How to Convince a Startup to Think About IP

Your client is starting a successful new company. It has a good product that it believes people will want to use. It has some funding from friends and family and interest by an entrepreneur or mentor it met recently. The stage is set for success, all it needs to do is stay focused, keep costs and distractions low, execute, and pay your bills. Why then should you encourage your client to spend its valuable time and money exploring intangible things such as intellectual property?

Here are some common reasons we all hear from clients as to why they do not need to consider IP:

• There is plenty of time to worry about such things later, when they have money and more time.
• They have far more important obligations to meet like satisfying financial regulations and labor laws.
• They can make good money commercializing without IP. They have a great product or service, growing momentum, a short runway, quick scalability, and now they can easily reach an entire world of possible customers.
• Customers will recognize that the startup has good products and will want to use them.
• They are careful to do business only with good people and companies who aren’t likely to turn on the startup, especially with the other legal advice you provide.
• They have found no competitors doing the same thing.
• They didn’t invent anything and there is nothing new under the sun, so they are unlikely to have IP anyhow, let alone IP valuable enough to warrant the costs to procure and protect it.
• Most IP isn’t worth the virtual paper it is printed on, and they would rather spend money on good coffee.

In fact, there are so many reasons to ignore IP, or at least to ignore it for now, that one wonders why any startup clients consider talking about IP. Perhaps they caught a hint about good coffee.

While there is something appealing in many of these reasons, as the attorney in the room you know that the reasons, even collectively, cannot justify ignoring or even delaying consideration of the value or risks IP can bring. But how can you communicate this to your cash-strapped, time-poor and sometimes inexperienced startup client?

Instead of taking your client behind the woodshed, consider responding that in less time than it takes to make a coffee run, an experienced IP lawyer (you or someone you can recommend) can help your startup think about whether IP may be important: what type of IP protection it might need, when it might need it, how much it might cost, and many of the reasons it might benefit the startup financially. You can probably get your client this advice in less time than it is taking you to read this article.

So, start by reminding your client that it cannot triage what it does not know, and recommending that it budget time and money for an extra coffee break next week. It might decide to pursue quality patents and a global strategic IP and licensing portfolio, or it might just end up buying coffee. Most startups leave somewhere in between, with a better appreciation about the risks and rewards, timing and costs. Just in case your client isn’t thirsty yet ...

Backup Reasons

Profits
Whether the startup is creating a brand new market, hoping to be disruptive to an existing market, or simply improving upon an existing product or service, it is pursuing the business in significant part because it hopes to make money. Where there is the potential for significant profit, there will be competition, and not all of it will be foreseeable, or local. IP is the most predictable way to protect investments, investors, brands and all the hard work you client puts into its startup from the unknown. This trickles down in all kinds of immeasurable yet valuable ways. For example, a potential competitor is less likely to enter your client’s market where it believes your client has IP that may stop or frustrate it. An investor is more likely to give your startup money when it has something unique, or is less likely to fund your competitor. A potential employee is more likely to choose your client’s startup over another when she can see the startup has something more definite than high hopes and good intentions. IP also helps in your client’s marketing and sales efforts by providing a way to stand out in a marketplace full of the latest and greatest.

Global Competition
Startupp markets are increasingly global, which means not only that it is easier for your client to grow overseas into foreign markets, but also that foreign businesses are increasingly looking at your client’s own markets. Often, these foreign businesses have more experience and better funding, some of which can reach your client’s customers without stepping foot on local shores: consider for example not only the size, but the disruptive nature of market entrants like Uber, Netflix and Amazon all over the world. Competitors like these are not only growing into regional markets like Australia and New Zealand, they are filing to protect their IP there. Explain to your client that it should think of IP as a land rush, where if you aren’t first to squat or claim property globally, either the property will never be theirs or it will cost you client dearly in those markets when it needs to enter them. Foreign patent filings into Australia for example are outpacing the historical growth of filings by Australian entities. IP Australia reports that U.S. residents filed more than eight times as many patents in Australia as did Australian residents in 2015.

Your client may be able to slow down a foreign entrant into its home market with local IP protection—a strong brand name, maybe even a local patent—but without the ability to swing back in its competitor’s most important markets, it will be fighting for survival with an open palm and precarious leverage. Your client may not fully appreciate this yet, but remind it that many other successful businesses do. For this reason, if for none other, make sure you startup client meets with an attorney who has experience providing global strategic IP advice. Another critical reason to steer your client toward global experience from the start is that IP rights vary from country to country, as do the requirements and the timeframes for securing and enforcing them.

Trademarks and Branding
Timely IP advice can help your client avoid early missteps from choosing someone else’s registered brand or design, to choosing a brand that your client will find difficult and expensive to protect. Ask your startup to consider the costs of rebranding and redesigning products well into, or after its product launch.

The Predictable Pivot
Markets change and a well-run company will change its business to align with these markets. Over a longer time frame a company can vary its investment in research and technology and appreciate how this affects its return on that investment. Investments in IP rights are less forgiving of change and delay, as they are usually lost or significantly compromised if not well considered, drafted, and protected from the start. The law starts various timers on IP rights (priority dates, grace periods, laches periods, etc.) and failure to move quickly may forfeit your client’s rights and its competitive advantages. The law also provides your client the ability to better claim its IP rights as its markets and the markets of its competitors evolve … but only if you client has protected these rights correctly and in the right countries from the start. Filing dates and the quality of the first filing are often determinative of your client’s long-term IP value.

The Hard Discussion
Through its enthusiasm your client may not be able to accept that not all startups succeed. Nevertheless, as its attorney you should explain—and this is the part where coffee works in your favor—that IP may provide a way for your client to profit from its efforts or repay investors even after closing up a business. Another company may see the value of those inventions and pay, or be encouraged to pay your client for that value. Although there have been a few such deals in the billions of dollars in recent past, there are many more in the millions. If your client makes it far enough to build a brand and preserve customer good will, those too can be sold along your client’s business for additional value. There are healthy markets for the licensing and sale of IP.

Conclusion

Your goal is not to get your startup client addicted to IP. It doesn’t smell as nice as coffee and it should never be your client’s first thought in the morning. Your goal is to get your client experienced advice about the IP rights that may be possible and where, the costs and possible benefits, and the types of risks it should recognize until it is ready to move forward. Use the power of the coffee bean to overcome recalcitrance to IP, or at least to make a little time for your client to consider it. You should also suggest that if your startup client shares good coffee with an experienced accountant; it may also find the cost of IP to be tax-deductible.