Everything is a priority when you're a startup founder. You'll find yourself juggling everything from market research and customer interviews to branding and finance. There's one ball, though, that gets dropped, and in some cases, never picked until it's too late. We're talking about intellectual property.
Intellectual property is one of the key intangible ingredients powering Canada’s innovation economy. While manufacturing and exporting were drivers of Canada’s post-World War 2 growth, today it’s ideas that are the currency of the future. It’s not enough for Canadian companies to build new solutions and products, we also have to protect those innovations to maintain our competitiveness across global markets.
Protection is more than just patents. It’s ensuring Canadian IP remains in Canada. According to a report from the Innovation Asset Collective, over the last 20 years, the rate of transfer of Canadian intellectual property to foreign companies has increased 18% to 56%. That is valuable knowledge and an incredible asset, leaving the country at a rapid pace.
Not only is the export of Canadian intellectual property bad for the economy, it can also be stifling to scaling businesses and their ability to expand into global markets. In fact, the Canadian Intellectual Property Office says that Canadian SMEs holding registered intellectual property rights are 3x more likely to have expanded domestically and over 4x more likely to have expanded internationally.
Likewise, the impact of intellectual property on your business’s success are tangible. The Government of Ontario studies show businesses that manage their IP are 4x more likely to export and 64% more likely to be high growth.
But let’s talk about the intangibles that make intellectual property, why it's important, the common mistakes made, and how to develop an intellectual property strategy for your startup.
The simple definition for intellectual property, or IP, is something intangible that's created by human intellect. Intellectual property can be everything from the industrial design for a hardware product to the geographical origin of a product like champagne that you enjoy after launching a hardware product.
You're not alone if patents are the first thing that comes to mind when you hear the term intellectual property. Patents are granted for the invention of a new process or method of accomplishing a task. There are patents for everything from how vending machines work to compression algorithms for file storage and data transmission. Applying for and being granted a patent provides your business with the exclusive right to produce and sell your product or service–or license the process to other businesses to use in their products or services.
Success or failure in getting a patent can mean the difference between your business becoming a global powerhouse or a story to warn future generations of founders. Business schools use the stories of patents that changed how the world works and inventors who never received credit for the inventions they created as lessons on the importance of getting the proper patents to protect your intellectual property.
Patents protect the way something works. Industrial design intellectual property protects the look and feel of your product. Think of the products you know just by their look. The world-famous Coca-Cola bottle contour, the Mini Cooper automobile, and the Hasselblad 500C camera are a few examples of industrial design that has been protected as intellectual property.
We connect with our customers through our brand. One of the keys to a successful brand is having a recognizable company or product name–think Apple, Doritos, and Miovision. Protecting those names is done using trademarks. As with patents, trademark law will vary by country, so you'll need to research to make sure you're properly registered where you'll be doing business. The research will also help you ensure you're not violating a business's trademark in another country.
In the US and Canada, trademarks can be displayed as ™ or ®. The ™ symbol indicates a business intends to use the word, phrase, or logo as an identifier. This is often done while a business is applying for the registered trademark identified with the ® symbol.
Copyrights protect intellectual property, including artistic works such as writing and music, and business intellectual property, including computer programs and advertising copy. In most countries, the work copyright is automatic, and there's no need for a formal application. If you've built a website for your startup, you've likely added "copyright © 2021" at the bottom without even thinking about it. While that's easy to do, researching your options for formally copyrighting your work should be a part of your intellectual property plan.
Trade secrets are a type of intellectual property that must meet three requirements; it must be commercially valuable, it must only be known to a limited number of people, and reasonable steps must be taken to keep it a secret. There are great examples of trade secrets, but our favourite has to be the secret eleven herbs and spices that go together to create the famous original recipe at Kentucky Fried Chicken.
The last type of intellectual property is one that doesn't often come into consideration for tech startups–geographic indications. This type of protection is based on a product only being produced in a specific geographic region. Sparkling wine produced in the Champagne region of France is the only type that can be called champagne, as an example.
You get a lot of advice on what to do when you're a startup founder. There's a lot to do, from branding to customer interviews to deciding when to incorporate. We've been working with founders for almost 15 years, and IP strategy is one topic that is often left off this to-do list.
Understanding what you need to protect and when to do it is part of a larger startup culture shift. "IP strategy has gone from being this resource you budget extra for to becoming part of the core of business strategy," said Alexis Conrad Black.
Black is an intellectual property advisor with the Government of Canada and our IP strategy mentor at the Accelerator Centre. She said that we need to move away from the mentality of just filing and protecting. "That's just one little snippet of what businesses need to be doing. What they need to be doing is thinking of intellectual property with their entire business strategy."
In the past, IP strategy has been left to patent agents and lawyers, but this shift in education and awareness has increased the sense of ownership of IP strategy for startup founders.
We've looked at the different IP types you can protect, but how do you decide what a priority is? "It's not so much about the types of IP that you're protecting, as opposed to the state of mind and making sure that your business strategy has IP business strategy in it," said Black.
When it comes to strategy, your marketing and sales plans are determined by the markets you're planning on doing business in. Accelerator Centre finance mentor Kevin Elop pointed out that founders often use those same markets to inform the IP strategy or even forgo IP protection due to its costs. "I've had discussions with some clients and they talk about how they don't want to spend money on IP protection or they only want to do it in North America because they don't think they're ever going to be outside of North America," said Elop. "All of those are business decisions. Where you spend your money, where you think you actually need protection. But one, one of the basics I come down to is that there has to be at least some IP in place."
When you're looking at your business's assets, intellectual property, including patents, trademarks, and trade secrets, all have an impact on your valuation. "It's one of those things investors look at–have you actually thought about IP?," Elop said. "If you have, as an early stage company, a cohesive, intelligent response to that, it reflects that you're not just playing in the sandbox with a new company, you've got business minds, you're thinking things through."
There are times where the best IP strategy is not to file right away. "If your market is the US, then you need to file from 100 different angles, but often your market is bigger," said Black. "Then, the answer is to keep it a secret. Because if you start filing, people are going to start trying to invalidate what you're doing because you're playing in a sandbox way bigger and the players don't want you there."
Intellectual property can also be a tool for competitive research for your startup in the form of IP landscaping. IP landscaping is a way of using global IP filings to discover what competitors are protecting, where they're protecting it, and what litigation is happening there. "There are data tools available that can help you make a decision," said Black.
Another area of focus for IP strategy is with human resources. Protecting your IP from competitors is one thing. You also need to have the appropriate language in place with your employment contracts to ensure your intellectual property is protected if an employee leaves and goes to one of your competitors.
According to Kevin Elop, early founders' biggest mistakes are not addressing intellectual property with the founding team. It's something Elop has seen come back to haunt startups, especially when a member of the founding team leaves the business early on. "I'll hear something like 'Oh, yes, Joe's good. We're good. He left on good terms…', but once you're a successful company, people can change and say '...hey, I want a piece of that now.'"
One of the most common mistakes made is not involving your whole leadership team in creating your IP strategy. "If your HR team doesn't know what's going on with IP, they're gonna muck it up for you. If your main sales guy doesn't know what you're doing, and he's writing licensing agreements with some corporate lawyer off in the corner, but doesn't know what the IP side of it is, they're going to make mistakes," said Black.
Elop echoed Black's point on having your leadership team understand what IP is and having your initial IP protected. "You can't really have an IP strategy if you don't have IP protected to begin with. It's the first block of a good IP strategy."
Having your entire leadership team involved or creating an IP strategy committee can help you identify all of the materials that can potentially be protected intellectual property, including:
• Industrial design used in your products
• Website or other marketing copy that can be copyrighted
• Trademarks of products or services
• Processes that can be potential patents
As your startup evolves and potentially pivots, Elop said it's essential for everyone in your company to understand that intellectual property is continuously being generated. "As you're coming up with new ideas, as you're developing the product, as you're doing more code, as you're doing more drawings, make sure that any new IP is identified," said Elop.
Your employees must understand that intellectual property is an asset, and it has value. Elop noted that many of the unicorns today have lines of business dedicated to their IP. "It's just another product," added Elop. "It's something you can monetize by licensing the technology."
Over our history of working with founders, one common trait sticks out - ambition. Our successful graduates looked beyond the problem to the idea of creating a business set up for long-term success.
The Accelerator Program® is a hands-on, milestone-based curriculum that includes over 400 best practice milestones to help you go from startup to scaleup. We know that a strong IP strategy is one of the building blocks for a strong business, that’s why more than 60 of The Accelerator Program milestones relate to building your IP strategy.
Meeting those milestones takes help, our team can help connect you to resources, like lawyers, IP strategists, mentors, and corporate partners like the TD Patents for Startups Program to connect you to the education, advice, and funding resources you need.
Helping companies go from knowing there's a better way to becoming industry leaders is what we do at the Accelerator Centre. The proof is in our network. Accelerator Centre clients and alumni represent some of Canada and the world's biggest startup brands – we're ready to help you. Apply today!
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