• Intellectual property is frequently the main attribute differentiating a start-up from its competitors. It can provide competitive advantage by erecting barriers to entry (i.e. by controlling who and under what conditions is able to utilize the respective IP). Also, potential investors often seek to evaluate an intellectual property of the new start-up before making an investment decision. IP, in whatever form, signalize an investor that the entrepreneur has some underlying and deep-rooted know-how that, if properly protected, may be difficult for potential competitors to copy. On contrary, failing to protect IP can weaken the entrepreneur’s position making it more difficult to attract investors and exploit its business potential (Evers et al., 2014).

• Intellectual property (IP), in simple words, can be defined as the creations of the mind, such as inventions, literary and artistic works, and symbols, names and images used in commerce (Evers et al., 2014).
• Here are several examples of IP from business practice (Evers et al., 2014): electronic circuits, product prototypes, manufacturing processes, documented ideas, computation techniques, business methods, literary creations, publications and presentations, software, diagnostic techniques, unique names, or artistic expressions.
• Intellectual property rights are different protections granted to the creators of IP. For different types of IP rights see part 1.3 below.
• Entrepreneurs should identify the intellectual property critical to the new business and its expected performance. This approach is called an IP audit. Even though there is a range of comprehensive methodologies, it could be as simple as making a list of intangible assets using the checklist below (Evers et al., 2014, adapted from European Commission, 2003):
  • Human capital: skills, education, training; knowledge and know how; experience and competency; know-who
  • Structural capital: patents, trade secrets, trademarks, copyright, design; licenses and franchises; manuals, processes and procedures; invention disclosures, proprietary software, publications
  • Market capital: brand, customer and client list, goodwill; collaborations and networks; quality assurance – certifications and accreditations; independent technology validation
• A very practical view on IP portfolio of start-ups is suggested by Startuprunner.com. It is especially important to summarize your IP portfolio, as a large portion of your competitive advantage and your potential value to investors is determined by its size and clarity. Especially, be sure to address these eight IP portfolio items before you start looking for funding (Startuprunner.com): Company name; Internet domain name; Social media accounts; Patents; Copyrights; Trademark; Trade secrets; Business Plan.

• IP strategy is the development of a course of actions that utilizes intellectual property to enable a company to sustainably realize higher prices, increase market share, and/or maintain lower costs than the competition (https://ipstrategy.com/2012/10/03/what-is-ip-strategy/)
• In simple words, an IP strategy determines how the start-up identifies and protects significant innovations and generates revenues from its IP portfolio.
• Practical steps when considering an IP strategy are (Evers et al., 2014):
  • Building awareness amongst the start-up team and key employees of the IP importance,
  • Searching for existing solutions before starting a new innovation project,
  • Capturing all current and potential IP and using it to add value to start-up’s products, creating a culture of best practice in IP creation and capture,
  • Maintaining confidentiality on new technologies until professional advice is provided,
  • Conducting competitor analysis to avoid infringement of their IP and to challenge,
  • Plan and routinely revise start-up’s IP portfolio.
• For start-ups with little or no knowledge and experience in the field of IP and its protection, it is a good idea to search for an expert help. You can find IP experts and advisors in each country, but there are also many free IP-related advisory services (IP audit and protection advisory, IP search and monitoring, trainings and seminars) aimed to support especially start-ups and SMEs. For example, UK’s Intellectual Property Office offers free online diagnostic tool helping to identify and protect your IP and advising whether and how you can utilize it by selling, licensing or franchising. Try to look around the start-up ecosystem in your country or region to find the support institutions.

• Ignoring intellectual property protection in a start-up may lead to possibility for competitors to profit from entrepreneur’s innovations (Evers et al., 2014).
• Different types of IP rights that start-ups may utilize to protect their intellectual property are for example (Evers et al., 2014):
  • Patents for inventions (new technologies having potential for industrial application or for turning into new products)
  • Designs for products (appearance, contours, colours, shape, texture)
  • Trademarks for brand identity of goods and services,
  • Copyright for material (e.g. literary, artistic, music, films, sound or multimedia)
• Patent – a patent grants the holder the right to exclude others from making, using, selling or offering for sale or importing the invention, in change for full disclosure of that invention.
  • A patent can be bought, sold or licensed.
  • Patentable technology must satisfy three criteria: novelty, non-obviousness, and utility (applicability).
  • Patent has to be registered by respective patent authority on territorial principle.
  • In cases when trade secret will not provide adequate protection due to reverse engineering or manufacturing processes that can be understood by product analysis, the monopoly right to successful invention granted by the patent might be substantial.
• Design – designs relate to the look and feel or aesthetics of a product, part of whole, including shape, size, configuration, layout, colours, lines and contours, texture and ornamentation, not dictated by functional considerations.
  • Any feature that relates to the appearance of the product and not its function can be registered as design.
  • Registration requires that the design cannot be the same as, and should be clearly distinguishable from, other designs in the public domain, and must not have been disclosed in advance of filling the application.
• Trademark – a mark (generally a word or symbol) used to distinguish the goods or services of one particular business from those of its competitors.
  • Trademark can also comprise slogans, catch-phrases and combination of words, letters and numerals.
  • They are primarily related to brand identity. They help to make connections in the mind of start-up’s customers between the products and the start-up.
  • Do not confuse registration of trademark with registration of an internet domain name, company name or business name.
• Copyright – refers to right to reproduce one’s own original work.
  • Usually relates to musical, artistic, literary or dramatic works, and it allows the creators of original works to control their subsequent use.
  • There is no requirement to register a copyright as it is bestowed automatically on the creator, if his work was original.
  • There are different economic rights entitling creators to control use of their creations in a number of ways, including making copies, selling copies to the public, performing in public etc.
  • It is good practice to copyright all sensitive information pertaining to a start-up, including business plans, budgets, product and process specifications.
• What about trade secret?
  • Unlike other types of IP, trade secrets are not registered – the information simply has to be kept confidential. Once a trade secret is disclosed to the public, legal protection ends.
  • Trade secret law regulation protects proprietary information of commercial value that A) provide the owner with a competitive advantage in the marketplace, and B) prevent the public or competitors from learning about it other than through improper acquisition or theft.
  • It is not enough to simply deem information a trade secret. A business must prove its desire to keep the information secret.
  • Examples of information that may fall under the trade secret are: market research, business plans, personnel databases, customer databases, formulas, ingredients etc.
• IP rights bundling – a start-up may simultaneously use different IP rights to protect the same creation (e.g. backing-up patent with trademark) as well as its IP portfolio. E.g., the name and the logo could be registered as trademark, while technological invention could be registered as a patent or kept as a trade secret, and aesthetics of the product could be registered as an industrial design. An effective IP strategy may involve a range of IP rights to provide layers of protection for a start-up and strengthen its position in the market (Evers et al., 2014).

• IP valuation is a very comprehensive and constantly developing issue. Start-ups may need to undergo valuation in number of context-specific situations, such as: sale, merger, joint venture or similar commercial transaction; divorce (be it personal or business related); bankruptcy; estate planning; licensing IP; and litigation.
• There are three standard methodologies (the cost, the income and the market approaches) as well as one hybrid methodology (relief from royalty approach) to value IP:
  • Cost Approach: it uses the historical cost to develop an asset to determine its value.
  • Income approach: it calculates the present value of future income streams specifically attributable to the IP asset. It utilizes forecasted financial results.
  • Market approach: it values IP by comparing the subject asset to publicly available transactions involving similar assets with similar uses.
  • Relief from royalty approach: it is based on a hypothetical situation that is created to estimate what a business would pay to license its own IP assets in a similar transaction.
• There are also tens of other alternative methods and the entire field of IP valuation is under constant development. Their further description, however, is far behind the extent of this training fiche.
• The choice of particular method is based on four main factors: A) how unique is the asset; B) how much data is available and verifiable; C) what is the context, purpose or objective of the analysis; and D) the judgment of the analyst which based on extensive earlier experience.

There are several ways to generate revenues from your IP portfolio (marketingdonut.co.uk):

• Licensing

• Licensing gives someone the right to use your patent or copyright in a certain area or for a particular group of customers. The licensee will give you royalties in return - typically a small proportion of the value of the product.

• Franchising

• Franchising involves allowing someone else to set up and run their own business under your brand name. You also usually provide practical support and oversee the way your offer is marketed. In turn, franchisee pays you a fee, usually a percentage of turnover. This concept is particularly suitable for service-based businesses.

• Selling

• If you are not able to exploit the entire IP portfolio of your company or if building a product based on the IP would require huge resources that you cannot / don’t want to invest, you might sell your IP, e.g. patents.

• Selling + leasing back

• This new model that is a form of “outsourcing” of start-up patent portfolios. In this case, the buyer will purchase e.g. patents of a start-up and provide a “lease back” license. This enables a start-up to get the benefit of the commercial monopoly granted to it by its patents, without tying up all the capital required to build and maintain a patent portfolio

• There are different legal forms that start-ups can choose when setting a legal entity. It is one of the most important decisions when starting a business, with consequences related to taxes or liability. Each start-up should choose a legal form corresponding to the nature of its business activities, aspirations in terms of size or complexity of the business, or plans to take investors on board. There are specific modifications of legal forms of business in different countries, but general forms are quite common. Generally, the most frequently used are the following main companies’ types:
  • Sole trading
  • Private limited company
  • Public limited companies
• Overview of requirement in the EU and its countries can be found on dedicated official EU website http://europa.eu/youreurope/business/start-grow/start-ups/index_en.htm#.

• Terms of service (or terms of use, or general terms and conditions) are often part of websites, applications or software. They refer to conditions and rules demanded by the owner or operator. As there is usually no legal contract with the user, it is necessary to ensure his/her acceptation of the terms of service by other means, e.g. by clicking on the website. User must be able to read the terms of service and indicate his/her acceptation prior to using the product/service.
• Terms of service are proper instrument to cover the privacy policy and explain who, for what purpose, where, for how long and how processes the personal information on the user. Besides, they frequently contain user’s obligation, claims policy, terms of payment, liability for damage, and especially prohibitions and limitations that user is expected to respect. Finally, terms of service usually contain different disclaimers. These inform the user what the product don’t do, that he/she cannot completely rely on the information stated in it, that it shall not replace user’s common sense etc.

• NDA, or non-disclosure agreement, is a type of business agreement that you can use to legally protect your start-up/business idea. They can be used in business conversations with prospective employees or investors.
• An NDA should specify:
  • What constitutes confidential information
  • How confidential information should be handled
  • Who owns the information (i.e. the start-up)
  • The time period for which the information will be disclosed
  • The time period confidentiality will be maintained