current system. Watch the “Playlist” TV series about the rise of Spotify, an absolute gem showing how innovation works.

Are there any other words you would use to describe Intellectual Property? IP is such a multi-faceted asset, one that can really help your business thrive once you learn how to use it to your advantage. Fancy knowing how? I offer a limited number of FREE IP Strategy Calls every month, simply book yours here. I would love to hear from you.