Often the competitive edge of a startup relies on its intellectual property. However, not so often is the IPR strategy of the company fitted to its business strategy. In this article, we review some key considerations relating to fitting IPR strategy together with the actual strategy.
How Important Are the IPRs?
While sometimes forgotten, the first question to ask is to whether the IPRs are important for the business or not. Patenting something does not automatically increase the value of a startup. As Guy Kawasaki puts it “Patents impress your parents”, but do not necessarily contribute to the value of the startup.
If the IPRs are not core for your business, the solution is simple: Do not create an IPR strategy (and stop reading here). If you believe IPRs are important in your business, continue reading.
Patents vs. Trade Secrets vs. Open Information
Roughly IPR strategies can be divided into three categories:
Protect the IPRs by means of patenting and registrations;
Protecting the IPRs as trade secrets; and
Leaving the IPRs unprotected.
Each of the strategies has several pros and cons that affect your business model, monetization model, R&D, the way you organize operations and company culture. Next, we take a look at key elements relating to these different strategies.
Protecting the IPRs to the Maximal Extent
Protecting the IPRs to the maximal extent is the strategy we most commonly think of when talking about IPR strategies. A startup seeks legal protection for every innovation it has.
Benefits of this strategy include:
Clear competitive edge if the patent portfolio is wide enough;
Ability to use a wide range of monetization models, including e.g. licensing; and
Additional exit opportunity through sales of technologies.
However, this strategy also has its downsides:
A single patent rarely provides sufficient protection. Thus, the startup should aim for a patent portfolio. Creating a patent portfolio is not only expensive but also drives focus away from business-oriented R&D.
Enforcing your patents is expensive. Also, you need to set up a system to monitor potential IPR valuations, adding to the cost.
To sum it up: Protecting the IPRs to the maximal extent is a solid strategy if there are enough resources to implement it in a sufficient extent. This strategy will rarely work with just a single patent and inadequate resources in patent protection and monitoring (think of Microsoft or Nokia without IPR portfolios).
Protecting the IPRs as Trade Secrets
Trade secrets are common in any business, and most of the IPRs in the world are kept as trade secrets instead of being legally protected as patents or other registered IPRs.
Benefits of this strategy include:
The IPRs can be “as is”; there is no need to develop these to a patentable level;
The startup has proprietary technology; and
Costs relating to this strategy are low.
On the other side, the cons of this strategy are:
Trade secrets need to be protected carefully, requiring extra attention in e.g. HR, subcontracting and partnerships;
Importance of trusted partners and NDA clauses arises, which may affect the business;
You may be in accidental infringement of another party IPR; and
Secrecy may have an adverse effect on the company culture.
Protecting the IPRs as trade secrets is usually a good way to do things when the company is still in its early stages: The costs are low and the secrets are easy to keep as such within a small team. However, as the company grows, relying just on secrets may not be enough. Also, secrecy can be disastrous for the company culture.
The third strategy is to share information freely. While often seen in coder circles, this strategy is more challenging from a commercialization point of view.
Benefits of sharing the information freely include:
No costs in IPR protecting; and
Possibility to create communities developing our product further.
Commercialization is the more challenging part:
How to create your revenue model when the product is freely available.
While at a glance this strategy does not seem commercially feasible, it might deserve deeper consideration. If it is possible to distribute the product freely and make the monetization through other channels, this might prove to be a sound IPR strategy after all. At the end of the day, there is quite a lot of business created around Linux.
There are several approaches to IPRs with each with several benefits and downside. There is no one-size-fits-all -solution to create your IPR strategy. The IPR strategy should always be aligned with the strategy, business model and culture of the company.