Startups: Fail to Protect Your IP, then Prepare to Fail

While the UK's tech startups are doing very well, Magnus Johnston, Partner, Haseltine Lake Kempner LLP, believes there’s one crucial element that should not be overlooked – understanding IP and the protection and value it provides.

Buoyed by a record £29.4 billion investment in 2021, the UK’s tech sector continues to be one of our key economic drivers, responsible for spawning some of our most well-known and popular brands including Just Eat, Ocado and ASOS. 

That trend continued into the first three months of 2022, with UK tech startups raising £9 billion – putting the country ahead of India and China and behind only the US in new investment during that period.

That’s a huge vote of confidence for the startup scene, but there’s one crucial element that should not be overlooked – understanding IP and the protection and value it provides. This is especially important for startups and SMEs looking to attract investment because it is often closely allied to the ultimate commercial success of any technology.

IP rights exist, fundamentally, to protect innovation and creativity – something the UK’s tech sector prides itself on. And having them can add balance sheet value to otherwise intangible assets – so what’s not to like. But it is no exaggeration to say, if businesses don’t take them seriously enough, the very foundations of any operation can easily fall apart.

IP protection can be challenging to understand and implement, particularly with the often-limited resources available to SMEs and early-stage companies. There is also the age-old challenge for fledging firms born out of academia, of having to finely balance time between developing the research itself and scaling a business around it. For example, academics are used to sharing their knowledge by publishing research – but from a business perspective, that’s akin to opening the front door and letting your competitors have a good look at some of your most valuable assets.

The good news, though, is that there is plenty of support out there for new businesses, such as company creation programmes for the university sector. So many of the ideas and ground-breaking innovations I have witnessed deserve to succeed, but it is all too easy to overlook or underestimate the IP protection needed to protect a profitable business. 

In the AI space, for example, an Intellectual Property Office report recently concluded there is an assumption by SMEs that “core AI software is not patentable”. There are challenges, no doubt, but the reality is that AI is as protectable as any other technology.

While there is certainly a willingness to engage with IP within the startup market, more can always be done to enhance the general understanding of IP. This not only safeguards creation and innovation but also recognises that they are key components in adding value and ultimately supporting the growth of profitable businesses.

This goes for businesses of all sizes, too. But according to further data from the Intellectual Property Office, the rate at which British businesses are protecting their ideas through IP protection may not be keeping pace.

IP awareness and understanding must be ingrained right from the birth of any company – how it is obtained, what it protects, what it doesn’t protect, and how it adds value to individual businesses and the wider national economy.

Those basic messages must be firmly embedded within every business plan, whether for an academic spin-out, a startup created in a garage, or further down the line, when a business is up and running, and profitable.

Of course, patent offices will need to see credible evidence that any tech-based solution does what it claims. Another important consideration is IP ownership.

Generally, the first owner of IP is the creator, and for early-stage business this poses an additional risk as they are often reliant on working with individuals and third parties from outside their business. Thus, thought must be given to IP prior to collaboration, including pre-collaboration agreements which protect confidentiality and establish the ownership of any IP that may arise through the engagement.

Given the speed of innovation and the ever more connected world we live in, IP consideration and protection are paramount for every innovative business, particularly so for early-stage organisations. Just like accounting, HR, IT and health and safety, founders, and business owners alike, should make a concerted effort to understand IP. And you need to buy in too from across the business – everyone involved in a venture, whatever stage it’s at, should have at least some basic understanding of IP and be aware of the pros, cons and pitfalls

Never take your creativity and innovation for granted; always be 100% mindful of what you are creating, have created, and what it’s worth; and ensure you spend exactly what’s needed to protect it.

By Magnus Johnston, Partner, Haseltine Lake Kempner LLP (HLK).

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