#17. The I.P Conundrum: when – or even if – to protect your business with patents & trademarks

Darren Moffatt: 00:03

Hi there, and welcome to the Nerds of Business Podcast. My name is Darren Moffatt. I'm a director at Webbuzz, the Growth Marketing Agency. And I'm your host. It's great to have you with us for Episode 5 of the Product Development Series. If you're new to this podcast, our mission is to help entrepreneurs crack the code to growth in their own ventures. And we do it by solving the key challenges that all businesses must overcome. One problem at a time. We're now about halfway through our Product Development Series. And so far, we've looked at ideation, how to validate an idea, product planning and of course prototyping. But what happens when all the hard work of product development is beginning to pay off and you convince that your start-up, new brand or innovation is set to be a winner? How do you protect your awesome idea from competitors who might want to copy or even steal it all together?

Darren Moffatt: 01:04

The topic of intellectual property or IP for short is something that many entrepreneurs fail to consider. Even those who do often leave the paperwork until the last minute and tragically forfeit their rights to a legal protection. And this can be a seriously costly error. If you're lucky, you might only scare off investors and lose promising business opportunities. In extreme cases, you could find yourself the target of litigation or even miss out on a vast potential fortune that was otherwise yours for the taking. In fact, history is littered with patent disputes. Thomas Edison, who in 1879 invented the electric light bulb is regarded by some as a patent troll. He famously held 1,093 different patents and was tied up in litigation for much of his life. When ideas are so good, they can change the destiny of inventors, investors, and even sometimes humankind itself. It's no wonder that companies go to war. And as you're about to hear in our opening story, the outcome of such conflict can shake the fortunes of even the biggest brands in the world.

Darren Moffatt: 02:23

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Darren Moffatt: 02:33

The year is 2018. When two tech giants go into battle. In a surprise ambush, the company Blackberry sues Facebook for patent infringement. Ten years earlier, Blackberry had been a dominant force in the nascent market of smartphones. But by 2015, Blackberry is a shadow of its former self. And Apple has long since become the victor in that market with its iconic iPhone product. Blackberry retreats, to pivot toward a new future as a tech provider in security applications and the Internet of Things. With their long history in telecommunications, they've amassed a large bank of valuable electronic messaging patents. And in a company of that size, internal resources will always be deployed towards monitoring the market for potential infringements. In 2018, Blackberry alleges Facebook is infringing on some of those earlier patents by using its messaging technologies in WhatsApp messenger and Instagram. These include techniques that streamline notifications, the display of timestamps in a messaging chain and giving users the freedom to more easily switch between playing games and messaging. Facebook file a counter suit, and they argue that the disputed Blackberry patents are invalid claiming that Blackberry's patents show no inventive concept and add nothing of substance to the underlying idea.

Darren Moffatt: 04:10

The dispute rolls on for several years through various court with Blackberry failing to gain traction in any of the multiple legal hearings. Just when all looks lost for Blackberry, there is a sudden turn of events. After nearly three years and moons of dollars expended in legal fees in December 2020 Blackberry has a key win over Facebook. It changes the momentum of the case and brings Facebook to the negotiating table for the first time In January 2021, the parties finally reached a settlement. Although the terms are not publicly disclosed, Blackberry's share price instantly rises an astonishing 20% on the back of the news, which all goes to show that intellectual property can be very lucrative, but companies who invest in the right protection.

Speaker 3 05:04

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Darren Moffatt: 05:12

The conclusion of the Blackberry Facebook case is literally breaking as we go to air. The rise in the Blackberry share price shows that the market clearly thinks that Blackberry got the better end of this particular dispute. It certainly appears to validate the value of patents as a risk mitigation strategy. But in a remarkable coincidence, Blackberry also just completed an unrelated transaction that illustrates another way IP protection can add value to a business as an asset to be traded. It's just sold 90 of its old smartphone patents to Chinese telco Huawei boosting its market capitalization to an all-time high. Now you may not realize it, but regardless of the industry in which you operate, it's quite likely your business has already developed some form of intellectual property. Have you done enough to realize the full potential of your brand or technology, or are you at risk of competitive threat? And if so, what can you do about it?

Speaker 3 06:23

Inaudible

Darren Moffatt: 06:44

This is Nerds of Business. We'll start the show in a minute, but first a word from our sponsor

Speaker 3 06:53

Transmission.

Ben Carew: 06:55

Hi everyone. It's Ben Carew here. I'm a director at Webbuzz, the Growth Marketing Agency. I work alongside the host of this podcast, Darren Moffatt. If you're a business owner who wants to grow, but you don't have the spare funds to invest in marketing right now, you're not alone. Since COVID hit, we've noticed more clients suspending campaigns or delaying their marketing altogether due to cashflow issues. In response to this, we developed a solution called 'Buy Now, Pay Later' Digital Marketing. It provides eligible small businesses with nothing to pay on SEO, digital marketing, and website development for up to three months. We think it's perfect for entrepreneurs who need a helping hand getting sales flowing again. I'll be back later in the show to explain how it works, but if you can't wait, you can download a free info pack now at webbuzz.com.au/bnpl that stands for Buy Now Pay Later. that's webbuzz.com.au/bnpl

Darren Moffatt: 07:57

So, the title of today's episode, and the problem we're trying to solve is the IP Conundrum: When, or Even if to Protect Your Business with Patents and Trademarks. Now I'll admit at first blush, this topic might seem really quite esoteric. Certainly, it's rarely discussed openly in public forums, such as a podcast like this, but we're about to change that. I hope this episode will go some way towards demystifying intellectual property for the average business owner. And I think you'll actually be quite shocked at some of what you're about to hear. I was very surprised to discover how polarizing this topic is. The top entrepreneurs and business leaders I spoke with this episode held strongly divergent views on the value of intellectual property protection. It's a controversial issue. So, to get you some definitive answers today, we're breaking with our usual format to bring a wider selection of guests.

Darren Moffatt: 08:56

You'll hear from our leading patent attorney. One of our product design experts, several entrepreneurs, and for the first time on Nerds of Business, a venture capitalist. If you're an Australian listener, we'll also touch on some huge changes coming in patent law that could affect your business. But first here's just a quick reminder that if you're enjoying Nerds of Business, to please hit the subscribe button on your podcast player. That means you'll automatically receive each new episode every fortnight, and it makes it easier for us to stay in touch. Our first guest today is Chris Baxter, founder, and chairman of Baxter IP. They're our leading firm of patent attorneys in Australia. And if you're a start-up or venture that needs some intellectual property protection, then you should be talking with someone like Chris. I began by asking him what exactly is a patent attorney.

Chris Baxter: 09:54

So, patent attorneys are really sort of strange beasts. Most I know are pretty obsessive compulsive since you need to pay [ inaudible ] to do this type of work properly. We're kind of quasi lawyers and engineers and scientist by background. So, we study our master's in Intellectual Property Law and all of us either have an engineering or science degree that enables us to listen to a whole range of different clients, about their ideas and concepts and inventions and understand them and then try to define those ideas in words clearly, and with diagrams and to try and help clients obtain protection for them.

Darren Moffatt: 10:46

The really interesting thing there straightaway is that for those people who aren't aware of the notion, or the concept of patent attorneys is the engineering background. That's something that really is a prerequisite really in this game. Isn't it? You know, because you've got to, you're the bridge. Correct me if I'm wrong. I'm going to use a very tortured analogy here, but you guys are kind of the bridge between, you know, the tech and the idea and all of those sort of engineering behind it and the legal system. Would that be a fair description?

Chris Baxter: 11:17

Yeah, yeah, perfectly said.

Darren Moffatt: 11:19

So, I think before we go sort of more deeply into this, I think we just need to be really clear for our listeners, what comprises the notion of intellectual property? So, you know, there are a couple of main types, you know of concepts here. So maybe if you give us a breakdown on that, that might be a good place to start.

Chris Baxter: 11:42

Sure thing. So, the whole span of intellectual property fits into two broad categories: registered intellectual property and unregistered intellectual property. Registered IP includes patents, registered trademarks and registered designs and unregistered trademark, IP its trade secrets, copyright, uh, no, how that type of thing. So, uh, what a patent trademark attorney does is, work with largely the registered side of intellectual property. So, patents, trademarks, and registered designs.

Darren Moffatt: 12:19

Great. And, um, here's a free [inaudible], so to speak. Um, why is registering your IP so important for business?

Chris Baxter: 12:30

That is a free [ inaudible ]. There you go. Yeah. So, a few, a few different reasons. The first is it allows small companies to compete with large corporations because say you're a small company you've developed some sort of improvement or iteration to an existing product and want to sort of get it out there, make some money, well, a larger, larger companies that are well-resourced can quickly copy those innovations. And so, encroach on that market, you would have able to have it have achieved by selling the innovative product. And so, what a patent does is allows small businesses and start-ups to protect their difference. And then there's also a very important in valuation of businesses and intangible assets. And just from a practical perspective, can be quite helpful in capital-raising because venture capitalists like to see patents in place in relevant business model.

Darren Moffatt: 13:56

So, yeah, I think that's a really important point, obviously for investors, you know, if there are start-ups or small businesses out there and they're seeking capital from outside investors and those investors, want peace of mind, you know, they want to know that the technology or the idea or whatever is protected.

Chris Baxter: 14:13

It shows like a professional approach to understanding what you have and what you've developed and the importance of your intellectual property. There's also a bit of an insurance policy for, VCs and angels. If something doesn't work out in the execution of the business model, then there's still something there that might be sold or licensed.

Darren Moffatt: 14:40

So that's perhaps the Orthodox view by a highly experienced and respected practitioner in the field. And you'll hear Chris share some really valuable tips a little later in the show.

Darren Moffatt: 14:52

But now I want you to consider the dissenting view. This is where things get super interesting. Ben Thompson is the founder of Employment Hero, a complete people, payroll and benefits solution for small to medium-sized businesses. They run a SAAS model with over 5,000 paying B2B clients, collectively managing over 300,000 employees. And they've raised over $30 million in capital and all without any formal IP protection. Ben himself is a seasoned entrepreneur and investor, which makes his position on this all the more startling.

Darren Moffatt: 15:32

Now, you know, you've obviously developed a lot of unique intellectual property with Employment Hero. I'm really keen to hear more about that. You know intellectual property is really important, maybe even crucial for tech platforms and SAAS businesses. Tell us about, you know, how you protected your intellectual property and, and why that's been so important for your business.

Ben Thompson: 15:58

It probably isn’t the answer you're expecting. We haven't, you know, other than copyright, you know, so our code is copyrighted. Everything's naturally copyrighted. Yeah. We haven't gone out and got patents or trademarks to protect our features and functionality. In fact, I disagree with the question. I actually think that the, I actually think that the planet is moving so rapidly now that you don't protect what you've already built. You actually have to build something that no one else has built. Like you have too actually be out in front. The pace of innovation within an organization is the most important indicator of their success. If they build something and just sit on it, the world will just go around them. Like, it just goes, it's just happening so fast. So, for me, it's all about how rapidly can we iterate? How rapidly can we innovate and how quickly can we deliver on opportunities to help people. Protecting what we've built five years ago. Isn't, isn't the big issue.

Darren Moffatt: 17:03

Well, you heard it here, first people, uh, sort of, uh, Ben Thompson's putting, um, patent attorneys out of work. Um, there's no need to protect your IP. Um, I look, I mean, I think that that's obviously a contrarian viewpoint. I can totally see the argument for that. I think my view would, it kind of depends on the industry you're in and the product you've got, you know? Um, but, uh, your point is more that I think it's interesting. It kind of goes back to that original, uh, genesis of the business that you disrupted yourself. So, in the sense that you've disrupted yourself, I would imagine then that said, it seems to me that there's very much a culture in your business of continual transformation, continual disruption, so that you're always meeting the market and staying ahead of competitors. Would that be right?

Ben Thompson: 17:52

Yeah, it's, our mantra is we know what our mission is to make employment easier and more rewarding. How we do that is to go and dig as deep as possible into the fundamental principles of what we're doing. First principles design from there up to build a better solution, something that's 10 times better than what somebody else has done before and constantly do that constantly. The faster we can do that the better.

Darren Moffatt: 18:20

Now, I think you might agree. Ben's argument is a powerful one and it's clearly worked for his business. He's thinking is closely echoed by another one of our guests. Carrie Peters is product design principal at Sydney agency, ustwo. She's designed for the likes of Nike and [ inaudible ], and she's a leading exponent of human centered design. She's also one of our two product design experts for this series. I asked Carrie if she thinks it's important for start-ups to protect their idea.

Carrie Peters: 18:51

Yeah. That's a great question. People actually ask me about this a lot or potentially like a conversation I've had many times is someone will come to me, and they'll say "Hey, I've got an idea. Oh, I want to know what you think." And I'll be like, okay. Yeah. Tell me, tell me. And then they say, "but you can't steal it". And the pain that I feel when they say that I'm not because I think they don't trust me, but because I think, I just know the blood, sweat, and tears that go into actually making an idea a reality. It's so huge. I like, I don't have a child, but I liken it to what it would be like to say, hey, I want to have a baby. Yeah. And then you are thinking that I'm going to steal your baby because you want it it's, I don't want to raise your child for 20 years.

Carrie Peters: 19:44

You know, I, it's not my baby, so I don't, I don't want it. Um, uh, an idea in a start-up is literally, if you create a digital app, it is your child for 20 years, you have to do maintenance on it and iterate on it. Like I said before, it's a living, breathing thing for that until it ends it doesn't, you know, until the day that you decide you're pulling it out of the app store the day you want to, you know, sunset that thing it's alive and you're going to pour money and like all of your energy into it. So, in my opinion, you really don't need to protect your ideas because the thought that anyone else cares as much as you do about your idea is preposterous. Having said that there are moments in technology specifically where suddenly there's new innovation that just happens really quickly. And if you have a concept or an idea that's related specific to that tech, that piece of tech or connecting a couple pieces of tech, then I think it's probably worth looking at IP. But again, those ideas are not so much about like consumer ideas. They're usually more around like, "How am I going to use this technology to do this thing?" And, um, then yeah, then I would look at IP.

Darren Moffatt: 21:00

Hmm. So far so confusing. Maybe as they say, when in doubt, follow the money. So, what does a venture capitalist think about the need for IP protection? Venture capitalists or VC, as they're known are a key source of funding, mentorship, and networks in the start-up ecosystem. Often, they're run by ex-entrepreneurs themselves, and the investment they make into early-stage companies on behalf of their investors, certainly give them plenty of skin in the game. Emlyn Scott is the co-founder of CP ventures. CP ventures have been recognized as a leading VC for early-stage companies. And they were one of the top funds in 2019 globally. You'll be hearing a lot more from Emlyn later in the series, but for now, listen to him, explain the VC perspective on the vexed question of IP protection.

Emlyn Scott: 21:54

So, there's a number of schools of thought about whether our IP is really that important or not. And there's many forms of IP. So, everything from the formal patent side to, you know, kind of the secret sauce, you know, Kentucky Fried Chicken, what spices are you using? Kind of thing. So, for us, when we look at a business, it'll be another check. If they've been, they've managed to either get a patent or they've put a patent in. But it's not crucial for us. What we want to know is the problem that they're solving is just really, really hard to solve. And there's not many people literally on the planet that can solve it. Um, so that's probably a part of IP that knowledge, that training that might be the networks they've got. It's, it's, there's a whole lot of things that go into it.

Emlyn Scott: 22:40

If there is something patentable and they haven't patented it, then we'll ask why haven't you? Usually, they'll have a pretty good reason. We just want to know that they haven't put it on the back burner and not considered it. We want to know that they've had a considered business decision for why they've either got it, got a patent, or they don't have a patent. And what the IP around the business. And why is it really crucial? Because we want barriers to entry. I want to know that when this is starting to look obvious that these guys are breaking new ground, that they're not going to have a whole lot of copycats chasing them. And AI is a really good thing for that because AI, you know, you need to train the engines, you need the data. So, if a business has six or 12 months against a competitor, they're always playing chase up to get the equivalent data. And even then, they won't be able to use the data in the same way. So, in the world of VC, everything moves really fast. So, if you're, you know, you're in this market and it's, it's going in, you're raising, you know, raising capital and is moving, they're getting chased. And so, this gives you that level of, um, it makes it more difficult for other businesses to chase and raise capital because the investors will be more nervous of putting something that could potentially be challenged later

Darren Moffatt: 23:46

On. Yeah. Great. Um, and you know, um, I'm sure that it's different for each business or different types of businesses, but as a VC, when do you want to see, um, a start-up gets a patent? You know, like, so if they don't have one at the start, as you've just mentioned, like when, when, when should it come,

Emlyn Scott: 24:12

It should come very early. Because as soon as it's gone out with it, you can't get your patent anymore. Cause its public knowledge. So, we want it to have been considered, but there's stages of being able to do that. So, you can put provisional patents in, you could at least talk to a patent lawyer and make sure you've got freedom to operate to make sure no one else has got a patent in your area. I mean, there's nothing worse than putting money into something. And you think you're the leader in it, someone else gone now I've had that idea first, sorry. So, they're just sort of protection protections around it. Um, and being risk adverse to some extent and a bit of due diligence. Um, so it should be done fairly early, where it gets really difficult is patents take a lot of time and they also cost a lot, especially international patents. So, you can do it by starting kind of in Australia and then look to expand at poster race. But again, we want to know that the businesses have thought about this and that they spoken to a good patent lawyer. And if they haven't, we'll do those introductions.

Darren Moffatt: 25:05

Okay. And how often in your experience is some degree of problem with intellectual property? Uh, for the start-up, I do. inaudible.

Emlyn Scott: 25:22

That has been a deal breaker for us previously. I'm thinking of one business right now where they messed up their patent. They could have had a global patent and for the sake of money, they didn't get the US component. And that was on in our D-Day. We found that, and, and that was nearly a deal breaker for us because, you know, we wanted this thing to roll out globally, what saved it was that they had other things that they could patent and they would then be doing that in the US so they wouldn't have that component of it, but we weren't happy.

Darren Moffatt: 25:54

That's for sure. We're unhappy listeners, batting entrepreneurs or start-ups going to raise capital. The last thing you want is an unhappy VC, not a good start,

Darren Moffatt: 26:06

Right, so VCs generally want to see IP protection in place so they can protect their investment. And if the start-up founders haven't done that, they want a pretty compelling reason as to why not. We heard Emlyn touch on what's called a provisional patent, which can be a cheap way for start-ups to commence the patent process. Let's go back to our patent attorney, guest Chris from Baxter IP, for some more detail on the types of patents available. And it turns out there are some big changes coming for Australian business owners.

Chris Baxter: 26:44

There's a number of different types of patent applications and there's also, jurisdictional, aspect to patent protection in that to obtain patent protection in any given country. Ultimately you need to make a patent file in there. So, some of these different types of patent settings exist, to help you sort of expand your protection into the international market in a more cost-effective way. So let me talk to that. The typical international patent process starts with a provisional patent application that establishes a priority date, like a first filing day to stake in the second sand on your idea, and that lasts for 12 months during that period, you then either need to file a patent application in the countries where you want to pursue protection, or you can file the single, a PCT international patent application. And that will reserve your right to file into foreign countries with a couple of exceptions for another 18 months.

Chris Baxter: 27:50

So, by filing a provisional patent application, then the PCT international patent application, you can buy yourself two and a half years before you have to go to the expense of filing in the final set of countries that you want to file in. Now there's another sort of second tier of patent protection in Australia. And some of the countries in Australia is called an innovation patent broadly. It fits into the category of what's called the utility model overseas. And typically, they have a lower threshold sort of test to obtain patent protection. Now in Australia, the innovation patent is, near the end of its life. Unfortunately, what's going on there? Yeah, the government is abolishing it for reasons that don't make a lot of sense to me or our profession, because it's an incredibly useful tool for small businesses to obtain some protection where they otherwise may not have met the requirements, standard patent protection and that's happening this year.

Darren Moffatt: 29:08

Let's just sort of pause for a second there, Chris, because that's obviously a big change. I've lodged innovation patents in the past, and I wasn't aware that, that was ending. So, is there a regime that's going to replace that or is it just, it's just defaulting back down to the standard patent application?

Chris Baxter: 29:29

Yeah, the latter, unfortunately. Um, yeah, no, it's, it's difficult to understand. I think where IP Australia is, and sort of the government is coming from is that the innovation patent ended up also being a very useful litigation tool. And so as much as they were followed by sort of start-ups and entrepreneurs seeking some sort of second tier level of patent protection, they've also been used a lot by large companies as very aggressive litigation tools. And I think there's some contention around that. Right. Okay.

Darren Moffatt: 30:13

So, if you've got a new product idea or innovation by this stage, you might be wondering if it's patentable. I asked Chris from Baxter IP, what the legal threshold is, and you'll hear him explain some really important patent principles that all entrepreneurs should understand.

Nerd Bot: 30:35

That's nerdy!

Darren Moffatt: 30:35

You've awakened the nerd bot, right? Like, so you, you mentioned some, some jargon there, Chris and the nerd bot just loved jargon, right? So, I think it was inventive step and not tease. So, you might just want to break that down for our listeners.

Chris Baxter: 30:51

Awesome. Uh, so there are two, there are a few requirements to have a patent application granted and common requirements in different countries around the world. The first is that what you're claiming needs to be patentable subject matter, sorry, there's some more jargon. I'll explain that in a minute, but it also needs to be new, and it also needs to comprise this thing we call inventive step. Okay. So let me just talk through those three requirements really quickly. Um, so in terms of patentable subject matter, uh, when that goes to the invention needs to be sort of, something that is made by humans. It's not a discovery, it's not as sort of just a mental idea that has no practical commercial application. Um, the novelty of requirement you know this is a fancy patent attorney word for newness basically means what you're claiming really does need to be new.

Chris Baxter: 31:58

And that's it, that's a global test. The, uh, there needs to be in your claim at least one feature or combination of features that has not been, done on inaudible, not publicly known anywhere around the world. And the third requirement, inventive step, the legal test for that feature that is novel is also not obvious to someone who's skilled in the art. So, I was just going deeper and deeper here. Aren't we, Oh, it's very nerdy? I'm loving it. Basically. It means to someone who's familiar with that type of product or technology.

Chris Baxter: 32:41

Uh, it's .inaudible. Got it. Yep. And obviously that's a pretty subjective test, excuse the pump. And that's where you patent attorney comes in, in arguing with IP Australia or the patent office in another jurisdiction around the inventiveness of their client's idea.

Darren Moffatt: 33:08

So, what does patent protection offer in a practical sense to small and medium-sized business? Dr. Wei Shin Lai is the founder of acoustic sheep. Acoustic sheep is an electronics company based in Pennsylvania, in the U S that produces the brilliant SleepPhones product. Now, if you can visualize a soft aerobics type headband with tiny speakers inside, that's what it is. SleepPhones allow you to listen to music in bed via Bluetooth as you go to sleep. Dr. Lai and her husband, Jason Wolf reveal when and how they enforce patent protection and why strong branding has also played such a key role in defending their business against copycats.

Dr. Wei Shin Lai: 33:51

Yeah. So, initially when we came up with the whole idea, and then he came up with the phones brand name, we thought, you know, I can't believe nobody's invented this before. Uh, right. Same thing you said at the beginning, but this is such an obvious idea, and it's such an obvious name. And in fact, one of our first customers, we had just put up our website sleepphones.com and we were still populating it. It was, there was no buy button. There was no like anything, all we had no advertising, nothing. All we had was our email address at the bottom. And he like emailed me because he was like, how do I buy this? And I was like, how in the world did you find us? And he said, well, I just typed in sleep.com because it seemed like a natural name for something that we wanted to have a name that just very clearly communicated what the product was.

Jason Wolf: 34:43

Right. And we still had misunderstanding like people, some folks thought it was a phone here and there, but I think we did the best we could, his service. It's probably been a pretty big part of our success. Yeah, absolutely. So, it's unquantifiable or, yeah, I.

Dr. Wei Shin Lai: 34:59

I mean, I think it's, it's a short, nice name and not too cutesy, and it's very straightforward. I, you know, those are important qualities. But yeah, so from there, I guess, the question was about the IP, right? And so, we came up with the SleepPhone's name and then, we thought that this is quite unique. And as soon as we put our website up, so, we, you know, sold our first prototype around Christmas, and then we started sewing some more, by the summer, the following year, in 2007.

Dr. Wei Shin Lai: 35:44

And that's when we decided, okay, well, this is really interesting. I find nothing on the internet, that's similar to this. So, let's at least look into trademarking it and patenting this. And so we contacted a patent lawyer, decided to set up a company, trademark that, you know, all of that type of stuff, and that can get expensive, but at least initially, it was just a few thousand dollars, which may seem daunting, but at least to us, cause we were both higher ownership at the time we could afford it. And we saw the value of it pretty quickly. Right. Yeah. And, you know, and then we put up the name and somebody came to us immediately. Right. And so that was market validation already. That was anecdotal. But yeah.

Darren Moffatt: 36:35

When it came to you, what do you mean? They came to you wanting, wanting to buy the name or what do you mean?

Jason Wolf: 36:42

They're wanting to buy our product. Organically looking for something that did well with you guys,

Dr. Wei Shin Lai: 36:46

Our firs customers just typed in sleepphones.com and you know, emailed us.

Jason Wolf: 36:49

And that was probably, we probably took that as pretty strong validation at the time. And it was pretty darn lucky that, that someone was searching in that particular way for it. Yeah.

Dr. Wei Shin Lai: 37:00

And so, then we decided to, just sell some more and, and it was pretty easy at the time to set up PayPal to just kind of take payments and stuff like that. And so, then people started coming and then soon after people were writing in saying, this is incredible, I've been able to come off sleeping pills after taking them for 10 years. Uh, I can finally sleep next to my snoring husband, saved my marriage, all kinds of really, really positive, glowing reviews. And so that's, that was the market validation that we had to know, okay. We need to invest in at least protecting it and whether or not we can have a successful company. I don't know. But you know, if it does become something, at least let's, put up a little bit of cash up front to protect it.

Jason Wolf: 37:49

I still think we were pretty sober about interpreting that and pretty cautious about interpreting that though. Ultimately it didn't matter because we just had hit upon something that was, that we didn't have to worry about too much.

Dr. Wei Shin Lai: 38:03

So, we certainly had some patents for this, but I think even more important probably for your product developers is the, if you're going to build a brand, you really need to have that strong branding and trademark and you need to protect them that that's going to be fairly aggressive about it. Yeah. And that's going to be, that's going to carry you much, much further than trying to protect some patent and then trying to have to sue people who copy off of you just build a strong brand. You do have to have a strong company for that and strong products and push it out there. And then, and then you can, you know, harvest the demand for that brand.

Jason Wolf: 38:45

And you probably can't take too long that can't leave that sit forever.

Darren Moffatt: 38:49

You've got to build the brand. You've got to know that that's in a sense, your, well, it's the defensive moat, isn't it? You know, like you build, build that brand. Um, there's a famous book by Peter Thiel, that you might've read. And he talks about defensive moats and the power of branding. And so on once we've got that brand, particularly if you're the major brand in the category and you guys have essentially created a whole new category, which is fabulous. Then it is the, it is the best effective protection. So, have to that point, have you seen many sorts of, you know, cheap rip off imitators of the product, have you seen people try to replicate your product? Um, you know, uh, so it's sort of product so-called product piracy

Jason Wolf: 39:33

Here and there, but I wouldn't say particularly [inaudible] in most cases.

Dr. Wei Shin Lai: 39:37

Yeah. It's they say that it's flattery, right? When somebody copies your product and you know, it still makes me mad. I don't need to be flattered, so, but we, you know, we were not happy about some of the knockoffs that are out there. But at the same time, we know that we have the strongest brand, and a lot of the knockoffs, you know, kind of latch on to our coattails and use our branding. And we had some knockoffs that even copied like our colours, and our packaging, we had some stripes, like pyjamas stripes, kind of a stripe pattern. They copied that in exactly the same colours. We have a sheep and then we say, you know, sleep phones and pyjamas for your ears.

Dr. Wei Shin Lai: 40:33

They have a polar bear with, you know, their name and then whatever slogan they have it, you know, it's, it's just so blatant to do that. Generally, aren't positioned to approach the level of quality. It seems. Oh, they're definitely not. Yeah, absolutely concerned about it. Yeah. The quality can't compare. And so that, I think that's kind of the biggest differentiator and because we do invest in the quality, and it might cost us a little bit more to make our products we can charge more. And so, our profit margin still is going to be higher than something that sells for much less, but, you know, they have a lower profit margin. And so, you know, if you look at, and you know, one of the [inaudible] things that one of our advisors told us was that, you know, if you look at the entire market, you're still making most of the profits. So, we're like, okay, all right. That's okay.

Jason Wolf: 41:30

No, that model of capitalization doesn't lend itself to these iterative improvement that we can take advantage of. I think that's kind of how we got where we are.

Darren Moffatt: 41:38

Um, these are cheap knockoffs. Have you had to sort of fire off some legal letters or, you know, have you gone down that path? Yep. Yeah,

Dr. Wei Shin Lai: 41:46

Yeah, yeah. On occasion when it makes sense financially to do so we've won every case. Um, you know, a lot of them are pretty simple take-down requests that you can just file through, say eBay or Alibaba or something like that. Yeah. It's important. It's important to stay on top of it in order to protect your trademark or your copyrighted images and you have to go after it, otherwise you lose the ability to go after it later on, you know, too many or using your trademark, you lose that exclusivity. Yeah.

Darren Moffatt: 42:17

Yeah. So, there's obviously got to be some sort of process in your company. I would imagine of, of monitoring the market and saying what's going on and constantly sort of checking and yeah. Okay. Well, that's, that's very valuable for our listeners.

Darren Moffatt: 42:30

Thanks for that. And to further explore the practicalities, I asked Chris from Baxter IP, what are some of the biggest mistakes he sees start-ups and entrepreneurs making around IP. He also reveals the true cost of international patents, which as you'll hear is pretty staggering.

Chris Baxter: 42:50

Well, I guess, outside the mistake of, coming to see that patent attorney and, telling them about the website that they put up a year and a half ago. That's probably the most common, to be honest, a bit then the other is probably not finding the right balance in budget, going too hard or not hard enough. So, creating patent costs sort of iterate upwards. And so, they start low. And then later in the process, the cost is higher, which of course works well for start-ups so long as you've got sort of some revenue kicking it around the two-year point, revenue or capital raised. But you've got a sort of, and we try and be really transparent with our clients. In fact, out of the first meetings we do, uh, within weeks we explain the cost of the whole process.

Darren Moffatt: 43:57

And what is that cost Chris? Can you give us a rough idea?

Chris Baxter: 44:00

Yeah, sure. So, this is good. Let's break it into three stages just to make things really simple, call it the provisional stage the first 12 months in which people are typically filing a provisional patent application and getting a search done. So that provisional patent application costs will range somewhere from a bit under $5,000 for a really simple idea, right? Well, you know, we've done some really substantial patents the size university faces, so they do sort of range, right? Upwards fit typically, between sort of a bit under $5,000 to $15,000 for something that's quite complex. Software patents also tend to be a little bit more, a.

Chris Baxter: 44:48

And then the second stage of the process, which is the PCT international patent application, typically we advise clients, which is the next 18 months. So that combined with the provisional process will take you two and a half years into the process, into the patent in process. We recommend budgeting $20,000 to $25,000 for that next 18 months. And then finally the third stage of filing patent applications in each country where you want to assume protection. And so, a rule of thumb is if you allow sort of $20,000 per country, on average filing in sort of 10 different countries or something of that order, it's not going to be too far off.

Darren Moffatt: 45:36

Wow. So, that's a bit of an eye-opener I think a lot of listeners will go, we're quietly shutter, at that budget. But of course, you know, the last stage there where we say 20K per country, was that right? So,

Chris Baxter: 45:52

Yeah, good. And not just the filing in that country, but for the whole, so that process in that country, which you go for a few years from filing through the grant.

Darren Moffatt: 46:01

So, if you're looking at some sort of SAAS model that has a global reach, let's face it from what you're saying, you're probably looking at upwards of 250K for, the full process from start to finish for you know, sort of global or mostly global protection. But of course, that's not every business or even most businesses, a lot of businesses are going to be more focused on the local market. I would imagine. Is that, is that a fair comment?

Chris Baxter: 46:30

There's a segment of businesses that are really just Australia focused. Typically, though clients will fall in sort of what I generally call them the [inaudible]. So, Australia is a pilot market then US, Europe, and China. They're sort of the US and China in particular, a good value for money markets because they're huge in sort of population and as consumer markets and, the filing cost is pretty reasonable.

Darren Moffatt: 47:09

And now another word from our sponsor

Ben Carew: 47:16

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Ben Carew: 48:08

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Darren Moffatt: 48:23

The problem we set out to solve in this episode was the "IP Conundrum: When, or Even if to Protect Your Business with Patents and Trademarks". As you can see, it's a very complex topic, and we've heard a wide range of opinion from today's panel of nerds. Our product design expert, Carrie Peters, and our entrepreneur guest Ben Thompson provided the contrarian view on the value of IP protection. Emlyn Scott provided a lot of value with the VC perspective, and we heard the practical effect from Wei Shin Lai at SleepPhones. And of course, Chris Baxter was very generous with his technical knowledge of patents and trademarks. I hope their collective wisdom and insight have given you ideas to crack the code to growth in your own venture. For me, there are four important takeout from this episode. Number 1 - IP protection is not for everyone. Registering a trademark is relatively easy, but patents are complicated and expensive.

Darren Moffatt: 49:23

So, consult widely before you take the plunge. Number 2 - file your patent early. If you have developed a truly innovative idea or technology, the filing date is all important. Number 3 - get your funding right. Although it's relatively cheap to start the patent process, the costs will escalate later, especially if you go global. So, you need to be ready for that. And Number 4, invest in branding. As we heard from Wei Shin at SleepPhones, a strong brand has been named best practical defence against imitators and cheap product knockoffs. As we heard at the top of the episode in the Facebook versus Blackberries story, intellectual property protection can continue to pay dividends. Years later, after any patents have been filed, if you're a tech start-up or your business develops and market innovative products, then IP protection should definitely be on your radar for service-based ventures or the average small business though, trademark and unregistered IPS as trade secret

Darren Moffatt: 50:28

And know-how will be the most common form of intellectual property. So, there is no single right answer to the IP conundrum, but it is clear. You should take all reasonable steps to protect any competitive advantage. You've worked hard to develop, yes, that might deliver a higher sale price when you eventually go to exit the business, but it's the failure to act and the subsequent threat of financial loss that should really motivate you to take action.

Darren Moffatt: 50:58

We're coming to the end. But before we go, it's time for our regular segment "Nerd Under Pressure" where a guest has to share one killer hack or tip, I recommend for you, our listeners let's find out who our nerd under pressure is today. Okay, Chris? Well, we now come to a very famous segment of ours called Nerd Under Pressure.

Darren Moffatt: 51:24

So, this is Nerd Under Pressure. And, today, Chris, you are the intellectual property, the IP nerd, and we're putting you under considerable pressure. With this question, we'd love an answer for what's one killer hack that you could recommend to start-ups or entrepreneurs for intellectual property protection. And I'm going to give you five seconds thinking time, Okay. Over to you.

Chris Baxter: 51:58

I'm going to tell you how to spend less money with patent attorney.

Darren Moffatt: 52:03

Oh well, That’s very magnanimous of you.

Chris Baxter: 52:05

That is by, scoping your idea properly. Okay. So, often in this sort of, enthusiasm and passion that comes with, birthing a new baby, having it, having a new idea, entrepreneurs, quickly call up the patent attorney in a rush in the office and start talking and, you know, that's great. Is there a problem with that? But if you want to, manage your costs more efficiently, what I really suggest doing is scoping your idea carefully from the start, address what is going to be most commercially useful for you. And what I mean by that, is not just thinking about the idea as you, as you see it landing in the market, but thinking about once your idea is in the market, and once your patent is filed, how is the competitor, the competitor going to try and get around that?

Chris Baxter: 53:21

How are they going to change your product? For example, might they not include some features that you're thinking of include including to make it cheaper, may not quite be as optimized, but it might be cheaper in the market might still be quite happy with it. So if you can sort of, scope your invention in a way that clearly defines what you think is new about the idea, the different variations in features that you'd include in an optimal product, but also what could be taken sort of what could be taken out of your optimal product, but still be sort of an important concept or important product that you want the payment to cover. So, if you can sort of do some of that preliminary scoping work to sort of make sure everything that is going to be covered in the patent application is clearly defined upfront. You won't have any scope changes during the process, and you get a better cost, better quote from your patent attorney.

Darren Moffatt: 54:37

Thanks for listening to Episode 16 of the Nerds of Business podcast. If you've enjoyed it, please leave a review on Apple, Spotify, Google, or wherever you listen to your podcasts. It helps us climb up the ranks and become more visible to other people, just like you remember, we really want to help as many entrepreneurs and businesses as possible. If you've got a question or some feedback, we'd love to hear from you. You can engage with us at webbuzz.com.au/nerd . That's webbuzz.com.au/nerd. So, feel free to reach out and say hello. I want to thank all of our guests and the team at Webbuzz for helping me put this show together. We'll be back in two weeks with our next episode, which is sourcing and manufacturing, how to build out a product supply chain for your new start-up. Until then I'm your host, Darren Moffatt. And I look forward to nerding out with you next time. Bye for now.