Dr Claudia M Duffy is a European patent attorney and recently turned intellectual property (IP) entrepreneur. She’s the founder of Innovare IP, a full-service patent and trademark attorney practice supporting entrepreneurial communities and universities.
Here she shares insights gained from working with many early-stage companies on the value of IP and explains the different ways founders can quantify and monetise their IP assets.
The importance of IP
IP encompasses everything that is considered a “creation of the mind” and which increases the commercial value of a company. A distinction should be made between an intellectual asset (IA), which can be any product, process, or know-how that adds value to the business, and IP rights, which are clearly identifiable and recognisable rights that can be commercialised and monetised by the business. If we take a software product as an example, the actual software code is an IA which the company can sell as a standalone product or as software-as-a-service (SaaS). However, the IP rights associated with the software can be numerous – including copyright, patent and database rights – as the company looks to protect not only the actual code, but also any future software-related inventions.
This IP protection is important in regards to your competitors, as it prevents them from copying your IP, and it allows investors to see the different IP rights that can arise from a single product.
Different types of IP rights
The types of IP rights you pursue for your business will depend on your industry, your commercial endeavours and, ultimately, your budget. An easy first step into securing IP rights is to ‘claim’ all the unregistered IP rights relevant to your business. These IP rights are automatic and therefore free of charge, and they typically don’t require registration. In the UK, these may include unregistered trademarks, design rights, copyright and database rights. The other route to securing IP rights is to apply for registered IP rights that require some upfront investment, but offer higher protection and can make your business more appealing to investors.
The actual IP rights you claim or apply for have to be informed by your products and services. For instance, a software business might look at trademarks and copyright as opposed to patent rights, as their code will evolve and change on an ongoing basis. However, hardware and drug companies can rely more on patents that offer long-term protection to their original creations.
How to identify IP within your business?
The easiest way to identify an IP-worthy asset is to ask yourself “what is adding value to my business?” The sooner you audit your inventory of IAs, the faster you can protect and monetise them in the future. For instance, an audit which looks not only at your products, but also at other intangible assets such as business processes, know-how, established network of contacts, etc. can all form part of your portfolio of IAs.
Once you have catalogued all intellectual creations within the business, look at which ones can be commercialised – that is your cue as to what can constitute part of your IP portfolio. Throughout this process, make sure you keep a trail of how and when each asset was created and who is the owner (the business or the individual) as that will be important when filing an application for your IP rights.
Monetising your IP
Both IAs and IP rights can be monetised in multiple ways, depending on the commercial direction you want to take. One obvious way is through direct sales. However, once you have secured the appropriate IP rights, you have legal and commercial freedom to license your IAs and IP rights out to other companies. For instance, if you have an innovative product that you either don’t have the bandwidth to market or you simply choose not to produce because, for instance, you choose to focus on future innovations, you can enter into a licence agreement and receive royalties from that asset.
Finally, you can monetise your IAs and IP rights through a trade sale (i.e., being acquired by a customer or competitor). If you want to sell the business in five to 10 years, you need to think about the IP value you need to create in order prior to that exit.
Quantifying the value of IP
It can be difficult to quantify the value of intangible assets such as IP, especially pre-revenue. However, a good starting point is to establish how much someone is prepared to pay for it – and this is a key part of any funding process. An important first step is to look at all the assets that add value to your company and clearly explain the role they play in informing the commercial direction of your business. Communicating these links and demonstrating a market need can go a long way in convincing investors of the long-term value of your IP.
Remember that different investors will seek different types of assurances when looking to de-risk their investment. A venture capital (VC) investor might look for registered IP rights and perform due diligence on your overall IP portfolio, while angel investors with a closer understanding of your industry might be satisfied with a well-documented portfolio of IAs.
Good practices
The bottom line is that IP matters. It matters to your competition and it matters to your investors. If you would like to set up a good IP foundation for your business, keep a trail of every asset you or your employees have created. Notebooks or date-stamped documents with details of the author are key.
Also, get into the habit of doing audits at regular intervals of all the IAs and IP rights that have been created in that period. The timing of the audit can be driven by investment cycles, new product development or market requirements. The important thing is to do audits often as the growth of your IP portfolio will clearly demonstrate the growth of your business.
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