Entrepreneurial businesses can make their fortunes through intellectual property. If they can hang onto it long enough, that is. Robert Tyerman investigates the murky world of IP protection
Intellectual property is often a business’ most valuable asset, or even its only asset. Scientific inventions, new technology, software and product designs form the foundations of many young companies with aspirations and potential to make the big time in a brand-conscious age. If you’re hoping to be just such a success, one of the biggest challenges you’ll face is how to protect your intellectual property from theft, imitation or, alternatively, guard yourself against the accusation you’ve stolen someone else’s idea.
There’s no doubt that intellectual property (IP) is a commodity. Investors often consider backing companies that have no discernible revenues purely based on the value of patents and licences owned. Banks will even lend money against IP. Barclays, the high street bank leader in media lending, will lend for up to five or ten years on ownership of media back catalogues and production contracts.
Potential predators might offer to buy you out for the sake of the IP you own. Miles Rees of the Patent Office knows a serial entrepreneur who regularly applies for patents to enhance the value of companies he wants to sell. And entrepreneurs Stephen and Claudia Black are able to contemplate a PLUS Market flotation for their company, Mastermailer, only because they have patented the special glue used in the payment slips and notification envelopes made by the company.
But, unless you have worked out how to protect your IP, the chances of winning financial support for your business in any of these ways could be scarce indeed.
Secrets of success
Protecting IP involves securing patents, copyrights, trademarks and, what’s arguably most important, adopting a pragmatic approach to secrecy. Stephen Westwood, chief executive of Idmos, which he reckons will ‘transform dentistry’ with a new process for detecting tooth decay, illustrates that IP protection is more than just licences and laws.
He says the essential know-how to make his company’s process work is vested in two shareholder-founders and two scientists, which he argues is ‘know-how that can’t be patented’. Instead, he explains, they are ‘locked in by self-interest and good contracts’ and that provides the best hope for real IP protection.
The Federation Against Software Theft (FAST) argues that software piracy alone costs an annual £1 billion. John Lovelock, director-general, claims the only legal penalty infringers face is often simply having to stop their piracy, and he suggests the Government is dragging its feet on the whole issue.
Abroad, the picture is often worse. Countries like China are notorious for blatant IP theft. Richard Martin of PLUS Markets-quoted Global Entertainment Group had to strike an informal deal with local film rights pirates to give its new Chinese underworld thriller Protégé a minimum period of protection.
Geoffrey Thomson, chief executive of the Braveheart venture capital group, says before backing a company, ‘We look for both its technological IP platform and its IP protection.’ He warns any entrepreneur seeking to make a splash with a new idea that, ‘for two years you will be in a period of intense risk.’
Astrophysicist Tom Francke, head of XCounter, which develops three-dimensional, low radiation X-ray equipment, says his company has spent £800,000 over ten years on eight ‘families of patents’ in North America, Europe and China. He now feels relatively secure.
By contrast, Thomas Hays, IP specialist at solicitors Lewis Silkin, argues large companies often challenge a small company’s IP ownership, while themselves filing for thousands of patents. They don’t want to develop the processes but are quite happy to steal the ideas and then lucratively license them to others.
He maintains the best way to counter this is to break down your intellectual property into many separate parts, each protected individually. ‘Compartmentalisation is the key’, he insists.
An array of protections exist to safeguard your intellectual property, some of more practical use than others.
These cover inventions and usually last for 20 years, giving you a monopoly over the invention. It costs nothing to make an initial application to the Patent Office. Up to 12 months is then allowed for a search costing £130 to examine whether the product or process is already under patent and to allow you to flesh out your plans. A patent can then take up to four and a half years’ examination before it is finally awarded, though you can request an accelerated procedure.
If you undergo the patent process yourself, it can cost as little as £200, says Rees. After the patent has been in force for five years, you must renew it annually for a fee rising progressively from £50 to £400.
A patent makes public what is being patented – and some argue it is of limited value in struggles between lone inventors and unscrupulous corporations with expensive lawyers. Rees urges utmost secrecy during the preliminaries.
One inventor applied to patent an electronic doorbell for pets only to discover during the process that a similar device had appeared in the children’s comic, The Beano.
If you suspect someone of infringing your patent, the Patent Office will provide a non-binding opinion for £200 and, if that does not settle it, half a day’s mediation for £750 plus VAT. However, it could well be wise to pay (much more) for a patent agent and/or lawyer. One invention can have many different applications and your patent must be worded so as to cover all eventualities. Money spent on legal fees getting the patent right is almost certainly going to be much less than the money needed to seek protection through the courts if you’ve not made it watertight to start with. Hays reckons a single UK patent should cost £5,000.
A patent in the USA or Canada costs about £10,000, but a European Union patent can cost as much as £80,000 because of the need to translate it into all EU languages.
Patents make sense for companies with long-lasting products and processes, such as biotechs, but many high-tech products or processes will become obsolete before a patent has been awarded. Copyright, however, does not require registration and starts as soon as you have written down an original idea, lasting until 70 years after its author’s death.
Copyright applies to books, films, plays, music, photographs, paintings, sculptures, graphic works, instruction manuals and kindred material and to computer software, which is more readily patentable in the USA than in Britain. Chris Pulham of solicitors Rosenblatt concedes, ‘there is no copyright in an idea,’ but he suggests writing your idea into a business plan, which does have immediate copyright protection.
These can be registered and usually cover symbols or signs used to distinguish a product, service or organisation from others, which can sometimes be policed through local Trading Standards Offices.
A UK trademark, which lasts an initial ten years and can be renewed for further ten-year periods, can even cover sounds, smells and packaging, such as the shape of Coca Cola bottles and BP’s green petrol stations. In Europe it costs between £1,000 and £2,000 to establish them.
These cover the appearance of all or part of a product. UK and EU design rights last for an initial five years and can be renewed after that for up to 25 years.
But after the first five years, the holders of the design rights must be prepared to license it out commercially to another company provided terms can be agreed.
It makes sense for entrepreneurs to use a combination of legal protections, secrecy and, as far as possible, only dealing with people you can trust. Geoffrey Gray, an entrepreneurial, US-based British airline pilot, is working to commercialise Par Golf, an online card game based on golf tournaments devised by inventor Warren Ellerman.
After taking the game to William Hill, Gala Coral’s Eurobet, Ladbrokes and Sportingbet.com, Gray realised it first needed a software programme and found graduate student Timothy Talley from the University of Advanced Technology in Phoenix to do this. Further project help on casino maths and optimal strategy came from the University of Nevada Las Vegas and from Olympian Gaming of Beaverton, Oregon.
Several online casinos are now evaluating the game and Gray hopes for a deal any day. He’s had the game copyrighted and has filed a trademark application in the USA, along with a provisional patent on the software.
To protect the crucial source code documentation, Gray says he has ‘taken additional secret precautions’. Warning ‘there are no guarantees with a project of this nature,’ he has specialist lawyers on retainer and says ‘my modus operandi is to deal with reputable people and be prepared to defend myself should the need arise.’
Animation company Entara, whose products include Jakers, the Adventures of Piggly Wink, set in rural 1950s Ireland, and Those Scurvy Rascals, about juvenile pirates, had to drop the name ‘Jolly Roger’ from Scurvy Rascals and hire lawyers in Israel to ensure that ‘Piggly Wink’ did not intrude upon local cartoon character ‘Ziggy Wink’.
Entara has registered the Scurvy Rascals trademark in the UK, EU, USA and Australia in five media categories for £2,500. If the company spots unregistered ‘look-alikes’ of ‘Jakers’ for sale on eBay, ‘We send a legal notice to eBay, which always takes them off the site,’ says Gray.
A smack on the wrist
The cost and trouble involved in combating IP piracy can still dwarf the penalties risked by pirates. FAST highlights the case of Logon 2, which provides software for companies to keep up-to-date records on employees.
All staff signed contracts vesting all intellectual property with the company. Later on, Logon 2 discovered ex-employees had passed the software’s source code to another company and that a rival, virtually identical product was being advertised.
Logon 2 alerted FAST and police raided the premises of the alleged pirates with warrants under Section 109 of the Copyright, Designs and Patents Act. However, the police later decided not to proceed.
Ending the piracy saved Logon 2’s business, but no compensation or other penalty was exacted from the offenders. The European Union’s Intellectual Property Directive passed into UK law in April, but the British Government has excluded enacting Article 4 of the Directive, which would allow industry bodies such as FAST to sue as claimants.
Hays at Lewis Silkin recommends ‘bringing in an intellectual property specialist who will dismantle what a company believes are its IP elements to see how many can be protected’. You might be able to patent a product and ensure copyright protection for its operating manual.
He points to the ornament on the bonnets of the old Rolls Royce cars. They had copyright as statues, trademarks as ornaments and, on some models, patents as tank caps.
Hays urges building ‘a pyramid of protections, with the core IP at the top’ and the processes on which its operation may depend lower down. If you fail to agree an IP licensing deal with a ruthless big company, it could find a pretext for suing you in what could threaten to be a ruinously expensive legal action.
However, if you have separately protected all the different features making your coveted process work, ‘you can afford to lose at the top’ and remain protected where it matters.
Since the cost of protecting intellectual property from the beginning is far less than the cost of defending it in court, many companies employ experts to protect their ideas from theft.
SafeNet, which encrypts calls between the White House and the US President’s Air Force 1 plane, uses its own patented technology to stop any unauthorised eavesdropping, says SafeNet vice-president Dr Simon Blake-Wilson.
With entertainment industry clients such as Warner Bros, SafeNet scans ‘peer-to-peer’ sites and auction sites, to spot song pirating. It tells the site to remove the unauthorised content and can disrupt unauthorised downloads.
If you want to reduce the legal cost of defending your IP, you can buy patent insurance. Several Lloyd’s insurers, including Kiln and BRIT, offer such policies, says David Freer of HSBC Insurance Brokers.
This cover is not cheap in anyone’s book. Freer says it would cost £20,000 to £30,000 a year to buy £1 million of cover for a ‘portfolio of IP worth several million pounds’ with an excess of £10,000-plus and ‘probably more in the USA’. The insurer will cover your legal expenses, subject to an assessment of your ‘reasonable chances of success. If it’s not looking good, you will have to do a deal’ or lose your cover, warns Freer.
Francke at XCounter has an opposing view, saying, ‘IP insurance was expensive and there was always a cap, so we did not buy it’. Idmos’ Westwood comments, ‘it’s important protection, but costly.’
Protecting your intellectual property clearly requires constant vigilance and, no matter which course of action you take to protect your assets, the reality is it will cost money. However, not protecting your ideas or product peculiarities could prove much more costly in the long run, perhaps even killing off your business altogether. Peace of mind might therefore justify the expense. As Geoffrey Gray puts it, ‘to get paranoid over such things is to be avoided at all costs.’
See also: Protect your intellectual property