Why IP protection is key for start-up success
Protection of intellectual property (IP) is a key factor for the success of start-up companies. IP rights particularly become relevant for the acquisition of funding and the financial success of such start-ups, cf. overview of Zhangabylov et al. 2022 or Häussler et al. 2012. Not surprisingly, these studies have also found that the specific importance of IP protection varies between start-up constellations, particularly depending on the sector. As a 2023 study of the European Patent Office also confirms, IP rights and namely patents are particularly relevant for technology focused start-ups, particularly in the fields of life sciences, biotechnology and pharmaceuticals.
As a start-up grows, IP is key for protecting its business model from competition, for building up own assets and by that increasing the value of the company. Patents give their proprietor an exclusive right, excluding competitors from using this particular innovation. A strong patent portfolio also helps you to build up negotiation value and to enter into cross-licensing agreements in case your product should get challenged by any relevant third-party IP. In a value-driven IP strategy, the IP portfolio will considerably help building assets that increase the valuation of your start-up and by that help to collect investor’s funds. Finally, IP can be monetized by means of licensing or transfer even without having an own product on the market, for example if clinical trials should fail.
There is no one-size-fits all IP strategy for all (life sciences) start-ups. The goal is to align IP measures with key markets, manufacturing sites and supply chains of both your company as well as those of your competitors.
IP and funding – chicken or egg?
While the above-mentioned studies show that IP helps acquiring funding including in early stage investment rounds, building an IP portfolio, particularly filing patent applications requires funding. A well-drafted patent application will not only cost patent office fees, but moreover patent attorneys fees. This may seem a chicken-or-egg problem – in practice, it is advisable to start early with a first IP strategy and then perpetually expand the IP portfolio as funding comes in. A growing IP portfolio may help in every investment round.
What are the 5 biggest pitfalls?
- You have already determined the product technology or brand design when an avoidable IP issue pops up
IP rights are potential tools to be used against competitors, either as practical monopoly rights or as obstacles hard to design-around. This concerns both technical aspects of products (e.g. a product infringes a patent) and commercial aspects (e.g. a product brand is protected by trademark). Identifying relevant IP rights early on is generally advisable, in order to avoid infringements and the need to change the product technology or brand design later on.
A full freedom-to-operate analysis that identifies the entirety of possibly relevant third-party IP rights is complex, expensive and might require adjustments over time. Therefore, a freedom-to-operate assessment may be conducted as an iterative and/or selective process.
- Your competitor sues you for infringement of their rights and you have no own patents to assert in return
Offense is oftentimes the best defense. For example, if a competitor’s IP right threatens to become a showstopper for your start-up, a strong own patent portfolio ready for assertion against said competitor can open many opportunities to resolve this issue out of court such as a cross-license.
This requires a thought-through own IP portfolio, which comes with several challenges. First, strong patents generally require early filing and should anticipate the competitor’s product development. So usually, a multitude of anticipatory applications will be necessary, of which at least one eventually proves effective. Second, patent assertion requires patent quality, in particular with regard to patentability challenges regarding biotechnological and AI-related inventions and plausibility. This puts at test the quality of your patents and the drafting work done earlier by your – ideally competent – advisors. Third, avoid further legal pitfalls such as lacking ownership and standing to sue. Particularly where the start-up’s IP was created by freelancers or other types of contributors, ownership of IP rights needs special attention and care.
- You protect too late
IP protection is a race against time, as competitors are innovating and applying for their IP in parallel. Own earlier publications may also be detrimental to the patentability of inventions, so strong confidentiality obligations need to be in place in particular when your start-up is founded out of a university (“spin-off”) considering the involved researchers’ interest of scientifically publishing the inventions.
- You think your know-how protection is sufficient and then your company gets hacked
Typically, companies including start-ups like to rely on information that is not protected by (registered or copyright) IP rights, but information to be kept secret. The secrecy of this information is vulnerable from a practical point of view and thus needs practical protection measures (e.g. against “leakage” through human channels or IT channels).
Legal remedies against trade secret misappropriation are generally possible, e.g. under the EU Trade Secret Directive and respective national laws. This legal protection, however, also requires certain protection measures in place before the misappropriation happens. Hence this topic also needs early attention.
- Your R&D cooperation agreements have unfavourable IP provisions
The allocation of IP rights is typically a key question of R&D cooperation agreements. Drafting such agreements requires an understanding of the importance of respective IP rights and the business needs to be met by the agreement.
To avoid these pitfalls, founders of life sciences start-ups need to give the topic of intellectual property their attention early on and develop the IP strategy as the company grows.
For more details, follow our webinar series “Life Sciences Start-Ups Coffee Break” and watch the webinar on IP strategy or contact us here.
