How to make your IP stand out to investors
Intellectual property is an incredibly complex area of the law and, if you’re a leader of a tech business, then you’re going to need support at some stage if you want to get it right. But budgets are always tight and there are lots of things demanding money. This blog helps you understand the core of what you need to manage, what you can do yourself if you really have to, and where you’ll need professional expertise.
There’s nothing we can do about the fact that IP is complicated. The law in this area is what you might call ‘niche’ and many lawyers don’t even understand it well (see Raymond J. Hegarty’s blog on it here), let alone your average tech founder.
We also can’t get away from the fact that IP is really important to your business, as your technology is what you probably intend to build success on. If you don’t protect your IP then you’ll lose that success, and if you don’t manage risks then issues can be lurking that could torpedo your business some time down the track.
And it’s also expensive. Paying for good advice definitely pays you back in the end, but forking out the cash can still feel pretty traumatic at the time.
So you have something that is
· very complex
· very important
· expensive to get support with
This adds up to a difficult problem and I know as a business owner myself that when you’re faced with difficult problems in a world where there is always other stuff to do, the temptation is strong to push them down to the bottom of the to-do list, while you take care of the quick wins.
A lot of tech founders bear the scars of having done that. They file a patent and then forget about IP, or worse, just do nothing at all. This neglect of IP almost always comes back to haunt them as their inventions are lost and they’re exposed to huge risk — investors run a mile from this.
Those who do try to manage things themselves are left not knowing where to start and, when they do start, they tend to involve a patent attorney who bombards them with long, jargon-filled emails and seems to need a decision to be made every other week.
So in this blog, I want to cover the basics…
· Protect your inventions
· Manage internal IP risks
· Manage external IP risks
If you really are forced to manage some of this stuff yourself, I’ll help you understand what to manage, how to manage it and when you really will need expertise.
Let’s be clear, getting professional support is what I recommend and this blog cannot replace that, but it can provide some guidance to help and it can also mean that, when you get support, you know enough to be a more sophisticated buyer.
Protect your inventions
Many tech businesses do this in an ad-hoc way. As R&D is ongoing and new things get developed, the CTO mentions to the CEO a new feature they or their team has come up with that they think is clever. The CTO and CEO discuss it and if they think it’s important to the business, they call a patent attorney. The patent attorney will almost always agree to draft a patent application (that’s what they sell, after all) and it gets filed.
The above is pretty standard. And it leads to all sorts of issues.
Firstly, there’s scope for many inventions to be missed and therefore not protected. What if the CTO misses something? What if something really important to the business doesn’t seem that clever or new to them — in truth, it might not be all that clever or new, but it still can be the thing that you really need to protect.
Second, it’s common for the assessment of commercial value to be different each time and invention is assessed in one of these informal chats, and this can lead to an inconsistent approach and wasted money.
Third, protecting with a patent might not be the right answer and not making that assessment can mean you publish something that you don’t need to and that you then can’t get a patent for in any case!
Instead, go through these simple steps.
1. Hold a specific IP meeting every 6 months or so with your R&D team
2. Document all the new inventions you’ve unearthed
3. Have a scorecard to assess them all and determine the right protection
The IP meeting
These don’t need to be onerous and you’re really looking to do 2 things:
· Discuss the problems that R&D are working on now — what’s keeping them up at night
· Discuss the problems they have solved in the last 6 months
The reason you should identify what they’re struggling with right now is that it’ll be a really useful reference point at the next meeting. If it was a big deal 6 months ago then any solution to that problem is worth recording so bring out that list of problems and ask what solutions they’ve found.
At the end of the meeting you will have a list of inventions that you’ve extracted from your R&D team in a more systematic way and with many viewpoints considered, meaning that less will be missed. You might not protect it all in patent applications, but now you have it all out in the open, it can be managed.
Document, document, document
You should record everything you’ve gathered in the meeting in what’s called an Invention Disclosure Form. I’ve discussed in a previous blog the things that it makes sense to record. Record those things and make sure they are logged somewhere secure. You’re already building value by taking that very simple step as, for the first time, you’ll have a record of all the innovation coming out of your business.
Assess the commercial value and decide what to do
Now you need to decide which of the inventions that you’ve uncovered actually needs protection. You can assess this internally by creating a set of questions to ask that are designed to prompt and guide a discussion. The answers to what’s the most valuable will come from that. There are lots of factors you might want to consider, but a good start is given in my earlier blog here. Broadly, you should ask
· Does it protect revenue or a future business direction?
· How inventive is it?
· How easy is it to reverse engineer?
The inventions that score highly you will want to protect. How you protect them is where you definitely need to get professional support. Don’t go to a patent attorney saying you want to file a patent, explain the invention to them and ask them whether they feel a patent is appropriate and what the chances of success are. Also, talk to someone who knows about unregistered rights and ask them the same questions about trade secrets.
Manage internally generated IP risks
Some risks relating to IP are generated internally, which basically means they are caused by your actions, or the actions of your partners, customers, suppliers or employees. Internal IP risks usually relate to your IP not being owned by you when you think it is, or to your IP leaking away from your business in a way that is uncontrolled and that can harm your ability to protect it.
The main thing you can easily do to improve your situation with respect to internal IP risks is to get your agreements shored up with respect to IP.
IP is often an afterthought in business agreements and this can mean that you don’t own the IP that you think you do. The importance of shoring up all of your agreements so that IP ownership is clear cannot be overstated. This will be analysed in depth during due diligence when you get to later investment rounds or to an acquisition event. Sorting things out early so there are no nasty surprises is a really smart move.
Gather together all of your agreements, including employee and consultancy contracts, partnership agreements, joint venture agreements and, of course, non-disclosure agreements.
Now get specialist support on whether these agreements cover IP sufficiently. Get hold of an IP lawyer (I can recommend one, if you don’t know anyone) and ask them to review the IP clauses in your agreements to identify any gaps or issues so you can have them sorted. Then have them draft new template agreements that you can use going forward. One thing, don’t just go to any old corporate lawyer for this. IP is a specialist area and you would be well served getting an IP specialist lawyer involved.
Manage external IP risks
External IP risks largely boil down to whether or not you infringe other people’s IP. Knowing this is really important and one of the most overlooked aspects of IP that I see among tech SMEs.
If you find out that you’re infringing someone else’s IP when you’re already selling a product and have committed a lot of your people’s time and your financial resource to get to that position, then it will be really expensive to wind back from. It’s much better to find out early when you can still do something about it.
It’s also really valuable information to investors and acquirers as it de-risks an investment for them . If you can show that you’ve done some work to understand what the risks are and then avoided them then it will look very good.
This is a job where you’ll need to hire in expertise from the very start. You should talk to a patent attorney, but make sure you set the scope of the work correctly before you set them going — I discuss this in another blog.
Have a search conducted and get the patent attorney to review the results and give you their thoughts on the risk of infringement. In my experience, most patent attorneys will want to write you a lengthy report as the output from this process. You might want that, or you might not, but understand this is where a large chunk of the costs come from. Foregoing the report and getting the results in a meeting should allow you to get a much lower price and, let’s face it, who’s going to read the report anyway? One thing to note here is that the report might be useful for your data room so you might want it from that perspective.
A great start
Do these things and you’ll have made a great start on the road to effective management of your IP. The best bet is to get IP management expertise in to assist you right from the start. In the end that will save you money and time and lead to better outcomes.