The importance of IP in startups, featuring Joe Sekhon

In this episode of Innovation Capital

The importance of IP in startups and how having a strong understanding of IP can support founders through the innovation process.

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Episode transcript

Ray Chohan: Joe, welcome to Innovation Capital. I’d love to kick off with learning about your background and how you ended up in the wonderful world of IP, and entrepreneurial founders and startups.

Joe Sekhon: Thanks, firstly, Ray for having me on this podcast. Well, I’m a senior lecturer in intellectual property law at the University of Portsmouth, and also a visiting professor at Bocconi University in Paris Nanterre University in Europe. And one of the things really, that I’ve found in my academic career is that students do have a lack of understanding of some of the basic concepts in relation to intellectual property, and particularly students and graduates who are looking to set up their own businesses.

And so, I’ve basically combined my knowledge of IP, and my interest in entrepreneurship, to set up something called iPASS — the Intellectual Property Advice Support Service — and this is a clinic that runs at the University of Portsmouth. It uses law students trained by me to advise and guide students, and graduates, with great startup ideas. And that’s also led me to work with the NatWest Entrepreneur Accelerator program in London, where I advise, not just students and graduates, but also other people who have come up with some fantastic ideas and wish to identify and protect and commercialize their IP.

Ray: Speaking on a personal level Joe, what drew you to the world of IP? Because I’m guessing nobody grows up thinking, “Well, I’m going to learn trademarks and trade secrets for a living!”. What was that ah-ha moment in your younger years that drew you to this field?

Joe: I think it was at school. I was always interested in enterprise and entrepreneurship. But then I’d always hear stories of somebody who had a great idea for an invention, but they disclosed it too early. Then, someone else ripped it off, copied the idea, and went on to make millions from that basic idea.

I was interested in becoming a lawyer, because I really enjoyed the English language and the relationship between language and law. But, my ah-ha moment came when I realized I wanted to help people bring their ideas to the public. And, I wanted to support the people who had the ideas, as opposed to other people who take advantage of those people who don’t have a knowledge of IP, so it kind of snowballed from there.

Then I went to university, and took a course in IP law, and that really got me hooked. And then I thought, “Well, I’m not an engineer myself, but I’d love to help engineers and other people with non-legal backgrounds come up with ideas and go into the public to exploit the ideas fully”.

I’d always had that intrinsic desire to help others and using my skill set with an understanding of law, I think that led me to helping entrepreneurs, and particularly solo entrepreneurs.

Ray: Yeah, and on a broader level — and we still see this at PatSnap within the community we’re building and serving — this lack of understanding of IP. So, if you look at the S&P 500, 85 percent of their assets are intangible in terms of value creation.

However, the wider world, be it emerging graduates, MBAs or people early career that pen doesn’t really drop early in one’s career. And on a public level, if I were to mention IP to a friend or a family member or at a party, it just wouldn’t click like other assets such as real estate, or equities. Why do you think that is so, and where do you think we are on the journey in terms of the wider world truly understanding the power of intellectual property?

Joe: Yeah, I think you’ve hit absolutely the nail on the head. I think there is a huge disconnect between the value of intellectual property to our knowledge-based economy, and the majority of people who just have a basic understanding of it.

I believe the issue lies in our schooling. Are we introducing children sufficiently to the whole concept of identifying protecting commercializing IP? As it stands now, those are esoteric concepts. That said, there are exercises that can be done even with schoolchildren to simplify these concepts. For example, in relation to the stories they’re reading at school, asking children simple questions such as: “Let’s talk about the author of this story. Do you think it would be right for someone to copy this story and say it was their own?” There are things we can do, and I think it boils down to how we educate.

I also think universities need to do far more in terms of introducing IP into the curriculum. For me, and presumably for you as well, Ray, IP education should be compulsory, not just for students and graduates who aspire to become entrepreneurs but generally. People these days are creating so much content on social media, who owns the intellectual property rights? Young people are now becoming influencers, so who owns the intellectual property in their image? I think it’s largely an educational issue. We saw this with the music industry about 15 years ago when it was brought down on its knees because people were sharing content using file sharing sites. And the industry responded by coming up with business models, such as Spotify, and Apple Music, and so forth. So, for me, I think it’s an educational issue.

Now, here in the UK, the Intellectual Property Office, is doing some fantastic work. But beyond that, schools and universities need to do a lot more. To give you an example, in most universities, you have about two to three IP academics. Now, if you compare that to other disciplines, such as marketing, you’ll have far more. To me, that speaks volumes in terms of the priority potentially given to IP. So, I think education really is the key to this.

Ray: And where do you think we are, Joe, in terms of IP being entrenched at an academic level or when people are embarking upon their career in university? Would you say we’re in the first inning?

Joe: It’s kind of a mixed picture because some universities are doing well. For example, I’m based at the University of Portsmouth, and obviously, I’m a big advocate. As I mentioned earlier, we set up iPASS to offer IP advice and support services. Some other universities have followed suit. But I think generally, we are way behind in Europe, especially compared to the United States of America. I have colleagues at Stanford University, and they have IP clinics running, they have IP courses which are compulsory for most students who study either law or business discipline, and even engineering as well.

There seems to be a gap between the offering available in terms of IP in the United States what’s offered in Europe. But I think this is changing because I have seen an increase in the accelerators either connected, or based at universities being offered in the UK. However, for me, the fundamental issue is that we are now in effectively a knowledge-based economy. And therefore, as you said, 85 percent of assets for tech businesses are the intangible. Therefore, all employees, from the C-suite downwards, need to have a knowledge of IP.

Graduates going into business, or starting their own, need to acquire IP knowledge from university. After all, universities have a duty to make sure when students graduate, they have the skill set necessary in order to fulfill their ambitions.

Ray: And in terms of iPASS, we’re seeing similar things. In certain parts of North America, and parts of Europe, you’re seeing these accelerators and early-stage courses, which enable startup founders to get their arms around IP.

But, when I saw iPASS here, it reminded me of the beginning of our journey here at PatSnap when we were just focusing on keeping the lights on. Because, fundamentally, you don’t even know what you’re doing at the beginning — you’re just trying to keep your head above water. The last thing you’re ever thinking about is getting your arms around intangible assets, insuring them, being proactive or defensive with them.

Now, what’s the genesis behind that, and how are you cultivating that mindset at an early stage? Because I’m guessing that that must pose many challenges.

Joe: Yes, absolutely. The issue you’ve just raised, I’ve heard so many times, and it’s so understandable, and I have so much empathy for it. If you’ve come up with a fantastic idea, and you’ve got some traction, you’ve developed an MVP, and let’s say you’ve even gone where 99.9 percent of entrepreneurs don’t, and you’ve actually launched something that has some traction in the marketplace. You’re absolutely right — you’re juggling different balls, or different plates, whichever metaphor you want to use. But that the point I always come back to, and I’ve had so many people at the iPASS clinic that I run with the same issue who come to us because the service is free, and they can’t afford to go to a patent attorney, or trademark attorney to look at some of the intellectual property issues they need to address.

So, I give them the following scenario: I say we either sit down now, you get some advice, and we effectively look at whether you have some intellectual property here to protect and how to protect it. So, for instance, have you got a technical innovation underpinning your business idea? Fantastic. Let’s have a look at patentability and doing a sort of a freedom to operate search.

I let them know if this isn’t done immediately, they could be faced with an issue when they’re about to launch. I’ve had this happened to people who have been in my clinic who have come in and said, “We’ve just received a cease-and-desist letter. We don’t know what to do because we’ve developed this product, and now a competitor is saying we’re infringing on their pattern.”

The moral of the story is that you must embrace the issue of IP at the very beginning. So then, if you do have to pivot in terms of your product, possibly potentially infringing on a competitor’s pattern, then essentially, you can at least steer around that, or at least get some advice in order to combat any potential infringement or letters that you may receive in the future. So, it is an issue I completely sympathize with, Ray.

But I think it’s far better to deal with the issue head-on as early as possible when there’s a degree of flexibility in how you develop your offering to the marketplace, as opposed to later when your product has crystallized. And then it’s probably going to be extraordinarily expensive, and far harder to change it that the product or service that you’re offering.

Ray: In terms of industry, where are you seeing traction with the iPASS where you’ve got early-stage founders who care, iPASS is front-of-mind and they are attending the workshops and being proactive learning and then executing on that knowledge?

Joe: We’re seeing interest from Fintech, there are lots of inquiries that I receive through the clinic or informally, people asking for advice there in terms of encroaching upon third-party patents. Also, medical tech as well, there’s a lot of innovation going there. Over the past few years, I’ve been informally mentoring a number of STEM students who are coming up with medical devices. For instance, one individual is working on a device or an app, which basically can allow patients who’ve had heart conditions to register their symptoms daily. And then if those symptoms correlate with early symptoms of another heart attack or other serious condition, then that information is communicated to the GP straight away. Now that in itself is a minefield in terms of patents and freedom to operate searches.

So, I think those two areas certainly are where students or graduates are hovering. And essentially, again, it comes back to the same point — these are high caliber students but who have a very limited knowledge of intellectual property, intellectual property rights and some of the basic agreements I will probably take for granted such as NDA agreements, licensing agreements, and so on. So, it does need a steer, it does need someone experienced not necessarily a patent attorney, I would hasten to add, or a trademark attorney, or generalist IP solicitor, but somebody who understands where the students are coming from, and understands that they’re going to ask questions which they may be afraid to ask somebody in a suit in an office, but they’re more than happy to ask an academic in an a fairly informal setting.

Ray: And Joe, what do the questions look like initially if you’re working with new entrepreneur, MedTech, or FinTech? Is there a common cohort of questions that tend to come up initially?

Joe: Some of the questions are fairly standard such as: “I’ve come up with a fantastic app/technical product, how do I patent it?” or “How do I draft a patent application myself?” or “How do I conduct a freedom to operate search?”

And in relation to major intellectual property, we get a lot of questions about trademarks. For example, “How do I search for trademarks?” or “How do I go about registering a trademark?”

I would classify a lot of the questions as ‘how to’ questions — people want to know how to do something, how to register intellectual property, and what steps to take next. People also always want to know how much it will cost, and how quickly they can secure a patent or get a patent application so they can get a priority date for their application.

Also, students, especially in FinTech and MedTech are curious about how to get an initial seed investment, possibly even an angel investment. And I’m sure you know, Ray, that one of the key criteria that angel investors look for is ensuring some effort has been made to protect the IP for the idea. Because let’s say the idea sounds fantastic, the investor will immediately ask, “What have you done to protect it?”

One of the other things we do at the iPASS clinic is to coach students and graduates on how to answer those questions. Rather than saying, “I’ve spoken to a patent attorney,” instead they’re able to say, “Well, we did the freedom to operate search using the free databases we have. And the search results have shown us we do have a green light to continue developing this product that we’re presenting to you today. These are the patents that we’ve looked at and examined, and we feel that we’re outside of the claims of those patents.”

There’s a big difference between the person who mentions they spoke with a patent attorney and asks for an investment of let’s say, £100,000 versus someone who can tell the investor about the freedom to operate search, other patents in the sphere, and the claims and how their idea is outside of those claims. And, I know who I would invest in.

Ray: Now, when it comes to the folks providing initial capital to these early-state MedTech or FinTech startups, what does that knowledge base look like in terms of thinking about an IP? Do they have a good foundational knowledge, and is IP front-of-mind for those potential investors?

Joe: Well, that’s a fantastic question. I can only speak anecdotally, but I will say the investors I’ve spoken to informally at events, they have a pretty good foundational knowledge of the sectors they want to invest in, and the patents in that field. A number of angel investors will also delegate that task to people within their organization or an attorney they trust.

So, I would say generally, the knowledge is there. Investors understand the rudimentary foundation of patenting, and where the gaps are within a particular sector in relation to patents. But for the technical aspects of a particular business idea pitched to them, if there is an issue regarding patents, they certainly would have that knowledge themselves or they would acquire it through a colleague.

Ray: And with the MPE piece, that’s just a fancy word for patent patrol for our audience — I know the exposure in around 2012 was $29 billion, and it has been declining in North America to around $8 to $12 billion a year, especially the MPE’s going after the smaller folks. What’s the lay of the land now in Europe, and in the UK, on exposure to MPE’s and patent trolls for emerging businesses in the UK?

Joe: In terms of the clinic, we haven’t really had much exposure to patent trolls, but in looking more generally at some of these, I think there is an increasing awareness amongst some of the organizations involved in regulating patents. For instance, the World Intellectual Property Organization, the UK IPO, are both looking at addressing what can be done within the legislation in order to mitigate the worst effects of patent trolling.

The World Intellectual Property Organization is looking at the PCT, the patent cooperation treaty, and other pieces of legislation and conventions in order to stop that because I think there’s sort of an ethical issue around patent trolling, and so on. One of the main philosophical rationales for having patents is that mankind or society benefits. The social contract being that the inventor, in return for making the invention public, benefits by securing a patent. So, patent trolling, it’s arguable, kind of goes against this basic premise. I also think patent trolling in the United States is a big issue. As you’re probably aware, it’s easier to be granted the initial patent in America compared to Europe.

Ray: On a broader level, the whole conjecture around the importance of the patent system — and we’re seeing crazy things such as the NFT, so there’s this technology based around the blockchain called non fungible tokens. So, if I were an artist and I produce a song, I can upload it to the blockchain and attach the re-token to my music. In terms of future royalties, they’re automatically assigned to me because I have the token, it’s on the blockchain. Everything is secure. It’s immutable, it can’t be touched. So, I get, say, 5 percent royalties for the rest of my life whenever my song has been played, or resold in a set jurisdiction. So, we are seeing this new wave of blockchain and tokenization actually, potentially threatening the entire point of having a patent system in the first place. Have you reflected on that? I know it’s a really broad topic, but I’m curious to know what you think. Because I speak to folks saying in certain regions that they don’t need a patent system — blockchain, globalization, it’s the future. What’s your professional opinion on that potential new paradigm, Joe?

Joe: Yeah, it’s interesting because we’ve had similar arguable potential paradigm shifts. For instance, with the explosion of broadband and people sharing music and other files with each other without recourse necessarily to the recording artists, there are all sorts of copyright infringement going on and people were saying at that point, “We don’t need copyright. This is the end of copyright.”

Now, I’m not sure where we’re going to end up with blockchain, but certainty I think there will have to be a serious reflection by organizations such as the World Intellectual Property Organization and intellectual property offices across the world, as to “How do we do it?” and “When someone has an idea and they create an intangible asset, how do we ensure they can get protection now that blockchain circumvents the need for patent protection in practical terms?”

But I still think that issue will still exist, because 20 years ago blockchain wasn’t in the lexicon of language, but it’s here today. Who’s to say what will happen in the future? We still need some sort of framework to deal with that. Now, it’s difficult for me to say or predict what that framework will be. But the idea that stakeholders will allow for there to be no framework whatsoever, I don’t think that will happen. There’ll be some sort of framework that will be developed. But we’ll have to see.

I was having a discussion recently with a colleague about artificial intelligence as well, and what impact that will have on the whole IP system? So, one of the classic questions posed in artificial intelligence is: “What happens when the day comes when artificial intelligence starts creating IP? Who owns the intellectual property there? What happens to the commercialization of that? Do we start looking at possibly changing the way we patent so artificial intelligence itself has intellectual property rights, and what ethical issues does that create?”

So, I think it’s a tricky one with blockchain, to be honest. And it’s difficult for me to say. But what I will say is we’ve had these big paradigm shifts in the past and legislation has always come forward. Not that I’m a big advocate for legislation for the sake of legislation itself. But I think there needs to be some sort of framework in place and I believe it will emerge as blockchain begins taking off.

Ray: And with the current challenges around the pandemic, has this had an impact on iPASS or the flow-through of people wanting to start a business out of school?

Joe: It has, Ray. It’s had a huge impact. We’re seeing more inquiries come through. Students and graduates are realizing the how massive the impact on the economy has been. Not just here in the UK, but across the world as well. We’ll be seeing many reverberations over the next several years as governments rein in spending, and cut jobs.

I also think that the pandemic has created a perfect storm because we had graduates who were increasingly looking to not go into nine-to-five employment situations pre-pandemic, and then with the pandemic, we’ve seen the entire nation stay at home for an entire working year and use technology such as Zoom to work. So, I think students and graduates are increasingly thinking, “Well, it’s far better to take control of our own destiny, that way we’re not reliant on employment and we use the skillset that we have developed through our degrees to create our own businesses.”

Obviously, that has had an effect on the number of inquiries we’ve been having at the clinic, as well as the ad hoc inquiries I receive on my blog. We’re getting more students who understand they need to protect their IP, and are looking for next steps about what they should be doing. And for me, it’s a fantastic inquiry to make because they’re admitting they don’t know what they need to do and are looking for guidance, rather than just developing an MVP and trying to get funding, and getting caught at that point because they haven’t protected their IP.

The pandemic has a huge impact. And I think we’re going to see an increasing number of people stay in education while the economic impact of the pandemic dissipates.

Ray: That’s interesting — there’s a slight silver lining. They say the best time to start a business is in a recession or when the economy is in a backward position. So that’s interesting. And in terms of government support, a couple of years ago we saw great initiatives such as patent box which offer certain tax treatment for small businesses who have a focus around deploying the asset class to build a business. Is there anything you’re seeing from innovation agencies in Europe, or the UK, or the wider globe where you’re trying to drive the agenda on startup creation and having IP front-of-mind?

Joe: Yes, I mean to the UK government’s credit, for the last 10 or 11 years it’s been very focused on startups and entrepreneurship. For instance, the UK Government set up catapult centers where high-tech manufacturing can set up in government-backed accelerators. There’s also been funding available through various competitions where startups can pitch and receive funding. There’s something called The Knowledge Transfer Partnership which Innovate UK runs. And I’ve secured some funding through them to help high tech, innovative companies here on the south coast of England be able to really look at the IP landscape in relation to their new product development.

Recently I’ve been working with a company that’s developing a new recipe that they wish to launch in terms of a product and we’ve been looking to support them with the freedom to operate searches, patent applications, or whether we go the trade secret route in terms of that particulate recipe.

Also, you’re probably aware that the UK government also provides support to startups and small to medium sized businesses via catapult centers. This is where manufacturing startups and SME’s gain access to an accelerator environment to develop their business idea. There is a range of support available to startups.

That said, given the question we were talking about with the pandemic, and the impact it will continue to have on businesses, I believe there needs to be more joined up thinking, participating in regards to entrepreneurship. If governments can coordinate their efforts then we can start thinking about international initiatives. For instance, accelerators where individuals have access to different countries with the same sort of framework. Also, looking at visa requirements, because it can be difficult for entrepreneurs to work around visa requirements.

Ray: On a global level, outside of the UK, are there any particular geographies or countries who are best in class and have really nailed it on sticking together the understanding of IP innovation, R&D, and help startup companies get their arms around that?

Joe: The standard best in class, I must confess, has to be the United States. The states are actually doing a fantastic job. If you look at the number of startups coming through or the number of company registrations in America, it’s absolutely staggering. And I think that is largely down to two things: Firstly, the framework of support is available. If you look at most universities across the United States, even outside of the Stanford’s, Harvard’s, and Yale’s most universities in the United States will have some sort of entrepreneurship and IP curriculum on most degree disciplines. They will also have IP clinics that are available, and usually staffed by academics, but also staffed by IP professionals, patent attorneys and so on. Also, I think there is that culture that exists within the startup community in the US, which I think is emerging here in the UK and across Europe as well.

Secondly, in the US there are poster boys for entrepreneurship. There’s Mark Zuckerberg, you have the founders of Twitter, you have the Steve Jobs and so on. All of this adds up to in a very positive sense to a perfect storm where young people aspire not to be bankers or lawyers necessarily, and possibly not even doctors, although we should have more doctors — but instead, they want to take control of their destiny and set up a business with the skill they’ve got. Plus, they have that nurturing environment within universities and also education within schools which equates entrepreneurship and starting your business with those professions which are referred to which are very well respected. So for me anyway (others may disagree and may point to possibly Singapore and Canada being other examples) the United States is well ahead of most countries.

Ray: It’s interesting you mentioned they generally accept IP in the states. Here in the UK we have the Dragon’s Den, the American equivalent of Shark Tank, where patents and IP are pretty much mentioned on every single episode.

Joe: It’s interesting you say that about Dragon’s Den. I used to wince at some of the answers given in the earlier episodes by some of the people pitching when a dragon would quite fairly ask a question about the IP. A lot of them were not able to answer it at all, they weren’t even aware they should be thinking about IP. And obviously, as you can imagine, then the investment was lost.

Ray: Joe, thank you for today. It’s been great learning about your journey, and congratulations on what you’ve built. So, let’s have a bit of fun now, and go off topic. What two books do you recommend, or gift most often?

Joe: Losing My Virginity by Richard Branson and Second Bounce of the Ball by Ronald Cohen. Now everybody will probably recognize the name Richard Branson, but Ronald Cohen was sort of a venture capitalist back in the early 2000s and 1990s. Second Bounce of the Ball is basically a book that tells you which ideas you should be going for in terms of your startup vision. I recommend those two books without a shadow of a doubt.

Ray: And extraterrestrial life — believer or non-believer?

Joe: Believer. I think it’s probably mankind’s ego, but the idea that we’re the only living beings that exist in the entire universe, I mean if you think about it, it just doesn’t make any sense. We just haven’t had any contact yet.

Ray: Well, you have an awesome weekend, and thank you so much for joining us.

Joe: Thank you very much for having me, I really enjoyed it.