A few years ago, when several experts stressed on the need for startups to create an Intellectual Property (IP) strategy right at the founding phase, a principal argument which made the rounds was, when technology giants such as Twitter and Facebook scaled with minimal patentable intellectual property in the early days, why can’t we? This added to the fact that filing for patents can cause cash burn, money that can be used to acquire customers.
However, the answer to this question of ‘when one should invest in IP?’ lies in this thought: IP is an economic tool and it should be strategized and evaluated as one. If this means you delay your patent filing efforts, so be it. But, over the long run, your IP can play a crucial role in the future of your business, both strategically and financially.
Of course, your IP strategy depends on the sector in which you operate, but there is no doubt that it can become the differentiating factor over the long run.
On this premise, we pave the way for our second blog, where we take a closer look at why it is important for startups to create an IP strategy, and the role of IP in impacting your financials.
Tell me why?
Let’s get down to some basics. The most common forms of IP are Patents, Trademarks, Design and Copyright. While Trademarks offer a quality assurance, patents protect a unique technology or process created by the company. Design, on the other hand, protects the visual design of objects, which are not utilitarian, and copyright allows the creator to have exclusive rights over his/her product or service for a limited period of time.
Now, there’s always this debate about how guarded or how open you should be about your idea. As a blog post by a partner at Andreessen Horowitz points out that a common mistake made by first generation entrepreneurs is being too guarded about the idea. In the process, they spend their first U.S. $25,000 in hiring patent lawyers even before fully vetting their product. How can entrepreneurs avoid this?
At Altacit Global, we always tell our clients the first rule of IP strategy: That IP is not a sign of recognition of creativity or quality. It is an economic tool. So, at some point, any investment in IP should make economic sense and provide a good return on investment. In other words, your IP strategy should be aligned with your IP monetization and protection strategy. There is no point in securing a lot of patents that are unenforceable. Let’s take an example. There are some individuals or firms, who create a product or solution and pitch it to a relevant (fast growth) companies to buy it. The question here is, why should that company buy the IP alone? The IP should come with customers and distribution muscle, proof that there is demand for your specific technology and so on.
Google’s ‘Patent Purchase Promotion’ Program
In fact, less than a month ago, to remove friction caused by Patent Trolls (companies that hold patents, but do not manufacture or supply services using that patent; instead focus on enforcing patent rights on infringers), Google introduced an experimental program called ‘Patent Purchase Promotion’. It ran from May 8th 2015 to May 22nd 2015, when patent holders could tell Google that it was willing to sell the patent.
The program was designed keeping in mind the importance of fostering an innovation ecosystem. The idea was to get patent holders to sell patents they were not using, so someone could use it effectively and build products or services around the new innovation in the patent.
The IP Lifecycle
This takes us to our next key takeaway about IP. Every IP follows a life cycle comprising creation, protection, utilisation and enforcement. For example, in the Indian context, we increasingly see a number of startups adopting names ending with Kart (after the emergence of Flipkart). The challenge with this is, once the company scales, it may have an identity crisis or trademark issue. Thus, any firm should have a clear IP strategy — right from the name it chooses for a brand.
Additionally, creation of IP alone is not sufficient, if its not monetized and, more importantly, protected. If the value of that IP is important enough for your business, one should not shy away from going for litigation too.
Understanding the Indian IP scenario
Now that we know how IP works, let’s set the Indian context in place. While companies have come a long way in understanding the need for and relevance of IP, the commercialization and licensing part hasn’t picked up pace yet. This largely has to do with the fact that as a culture, we prefer ownership over licensing. Additionally, there is a significant backlog in the Indian patent offices. Given the pace at which technology is thundering forward, there might be a time when by the time the patent moves, the product will become obsolete. Then, if the patent has been obtained, the third roadblock will lay in delayed enforcement due to possible judicial hold-ups.
In such a scenario, the best an ecosystem can do is to wait for the Government and judiciary to arrive at a strategy to fast track the process, and engage with them to facilitate this.
As said earlier, given the cost structure of filing for an IP (especially if you’re a startup), one should think through the best way of filing of IP.
The cost of obtaining an IP depends on the internal strength of the company. If you rely on an end-to-end service provider or law firm, your cost will be naturally higher. Instead, if you internalise a large amount of patent work and approach service providers only for value addition, your costs can come down significantly.
Secondly, if you are looking to expand your IP portfolio into the global markets, you can adopt some cost curtailing mechanisms offered by IP system providers, like the Patent Treaty Corporation, through which you can file an IP at a significantly lower cost. A second alternative is the Madrid System of International Protection of Trademarks, wherein the need for local lawyers in a country is eliminated unless you have an issue.
Ultimately, filing for IP requires keen planning and implementation, to help obtain patents at a level where it makes economic sense.