For over 10 years, we’ve been working with organizations to build, protect, and get the full value out of their intellectual property (IP). With our unique blend of IP and business expertise, we’ve noticed that organizations tend to make the same mistakes or believing in the same myths causing costly or irreversible errors that lead to missed business opportunities and lost investment dollars. Are you properly protected with a strong IP strategy?
Innovation is our passion, and we’d hate to see anyone reduce their company valuation through IP mismanagement, so we thought we’d share with you these Common IP Strategy Myths & Mistakes.
|Mistake #9 Using open-source software without considerations to the licenses.
Intellectual property is complicated and time-consuming, but it can have a real impact on your business’ success and valuation. Investors want to invest in a disruptive business with IP protected pragmatically and efficiently. In fact, investors provide more equity financing to companies that comprehensively use IP than to companies that do not leverage IP or only hold formal IP. To comprehensively use IP, you’re going to need an IP strategy.
So what’s an IP strategy?
An IP strategy is a detailed plan on how you plan to grow, protect, and manage your IP assets. It is directly related to your business goals and should include everything from how you plan to build an innovative IP culture to how you can monetize and leverage existing IP. It’s not just about filing patents – it’s about providing your organization with a strategy to help:
According to the World Intellectual Property Organization global IP filing activity continues to grow at a rapid pace with new records being reached in 2018. Patent filings exceed 3.3 million (up 5.2% from 2017), and trademarks 14.3 million (up 15.5% from 2017). With an increase in filings, it’s more important now than ever to have a strong IP strategy.
When it comes to IP strategy, we’ve compiled the common myths and mistakes so that you can be confident in your IP strategy and IP management practices.
|❌ Once a patent application is filed and assigned to the company, the inventors do not need to sign documents.|
|❌ If an inventor is not cooperating we can remove his/her name from the list|
Companies that are founded by two or more trusted partners often overlook creating an agreement between founders on IP assignment. This causes issues specifically when one of the founders leaves in a disgruntled way. If this founder was involved in filing a patent application it can create a lot of issues, or even lead to abandoning the asset.
The same applies to employees and contractors, however, most employment and contractor agreement templates include an IP assignment clause. It is important to note that if someone refuses to sign any IP related documents in the future, the contractual clauses should be worded such that they can be used in the patent office in lieu of the signature. There are many other important components relating to IP to cover in an employment agreement including strong NDAs related to trade secrets. Simple employ templates found on the web may not provide sufficient IP considerations.
Also, beware when hiring students or sponsoring graduate studies. Some of the work product may be considered the property of the university. Therefore it is key to check the university’s licensing rules and negotiate an assignment prior to engaging with the student. It may be necessary to file any relevant thesis produced by the student with the patent office in an Information Disclosure Statement (IDS).
“As a partner in a venture capital company, I encountered the scrutiny imposed by investors to a start up regarding IP. This is why it is important to take steps at the first stages of the company to make sure the IP is well protected, but that does not mean you need to spend money right away! From day one, you need to establish good processes for making sure employment agreements include IP assignment clauses, ensuring all employees understand IP and knowing how to mitigate the risk of involuntary disclosure.”
– Natalie Giroux, Managing Director
Stratford Intellectual Property
|❌ We can talk about our products and worry about IP protection later.|
|❌ It’s safe to talk to investors without signing NDAs before filing a patent application.|
Since IP protection is intangible it is sometimes handled as an afterthought instead of being managed strategically. Everyone is busy implementing, marketing, and selling the product and no one is thinking proactively about whether or not there is intellectual property (patents, trade secrets, trademarks, etc.) that should be protected BEFORE it is shown to the public. Very few countries offer a one-year grace period for public disclosures, so waiting to file for patent protection could prevent a company from getting protection in some countries (e.g. Europe and Japan). Also, given the “first to file” rule in most countries (including the USA), waiting too long to file for protection could mean that someone else has filed before you. What’s worse (and we’ve seen it happen too often) is that one waits more than a year to consider patent protection which then makes it impossible to obtain.
However, beware of filing quick provisionals giving a false impression of security. Also be diligent of only disclosing technical details under NDA, even with investors.
“If you really think your invention is work patenting, I recommend that you do it right and dedicate resources up front to file a complete specification with claims. It is only through the process of writing the claims that you can ensure you description is complete. You may still want to file it as a provisional application, but at least you will know that you have secured the earliest filing date possible. Better safe than sorry!”
– Natalie Giroux, Managing Director
Stratford Intellectual Property
|❌ We will have enough money to cover our IP ongoing costs.|
|❌ Once the patent application is filed, there are no other significant costs to worry about.|
When a company identifies IP they want to protect, they often think of the upfront short term about cost, but IP protection (except for trade secrets) come with a significant expense, beyond the application drafting and initial filing fees. The application will most likely be subjected to 2-3 office actions before it is allowed. Then issue fees, and recurring maintenance fees will be required to keep the patent. This is then compounded where the application was filed. The cost will easily exceed $100K per patent family over its lifetime. The filing strategy also has a big impact on short and long term costs.
Before the initial investment is made, a long term budget should be prepared based on the filing strategy, and funds should be kept aside to cover this budget. Too often companies need to abandon very valuable assets for lack of funds during the prosecution stage wasting significant money spent upfront.
“A significant part of IP costs are the legal fees for things like drafting, docketing, prosecuting, reporting, writing and answering emails. So find advisors and partners that understand your company’s business goals and can translate them into an appropriate IP portfolio. A good partner will agree to fixed upfront fees for all the tasks involved and will minimize administrative costs. Maintenance fees can be paid to patent offices using third party services like CPA Global to save even more on the overall costs.”
– Natalie Giroux, Managing Director
Stratford Intellectual Property
|❌ We have the right to use our corporation name as our trademark.|
|❌ We registered a trade name and we have the right to use it as a trademark.|
|❌ We have a registered trademark. We should have the rights to the domain names.|
Brand is key to success. Too often, companies establish their brand and deploy marketing efforts without searching existing trademarks in trademark databases, common law sources (internet, news, business and company records etc.) and the use of domain names.
Getting a cease and desist letter might mean having to do costly rebranding efforts which can have devastating effects.
Companies often forget to add the ™ beside everything they want to own as a trademark, including logos. It does not cost anything, but could help in proving the date of first use and could be essential to defending your mark in the future.
Preferably prior or simultaneous to using your mark it is advisable to register it in key jurisdictions (when registration is granted, the ™ is changed to ®).
💡TIP: While it would seem to make sense that trademarks and domain name assignments should be linked in some way so that owners of trademarks automatically own the key domain names associated with them, this isn’t the case. The best advice, if you have a limited budget, is to secure all domain names in all relevant countries related to your company name (and possible variations) before trademarking the company name. The ™ symbol can always be used as a common law trademark for the company name in the meantime. The same applies to secure proper Facebook, Twitter, and other social media site account names. Once the relevant domain names are secured, it is less likely someone will bother trying to use the same company name to create mischief.
|❌ We have a few patents pending that is our IP strategy.|
|❌ We don’t need an executive accountable for our IP strategy, it will implement itself.|
Because of a lack of accountability, knowledge, time, and interest, IP strategy is done in a reactive and piecemeal approach instead of managed proactively and consistently aligned with corporate goals.
There is little accountability for IP growth, other than maintaining a somewhat-up-to-date spreadsheet of IP ownership and there is no invention disclosure process to encourage employees to document their inventions.
There is no process to mine for inventions (e.g., using SRED filings or mining sessions with designers).
There is no regular review of the portfolio to assess monetization opportunities.
An IP strategy needs to be proactive and deliberate, keeping long term cost versus value in mind (see #3 above). If IP is an afterthought, it may not be identified, evaluated, and protected in a timely manner.
Executives and managers are busy and if there is no single person who has responsibility for IP it will likely lose out to high priority tasks. IP is a tool to help further the valuation. Too often, IP is done “because everyone else is doing it.”
❌ We are a small company, we will never be involved in IP litigation.
|❌ Since I’m not a lawyer, my opinions will not be considered by a judge or jury.|
|❌ I know exactly what the claim language means, I can provide my opinions on infringement and validity.|
“If you know the enemy and know yourself you need not fear the results of a hundred battles.”
– Sun Tzu
Writing down any type of opinion about validity or infringement of IP either your own or a third party can be very dangerous.
Lab books, paper, and emails or any type of digital media, should never be used to discuss or document IP issues as this documentation is admissible in court and can adversely impact your position.
Unless you have expertise in patent law, it is very difficult to interpret the claim language to arrive at an opinion. It is best to let experts search and evaluate patents for infringement and validity instead of making uninformed opinions.
There is a wealth of information in patent databases that an expert can find for you.
💡TIP: There is a wealth of information in patent databases that can be used to understand new technologies and solutions, competitive positioning, and industry trends. More importantly, having an expert search patent databases on your behalf can prevent incurring costly patent filing expenses, can significantly improve the chance of obtaining a validly issued patent and will reduce the cost of the examination process.
|❌ I can easily change the claims of an issued patent.|
The goal of a patent is to prevent competitors from implementing/ selling your invention for 20 years. However, infringement may happen 8-10 years after the patent application was filed, and after it was been issued.
When a patent issues, there is no possibility to change the claims other than requesting a re-issue. In several countries (e.g. USA), it is possible to file a “continuation” application before issuance which uses the same specification but a set of claims covering a different invention disclosed in the specification or a different way of claiming the invention.
Keeping the patent family “open” allows you to write up claims that are more specific to a potentially infringing product giving a stronger case for licensing.
|❌ Patent protection is more valuable than trade secret protection.|
|❌ Trade secrets do not need to be managed.|
|❌ Software cannot be patented so we will give it away.|
Patent protection is useful for inventions that can be reverse-engineered legally. Any product that can be legally acquired can be reversed engineered to the most minute detail. Several companies specialize in reverse engineering products to detail how they are implemented. However, if the inventions are implemented on a secure server in the cloud, where access would be illegal, protection by trade secret becomes a possibility.
Note that trade secret protection needs to be managed carefully as involuntary disclosure gives the invention away. When protecting innovation with trade secrets, significant cybersecurity protection is needed to avoid unexpected loss.
But there are benefits to trade secret protection. It is free, and by definition it never becomes public. Patent protection on the other hand is costly and requires a public disclosure after 18 months, which then becomes free to use in all the countries where patent protection was not sought.
By choosing trade secret protection, it is important to be extremely diligent in signing NDAs that do NOT have a time limit clause; otherwise, a third party will be able to disclose the secret after that period has expired. If it is not possible to log the expiry dates, make sure to renew all NDAs before they expire.
Some advantages of keeping your innovation a trade secret include:
|❌ We can use any open-source software without worrying about process and license.|
Using open-source software is a great way to accelerate product development.
There are different communities of open-source software (OSS) each giving access to the software and are subject to different licensing requirements.
The inclusion of any OSS must be controlled carefully to make sure the different licensing rules are followed.
Note that some potential acquirers may not want any open-source software in the products which may require rewriting a lot of code in order to have a successful exit.
💡TIP: Patents have potential beyond your products. As property rights, patents are yours to enforce, license, and sell no matter where you find your invention embodied and whether or not you include the invention in your own products (or manufacture any products at all). Once you understand that your patents really are independent of your products, you may begin questioning the view that you are only in the business of producing products.
Have you considered that you might also be in the business of generating inventions, producing valuable intellectual property, and managing important patent assets?
|❌ My competitor’s product infringes on our patent because it does the same function that is described in the patent specification.|
“The name of the game is the claim”
– Giles Rich
Former Chief Judge of the Federal Circuit
Patent specifications are narratives that describe an invention. Ideally, it should be a broad description of existing solutions, the best mode of implementation, etc. However, the protection that is provided by the patent is what is stated in the claims.
Too often, one thinks that a product is infringing on their patent because the features of the product is similar to what is described in the specification. In reality, however, their implementation must include ALL elements covered by at least one independent claim to infringe.
During prosecution (e.g. responding to arguments from the patent examiner), additional elements are added to the claims to make it more specific (e.g. narrow) to the actual invention in order to get an allowance. As they say in the business, “the name of the game is the claim”.
Patent valuation is a complex process that depends on many factors. The tendency is often to over-estimate the value of a patent portfolio in light of publicized large deals that are too often outliers. The value of a patent is dependent on many factors including the coverage of the claims and the market conditions at the time and how much of a threat you present to the buyer or target licensee, but ultimately, it’s only worth what you can persuade someone to pay for it!
|❌ IP indemnifications are not necessary in our suppliers’ agreement. We are too small to get sued.|
|❌ We don’t need purchase agreements with our suppliers. Online purchase orders are fine.|
Incorporating any third party components to a product requires a purchase agreement with an IP indemnification clause. In general, infringement letters are sent to the companies making the highest revenue products to maximize licensing opportunity.
For example, Company A’s 100K$ product includes a 2$ chip sold by Company B that performs a specific function that Company C believes infringe on their patent. Company C will send a demand letter to Company A to get a license proportional to the 100K$. If Company A does not have a purchase agreement with an indemnification clause with Company B, it is now left alone to defend itself or may require changing to a more expensive chip for a different vendor that is paying the license to Company C.
This can have a huge impact on a product lifecycle. Note that adding an indemnification clause to a simple purchase order does not have the same effect as the invoice may have language to negate that. The indemnification must be in a contract.
It is also important to allow employees time to innovate and fill invention disclosures. Reward the employee for filing the disclosure either using a monetary incentive or other visible means (such as plaques or trophies).
Too often, employees are rushed to deliver more than they can and the innovation and documentation of valuable inventions are left on the back burner and forgotten.
|❌ I can leave technical details on a whiteboard.|
|❌ I don’t need a privacy screen to work on a laptop in public.|
It is easy to lose valuable IP if someone works on it in public. Think airplanes, shared work areas, etc. Who is sitting beside you? What are their interests? The person may look innocuous but they may be a junior employee or someone retired from a competitor.
Whiteboards are also a great culprit of IP loss. They are often left covered with architecture diagrams allowing anyone (e.g. janitors) to take pictures with their phones and disclose the IP freely.
Privacy screens are a handy tool when working in public. Business discussions (live or phone) in public areas should always be done with a high degree of secrecy.
💡TIP: Employees should know how to avoid unintentional loss of IP. Incentive programs can be a great way to motivate and reward employees to disclose the IP they create and an internal representative should have a clear mandate to devote the necessary resources and time to manage IP.
|❌ Our employees know how to protect IP.|
|❌ Our employees understand our invention disclosure process.|
“Innovation distinguishes between a leaders and a follower.”
– Steve Jobs
IP can be a valuable asset to your company. Creating an innovation-minded culture motivates your most creative employees. It gives you an opportunity to celebrate and reward your successes such as a patent being granted, or the rollout of a new product branding strategy complete with registered trademarks.
IP marking makes it clear to everyone in the industry that you are a technology and thought leader.
“Overcoming this accountability challenge involves creating a sense of urgency, assigning executive level leadership accountably, and assigning a senior project management leader who will work cross functionally to drive the day-to-day agenda with a simple but effective centralized idea disclosure process. This role is not necessarily a full-time position, but time must be dedicated each week to achieve results. Preferably the project manager driving the innovation agenda also has expertise in change management.”
Managing Director, Stratford Intellectual Property
|❌ A quick provisional application gives us proper protection for a year.|
There is often a tendency to file a quick provisional application (sometimes even just PowerPoint slides) thinking it will provide protection and the rest can be dealt with in a year. However, it is important to take the time to properly write up the specification as broad as possible thinking about all the different embodiments that should be covered and the different implementations of each one.
It is also important to write at least one independent claim to ensure that ALL the elements that are essential to the broadest independent claim are properly described in the disclosure along with independent claims with additional elements that may need to be added during prosecution. Remember that any text added during the conversion to conventional will bear the date of the filing of the conventional (not the priority date), so if the main claim relies on any new text, the claim date is the one of the conventional filing (basically making the provisional filing useless). It is highly advisable to take the time to draft a “conventional-ready” application and if the strategy makes sense, file it as a provisional. The time spent is well worth the investment and will not need to be redone at the conventional conversion.
Drafting your own application, without help from an expert in IP can seem like a great cost-saving solution. However, drafting a patent application is a different skill to publishing a paper or writing technical documentation. It requires careful use of words and a strategic approach in terms of what to disclose and how to write up the claims. Very few self filed patents are granted and those that are tend to have little to no value due to overly narrow claims. Self-filing results in a waste of time and money.
|❌ We can comply with industry standards without worrying about patent licensing.|
If your product or service is required to comply with one or more industry standards (e.g. ANSI, IEEE, ITU, IETF, MPEG, etc.), it is important to review the IP bylaws and periodically review the IP disclosures.
Some standards require IP owners to offer licenses at fair and non-discriminatory rates.
Unfortunately, in most cases, there are no guidelines as to what this means. So you may be in for a surprise if the IP owner asserts it’s patent based on you promoting that you are compliant to a standard.
If the standard compliant feature is located in a component that you incorporate in the product, you need to make sure the supplier is licensed by the key IP owners of the standards. Otherwise, as discussed in mistake #11, ensure that you have a solid IP indemnification clause in a purchase agreement.
If you are implementing the standard features, make sure that your business plan allocates 2-3% for possible royalties to be paid.
If you are active in the development of the standard, it is worthwhile understanding who is contributing and whether the technical contributions are covered by patent applications. This may or may not influence the direction of the standards and in some cases, the IP owner may accept to provide free licenses, in exchange for having its technical direction adopted by the standards.
If you own IP that is adopted by a standard body, also make sure to do the proper disclosures in a timely manner, to maximize your chances of asserting your rights in the future.
|❌ We have the right to sell our products because we have patents pending.|
|❌ We don’t need to understand what IP our competitors are protecting.|
You diligently filed one or more patent applications covering innovative features of your products, some of these have even possibly issued to patents. That is great news! These protections give you the exclusive right to sell, offer for sale, manufacture the innovative features only in the countries for which patent protection has been secured. In the rest of the world, anyone can take your patent application and sell, offer for sale, or manufacture the innovative features.
However, you can’t assume that because you have patent protection, you will not infringe on other patents. Your product may include other essential elements or features that could infringe on someone else’s patents.
Some may recommend expensive freedom to operate opinions, but they likely will not cover all features, and only include patent applications filed more than 18 months ago, to the search will have to be updated after 6 months.
In most cases, the potential for infringing features is located in components supplied by a third party, so one way to mitigate infringement risk is to make sure the supplier has the proper licenses or agrees to an IP indemnification clause (see #11).
“If your idea has high commercial value, others will try to copy it and cash in on your hard work. As a registered IP owner, you have legal rights to prevent others from claiming your IP as their own. However, without proper registration of your IP, you leave yourself open to financial loss and encroachment.”
IP Strategy, Stratford Intellectual Proerpty
Your IP strategy should evolve along with the company’s business plan and overall strategy. Formal IP registration (patents, trademarks, industrial designs, plant breeders’ rights, copyright) should be considered the same as products and an IP life cycle management process should be applied to these assets.
Regular review of your IP assets and IP strategy in light of the company’s strategic plan is key to avoiding spending money on assets that could be monetized and making common and costly IP strategy mistakes!