A few years ago, the only connection between patents and unicorns was a bizarre patent filing (No. US4429685) that related “to a [surgical] method of growing unicorns in a manner that enhances the overall development of the animal.”
Today any company less than ten years old and valued at $1bn or more is known as a unicorn. These modern day unicorns, along with all the major tech companies, have almost certainly heeded Bill Gates’ advice from 2004:
“CEOs must now be able to formulate strategies that capitalise on and maximise the value of their company’s intellectual property assets to drive growth, innovation and cooperative relationships with other companies.”
In short, they will have in place Intellectual Property (IP) strategies that do not simply set out to maximise value or minimise risk, but which deliver strategic advantage. Key to that is understanding that risk and value are intrinsically linked and striking a balance between them, in line with wider corporate objectives related to innovation, expansion and competitive pressures.
These days, striking that balance is a genuine business imperative, and one that is not limited to highly capitalised companies. It is arguably even more important for start-ups.
IP is a valuable asset
It is estimated that 70 per cent of corporate value is wrapped up in intangible assets, with IP accounting for a significant proportion of that total. However, in a world where startups are increasingly peddling ideas (see Tom Goodwin’s much referenced point about Uber, Airbnb and so on), IP may be an even more significant proportion of start-up corporate value.
In turn, this means that any startup’s value and risk exposure may now be disproportionately affected by the quality of its IP strategy, which can help to overcome early problems, as well as support longer-term strategy.
For instance, one issue for smaller startups is the initial time and cost associated with registering patents, including hiring professionals to trawl the IP landscape for similar inventions or designs – potentially across multiple jurisdictions with different rules.
Then there is IP litigation, which continues to grow in volume and severity and can represent a significant threat to any startup, whether a challenge comes from a non-practicing entity or not.
Both of these issues can be at least partially mitigated if a focused IP strategy is part of early business planning. This could be a strategy that answers questions like: “In which markets do we need patent protection?” and “Could seeking to license existing IP reduce our risk exposure?”.
Given these complexities, and the growing importance of IP strategy for long-term success, it is worrying that many start-ups still do the bare minimum. All too many still take a pre-digital approach that virtually ignores IP, which results in missed licensing opportunities, vague valuations, naïve sales to NPEs and vulnerability in the face of aggressive challenges.
IP strategy is essential
The inescapable truth is an IP strategy is essential. Though some specialist support may be required, developing one boils down to a three-stage process.
The first stage is education and awareness. This exercise must be inclusive and establish the views, needs and requirements of each relevant part of the business. This is the essential first step to developing a strategy that is not only fit-for-purpose, but also the bedrock of establishing support for, and understanding of, the IP strategy.
Read more about protecting your intellectual property:
- The importance of IP in an international arena
- Businesses not being smart enough about intellectual property
- SMEs need to be robust on intellectual property
The second stage is implementation. Value derived from innovation (including patents, where appropriate) of R&D, and creativity more generally, is captured and protected. Consistent policies are applied to the supply chain for both suppliers and customers, to maximise rights ownership and minimise indemnity risk. Risk management is extended to involve direct risks, such as litigation, and indirect risks such as any applicable indemnity.
The final stage deals with governance. Once a company has developed an IP strategy, then aligned and integrated it into its business strategy more generally, it is essential that a governance structure be established. This ensures the strategy is continually managed, monitored and reported on.
In recent times, this has seen many companies form IP strategy groups, with participation from across the business, and the emergence of a new role, the Chief Intellectual Property Officer (CIPO).
As startups become ever more defined by their IP, their long-term success will be driven by their ability to both protect and strengthen their IP positions – to both manage risk and maximise value.
And that is why IP strategy cannot be an afterthought – the start-ups that engage with IP early, developing and implementing well thought out IP strategies, will be much better equipped to become unicorns – with or without major surgery.
Nigel Swycher is CEO of Aistemos.
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