Writing IP into your Business Plan

Author Grenavitar Licence Public Domain Source Wikimedia Commons

Paternoster Square, City of London

 

Jane Lambert

A business plan plots out the course that a business is to take from its present position to a point in the future.  During that time it is expected to develop new products and/or services that will attract customers.  The design of goods, the technology that the goods or services incorporate or by which they are made or marketed and/or the reputation that the business develops are business assets.  As they are creations of the mind rather than space or machinery they are often referred to as intellectual assets.  The legal protection of those assets is known as intellectual property.

The first step is to identify intellectual assets.  As they are not always obvious, startups and other small businesses should make use of the WIPO's IP Diagnostics and the British Intellectual Property Office's IP Healthcheck tools which I mentioned in Saving Money on IP at a Time of Rising Prices on 19 May 2023.  As a company expands and becomes more diverse its owners should carry out regular intellectual property audits.  In How to Use an IP Audit (13 Jan 2022 NIPC News) I described IP audits as "a tool for identifying 'potential IP assets', that is to say, protectable intellectual assets."  That article discussed the different types of intellectual audits and how they may be used in business planning.

In that article, I warned:

"Like other tools, an IP audit can be misused. The identification of a patentable invention does not mean that a patent must always be sought. Considerable resources may be required to protect the invention in the countries where it may be marketed as well as those in which suppliers of competing products are located. Unless the development, production, marketing and distribution of the invention are already featured in or can be incorporated into the company's business plan. there are likely to be better uses for such resources."

In the next paragraph, I wrote:

"An IP audit can be put to better use when devising and monitoring the implementation of an intellectual property strategy."

I defined an intellectual property strategy as "the systematic application of intellectual property laws to achieve business objectives" in "What is an Intellectual Property Strategy" in NIPC Law on 19 May 2017.  I gave an example of a simple intellectual property strategy in Putting IP at the Heart of Your Business Plan in NIPC News on 2 Jan 2015:

"(1) Identify the likely income streams over the period of your business plan: these may be sales, payments for services, grants, subsidies - any kind of revenue;
(2) Consider the threats to those income streams over that period - most of those threats will be commercial such as competition from other businesses and changing customer behaviour but a few could result from copying your products or riding on your reputation;
(3) Develop responses to those threats - as most of those threats will be commercial so will your responses such as reducing prices and developing new products but such threats as plagiarism and free riding may require a legal response;
(4) Tailor your response to suit the threat and your resources - there is often more than one form of legal protection such as keeping your new product under wraps and relying on the law of confidence to keep it secret rather than seeking patent protection so consider all the options before you actually spend money on searches and applications."

I amplified that last point in Saving Money on IP at a Time of Rising Prices.   Patent prosecution is expensive and comes with the important downside that every invention must be disclosed "in a manner which is clear enough and complete enough for the invention to be performed by a person skilled in the art," Not every invention needs to be patented.  Much innovation can be protected adequately by trade secrecy or design rights.   

I also emphasised the importance of enforcement in Putting IP at the Heart of Your Business Plan and  Saving Money on IP at a Time of Rising Prices.   Business planners have to beware that a well-funded competitor may attempt to revoke their patent or other intellectual property right or simply infringe it.  While the Small Claims Track of the Intellectual Property Enterprise Court will resolve most types of IP claims for £10,000  or less that can be tried in a single day and there are cost-effective alternatives to litigation such as patent examiners' opinions and the Uniform Domain Nane Dispute Resolution Policy that I mentioned in Saving Money on IP at a Time of Rising Prices, most IP litigation is expensive.  Few startups or other small businesses can afford the cost of litigation in the Patents Court or even the Intellectual Property Enterprise Court multitrack.  The only way many of them can defend themselves is by relying on before-the-event IP insurance. A small number of brokers such as Sybaris Special Risks and Safeguard IP are beginning to write policies for small and medium enterprises.   As I said in Saving Money on IP at a Time of Rising Prices, the IPO has provided some useful guidance on IP insurance and the Chartered Institute of Patent Attorneys and the Chartered Institute of Trade Mark Attorneys. publish a list of specialist IP insurance brokers.

It is now possible to identify the information that can be written into a business plan:

• the intellectual assets discovered by using the WIPO or IPO diagnostic tools or commissioning an IP audit;
• professional fees for carrying out such an audit;
• costs of prosecuting applications for such patents, registered designs, trade marks or other registrable rights as are found to be necessary for devising an IP strategy;
• premiums for intellectual property insurance;
• renewal fees for patents and other registrable rights; and 
• contingencies and other miscellaneous expenses.

Costs are not the only information to be inserted into a business plan,   Assets have value and for many businesses, the most valuable assets may be their brand, their designs, their technology or their creative works.  Estimates of the expected values of those assets should also be inserted into the plan.   It is those assets that are most likely to persuade investors to invest or lenders to lend to the venture.

Anyone wishing to discuss this article may call me on 020 7404 5252 during office hours or send me a message through my contact form.

The Border Innovation Hub

White Cliffs of Dover

Author Immanuel Giel Licence CC BY-SA 3.0  Source Wikimedia Commons

 

Jane Lambert

In UK Innovation Strategy I discussed ways in which the British government proposed to stimulate innovation so that the UK could join China, the USA, Japan and South Korea as a science and technology superpower by 2039,  Buried away in the text on free ports  on page 78 was this reference to the UK border:

"The innovation activity in Freeports will build on the government’s 2025 UK Border Strategy, published in December 2020, which set out a Technology and Innovation roadmap to drive forward innovation at the UK border."

 The 2025 UK Border Strategy mentioned in that sentence provided for private sector participation "to design, deliver and innovate around the border."

That strategy aims to achieve 6 "transformations:"

"Develop a coordinated user-centric government approach to border design and delivery, which works in partnership with industry and enables border innovation. 

Bring together government’s collection, assurance and use of border data to provide a comprehensive and holistic view of data at the border. 

Establish resilient ‘ports of the future’ at border crossing points to make the experience smoother and more secure for passengers and traders, while better protecting the public and environment. 

Use upstream compliance to move processes away from the actual frontier where appropriate, both for passengers and traders. 

Build the capability of staff and the border industry responsible for delivering border processes, particularly in an environment of greater automation; and simplify communication with border users to improve their experience. 

Shape the future development of borders worldwide, to promote the UK’s interests and facilitate end-to-end trade and travel."

The 4th of those "transformations" is reminiscent of arguments of the Democratic Unionist and the European Research Group politicians against regulatory alignment or the Northern Ireland protocol during the EU withdrawal agreement negotiations on the ground that it ought to be possible to avoid checks and inspections at the geographical frontier between Northern Ireland and the Irish Republic by carrying them out elsewhere with the appropriate technology.

Whether or not the hope of renegotiating the Northern Irish protocol is the motivation for its interest in the topic or merely coincidental, the Cabinet Office published its "Border Innovation Hub" on 31 Aug 2021 together with a Technology and Innovation Roadmap, a list of APIs (Application Programming Interfaces) and guidance on Opportunities and Funding.   The purpose of the Hub is said to bring "together information from across government to help provide industry with the tools needed to innovate at the border."  The overview states that 

"Technology and innovation to unlock new possibilities for smoother and safer border processes is a key element of the new strategy."

Further information about how the government hopes to achieve that objective is set out in the Roadmap.

The Roadmap is taken from the  2025 UK Border Strategy and includes the following:

• "Create a visible first point of contact in UK Government for border innovation suppliers and users"
• "Define target use cases with industry.
• "Set and collate security and interoperability standards," and
• "Work across government to design the border and support border innovation and its uptake."

The "first point of contact" mentioned above is the "Border Innovation Hub". 

Possible funders for research and development work by industry include the Defence and Security Accelerator, the Connected Places Catapult,  Transport Research and Innovation Grants and Innovate UK.

Any inventions resulting from border innovation would be patentable subject to the provisions of the Defence Contracts Act 1958.  The names of businesses, products and services might be registrable trade marks.  Anything written down would be protected from copying by copyright.  Any commercially sensitive unpublished research could be confidential.   Anyone wishing to discuss those matters should contact me on 020 7404 5252 or send me a message through my contact form.

UK Innovation Strategy

Standard YouTube Licence

Jane Lambert

In his foreword to Global Britain in a competitive age which I discussed in NIPC Brexit on 19 March 2021, the Prime Minister wrote: "Our aim is to have secured our status as a Science and Tech Superpower by 2030." The Secretary of State for Business referred to that target in his foreword to UK Innovation Strategy Leading the future by creating it.  In my article, I wrote:

"As an intellectual property lawyer, I should love to see the UK become a science and technology superpower with vibrant creative industries attracting investment and expertise from around the world.   I just can't see how it is going to happen,"

I read the UK Innovation Strategy very carefully in the hope that it would explain how the UK will become a science and tech superpower in 9 years.

Synopsis

The document is 116 pages long divided as follow:  

• Secretary of State's Foreword (pages 4-5);
• "At a glance":  a bulleted list of the steps that the government proposes to take (page 6);
• "Introduction:  Why do we need an Innovation Strategy?":  a summary of the strategy (pages 7 - 10);
• Part 1 "Innovation today" covering "What is innovation?", "Why is innovation important?", "The challenge: Innovation created the modern world, but progress is slowing" and "The opportunity: The UK is ideally placed to lead a renewed global spirit of innovation" (pages 11 to 17);
• Part 2 " Innovation tomorrow" covering "Learning from the pandemic to create the world’s best innovation ecosystem", "Vision 2035: The UK as a global hub for innovation" and "Tracking progress towards our vision" (pages 18 - 21);
• Part 3: "Achieving Vision 2035" covering "Pillar 1: Unleashing Business – We will fuel businesses who want to innovate", "Pillar 2: People – We will make the UK the most exciting place for innovation talent", "Pillar 3: Institutions & Places – We will ensure our research, development & innovation institutions serve the needs of businesses and places across the UK" and "Pillar 4: Missions & Technologies – We will stimulate innovation to tackle major challenges faced by the UK and the world and drive capability in key technologies! (pages 18 - 100);
• Part 4: "Achieving our ambitions – implementation and next steps" (pages 101 - 107);
• Annex A "Innovation institutions" (pages 108 - 113) and
• Annex B: "List of Stakeholders Consulted" (pages 114 and 115).

Becoming a "Science and Rech Superpower" in Nine Years

The Introduction states on page 8:

"The Prime Minister has announced our intention to be a science superpower by 2030, placing science, innovation and technology at the heart of his vision for the UK. This involves being to science and technology what we are to finance: a central hub of the global economy, and the country that the world’s most innovative people and firms make their home."

Although there are signs that it has lost some business to Amsterdam, Dublin, Frankfurt, Madrid, Milan and Paris as a result of the UK's departure from the European Union, London remains one of the world's leading financial centres rivalled only by New York, Shanghai, Hong Kong and Singapore (see The Global Financial Centres Index 29  Long Finance. March 2021. Retrieved 18 March 2021).

A good measure of scientific and technical activity is the number of patent applications sought in a year.  According to the World Intellectual Property Indicators for 2019 published by the World Intellectual Property Organization, applicants in China applied for more than 1.5 million parents from the world's top 20 patent offices in 2018.  The United States came second with 597,141. Japan followed with 313,567 and South Korea came fourth with 209,992.  Companies from those countries. Huawei, Mitsubishi, Samsung, Qualcomm and Oppo, were among the top 5 applicants.  China, the USA, Japan and South Korea can fairly be regarded as scientific and technical superpowers.   If the UK is to be in science and technology what it is in finance it should aspire to create a similar number of patentable inventions by 2030.

With 29,941 patent applications in the world's top 20 parent offices, the UK lay number 13th.  It was ahead of Mexico but behind Taiwan, Germany, India, Russia, Canada, Australia and Brazil.   If the UK is to leapfrog over all those countries to join the USA, China, Japan and South Korea as a scientific and technical superpower it has a lot of work to do.

The government acknowledges the magnitude of that task on page 18 in the section headed "The opportunity: The UK is ideally placed to lead a renewed global spirit of innovation":

• "Business investment in R&D has fallen relative to our international peers. 

• There are low rates of technology adoption by firms that lead to underutilised knowledge. 

• We are at risk of a ‘brain drain’, the UK being a net exporter of talent. 

• Our workforce has skills gaps in some key areas which are at risk of growing in the coming years. 

• Our regulatory system often favours incumbent businesses over innovative new ones. 

• Growth is increasingly due to consumption, not due to investment. 

• Data, research and IP must be safeguarded to maintain competitiveness."

 Learning from the Pandemic

Part 2 of the UK Innovation Strategy points to the development of the Oxford/Astra-Zenica vaccine and other medical technologies in response to the pandemic as examples of British scientific and technical prowess and indicators of the way forward to superpower status. The speed with which the Oxford/Astra-Zenica vaccine had been developed and deployed was indeed a substantial achievement despite criticism of its effectiveness and side effects and the delay in obtaining regulatory approval in the USA.   However, similar success has been achieved elsewhere.  China has developed 7 vaccines that have achieved regulatory approval.  Russia has developed another 4.  The USA another 3 although the Pfizer–BioNTech and Janssen or Johnson & Johnson were developed in collaboration with German and Dutch scientists.  Two vaccines have also been developed by Cuba.  Others have been developed by India, Iran, Kazakhstan and Taiwan,

The Four Pillars

On page 21, the UK Industrial Strategy states that the government has four objectives it refers to as ‘Pillars’ in the document:

• "Pillar 1: Unleashing business – We will fuel businesses who want to innovate. 

• Pillar 2: People – We will make the UK the most exciting place for innovation talent. 

• Pillar 3: Institutions & Places – We will ensure our research, development & innovation institutions serve the needs of businesses and places across the UK. 

• Pillar 4: Missions & Technologies – We will stimulate innovation to tackle major challenges faced by the UK and the world and drive capability in key technologies."

These are amplified in  "At a glance" on page 6:

"Pillar 1: Unleashing Business – We will fuel businesses who want to innovate.

Increase annual public investment on R&D to a record £22 billion. 

Reduce complexity for innovative companies by developing an online finance and innovation hub between Innovate UK and the British Business Bank. 

Invest £200 million through the British Business Bank’s Life Sciences Investment Programme to target the growth-stage funding gap faced by UK life science companies. 

Consult on how regulation can ensure that the UK is well-placed to extract the best value from innovation. 

Form a new Business Innovation Forum to drive implementation of this Strategy.

 Pillar 2: People – We will make the UK the most exciting place for innovation talent. 

Introduce new High Potential Individual and Scale-up visa routes, and revitalise the Innovator route to attract and retain high-skilled, globally mobile innovation talent. 

Support, through Help to Grow: Management, 30,000 senior managers of small and medium-sized firms to boost their business’ performance, resilience, and growth. 

Pillar 3: Institutions & Places – We will ensure our research, development and innovation institutions serve the needs of businesses and places across the UK.  

• Undertake an independent review, led by Nobel Laureate Professor Sir Paul Nurse, Director of the Francis Crick Institute, looking across the landscape of UK organisations undertaking all forms of research, development and innovation. 

• Allocate £127 million through the Strength in Places Fund to develop R&D capacity and support local growth across the UK. 

• Invest £25 million of funding to the Connecting Capability Fund to help drive economic growth through university-business innovation. 

Pillar 4: Missions & Technologies – We will stimulate innovation to tackle major challenges faced by the UK and the world and drive capability in key technologies.  

• Establish a new Innovation Missions programme to tackle some of the most significant issues confronting the UK and the world in the coming years. 

• Identify the key seven technology families that will transform our economy in the future.

• Launch new Prosperity Partnerships to establish business-led research projects to develop transformational new technologies, with £59 million of industry, university and government investment."

Those  "pillars" are addressed in more detail in Part 3 and repeated for good measure in Part IV. 

Intellectual Property

One of the reasons why there are relatively few patent applications from businesses in the UK is the high cost of prosecution and enforcement.  

In 2004 the European Patent Office commissioned Roland Berger Market Research to compare the cost of patenting an invention in the UK and 5 other countries with the cost of patenting it in the USA and Japan (see my article Cost of Patents: EPO Report tells us what most of us already knew 23 Dec 2005).   In its Study on the Cost of Patenting Roland Berger reported that the cost of patenting an invention consisting of 10 claims on 3 pages, 11 pages of description designating 6 countries including the UK would be €30,530.  The cost of patenting the same invention would be €24,100 in the USA and €5,460 in Japan.  The cost of patenting in Europe may have fallen as a result of the Agreement on the application of Article 65 of the Convention on the Grant of European Patents in London (OJ EPO p 560 12 Feb 2001) but it is still believed to be higher than in the USA and Japan.

According to TaylorWessing's Patent Map. the typical costs of an infringement claim are between £200,000 and £1 million in England, €200,000 - €800,000 in France, €100,000 - €200,000 on infringement and a similar amount on validity in Germany, €75,000 - €200,000 in the Netherlands and  €2,530 - €375,000 in Switzerland.   The costs of litigation in the USA will be at least as much as in England because it is also a common law country but it is unusual for lawyers' fees to be awarded against the unsuccessful party.  It is arguable that England is the most expensive and possibly the riskiest jurisdiction in the world in which to enforce an intellectual property right.

Governments of both parties have been aware of this problem for at least the last 20 years (see DTI Innovation Report Competing in The Global Economy: The Innovation Challenge 1 Dec 2003).  They have also been aware of the solution which was an EU patent to be enforced by an EU patent court.  It is for that reason that the UK ratified the Community Patent Convention in 1975. It supported proposals for a Litigation Protocol to the European Patent Convention, a regulation for an EU patent and later the agreement for a unitary patent.  Even after the 2016 referendum, the government believed it would be possible to remain party to the agreement.  Mr Boris Johnspn in his capacity as Foreign Secretary actually deposited the UK's instrument of ratification on 26 April 2018.   Sadly, Amanda Solway MP gave notice of British withdrawal from the Unified Patent Court Agreement just over a year ago (see UK Withdrawal from the UPCA 20 July 2020).

As I argued in Has the Volte-Face on the Unified Patent Court Agreement been worth it? in NIPC Brexit on 6 April 2021 and in other articles, the sudden reversal by Amanda Solway of a longstanding policy on a unitary patent did British industry and science no favours.  It has perpetuated the disincentive to patent in this country.   Without adequate legal protection for innovation, investment in research and development can be expected to diminish.

The government might have been expected to respond that withdrawal from the Unified Patent Court Agreement was a necessary consequence of Brexit and that losses resulting from withdrawing from Europe will be more than offset by new opportunities elsewhere.  I looked carefully to see whether that was the case but I found nothing in the UK Innovation Strategy to suggest that it was.  Though the Intellectual Property Office published a press release on 29 July 2021 promising that IP was at the heart of the new innovation strategy, there is very mention of IP at all.  The word "patent" occurs twice in the document's 116 pages and there are a few paragraphs under the heading "Safeguarding Intellectual Property" on pages 39 and 40.  There is nothing in those paragraphs on reducing the cost of patenting or the cost of enforcing intellectual property rights.

I am not the only commentator to spot that lacuna.   Graeme Moore wrote in his comment New Innovation Strategy for the UK for The Patent Lawyer Magazine:

"However, there is a major factor that the UK government’s announcement fails to address satisfactorily – how to better protect the innovations developed in the UK from being copied and exploited by other companies who have not invested in the innovations? This should be at the forefront of the UK government’s mind when committing to spend UK taxpayers’ money on R&D – it’s a key part of ensuring a return on investment."

Conclusion

There are announcements to be welcomed in the Strategy such as the spending promises in Piller 1 and the "new High Potential Individual and Scale-up visa routes" in Pillar 2.  But the idea that British companies will be competing with the likes of Huawei, Mitsubishi and Samsung in such fields as artificial intelligence,  mobile telecoms, consumer electronics or any other new technology is as fanciful as the garden bridge, an airport in the Thames estuary and a bridge to Northern Ireland.  

Anyone wishing to discuss this article can call me on 020 7404 5252b during office hours or send me a message through my contact form,

How to make Money from your Invention - Starting your own Business

Jane Lambert

On 13 Sept 2017, I introduced readers to the Inventors Handbook on the European Patent Office's website which suggests four ways of exploiting an invention in its Exploitation Routes page:

• "A licensing agreement with a company
• Business start-up: get your idea to market yourself
• A joint venture 
• Outright sale of your idea."

I discussed the first way in How to Make Money from your Invention: Licensing on 14 Sept 2017. This article discusses the second option, namely a business start-up.

Before starting on this route inventors should satisfy themselves that they have the right personal qualities. Wherever they live in the UK, a good place to start is Business Wales's Starting up and Business Planning page.  In particular, they should read Is self-employment for you? and complete the Assess Your Personal Qualities questionnaire. There may be options even for those who score badly on that assessment such as employment or a consultancy with a business to be set up by others who are of the right temperament and possess the right skills and experience.  Considerably caution should be exercised by both sides in those circumstances.  Any agreement should be properly documented with both sides taking legal and accounting advice.

The next question for inventors is whether they have the right skills.   Some of these can be taught.  The Business and IP Centre at the British Library and its national network of city centre libraries host free or inexpensive courses and workshops on all sorts of topics from accounting to writing business plans. Other good places to learn include Tech Nation's Digital Academy and the Google Campus.  Another option is to build a team.  Again, that requires caution. professional advice for all concerned and full documentation.  Ideally, there should be a professionally drafted shareholders' or other agreement between the promoters with robust dispute resolution procedures in case things go wrong.

Such an agreement should incorporate or at least refer to a business plan and it goes without saying that the business plan should take account of intellectual property (see Jane Lambert Why Every Business Plan Should Take Account of Intellectual Property 3 April 2016 NIPC News). The business plan should be more than something to impress the bank manager.  It should be the company's road map.  The business plan should coordinate every aspect of the company's activities and policy including research and development, marketing and of course intellectual property (see An IP Strategy for Private Inventors  13 Jan 2019).

The business plan will be relied upon by the company's investors and lenders.  Long term investment to enable the company to buy or hire premises, equipment, vehicles and the like will be exchanged for shares in the company.  That is called "equity investment" and it is usually provided by inventors' friends and family, business angels and private equity or venture capital investors.  Working capital to cover components or raw materials, professional service and other short term costs may be provided by the company's bankers or, increasingly frequently, peer-to-peer lenders.  This is often referred to as "debt".  Lenders may require security over the company's assets but they are unlikely to wish to interfere in its management. Equity investors 0ften want representation on the board. Again, both sides should take professional advice and document any agreement that they may reach in a shareholders' agreement or some other instrument.

Inventors should be aware that very few fortunes are made from a single invention.  It may give their business an advantage for a time but that advantage will usually be eroded as competitors' launching their own new products or services. Research and development and innovation should continue.  Inventors should always be looking for the next gap in the market or other business opportunity.

Anyone wishing to discuss this article or inventions generally should call me on 020 7404 5252 during office hours or send me a message through my contact page.

An IP Strategy for Private Inventors

Strategy Game

Author Julio Reis

Licence Creative Commons Attribution-Share Alike 2.6 Generic

Source: Wikipedia

Jane Lambert

An intellectual asset ("IA") is something that gives a business an advantage over its competitors. No matter how small it may be or how simple its business model, almost every successful business will have such assets.  An  IA may be the business's reputation, its customer list, a way of making or packaging things, a website or even its standard terms and conditions.

A business that possesses such an asset will want to hold on to it and, if possible, make money from it.  Its best chance of doing so is to devise a plan to

• identify assets likely to generate revenue or some other benefit for the company, 
• determine the best legal protection for the IA having regard to its value and available resources, 
• provide a means of enforcing such protection, and 
• manufacture, license or otherwise make money from the asset.

Such a plan is often called "an intellectual property" or "IP strategy".

Inventing is a business activity.  If an inventor is employed in a research and development capacity, his or her employer is likely to have an IP strategy.  If the inventor is not so employed, he or she would be well advised to develop such a strategy for him or herself.

The starting point for a private inventor must be his or her invention. Is anyone likely to buy it? If so, who will be its buyers and how many will they buy?  Developing, marketing and patenting an invention, not to say enforcing a patent, is likely to be costly.  Unless those costs are likely to be recouped, there is no sense in incurring them.  For many private inventors, this is a very difficult question. The technical elegance of their brainchild may blind them to commercial realities.  This is where membership of an inventors' club can help.  The members of such clubs are not a bad cross-section of the general public. If fellow inventors are unmoved by the invention or see snags their views should be considered seriously.

The next issue to address is putting the invention on the market.  That usually boils down to a choice between making and marketing the invention or licensing others to make and market it.  Some inventors already have their own manufacturing or retailing businesses but many do not.  If they want to make or market the invention for themselves they have to set themselves up in business. They will need to draw up business plans, find collaborators, raise funds, acquire premises, plant and staff and market their inventions to the public. They may subcontract production to a manufacturer in this country or abroad. If they do that, they must ensure that their invention is patented or otherwise protected in the country where the manufacturing is to take place and they will need a very tight written agreement with the sub-contractor.

Licensing is often regarded as an easy option but it is not.  A licensee will incur costs in tooling and marketing. A business will incur those costs only if persuaded that to do so would be worthwhile. Determining whether a licence is worth taking is a type of business planning that few potential licensees have the time or inclination to carry out.  It is therefore up to the inventor to persuade them that it is worthwhile.  Daunted by such difficulties many inventors resort to invention promotion companies or making unsolicited offers to manufacturers or retailers.  Such approaches rarely work and often lead to expenses for the inventor.

Patenting is expensive but may be necessary.   Ideally, the invention must be protected in the countries where it is to be sold and the countries where it can be made. However, such protection may cost many tens of thousands of pounds in filing, translation and renewal fees.  Another problem with a patent is that the inventor discloses his or her invention to the world in return for a monopoly in a single country.  If a patentee has a patent for his invention in the United Kingdom but not the United States there is nothing to stop an American from making and selling the invention in the USA or anywhere else where the invention is unprotected.  There may be other, cheaper forms of legal protection for the invention that are available to the inventor.  Simply keeping shtum about the invention is one option if the invention is a product that is hard to reverse engineer.  Relying on some other IP right such as unregistered design right in the shape or configuration of the product or copyright in any software that may control the device may be others.

An inventor must be able to resist applications for the revocation of his patent or a declaration of non-infringement as well as pursue infringers.  Even with costs caps and cost management civil litigation can be cripplingly expensive. The only way that most businesses can sustain such expense is by taking out adequate IP insurance and the premiums for such cover are not cheap.

An IP strategy can be drawn up at any time and it will be reviewed and updated continuously but the ideal time to devise one is when drawing up a business plan.  That is because the costs of prosecution, procurement, professional services, premiums and so on can be funded and balanced against other expenses.

Anyone wishing to discuss this article should call me during office hours on 020 7404 5252 during office hours or send me a message through my contact form.  

How to make Money from your Invention: Licensing

Jane Lambert

In How to make Money from your Invention 13 Sept 2017, I introduced readers to the EPO's Inventors Handbook. Readers will recall that the Handbook advised that there are basically four ways of exploiting an invention:

• A licensing agreement with a company
• A business start-up: get your idea to market yourself
• A joint venture 
• Outright sale of the idea.

In this article, I shall consider the first of those ways, namely licensing the invention.

The Handbook explains that a licensing deal is one that allows a party known as a "licensee" to use the invention in return for a periodic payment known as a "royalty". It adds that 

"The exact terms of the licence must be negotiated in a process that can be lengthy (often many months) and complex. The licence is a binding legal document, so it is usually essential to involve patent attorneys and other legal professionals."

The Handbook continues:

"For many inventors, licensing is the best way to benefit from an invention. The main reasons are:

• The licensee bears the costs and risks of production and marketing.

• Only established companies may have the resources to exploit an idea with major potential.

• Licensing can provide the inventor with an income over many years for relatively little effort."

However, it also warns that "only the strongest forms of IP will interest potential licensees" which in most cases means a patent.  Licensing is often seen as a soft option compared to setting up a new business to market the invention, but, in many if not most cases, the reverse is true.

For a start, unless you are answering an express invitation from a company to submit your invention, you are likely to spend a lot of time and effort looking for a company that could make money from your invention. Finding a company that can make money from your invention is not the same as finding a company that makes a product like your invention. If, for example, your invention renders obsolete a technology in which a company has invested heavily or threatens an income stream such as the supply of consumables or replacement parts, such a company may be the last business on earth to be interested in your product.

Once you have found a potential licensee you have to persuade that company that it can make money from your invention.  Sometimes, nothing short of a detailed business plan will do. That is bound to be a bit hit and miss as you are unlikely to have access to the financial, marketing and technical information that is available to the company's managers.  Even companies like Procter and Gamble and Henkel that invite submissions from inventors require those inventors to show how the invention will fit into their product range. They usually impose strict legal and technical requirements.

Except for companies like P & G and Henkel, you will have to give some thought as to whom you will contact and how you will present your invention. As I said in Finding a Route to Market for Your Invention - Unsolicited Approaches are not usually a Good Idea 25 Feb 2012, you are unlikely to get anywhere with an unsolicited submission. Your best bet is to find out as much as you can about your potential licensee through industry events like trade shows and seminars.  The inventors who are best placed to license an invention are those already in an industry or academics in a relevant discipline. Members of the public with no special connection with the industry will find it hard to sell their ideas.

As a licensee would take a licence under a patent or other intellectual property right, your intellectual property strategy must be one that works for your licensee rather than you.  Your invention must be protected not just in the United Kingdom but in all the countries where the invention is likely to be sold as well as those in which it can be made. Unless you intend to grant an express licence to your licensee you will have to take proceedings against infringers and resist revocation applications in each and every one of those countries. That can be very expensive for a private inventor or small business.

Finally, do not expect your licensee's management to be particularly kind to you.  Their job is to look after their shareholders and not to look after you.  They are likely to drive a very hard bargain in the licensing negotiations. After the licence is granted they will construe it in a way that suits them. Once they have learned how to make your product and developed a market for it they may try to challenge clauses they don't like or seek reductions in the royalty or other payments. When negotiating the licence you should think about dispute resolution and choose a method and governing law that works for you.

In negotiating your licensing agreement you are likely to need the services of a patent strategist who could be a lawyer with experience of licensing or a patent or trade mark attorney, an accountant with expertise in licensing and tax incentives for new technologies as well as a patent attorney.  Should you wish to discuss this article further, call me on +44 (0)20 7404 5252 during office hours or send me a message through my contact form.

So You've Invented a Mousetrap ....

House Mouse                                                                            Source Wikipedia

 ...... And you're waiting for the world's mousetrap manufacturers to beat a path to your door. Hate to mention it to you old chap but you may be in for a very long wait. You may have the best, cheapest, coolest mousetrap ever but that is not necessarily what the murine disposal industry is looking for.

What they are probably looking for are increased profits and your invention may not actually deliver that to them. In fact, it may reduce their profits - at least in the short term - as your product may require new tooling and a lot of marketing.  If customers are satisfied with an existing product it is not be in a manufacturer's interests to change it unless he is forced to do so to retain market share.

if you have invented a product that is likely to render everything else on the market obsolete then you may have to make (or have it made) and market it yourself as James Dyson did with his bagless cleaner. Despite its obvious advantages, no British manufacturer would take a licence for Dyson's invention because it would have undermined the market in replacement bags which was very profitable to the industry.

If for whatever reason self-manufacture and marketing is not an option, licensing your invention is not an easy option.  You have to sell not only your invention to your intended licensee but also the advantages of taking a licence from you as a business proposition.  And you can expect a "yes" only if the advantages of doing business with you clearly exceed all other available uses of the licensee's resources.  You are likely to do that only if you produce what is in effect a business plan for the licensing proposition backed up with the same sort of market research and financial forecasts that you would produce for your own start-up business.

If you do get a "yes" you have to negotiate and draft your licence agreement very carefully. Remember that the loyalties of your licensee's management lie not to you but to their shareholders who may often be themselves.  It is in their shareholders' interests to drive the hardest possible bargain with you and, if possible, cut you out altogether. You therefore need good professional advice from lawyers, patent attorneys and others in negotiating and drafting the licence agreement.  Make sure, for instance, that your intellectual property covers not just the technology but also (so far as possible) the business opportunity. Also negotiate clauses ensuring minimum royalties, regular information about costs, production, sales and marketing, cost-effective and speedy dispute resolution.  It is a sad fact of life that good professional advice does not come cheap.

Having set up and chaired inventors' clubs in Leeds, Liverpool and Sheffield, having run IP clinics throughout the North and having practised intellectual property law for many years I am very aware of the problems of licensing and how to avoid or mitigate them from the perspectives of both licensors and licensees.  If you want to discuss this article or any other issue relating to your invention or licensing give me a call during business hours on 020 7404 5252 or fill out my contact form.   You can also reach me on Facebook, G+, Linkedin, twitter and Xing,  Enjoy your weekend.