Safeguard your ideas: a start-up’s guide to IP

Are you first?

Just like a musician or an author can assert his rights to his music or his book, anybody, engineer or other, can protect the fruits of his or her intellectual work. This is called intellectual property. In this chapter we elaborate on how you can secure your rights.

It all starts with a great idea. But is your idea an original one? Ideas are not picky: they pop up in the heads of all kinds of people. There is a risk that someone has already had the same idea and has developed it into a functioning product. This was a problem in the television series called "The Creators": some of the presented inventions appeared to exist already.

Before you start, you need to examine which "freedom to operate" you have. You can verify the originality of your invention through Internet searches, and patent searches. If it appears that someone else has already patented your idea, you have a problem.

Through www.freepatentsonline.com you can check yourself whether your idea has been patented. Only the individual who first patented the concept has the right to exploit it. Therefore it is important to check carefully how to apply for your invention's patent. In this way you can protect your intellectual property.

Is your idea original?

This immediately brings us to the next question: are you actually the owner of the idea? For those who have independently figured out a concept the answer is very clear. For those who are employees of a company or a research institution, things might be a little different. Often, when joining the company, they have to sign a contract transferring their rights in this regard.

If your idea is an original one and you are indeed the owner of the idea, the first step can be to deposit your idea. You have the option of an i-Depot, which gives you the opportunity to create a record of the creation date of your concept in an easy and cheap way (35 euros for a period of five years). However it is not a patent - it merely proves that you were the inventor of a certain idea, concept or procedure. The i-Depot therefore does not provide complete intellectual property protection. A patent application can.

As a kid, I dreamed of becoming Pope, professor or inventor - so I guess I landed somewhere near inventor. I've filed about five patents so far, and entrepreneurship has given me the freedom to bring creative ideas to life. Tomas Keppens, founder and CTO of Ellio

A patent 

You can register the date on which you created an idea with an I-Depot. You can apply for a national, European or international patent. Experience teaches us that you should consider working with a patent attorney. Do not neglect to check their references.

A patent is an exclusive and temporary right of exploitation that is granted for new industrially applicable inventions. You cannot just patent anything. The patent describes a technical solution for a technical problem. The invention has to be the result of a human activity - preceded by an intellectual or other effort. Certain categories of technical or scientific discoveries, such as animal breeds or biological processes for the production of plants or animals, cannot be patented. Neither can certain public businesses such as training.

If you want you can apply for a patent yourself, but given the level of specialisation required we recommend finding a patent attorney. He or she has the expertise and will guide you through the application procedure and will help you avoid overlooking something important.

A patent is limited in time and place. A Belgian patent for example is granted for a maximum period of twenty years and is only valid in Belgium. If you want to secure your rights in other countries, you should also apply in each for your patent. If you want to secure your rights in more than three countries, it could be interesting to immediately apply for a European patent. This patent is valid in more than thirty countries and it provides greater legal certainty because it is granted only after thorough investigation.

Since 2008 IP (intellectual property) rights have been adapted. In the past you had to pay an investigation tax of 887 euros for the advice of a patent office concerning the patentability of an invention. The price has since been reduced to 300 euros. This should simplify the application for patents. There is another reason why the European patent application has been cheaper since 2008 - nowadays it is sufficient to apply for a in French, German or English. In the past the patent had to be translated into all of the languages of all of the countries in which the patent was to be valid. Even though the translation cost is now more limited, it is still the reason why a European patent is significantly more expensive than a patent in Japan or the USA.

Why should I apply for a patent?

A patent protects your intellectual property. This in itself is a significant argument to apply for a patent for your idea. Admittedly applying for a patent costs money and the longer you want to protect your idea, the more expensive the patent becomes. On the other hand this also represents added value for your business. It reinforces your credibility. A patent can also reinforce your bargaining power when negotiating with investors or potential buyers.

Whether to apply for a patent or not is a choice you have to make yourself. You can choose not to apply for a patent and hope that you can keep your concept a secret. A classic example of such an "industrial secret" is Coca-Cola's recipe. The formula on which the drink is based has not been patented. The ingredients are well known but the actual recipe is still a well-kept secret. The danger of trade secrets is the fact that a few employees or partners are aware of this essential knowledge. If they decide to defect to the competition, nothing prevents them from using these trade secrets for their work there. A patent provides more security. The validity of a patent is twenty years, after which the invention is disclosed and therefore can be copied. Since Coca-Cola has never filed for a patent, their invention has been a secret and intrinsically protected upon till now. This "black box" approach is an important advantage, not counting the fact that there are no patent costs.

A third possibility is to publish your invention. In this case you will not be required to reveal all the details. This is a cheap way of preventing the competition from filing for a patent for the same technology. You assure yourself of a "freedom to operate" (FTO). However this is not an easy balancing act. If you publish too early, you offer the competition the possibility to exploit your idea before you can. If you publish too late, the competition may have filed a patent for the same idea.

Patents and investors

Patents are very important to potential investors. A patent is something tangible, which highlights your unique position. In your business plan you are required to explain how you intend to protect yourself from the competition and what precisely this protection implies.

As indicated above a patent also has a market value. However this market value will only become apparent when the patent is converted into a product. A patent that remains unused is worthless.

The vital patent

If you are the owner of a strong patent, you know for certain that others cannot copy your invention. Strong protection generally means that you were the first person to make a certain breakthrough. If your idea is of great commercial importance, other companies will try to by-pass your patent. They will look for gaps in your patent application in order to launch a similar solution to the market without infringing your patent. If they do not succeed, then your patent can be called an "essential" patent or a basic patent. The competition cannot set up anything without your patent. This does not very happen but if it does occurs you will find yourself in an excellent bargaining position:

• You could license your patent and you can ask a license fee and a royalty fee for this. Remember that you can restrict a license in territory and duration in this way. In such cases it is recommended that the license you grant should not be exclusive (see below).

• You could commercially exploit your products independently and grant no rights.

• A patent could mean so much to your competitor that he offers to buy it. Be aware: he will only want to buy if you grant him the exclusive rights. There is no use in paying a lot of money for a non-exclusive patent. In some cases the competitor will become a potential buyer for the company as a whole, in order to become the owner of your technology and the people who designed it.

Non-essential patent

In most cases patents are filed for in an area in which others in the past others have already applied for patents. The patent still is a form of protection for your idea, but it will be much more difficult to keep others from being active in that same area. Therefore you should think of the patent mainly as a guarantee for you to operate in the given area. It gives you the desired "freedom to operate".

By applying for more than one patent, you can create a protective minefield of patents.

Transfer of know-how

To avoid all misunderstandings: the best way to trade know-how is when a patent covers it. Know-how has to be secret, substantial and be very explicitly defined. Know-how in public domains (publications, articles, internet. ..) cannot be traded. You are free to use the knowledge and experience you gained from your employer in your new job or in your start-up as long as this is not a violation of patents or contracts, secret know-how or the company secrets of your former employer. You cannot request compensation for the knowledge you have gained.

If you did not sign a non-competition clause at the start of your employment contract you can try to capitalise on this. In the Belgian legislation, your employer will then have to fully reimburse you for this period of non-competition. This means that for up to one year your former employer can prevent you from working for a competing business or starting your own company. It also is limited to the territory of Belgium. For the period of that year the employer has to pay you a fee corresponding to at least half your gross annual wage package (including your company car, meal vouchers, cell phone, etc.).

Acquiring patents

First determine for yourself whether the patents you are considering to acquire represent real value for your company. Also take a look at the patent's life cycle and how long it will be valuable to the company.

Strive for an exclusive license to patents with a purchase option (at a pre-agreed price), rather than striving for the acquisition of a patent in exchange for shares. It is important that the price represents the fair market value. In other words: is another company also willing to buy this patent for the same price? The key question is: "Is the price competitive?" Here we emphasise that a patent has concrete value when it is put on the market (by starting-up) and if products can be made.

In addition to the license fee it is possible that the patent holder may charge royalties. It is important that these royalties are sustainable for the start-up. Agreeing to a percentage of the total turnover therefore is not a good idea. Stipulate clearly that the fee only relates to the turnover being realised by using a specific patent. In the future you will undoubtedly develop technology yourself, which will be licensed alongside the patent. It would be far from desirable if your purchase of the patent obliged you to pay royalties for such technology too.

If you draw up your financial plan you can analyse how important the royalties are to your business process. You should at all times avoid scenarios where royalties take the lion's share. Experiment with the model parameters and determine how royalties may affect your accounting profit.

Never settle for deals with offers of patents in return for an arbitrary percentage of your company. Obtaining patents by giving shares of your company is only possible if- in advance - a market price is discussed.

Exclusive or non-exclusive: what’s the difference?

Try to obtain an exclusive license to a patent. After all you want to avoid getting even more competitors in the future. Non-exclusivity is a serious disadvantage:

• Your investors will not like it. In fact there is not a substantial practical difference between a non-exclusive patent and an ordinary commercial license.

• It might prevent you from subsequently selling your company because of strong patents to which you hold the exclusive rights.

If however you don't succeed in getting an exclusive hold of the rights, and you still want to proceed with your start-up, there is no alternative than to apply for a non-exclusive license. You will have to have the capability to develop new technologies yourself, and in that way distinguish yourself from your competitors. The danger now comes from two angles:

• Your competitors can also obtain the same non-exclusive license.

• The licensor may simply continue to develop own products and at a later stage start up new companies in the same domain.

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