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Resources Five questions every start up should ask about their IP

  • Posted by Insight by Gavin Barnes
  • Published Current as at 24 February 2016
  • Category Insights

We engage with a large number of business creators, and it’s important we start with a conversation about the idea they want to commercialise, how they want to attract investment and, most importantly, the intellectual property they need to protect.

Why do we kick off with intellectual property? Our mantra is that businesses should start with the end in mind. By establishing a clear understanding of the IP that needs protecting, start ups can commercialise now, without facing issues down the track.  Further, IP protection is an important business strategy that can add value to any enterprise.

The other reality is that any serious investor will be asking questions about the foundations of your business during their due diligence.

Five questions to kick start the conversation

So you’ve come up with a brilliant idea, determined there is an addressable customer base, developed your product and service, and are looking to attract funding and take your offer to the market.

What next? Five questions to ask yourself about your IP:

1. What have you created?

Not only do you need to consider code, software, designs and trade secrets, for instance, but also workflows, business processes, business names, domain names and logos, to name a few.

2. Who has created it?

Is creation limited to founders, or have you engaged third party contractors or employees?  Have you created the IP in the context of a university project or your employment?  This may all impact on your ability to protect the IP that has been created.

3. How are you planning to protect it – now, and in the future?

Consider confidentiality agreements to protect sensitive information when entering into discussions with third parties (whether they be potential manufacturers, distributors, developers or partners).

If you are engaging employees, ensure employee agreements appropriately deal with IP creation and ownership in scope of employment.

If you have created a device or substance, or developed a process or method, that is new, inventive and useful, you may be able to apply for patent registration as a means of protection.  Be aware, however, that the process of applying for a patent can be a costly and time-consuming, potentially hampering any first mover advantage. In certain industries, patents are vital for commercialisation, however in others it may be superfluous and provide no guarantee of commercial success within that market.

The components that make up the “brand”, which distinguishes your goods or services from those of other traders, can be cost-effectively and robustly protected by trademarks.

4. How are you structuring your business and where are you housing the IP?

If you are looking to raise capital, keep in mind that investors cannot invest in you as a sole trader or a trust entity. Consider this when you are creating IP.

Where you have valuable proprietary IP it may be beneficial to create an IP holding company, depending on the risk profile of the industry in which you operate and your commercialisation strategy.

5. Have you got the proper assignments in place?

Have founders (in particular departed founders) assigned their IP to the commercialising entity?  Have you got written agreements with contractors that clearly deal with the assignment of IP? Payment of a contractor’s fee is not enough to claim ownership of any IP created.

The answers to these questions will determine the level and nature of protection you require for your IP, as well as your strategy moving forward.

The process of auditing your intellectual property is an important one, as it will have a long term impact on your business as you grow and realise the need to fully protect the assets and brand you are working so hard to build. It positions you to fully take advantage of investor capital to expand and grow, or achieve a successful exit.

The Redchip team is having these conversations every day, and we’re happy to talk to business creators wanting to ask themselves some important questions.