In the scramble to get to market, protecting the IP of your invention sometimes takes a backseat. This is a mistake and one that can have potentially damaging long-term effects. In this article we examine how developing a proactive IP Strategy can mitigate IP risk for a startup.
Most startups begin with a good idea and an identified solution that solves a key need in the marketplace. The idea may come to an individual as an epiphany or could be a group effort through a more thorough due diligence of the market place needs. Going from this idea to an actual startup usually involves several rounds of ideation and vetting. It also results in one or two champions of the idea ending up as the founders of the new company. Going from this stage to a functioning startup requires several intermediate steps:
- (a) Assembling a core technical and business team that understands the problem that needs to be solved, and more importantly how the solution addresses the market,
- (b) Completing a more thorough product due diligence of the market and competition and defining a viable business case for the product through validation from potential customers,
- (c) Defining the first product prototype and a requirements specification that will help scope the efforts required for the same, and
- (d) Preparing the necessary collateral to present to potential partners and investors to raise the initial round of investment.
Once an idea advances to the stage where a successful startup is formed, one or more of the above steps will be iterated in various forms. In many instances the company has to repeat the steps with changes in various parameters – the so called ‘pivot’ – in terms of product definition, core team, market addressed, or business value proposition. Even a successfully funded company will continue iterating on some of the basic four steps identified above as it executes towards delivering its product, or prepares for a subsequent round of funding. All of the above steps are critical and require resources and money. At each intermediate step the company is often required to prioritize one over the other to balance and maximize their opportunity for success.
In most startups one of the missing, but known, pieces in the early planning, the ‘Elephant in the room’, is an Intellectual Property (IP) Strategy. An IP Strategy addresses questions like: How defensible is the technology behind the product? What is the differentiable and novel aspect of the technology that we can support? What are the key patents that lie close to the product that we are designing, or the service that is being offered? Who are the established and smaller companies with IP and products in the given space? How should the company go about identifying and protecting the White Space? What are the key steps the company should take now that will maximize the long term value creation associated with the business plan of the company? What actions need to take place towards filing new patents?
Why IP Lacks Priority in Most Technology Startups
With the exception of startups in pharmaceutical companies (especially new drug development), medical devices, and certain biosciences domains, most startups in the high technology space tend to ignore the urgency of developing an IP strategy during early stages of the company.
There are various reasons, some of them justified, behind this trend. From my experience in my own startups and the startups I have worked with, the reasons for not addressing patents early-on seem to converge on certain themes.
- Too busy fighting fires – Founders feel that they are too busy doing ‘other’ things – getting the engineering prototype going, refining the business and marketing plan, raising money, and building their team. Worrying about IP Strategy is the last thing to enter their minds.
- Lack of bandwidth of key resources – Startups can’t afford their main architect, or the CTO to be distracted from doing his/her current job. Typically there is one person, or very few in the company who understand the complete technology solution. These folks are typically so overloaded with responsibilities and requests for their time and knowledge, that having another assignment – to lie out an IP Strategy – may just be the straw that breaks the camel’s back!
- Too expensive – The costs associated with completing this work, and the time it will require from key employees, (keeping them away from their regular work) are too high.
- We don’t care or we will be long gone – One of the most surprising reasons for startups to delay their patents and IP strategy work are: they don’t care, their investors don’t care, their customers don’t care, and the reason that tops it all – we won’t be around by the time we need to worry about the patents!
IP Score for Startups
Given the potential for damage, it behooves startups to evaluate their IP risk. This allows startups to objectively decide whether or not investing in developing an IP strategy is worthwhile for them or not.
In seeking to quantify the urgency of having an IP Strategy and patents for a particular company, we need to identify a few parameters that have an impact on the IP of the company in the context of its landscape. Here are a few parameters, in no particular order of importance, that influence the overall IP Score of a company.
1. IP Relevance for the Technology Segment (5 = Very Aligned, 0 = Totally Misaligned (the technology segment may not require a well thought out IP Strategy)
IP Relevance index for the technology segment reflects the importance of patents and Intellectual Property for a given company’s product segment. For example, typically, any pharmaceutical company would by definition have a very high IP Relevance index since the whole company’s success is based on a unique drug or molecular structure that gives the company an unfair advantage vis-à-vis competition. Some metrics that could help us refine the IP Relevance index are following:
- Business Valuation, Core Technology Correlation Index – to what extent is barrier-to-entry based on first mover’s advantage vs. technology differentiation?
- To what extent can the technology implementation help differentiate the offering in the market place?
- Mature Companies’ IP Position – what is the IP position of established large companies in the product space of the given company?
- Competitive Startups’ IP Position – What is the IP position of other competing startups in this space?
- Licensing/Partnership Strategy Index – Has the company laid out a cross-licensing and out-licensing plan for key technology pieces?
- Considering some of all of the above factors we can come up with an IP Relevance Index for a company or a startup. We could define a number between 0-5. An IP Relevance index of 5 means that the relevance of having a mature IP Strategy is very critical for the product, and a score of 0 meaning that patents may not play a big role in the success of company’s product strategy.
2. IP Maturity (5= Very Mature, 0 = No IP Maturity)
Yet another related parameter to quantify IP Score of a company or startup is IP Maturity. IP Maturity refers to the work the company has already done, and how effective is their current overall IP Strategy in maximizing the overall valuation of the company. Following are a few things that have high correlation with IP Maturity.
- Filed Patents, Patent Applications, Provisionals and Trademarks – A higher number here means higher IP maturity.
- Founders or Core Employees with patents under their belt in relevant technologies. This is yet another indication of how mature the overall thinking of the organization is and points towards a higher score for IP Maturity.
- Steps towards some kind of IP Strategy – Companies that have well defined core architecture or product requirement documents, well documented peripheral idea and even a sketch of product or strategy roadmap would score high for IP Maturity as well.
3. Ease of Implementation of an IP Strategy (5 = Very Easy, 0 = Very Difficult)
This attribute defines the ease with which a sound IP Strategy could be defined or implemented within a company. Again, a score of 5 would mean it would be very easy to implement an IP Strategy and a score of 0 would indicate an uphill battle when we attempt to implement an IP Strategy.
- Experience and Maturity of Core Technical People – Overall technical understanding and experience of the core technical team with patents is generally a good indicator of how easily patents and IP Strategy could be implemented.
- Management Drinking the IP Kool-Aid – By looking at past track records of the company management, and their IP track record, we can get a fair assessment of how much importance and urgency the management gives to patents and overall IP Strategy.
- Resource Availability – The amount of cash available or allocated for patents and access to key technical resources that can help in creating the IP Strategy also is an important factor.
- Published White papers or technical papers by founders or key employees in closely related or relevant areas, or even past publications in related or unrelated topics is again a good indication of ability to get access to the technical details of the products for implementing IP Strategy.
- Documentation of code, innovation, and other technical details within the company are necessary aspects for implementing IP Strategy. More documentation of code and Whitepapers related to product make the job of IP landscaping, white space scoping, and patent drafting much easier.
And the IP score is…
We define the IP Score as the average of the above three metrics – IP Relevance, IP Maturity, and Ease of Implementation of IP Strategy.
This is a number between 0 and 5.0. A High IP Score indicates a well thought of IP Strategy and indicates the company has taken steps towards building a defendable and distinguishing Patent Portfolio.
IP Score = Average(IP Relevance, IP Maturity, Ease of Implementation of IP Strategy)
IP Score vs. Maturity/Stage of the Company
In discussion with a seasoned entrepreneur friend of mine we came up with another interesting way to look at the IP Score of a company. If we view the IP Score of a company vis-à-vis the maturity or the stage of the company, it reveals interesting things. The maturity or the stage of the company is related to its overall progress towards product delivery, revenue growth, and financial position. Plotting IP Score vs. Company Maturity helps us identify the urgency of IP Strategy for a particular company.
An example of a company with high IP Score and high company maturity (top right quadrant) is Pfizer. Pfizer has strong patent portfolio of drugs like Lipitor and is a fairly mature and successful company in the Pharmaceutical domain. Pfizer may still end up having overall high need for continued investment in IP Strategy (since the IP relevance of the technology domain is very high) but it is a fairly mature company in its own right.
The companies that lie in the bottom right quadrant (Low IP Score and High Company Maturity) have great strategic risk profile and are the strongest candidates for defining their IP Strategy at the earliest possible opportunity.
The companies with High IP Score and Low Company Maturity (top left quadrant) are the ones that have a solid IP Strategy from the get-go.
The companies in the bottom left quadrant (Low IP Score and Low Company Maturity) are the one’s that have time to create a solid IP Strategy to win in the marketplace.
Where does your company lie in this map?