Starting out Strong: Benefits of IPR for startups

It has been studied that 90% of startups fail within the first five years of their inception. The reasons may be many such as business model failure, financial crunch, poor team management, market situation and IPR issues. While some of these are beyond anyone’s control, a smart IP strategy can at least strike IPR related issues off this list.


How do intellectual property rights of startups help them sustain in the market?

For a new venture, stepping into the market is like sailing in unchartered waters. It takes expertise and right strategy to mark a mark. But at times, startups fail to understand that even with an innovative product, right team, best marketing strategy and conducive market conditions; they can fail to achieve their desired goals. One reason may be: placing IPRs on the back burner.

This brings us to a question that why do they still falter in this area? Shouldn’t IPRs be a critical part of a startup’s business planning? The answer is simple, yet complex. Startup owners bubble with new innovations, energy and passion for developing a new product and getting it to the market. However, when it comes to their IP, many young firms do not recognize the breadth of their potential IP assets to appreciate their importance. They fail to prioritize the value of their IP assets. As a result they commit a number of errors that negatively affect the business and its future prospects and cost them a lot more than they anticipate.

Protecting intellectual property can help startups to improve the valuation of their business and to generate goodwill amongst their consumers apart from securing competitive advantage in the market. It is important to understand that benefits of Intellectual Property Rights are just not restricted to immediate protection of a product’s unique features or deterring the use of similar brand name or logo by some other entity. It profits a business in many more ways. Let’s delve deeper and understand the boons and benefits of IPR for startups and why shouldn’t they be ignored.

Cashing in the benefits of IPR:

Quite often startups fail to understand that Intellectual Property Rights go hand in hand with innovation. In the hyper competitive world, there is a need to foresee and analyze the events especially when it comes to startups. Being new in the market they need to be two steps ahead of their competitors as well as stay clued up on all the business and economic developments taking place around them. Let’s take some example:

· Twitter took over Atebits that made hugely popular Tweetie applications for iPhone and Mac OS X, days after Tweetie filed for a patent application on the ‘pull down to refresh’ feature.

· Multinational IT giant Google acquired two small IT startups Apture and Katango, with multiple pending patent applications which were related to Google’s work.

· In 2004, Pakistani-American electrical engineer Ashar Aziz founded a cyber-security startup FireEye. He got his method of identifying and responding to a specific network security risk patented in 2005. His vision evolved into development of FireEye Malware Protection System which is the main product line of the company. Later in 2013, FireEye had a hugely successful IPO on NASDAQ.

· There is another case where a tech company facing financial crunch was able to license its IP and stay afloat with help from the proceeds.

Going by the above examples, it is clear that IPRs equip startups to grab the right opportunity at the right time. Hence, IP management strategy should be devised early on in the process of setting up a business. IPRs not only help startups to take their business forward but become an important factor for startup funding as well. As per a survey, ‘start-ups that filed at least one patent before applying for VC funding obtained a 51.7% higher amount of VC funding as compared to those that did not file any patent.’ In case a startup arrives at a situation which calls for its acquisition, IPRs provide better grounds for negotiating a good deal. After all, well protected IPs always fetch better price.

However, it must be noted that IPRs require to be dealt professionally. There are techno- legal intricacies involved that need a deft hand. Seeking professional help from a qualified IP counsel would ensure legal compliance and help to eliminate errors throughout the IP protection process.

Seemingly small mistakes but big repercussions:

As discussed before, some startups completely ignore IP protection until they have to face the repercussions. Contrary to the popular belief, the corrective measures are not only expensive for startups but may also not be enough to protect the company or its brand. Along with patents, which hold immense importance for technology based firms, trademarks also need to be taken seriously by startups. Failure to prepare a thorough IP roadmap at the outset can expose the company to potential third-party infringement risk. Let’s take the help of following example to make it further clear.

Koalect SA is a Belgian start-up which offers the largest donation and reward-based crowd-funding software tool in Belgium. Koalect is involved in building online fundraising platforms tailored to the needs and strategies of social-profit organisations, allowing communities to collect money in a trouble-free way. But initially, Koalect SA had launched its business project under a different name- Elefund, with an elephant logo. The company intended to register the brand but, in the meantime, it started to operate under the name ‘Elefund’, launching its website, and communicating all materials to third parties under this name. The company used this brand to identify itself in the market without conducting a trade mark search in order to determine if a similar or identical mark for similar or identical goods and services was registered by a third party. As a result, the startup was soon confronted by the German company Elefunds GmbH, who had two registered EU and German trade marks for ‘Elefunds’, with an elephant logo and in one of the classes corresponding to activities that this startup was involved in ( fundraising activities).

At this point, the Belgian Company realized that there were only two possible solutions to this issue. First - they face court action against Elefunds GmbH or second- they stop using the name ‘Elefund’ and find a completely new brand name! This was a big setback for a company that had just started out and had begun carving a niche for itself. It tried to negotiate with Elefunds GmbH if it could keep its brand name ‘Elefund’ on a condition that it will not compete with Elefunds GmbH even if they operated in the same geographic markets. The negotiation was fruitless with Elefunds GmbH giving the startup ultimatums to change the brand name and to close down all its marketing communications and e-mail addresses. At this point, the company understood that, as a young start-up, it could not afford litigation due to its monetary and time costs. It considered professional advice and it was decided that they should stop using ‘Elefund’ and find a new name. Eventually the name was changed to Koalect S.A.

The above example shows that ignorance regarding IPR can even cost a company its name! But it’s not always the ignorance that keeps startups from availing benefits of IPR. Money is a big factor too. Usually money is a scarce resource for startups and considering the financial constraints, they tend to neglect their IP issues to focus more finances on their core work and its marketing. But little do they realize that not prioritizing their IP needs may be troublesome in future. It is important for them to balance their finances accordingly between their core work and IP needs.

No point in ignoring the benefits of IPR:

To sum it up, startups should outline their existing and contemplated IP assets to develop a legally compliant plan of action. It is only then that a company would be able to reap significant benefits of IPR. Along with aiming to grow quickly and grabbing the right opportunity at the right time, startups should be prompt with respect to their IP strategy as well. Being new in the competitive market, may pose many challenges for startups. However, ensuring fool proof protection of their valuable assets will prove to be fruitful for them in the long run. It must be remembered that being proactive in IP protection can allay many unforeseen challenges and financial losses with ease. Yes, there are costs involved in IP protection but it is nothing in comparison to the costs that will be incurred if one gets embroiled in legal complications.

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SS Intellectual Property Neeti Consultancy LLP, 2019

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