MT Expert - Legal: How to protect your big idea

How to make sure that someone else doesn't end up cashing in on your brilliant new invention or business idea...

by Nick Wallin
Last Updated: 25 Mar 2011

Talking about ideas should come with a health warning: ‘early disclosure can seriously damage your wealth’. Literally hundreds of business entrepreneurs, inventors and academics give away their inventions each year by making this easy-to-avoid mistake. What are the rules of disclosure, and what should they be doing to make the most of the commercial potential of their invention?

Keep your mouth shut

The rules of disclosure can be expressed in one word: don’t. The facts are that, in any country other than the United States, if you disclose any information about your idea or invention with another person, in any way, without first receiving their agreement that the information you are about to impart will be treated as confidential, then that disclosure becomes part of the ‘prior art’. If you then subsequently attempt to protect your idea using registered IP rights such as patents or registered designs, your own disclosure could prevent the application from being successful. It is the ultimate 'own goal' - a trap that many people fall into every year, from experienced businesses to start-ups, and from the most distinguished professor to the lowliest undergraduate.

In the US, the rules are different. A so-called 'grace period' exists, which allows an inventor to disclose his own invention, and then have a period of 12 months in which to file a patent application for it. If the application is filed within this period, his disclosure will not count against his application.

This difference is perhaps one of the greatest causes of error for businesses, particularly in the internet age where information is available to all. Type ‘patents’ into Google, and you get a lot of US-centric information - this can lead businesses into thinking there is a grace period that will protect them everywhere. Unfortunately there isn’t; the US grace period only applies in the US.
But getting the disclosure rules right is really just the start. To protect your 'big idea' you also need to consider how you intend to put it to use commercially.

Choose the right strategy

There are several models that can be used to define a company’s IP strategy, and choosing the right one can make a big difference to business performance.

The classic IP exploitation model is the ‘fortress model’. This is particularly useful for vertically-integrated organisations that research, design, develop, manufacture, and market a product themselves. It applies particularly well in some market sectors, such as pharmaceuticals, as well as high volume high margin products such as white goods. Applying such a model involves using your IP protection to ensure that you (or your contractors) are the only company that makes and sells products incorporating your inventions. You then sell these products at a premium price as a consequence of the lack of competition.

Another classic is the pure licensing model, where your company acts as a high-value design house, creating new product designs incorporating new inventions, which are then included in products made by, and often marketed by, someone else. This is a model that is used a lot in the electronics sector by ‘fabless’ semiconductor companies, such as ARM. Revenue streams are derived from licensing royalties on each chip sold, with high product volumes usually a pre-requisite for high earnings.

Some companies, particularly those in fast-moving consumer goods sectors, may choose a 'first to market' route – avoiding registered IP altogether and making money by bringing innovative products to market and capitalising on their first mover advantage. While this can be successful, such business models cannot afford to stand still, because the window in which they can reap the commercial benefits of their inventions is much narrower, and they need to stay focused on innovation to retain their position as market leaders. In addition, even if this is your business’s primary strategy, by not making use of any registered IP at all, you throw away one of the main tools available to keep your competitors at bay. Whilst you may have a well-differentiated, marketing leading product at the moment, it is easier to stay in that position if you have well-guarded IP rights around which your competitors are forced to navigate.

A further IP model is ‘mutually assured destruction’. Used usually by large corporations, this is the equivalent of an IP cold war, where each side has a large enough number of IP rights to put off the other from pursuing any litigation. Used relatively successfully in the past by the fixed-line telcos, the recent patent battles in the mobile communications arena may be an indication that this model has broken down.

Another exploitation route often used by University technology transfer departments, or occasionally by corporate R&D labs. is the technology incubator and spin-out. This involves building a start-up company around usually a small number of key IP rights obtained for a particular new product or technology. The product may be in any field: a new drug, for example, or a new type of gearbox. The purpose of the incubator is to provide proof of concept, and perhaps small-scale sales, with a view to showcasing the potential of the technology. This is performed with medium-term exit strategies in mind, typically in the form of IPOs or private equity buy-outs. A model much in vogue during the dot-com era, it is one which may still be successfully applied, although investors are naturally more cautious.

Finally there is the simple ‘attic-sale’ model. This is usually reserved for IP rights relating to inventions that are no longer being actively used in products or services being presently sold by a company. Whilst such IP rights could be allowed to lapse, by doing so they would then be free for others, including competitors, to use. Instead, they may be sold to other companies who have interests in the area, or to licensing companies who make their money by collecting large portfolios of patents and then licensing them en masse for reasonable royalty rates.

Of course, a real-life IP strategy is likely to include elements of several of the above.

Keep reviewing your approach

The third component of successful protection and exploitation of your 'big idea' is to keep an open mind about your exploitation route, and to tailor your IP and other strategies towards it as your business develops. This will mean adjusting your business strategy and your IP strategy as you go.

A good example is Sarantel, a British company that produces hi-tech GPS antennas. Until relatively recently, it focused on using advanced engineering processes to manufacture the technology in the UK and supply it to device manufacturers around the world. However, with a relatively high cost base, unit costs remained stubbornly higher than cheaper (though less effective) competing technologies. In order to help address this, Sarantel recently decided to change tack. Instead of sticking with its vertically-integrated operation, supported by its ‘fortress model’ of IP protection, the company chose to license the specialist manufacture of its technology to a highly-skilled electronics service manufacturer based in Estonia. Opting for this outsourced manufacturing / ‘licensing model’, has transformed business performance and opened up new areas of market opportunity in GPS-enabled devices.

Nick Wallin is a patent attorney at Withers & Rogers LLP, a leading UK firm of patent and trade mark experts. Nick works in the firm’s electronics and computer group.

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