Protect your secret sauce

“Founders are failing if they do not put the legwork in to understand their IP and intangible assets.”

Intellectual property (IP)  expert John Terry doesn’t mess about when it comes to helping founders understand both the vital importance of having a “well reasoned and well articulated” IP strategy for their business, and the cost to that business of not having one.

“Estimates are that over 90 percent of the value of major companies is in intangibles. If you don’t understand it and how it’s used, my position is that you are failing as a founder.”

Terry, a consultant at ET Intellectual Property Law and expert partner to Callaghan Innovation’s Beyond IP programme, is also quick to point out that founders who haven’t given their intellectual property due attention are far from alone.

Traditionally, founders have tended to reduce IP down to known quantities like patents, trademarks, confidentiality and copyright, but have little knowledge on when those tools are relevant to their business, and less knowledge on the nature of other “soft” or intangible assets such as trade secrets and know-how, Terry says.

“Often, people don’t understand why each type of IP is of value or poses a risk. So, while they have an awareness of it, they haven’t done the hard thinking about it. Historically, there’s been this tendency that you have a clever idea, so you should file a patent for it.”

Instead, a good IP strategy needs to start with clear business goals so founders are able to determine if patents are the appropriate IP protection, and how other strategies might best protect and maximise value of other intangible assets, he says, adding that intangible assets are relevant to almost all businesses, and not limited to heavily technical innovations.

“Anybody who has created anything will have IP in there.

“Most companies want to utilise the hard work they’ve done in the past, and that’s what IP and intangibles are all about. It’s about securing an advantage from the hard work you’ve done in the past for the future.” 

‍

‍

Ask the experts

One New Zealand company that has seen the benefits of a comprehensive IP strategy first-hand is Mars Bioimaging, a Christchurch-based world-leading research and development group in spectral molecular imaging.

The company bought Terry in to assess its patents and IP policies ahead of a capital raise whereupon he discovered an untapped vein of intangible assets that had largely been overlooked. CEO Mark Figgitt says: “Without that, we would not have achieved the level of series A interest that we have. Investors would have walked away.”

Up until that point Mars Bioimaging’s approach to IP and intangibles was “at best, haphazard”, Figgitt says. 

The company was founded in 2007 by professor of physics Phil Butler and his radiologist son Anthony to develop and commercialise colour medical scanners using photon-counting Medipix chips developed at CERN. Mars Bioimaging now holds the exclusive licence to use the CERN technology for medical imaging at the point of care.

Mars Bioimaging is similar to many businesses, particularly those heavily research-driven, in that a lot of IP becomes almost invisible, Figgitt says.

“It doesn’t get formalised because a change may happen but doesn’t get noticed in any way because it’s just part of the process; it’s amorphous and changes all the time.

“For inventors, [IP strategy] is the last thing on their mind. They’re just thinking about getting their idea out there.”

It’s why Figgitt believes external expert advice is essential to assess your company’s intangible assets and develop a strategy that ensures they are leveraged and safeguarded for the benefit of the business.

“There’s two reasons for that. One is you don’t know what you don’t know. The second is validity. My word carries nothing; it has to be done by someone like John, who is an expert.

“For us, he put his finger on a few things he identified as really valuable.”

Terry’s review also caused Mars Bioimaging to examine whether or not they actually needed some of the patents they’d previously acquired, Figgitt says.

“What I found out when I started talking to people is, ‘Oh, we don’t use that anymore’. So we have some patents that are not as valuable as we’d originally thought.”

And in some cases, a patent may not be in your best interests, he says. 

“What you’re actually doing is declaring to the world what your patent is and how you did it. You’re protecting yourself for a period of time, but are you really? Somebody might take the principle idea then adjust items three, four and five, and end on a better result.”

Another common oversight in understanding IP is knowing exactly what is required to formalise intangibles such as trade secrets and know-how as assets, says Terry.

“The interesting thing with trade secrets is you have to go through some specific steps for something to be a trade secret. You have to identify it, you have to store it securely, you have to have controls on it. Often, people say they have a trade secret, and they haven’t done the things they have to do to secure it.” 

‍

‍

Freedom to operate

Not all IP strategy is about protecting your assets and realising their value, Terry says. “You also have to think about what happens if you’re on the wrong side of an IP infringement. If, for example, you’re going to launch into the US market and haven’t checked if someone else has your brand registered there. You might send your container of produce over there and someone confiscates all your goods.”

If managing IP effectively is all starting to sound overwhelming, Figgitt suggests the best place to start unpacking the process is by talking to others in the startup ecosystem.

“Talk to other founders who have gone down this journey and hear their war stories. I’d also go straight to Callaghan Innovation or NZTE and ask them who to talk to,” he says.

Figgitt credits programmes like Callaghan’s Beyond IP with improving the level of knowledge around intangibles, not just among founders but also among VC investors, who are now starting to dig deeper into company IP strategies before funding.

Where once investors largely focused on patents now they’re asking more questions about freedom to operate and the protections on companies’ secret sauce, he says.

Terry says that means it is all the more important that businesses are clear about their goals and create an IP strategy that supports them. 

“Stage one is knowing where your business is going. What are the targets? Otherwise, you can’t usefully develop an IP strategy. It’s not a thing in and of itself; it’s there to support the business model,” he says.

“There’s also no single-track solution for everybody. You have to think it through. But it is a selling point for a company to have well-identified all its IP and intangibles and to have a compelling position in terms of why that increases its value.

“What investors are paying for is that you have something unique, distinct and defensible, because the ability to defend against competitors doing the same thing is what makes the most of your value. They need to understand that you have the tools, which are intangibles and IP, that allow you to defend your market space.”

• Find out more about Callaghan Innovation’s Beyond IP programme‍