How Intellectual Property Adds Value to a Start-Up

Intellectual property describes intangible assets that are products of the mind – inventions, trademarks, and original, creative works. In today’s economy, IP commonly represents the large majority of a business’ value. For example, the value of Apple’s patent-protected inventions, its exclusive trademark rights and massive goodwill associated therewith, and its other intangible assets could easily outweigh the value of its real estate holdings, inventory and remaining tangible assets. How Intellectual Property Adds Value to a Start-Up ?

How Intellectual Property Adds Value to a Start-Up

How Intellectual Property Adds Value to a Start-Up

How Intellectual Property Adds Value to a Start-Up

By: Christopher Heer & Annette Latoszewska

But IP doesn’t just add value to the Apples of the world, IP can add value to any business in a few ways, depending on the particular asset in question – keep reading.

Inventions protected by patents allow businesses to price their products embodying those inventions on their own terms. As the owner of a patent has the exclusive right to make, use and sell the invention described therein, a business with a patent for a given invention need not worry about having their price undercut by competitors. While competitors may nonetheless decide to make and sell the invention, the business will have legal recourse against any that are so bold as to do the same. A patent or patent pending also adds value to a start-up when fundraising – because the monopoly/future monopoly it represents reinforces the likelihood that an investor will see a return. Further, once a patent application has been filed for an invention, the applicant may use the term “patent pending” when marketing the product described in the application for as long as they continue to prosecute the patent application. This shows competitors that you are serious about protecting your product, discouraging them from knocking it off. A patent pending notice can also attract customers as a sign of innovation and novelty. 

Trademarks on the other hand are used to identify products and services as originating from your business, their value is in their association with your business’ goodwill. Trademarks may include, among others, logos, words, phrases, and scents. Thanks to trademarks, consumers know to associate their positive reactions to products and services with your business and will rely on your trademarks to keep coming back to the same source.

Finally, copyright ensures that your business and your business alone derives benefit from its successful packaging design, video advertising campaigns, and other creative works. 

Of course, all of the above intellectual property assets are also saleable, transferable assets and have value as such. Any of patents, trademarks and copyright can be sold outright or licensed to generate additional income.

Getting a new business off the ground can be overwhelming, mentally and perhaps especially financially. For this reason, intellectual property (IP) protection is often pushed to the backburner as many start-ups associate IP with additional expenditures. While maximally protecting your IP will involve expenses, given the value IP stands to add to your business, these expenses are profitable investments and can be a critical ingredient in a business’ success. 

Protecting your intellectual property rights and, when available, simultaneously monetizing those same rights, can increase the value of your intellectual property and your start-up business.

Protection of Your Intellectual Property Assets

Protecting your start-up’s intellectual property is critical to set the stage for business growth and success in the future and to be able to maximally monetize that property moving forward. Further, formal registration of your business’ intellectual property assets serves as evidence of your ownership thereof which can go a long way toward attracting investors and deterring would-be infringers of your IP rights.

Registration of Copyright and Trademarks

Registered and unregistered copyright in a work is often indicated with the help of a copyright notice, comprising, most commonly, the copyright symbol, ©, the owner’s name, and the year of first publication of the work. Trademarks, on the other hand, are indicated by the ™ symbol, if unregistered, or the ® symbol, if registered.

Registration of any copyright or trademarks owned by your start-up is an important investment for your business as it increases the value of these IP assets. You are not required to register copyright and trademarks to be entitled to a fundamental level of protection for either. However, registration creates a formal record of ownership that your start-up may rely on as evidence thereof. Registration of trademarks broadens the scope of protection to which they are entitled and registration of copyright and trademarks alike tends to facilitate enforcement and increase the availability of certain remedies for infringement.

To register copyright and trademarks, your business will need to submit applications to the intellectual property office in your jurisdiction and pay an application fee. These applications are not especially involved but must be completed correctly, and at times, strategically, to ensure the protection sought after is ultimately granted and to expedite the process. Retaining an intellectual property lawyer to assist with these applications is highly recommended.

Monetisation of Intellectual Property Assets

Intellectual property assets, like tangible assets, are saleable assets and may be transferred between parties. As a result, your start-up’s intellectual property assets can be monetized in a number of ways including through licensing, collateralization, and sale-leaseback.

Licensing

Licensing your intellectual property assets in competing and non-competing industries can be an effective method for establishing market advantage. As the owner of licensed intellectual property, you retain control over the asset(s) while enjoying the benefit of their commercialization by own or more licensees. Generally, as the licensee is the one doing the work, they retain the majority of the profit, but, with the right terms in place, licensing is a great way to generate additional revenue at another’s expense.

Note that the terms of licensing agreements vary, as they should. An effective licensing agreement should be tailored and should reflect the intentions of the parties, carefully outlining what is and is not permitted under the agreement (particularly the use to which the asset may be put) and resolving any doubt as to ownership.

Dedicating the time to drafting an effective, comprehensive and unambiguous agreement at the outset can help reduce the likelihood of a dispute in the future – the resolution of which will often come with a much larger price tag than would the attentive drafting.

Collateralization

Your intellectual property assets may also be collateralized in an effort to generate capital. Collateralization describes using your intellectual property assets as collateral for loans. 

Sale-Leaseback

Sale-leaseback, as the name tends to suggest, involves the sale and subsequent leaseback of your intellectual property assets. While intellectual property is a huge source of value, it isn’t the same as cold hard cash, and there may come a time when that is exactly what your business needs. In a sale-leaseback arrangement, one or more of your start-up’s intellectual property rights would be sold and you would, immediately thereafter, “lease” the right(s) from the new owner (i.e., license the rights). In short, sale-leaseback can be a way to convert your intangible asset value into working capital.

In summary, intellectual property assets of all kinds can contribute substantial value to your start-up. By both being aware of the intellectual property assets held by your start-up and by taking steps to protect them, you can maximize that value moving forward.