Intellectual property 101: IP basics for business
Whether you’re a start-up or an established small business, if you’re looking to protect and grow your business it’s important to get your head around the basics of intellectual property (IP).
Start-ups and small businesses can be time and cash poor and seeking professional IP advice might not be an option. Even if you’re planning to seek professional help with your IP it’s always valuable to understand the basics first. There are six main types of IP rights, both registered and unregistered, that can help small business operators and innovators to protect their IP:
- patents for inventions
- trade marks for brands
- designs for how a product looks
- plant breeder’s rights for new plant varieties
- copyright for creative works like books, music and art
- circuit layout rights for integrated circuits and computer chips.
Let’s take a look at the more common types of IP
A patent is an exclusive right to commercialise or licence your invention for up to 20 years. As with any registered IP you should make an application in each country you plan to do business in. For a patent to be granted it has to meet the criteria of being new, inventive and useful.
New means no one else has invented it so you must keep it a secret before you apply. If you’ve already gone public with your invention you may not get a patent.
Inventive means skilled people in your industry would not find your invention an obvious thing to do.
Useful means it has a useful function and actually works.
A registered trade mark protects your brand or logo and can last forever as long as you’re using the mark and paying renewal fees. A trade mark doesn’t have to be new or kept secret but it does have to be capable of distinguishing what you sell.
You can’t own descriptive words or symbols that other traders legitimately need to use. It must not be so similar to another trade mark for similar goods and services because that confuses customers. If you ‘re starting a business it’s important to remember that a registered trade mark, business name, company name and domain name are four separate things to consider.
IT’S ALWAYS VALUABLE TO UNDERSTAND THE BASICS OF INTELLECTUAL PROPERTY.
Trade marks are used to distinguish your goods and services from those of other traders.
Business names are the name under which your business operates and is managed by the Australian Securities and Investments Commission (ASIC).
Company names are registrable if you wish to trade using a name other than your registered business name. If you do want to use a different name you must register that trading name as a business name.
Domain names are addresses on the internet. A domain name can help customers to find your specific goods or services online. The rules and policies for registration of a domain name can be found at auda.org.au.
While a patent protects how your product works, a registered design protects how it looks. A design right only lasts up to ten years and protects designs which have an industrial or commercial use. Owning the right gives you exclusive ability to commercially use, licence or sell it.
Similar to registering a patent, a design must be distinctive, completely new and kept secret if you want to apply for protection.
Copyright protects original creative work such as drawings, books, art, drama, music, software and audio-visual recordings. It is an automatic right that lasts for 70 years after the death of the creator and you don’t need to register with any government agency.
Want to know more about IP for business?
Watch our tips for beginners videos available at youtube.com/IPAustralia.
Valuing Intellectual Property: an art or a science?
Valuing your intellectual property (IP) and what accountants refer to as ‘intangible assets’ is complex. It requires a realistic estimate of the cash your invention will generate in the future - not an easy task! If you are an inventor or entrepreneur wondering how investors will go about valuing (and pricing) your invention, here are some things to know.
Gary Cornelius, Leadenhall
Why value IP?
We are often asked: ‘Why value intellectual property?’ The main reason why an inventor would need to understand and estimate the value of an invention is to raise capital and be able to choose a method for capital raising that will suit them best. Once these decisions are made, the inventor has taken the first steps in ‘commercialisation’ – that is monetising the IP which encapsulates the idea and the technology.
The methods available to commercialise include:
- selling shares in the invention or the company which owns it
- outright sale.
In each case it is important to recognise the difference between ‘price’ and ‘value’. As the famous American investor Warren Buffet once said: ‘Price is what you pay. Value is what you get’.
The difference usually results from the relative negotiating skills of the parties or because the value to the acquirer or licensee is greater than the stand-alone value of the invention.
Academic and research institutions may also require valuations of projects to develop IP. This assists them to rank the projects so that scarce capital can be allocated most effectively.
There are many other instances where valuations are required for tax purposes, such as gifts made under the Australian Taxation Office philanthropy program and assessing liability for capital gains and stamp duty.
It is important to note that if your IP has been developed within a corporate structure (internally generated) you will not usually be able to revalue an intangible asset to its assessed value. However, if an investor buys it from you, it has been purchased ‘externally’ in an arm’s length transaction and the acquirer is allowed to record the IP at the purchased price including the uplift in value. This treatment may be counter-intuitive but at the present time this is how the reporting rules from the Australian Accounting Standards are set.
How do you value intangible assets like IP?
Accountants like to use ‘cost to produce’ to record the values of tangible assets, such as buildings and plant and equipment. Financial valuers – specialised professionals who value business and intangible assets – sometimes do this too. More often though, they are interested not so much in what you spent to develop your technology, but how much cash it will generate in the future. There is an analogy in the housing market: when an investor buys a property they are more interested in the cash it might generate in the future, both from rental and re-sale, net of outgoings and capital improvement costs rather than what it cost to build. It is similar for IP related assets. The value will be the income they can earn in the future after operating expenses and the capital required for research and development (‘R&D’) are subtracted.
Discounted cash flow
Professional valuers typically use discounted cash flow methodology or ‘DCF’ to value the estimated cash flow an invention might generate. In essence this process involves:
- building a financial model and populating it with the likely forecast net cash earnings over say, the next five years
- working out a growth rate for the balance of the invention’s life
- adding a ‘terminal value’ at the end of the period being modelled based on a stable growth rate.
Where the invention has a shorter market life, such as software, these time vistas must be adjusted accordingly.
The estimated cash revenue is then translated into current day dollars using a ‘discount rate’. The discount rate reflects the rate of return an investor would require for investing in this type of technology given its risk profile and likelihood of success in the targeted markets.
The lower the risk profile, the lower the discount rate and the higher the value; that is the arithmetic of the valuation model. To a large degree this is due to a high discount rate placing more weight on the earlier years when the capital is being spent researching and developing the technology and less weight on the outer years where the revenue is being earned.
For early stage inventions, the required rate of return is likely to be between 30 per cent –50 per cent. If an investor can earn around 12 per cent per year by investing in a balanced portfolio of shares on the stock exchange, they will require a much greater return to invest in your new invention.
In summary, the information the valuer will need to produce a meaningful DCF valuation includes:
- market size
- market share
- market penetration rate
- operating expenses
- further R&D required to bring the product to market
- royalty rate
- discount rate.
An alternative approach to DCF is to use capitalisation of future maintainable earnings or market multiples. In a way, the multiples method is really a short-hand version of DCF and assumes a multiple can be applied to a measure of earnings to value the asset. It is a popular approach for valuing companies in Australia and internationally. Media will often report that a company was sold on a certain multiple of ‘X times last year’s Earnings before Interest and Tax (EBIT)’.
This approach is better suited to valuing assets or businesses with a reasonably reliable income stream but less suited to IP where the revenue is volatile and may rise exponentially, for example a clinical trial is successful and triggers a milestone payment for a new pharmaceutical product under a licence agreement.
Never-the-less, multiples are sometimes used to value IP. For example, private equity investors may apply a multiple to an estimate of licence revenue in say, three years’ time once their due diligence has provided them with sufficient comfort that the forecast is reasonable.
THE LOWER THE RISK PROFILE, THE LOWER THE DISCOUNT RATE AND THE HIGHER THE VALUE.
What’s different about IP?
The valuation methodologies discussed above can be used across a wide range of intangible assets, shares, companies and businesses. Therefore what, if anything, is different about IP?
First, there is a wide range of intangible assets that comes within the ambit of the term ‘IP’: some are registerable (patents, trademarks, plant breeder’s rights, designs) and some are not (knowhow, copyright, customer lists).
Next there is the number of applications in which the invention can be used and the geography of the applications. This opens the door to licensing or sale by use and territory – that is, different transactions can be entered into for the same invention and there is scope for multiple licences or sales depending on what it is used for and where.
However, if you are going to license your invention to a commercial partner, you may not need a valuation at all. The information you need on market royalty rates and terms and conditions may be available by buying the right to search a private database which specialises in collating this type of information.
Briefing a valuer
What all this means is when valuations are undertaken either in-house or by external professionals it is important to specify exactly what is being valued. For example, is it just a patent or a patent combined with the know how that goes with it? Once you have decided a valuation is necessary be careful to give the valuer a tight, well-defined brief on exactly what it is you want. This will avoid confusion and reduce costs. Include:
- What is to be valued for example, a patent or a patent and know-how that implements it?
- Where is it to be worldwide or only in respect of a limited area?
- When is the revenue likely to be earned and will it continue at the same level once the IP protection (for example, a patent) has expired?
- Who will the IP be for – exclusive or non-exclusive use?
- How will it be applied – will the use of the invention be limited to certain applications?
WHEN VALUATIONS ARE UNDERTAKEN IT IS IMPORTANT TO SPECIFY EXACTLY WHAT IS BEING VALUED.
- Make sure the market data you provide the valuer regarding the level of sales, product pricing and the time taken to achieve the projected sales level is robust, realistic and can be justified. This is particularly important as you are likely to be using the valuation to support a price negotiation with a commercial partner. If necessary, be prepared to buy reputable industry data or to engage a market expert to prepare the estimates independently.
- Remember price is different to value. No matter how much time and effort is put into a valuation, negotiation with a commercial partner involves agreeing a price and the terms and conditions. The valuation may help set the parameters for the negotiation but it is only one component of a valuation.
- Use a qualified valuer who is experienced in valuing IP. It is a complex topic. For example, Chartered Accountants Australian & New Zealand (CAANZ) runs a Business Valuation Specialisation Program for its members who want to qualify in this discipline. Look for this type of accreditation from your valuer
Is valuation an art or a science?
In assessing value the professional financial valuer will look at:
- the past history of the inventor
- the company and its performance
- the reliability of the market estimates for product or service sales
- prices and the reputation of the expert who produced them.
They will also diligently apply guidance from the regulatory and technical bodies. However, they will equally be involved in forecasting the future, assessing the economic circumstances, determining the appropriate discount rate and employing technical adjustments for minority interests and the lack of marketability and liquidity in private company shares.
So, is financial valuation an art or a science? We’ll leave it to you to judge, but like many things in life, it’s probably a bit of both.
Learn about how to do an IP audit and value your assets.
Be vigilant, don't get ripped off
INFORMATION, INCLUDING CONTACT DETAILS, ABOUT PATENT, TRADE MARK, DESIGN OR PBR APPLICATIONS AND REGISTRATIONS IS AVAILABLE ONLINE.
Some people may use this information to send letters and invoices to you requesting payment for IP services that you have not requested.
See unsolicited invoices for a current list of companies that send these unofficial invoices and offers, and for examples of the invoices they send.
Before paying a fee for any IP-related service, we recommend that you carefully consider what, if any, value the service will provide.
Warning: These companies are not associated with IP Australia, or WIPO or the International Bureau (IB). The services offered by these companies do not provide official patent registration or patent rights in Australia or overseas.
IP – at the root of Australia’s wheat industry
With 2016 being the UN International Year of Pulses, we celebrate the Australian wheat industry and how valuing intellectual property (IP) in the development of new grain species has boosted the Australian economy.
IP has had a large role to play in moving wheat breeding from being almost entirely publicly funded in the 1990s to being completely funded by the private sector today.
Wheat accounts for more than a quarter of the total value of all crops produced in Australia. In terms of all agricultural commodities produced nationwide, wheat is second only to cattle. In the 2015/16 season, the Australian Bureau of Agricultural and Resource Economics and Sciences forecasted the gross value of wheat to be $7.45 billion, with exports worth $5.8 billion.
Western Australia leads the way in wheat exports, generating half of Australia’s total annual wheat production and sending more than 95 per cent offshore. A major export avenue for Western Australian growers is the wheat used for the production of noodles. One million tonnes of Udon noodle grain is exported to Japan and Korea every year at a value of $350 million.
The Australian wheat industry has gone through significant transformation in the last 20 years and the Australian IP Report 2015 shows innovation in wheat breeding is quite healthy. Over the past decade, Triticum (the scientific genus for wheat) has had the third highest number of plant breeder’s rights (PBR) applications submitted in Australia, behind only Rosa (roses) and Prunus (trees and shrubs).
The Plant Breeder’s Rights Act 1994 (PBR Act) allows an owner of a plant variety the ability to not only sell their variety, but also to collect royalties at any point in its use. This provision led to the introduction of end point royalties (EPR) in the years following the PBR Act’s ratification. For wheat growing, this is a royalty paid on the total grain harvested by the growers of a PBR protected variety.
Kerrie Gleeson of Australian Grains Technologies explained how EPR have invigorated the wheat industry saying, ‘Prior to the year 2000, 95 per cent of wheat breeding programs were in the public sector, either funded by universities, Grains Research and Development Corporation (GRDC) levies, or state governments.’
Moving ahead to the present day, Australian wheat breeding is now completely funded by the private sector due to the income generated by EPR.
Before EPR, royalties were paid to breeders when they sold their seed to farmers. Tress Walmsley, CEO of InterGrain, estimates that while a new variety of grain costs around $3 million to breed, under the old seed-based royalty system breeders only received around $50 000 per variety. This was a commercially unsustainable system and saw a decline in public investment for developing new varieties.
The EPR system radically changed the commercial value of developing new grain varieties in Australia. By deferring collection of royalties to the time of harvest, the initial cost of purchasing seed is lower.
An example of the EPR system in action is ‘Drysdale’, a wheat variety developed by CSIRO to cope with Australia’s low rainfall. Currently a royalty of $1 is charged to famers for every tonne produced. While this may not seem like much, considering the production of wheat averages around 25 million tonnes per year, the return from EPR really adds up.
Income received from EPR helps support the continuing research into developing new varieties and reduces the reliance on public funding.
The advantage of the EPR system is that plant breeders share the risk with farmers. If a harvest is low, for example during a drought, the farmers will be affected, and as a result the returns to the breeders through the EPR will be down. This gives breeders an incentive to develop varieties that are resilient and high yielding; the more successful the crop is, the bigger the return for both breeders and growers.
THE AUSTRALIAN WHEAT INDUSTRY HAS GONE THROUGH SIGNIFICANT TRANSFORMATION IN THE LAST 20 YEARS.
Wheat breeding in Australia is now a highly competitive industry. The major wheat breeding companies now have access to new technologies and resources through foreign investment and partnerships.
The EPR system in Australia has been dominated by wheat. The first EPR variety was released in 1996. Over 260 EPR varieties are listed for the 2015/16 harvesting season. Of these varieties, over 130 are wheat.
However, implementing the EPR system has seen its share of challenges. ‘When we first launched back in 1996…we actually had almost two competing systems’, Tress said. ‘We had one system commence in Western Australia which I was responsible for, and then we also had a company start an end point royalty system on the east coast.’
‘Initially each plant breeding company, each state government and each seed company worked independently. We really made the big gains when we came together and worked it out collectively’, she said.
The development of an EPR industry collection system began in 2007 when a number of Australia’s major plant breeding organisations formed the EPR Steering Committee.
‘The key component is working with the grain growers and listening to their feedback and making changes to how we collect the EPR so it is actually an easier system for them to utilise’, said Tress. ‘The industry standard license was one of our first achievements.’
The EPR is ultimately reliant on the honesty of farmers declaring the varieties they are growing. ‘Our system works in finding ways where the PBR Act gives you the level of protection you need, and you dovetail in contract law where you need some extra assistance’, added Tress.
The integrity of EPR collection is maintained in various ways, including harvest declaration forms and reports from grain traders and bulk handlers. An industry standard contract has also been developed to simplify the collection process. The competitive nature of the EPR system means farmers are given a choice when deciding on which grain to grow. If they are paying a royalty on seed they are growing, they want to be confident the crop is high yielding, disease resistant and suitable for their region.
Even though research and development into wheat has been growing in recent years, the industry faces ongoing challenges. While Australia has so far avoided the notoriously devastating Ug99, a fungal wheat stem rust which can cause entire crops to be lost, farmers do tackle other varieties of stripe, stem and leaf rusts across the country. Nationwide, 72 per cent of Australia’s wheat growing area is susceptible to at least one rust pathogen.
This highlights the importance of continued investment into the development of new wheat breeds.
‘We need the research to create high-yielding, disease and pest resistant agricultural crops,’ Professor Philip Pardey said, who was a keynote speaker at the 2015 International Wheat Conference held in Sydney.
The International Year of Pulses aims to raise awareness of the nutritional benefits of pulses as part of sustainable food production. The celebration is an opportunity to encourage connections throughout the food chain – and one Australian team of researchers is ahead of the game.
Murdoch University professor John Howieson is now working on a new licence structure for the upcoming release of lebeckia. This grain, originally from South Africa, is considered the ‘holy grail’ breakthrough to rectify the shortage of summertime feed for livestock.
The new National Innovation and Science Agenda will support further agricultural research both with research funds and through programs that bring together universities, researchers and producers. You can find out more at innovation.gov.au.
Read more about plant breeder’s rights and end point royalties.
Grow your business – grants, experts and tax incentives
Want to offset some of your business costs? Sure you do! Did you know there are a number of Government grants and assistance programs available to help Australian businesses develop and commercialise their intellectual propert (IP). Programs include incentives for research and development, small business support, tax and duty concessions and assistance for industries in transition.
Let’s take a look at three of the opportunities.
Research and Development Tax Incentive
As the Australian Government’s principal measure to encourage industry investment, the Research and Development (R&D) Tax Incentive is a targeted entitlement program helping offset some of the costs of R&D by reducing a company’s tax. It’s open to businesses conducting eligible R&D. The easiest way to find out if your business and your research are eligible is to visit business.gov.au and step through the questions in the Snapshot tool. This will also tell you the things you need to do to claim the incentive.
The Entrepreneurs' Programme helps increase the productivity and competitiveness of your business by providing access to expert support in the areas of:
- accelerating commercialisation - helping entrepreneurs, researchers and businesses address challenges in commercialisation as they seek to bring new products and services to market. You can access commercialisation advisers and receive dollar for dollar grants
- business management - providing advice and facilitation to improve your business capabilities and networks
- research connections - helping small and medium businesses access knowledge and engage with researchers.
You can find out more and sign up for updates at business.gov.au.
GPSports – IT solutions for pro sports
GPSports were the first in the world to offer the ability to monitor, analyse and act on the performance of individual sports people. With support from the R&D Tax Incentive GPSports will continue to lead the market developing even more sophisticated hardware and complementary software to assist sportspeople across the world.
'The R&D Tax Incentive is easy to access and has allowed us to develop past the technology, hiring more staff and reaching wider markets across Australia and overseas. We would not be able to develop technology like this without the R&D tax support we have received.' – Managing Director, Adrian Faccioni.
Export Market Development Grants
If you’re thinking of taking your business overseas or exporting your product or service, you may be eligible for the Export Market Development Grants. The grants reimburse up to 50 per cent of eligible export promotion expenses and even go towards the cost of IP attorneys and registration fees if you’ve registered your IP in another country. You can find out more about the grant at austrade.gov.au. We also have some useful tips about protecting your IP overseas at IP protection overseas.
There are a range of Australian and state and territory government incentive programs to encourage innovation. Remember to search your state government website and visit business.gov.au for an overview of the many grants available and to use the Grant Finder tool.
The new National Innovation and Science Agenda will also bring some exciting opportunities for business. These include the Business Research and Innovation Initiative (offering funding for the creation of new product solutions for specific challenges), the Global Innovation Strategy (providing funding for collaborations) and the expansion of the Entrepreneurs’ Programme. You can find out more about the different programs online at innovation.gov.au.
Australian Trade Marks Online Seach System
Whether you want to find out if a name or logo is already in use, browse similar trade marks in your field or see if your new product name can be protected by a trade mark — this is the place to search.
Visit the Australian Trade Marks Online Search System, ATMOSS.
IP in the creative world – design rights and copyright
Protecting your business’s intellectual property (IP) is an important part of realising your strategic vision. Without proper protection, your business risks competitors copying and profiting from your IP.
Every business, no matter how small, will own IP. For most designers, your creativity is your primary product. It’s the foundation of your business and protecting it should be a consideration.
Too often, designers believe they have copyright protection for their products and are disappointed when replicas of their work are sold by more established traders. Understanding the many facets of IP (and its limitations) is key to getting the right mix to protect your creativity.
With recent media coverage of large corporate entities copying small designer’s work, it should come as no surprise that more and more creative start-ups are taking notice of the value of their IP and seeking information to make informed decisions about IP protection and management.
So what’s the right IP mix for creative start-ups?
The most common IP right is copyright. It is also the cheapest because it is free! In Australia, copyright protection is automatic as long as the work is original and falls within one of the categories of protected material, such as artistic works like music, photography or content on a website. Copyright owners are advised to take a proactive approach to claiming their copyright by placing a copyright notice in a prominent place on their work. The copyright notice might include the © symbol, the name of the creator and the year the work was created. This gives others a clear signal that you claim that IP under copyright.
Design registration protects designs which have an industrial or commercial use. A design refers to the features of shape, configuration, pattern or ornamentation which give a product its unique appearance.
There are two stages to registering your design. The first is to submit your application, and the second is to have your design examined, which is optional. For a design right to be enforceable the design must be both new and distinctive. Unlike copyright, you will need to apply to IP Australia to register your design, and if you wish to enforce your rights you will need to have your design examined. If your design meets the criteria, you will be provided with a certificate of examination. Designs registration provides an initial protection term of five years that can be extended up to ten years.
The design application process can be managed alone if you take the time to educate yourself on the process and requirements; otherwise working with an IP attorney is recommended. There is one golden rule to remember – do not publish or exhibit your design anywhere before you apply.
This means no mention on websites, in social media, magazines or in exhibitions. Once you start marketing or manufacturing your design, you may forgo any chance of registering the design.
When should copyright be a registered design?
Let’s look at where copyright stops and a registered design starts. In a nut-shell, if you’re designing a functional product, like a cup, chair or handbag, your copyright protection ceases when the product is commercialised or you make multiple copies. From this point, if you have not applied for a registered design, you are unfortunately open to copycats and any opportunity to take legal action will be limited. You will generally be able to rely on copyright protection if you want to protect a 2D design, a ‘work of artistic craftsmanship’, or a design for an item that you haven’t yet started to exploit commercially. The Copyright Council of Australia has a wealth of resources and information sheets available at copyright.org.au.
EDUCATE YOURSELF ON THE PROCESS AND REQUIREMENTS.
How to apply IP rights to your creative business: an example
As a designer it’s important to understand how IP rights apply to your business and how you might take a layered approach to your IP protection. Imagine you’re a handbag designer. You make unique leather handbags targeted at the luxury market. Your bags have your logo embossed on the front and also carry your logo on a small leather tag inside the bag. You invest in professional photography and graphic design services to develop your promotional campaign and you plan to advertise via social, digital and print media. In this scenario you have IP oozing out of your business, so what mix of IP rights could you use to protect yourself? And is timing important?
Let’s look at the copyright and design intersection first. As the handbags are being produced for a mass market, they will not be protected by copyright. Assuming your handbags are new and distinctive and have not been published anywhere, then you should consider whether registering the design is viable. Application fees start from $250 per design. For more information about design application fees visit design time and costs.
Your logo is also embossed on your handbags. Like the leading fashion houses you can protect your logo with a registered trade mark. Let’s assume you’re only selling handbags, you could apply to register your logo in class 18, for handbags. Registering in one trade mark class can start from $420 and registration lasts for ten years, but you can renew it indefinitely. Having this registration in class 18 will also allow you to use that same logo on your website and other promotional materials without extending your registration to class 42 for website services or class 16 for magazines. Visit classes of goods and services and trade mark costs for more information.
PROACTIVELY PROTECT YOUR CREATIVITY AND YOUR BUSINESS.
Now what about your promotional material, photography and website content? This content will be covered by copyright. It is important to note that copyright is an automatic right provided to the creator of the content, so if you’re paying a professional photographer or graphic designer, you may want to negotiate to have the copyright assigned to you or have an exclusive license to use the copyright. Remember to read the terms and conditions of contracts when working with contracted service providers to make sure you are the only person that can use and benefit from the creation of that IP. Another thing to consider is if you want to include a confidentiality clause in your contract so the photographer or designer cannot disclose your images via their portfolio until you have decided if you want to register the design of your handbags.
Protecting your IP is an important aspect for all creative businesses. IP can be complex, however getting the right information, taking the time to educate yourself and seeking advice where needed will give you the best opportunity to proactively protect your creativity and your business.
World IP Day - Digital creativity: culture reimagined
How can we encourage innovation when our consumable culture is accessible anywhere at anytime? How can an adaptive IP system support creators in a digital market?
Join the conversation online with the World Intellectual Property Organization (WIPO) at wipo.int.
Shining a light on IP protection
Knog is one Australian company that has built up international success over the past 10 years. The name Knog is short for knoggin, an affectionate name for the top of one’s head (and where you would normally place your Go-Pro). The Melbourne-based company manufactures a range of cycling, action sports, outdoor, and digital products which are now sold in over 46 countries.
The story begins in the early 2000s. Malcolm McKechnie, a product engineer, and Hugo Davison, an industrial designer, set up Knog in 2002 as a project under the umbrella of their industrial design company, Catalyst. After a failed dot-com project using venture capital, they found themselves in debt and needing to recoup their losses. They were determined to get back to their core value of being creatively-driven rather than investment-focused, so chose to reduce stakeholders and grow their business organically by securing overseas distributors.
Wanting to make a difference by adding value to a brand, specifically through good design where there were no existing major benchmarks, the pair decided on bicycles. Knog began with a few bike light prototypes and one Australian distributor, which quickly grew in number to 16 following a trade show in Taipei.
BEAUTIFUL DESIGN, INSPIRING PRODUCTS AND COOL MARKETING.
Since then, the company, focusing on establishing products that offer new and exciting solutions to simple everyday problems, has grown with offices in Melbourne, Europe and the United States. Robust, environmentally friendly products for cyclists and adventurers was just the beginning of the journey to servicing the global market.
Focus on innovation
More than just about design, Knog describes itself as a living, breathing organisation with many loyal supporters. What sets Knog apart from competitors is not only the owners’ commitment to good design and quality but their passion for innovation, sense of fun, and refusal to conform to anyone or anything. They want their products to be a fresh alternative to what’s on offer in the marketplace, so product development is a key driver.
Knog’s products are designed in-house from a Melbourne studio by a dedicated group of electrical engineers, web developers and graphic designers. In the studio they cover every aspect from design and rapid prototyping down to the minutest aspects of product testing with a focus on durability and quality of product.
Knog products are made in China with exclusive distribution agreements delivering products globally to more than 46 countries. As with many other businesses, Knog originally wanted to manufacture in Australia but found most distributors wanted to buy from one port and China was the most logical. Around 10 different factories now manufacture Knog products.
Value of IP
Knog is aware of the value of protecting its intellectual property (IP), both in Australia and overseas, and has sought to protect the creative effort that goes into each and every product.
‘Apart from beautiful design, inspiring products and cool marketing, IP immediately follows as our sustainable advantage with remaining a competitive brand’, Knog Chief Operating Officer Malcolm McKechnie said.
‘Our patents protect the innovation and inventiveness that go into our products; our designs protect the unique appearance of our products and our trade marks help to identify the real products from the ‘Knog offs’.
‘From early on, we made a decision to protect our IP as best we could given budget constraints and not knowing which aspects of our brand will require protection. The thing about IP protection is you’re always anticipating what will happen in years to come. We have trade marks on our brand, our sub-brands and many of our product names.
‘Registered IP protection is important and it demonstrates to our competitors, supporters and followers that we are serious about what we do – serious about our brand, products, marketing and making a difference. Without IP protection we would not have gained the support and growth we have realised today’, he said.
In recent times Knog has become aware of a growing number of product fakes being manufactured in and emanating from China. As a result, Knog has put in place a strategy to identify these Chinese manufacturers in an effort to stamp out the cheap copies. This strategy has been successful to date resulting in several resellers ceasing to import these imitations.
‘We all know that most of the products we buy and use today emanate from China. So we also see most copies being produced in China and shipped to other countries where we sell our products. While the manufacturers may proudly copy products and see themselves as being quite clever in identifying a good copy product contender, they also stop selling product as soon as a design or patent document is waived at them’, McKechnie explained.
Enforcement strategies are a big issue so Knog is careful in assessing whether and what is the appropriate action to take. Knog recently had to take action against a Chinese factory that began distributing counterfeit copies of their bike lights. Legal action can be expensive so Knog has to be selective in taking such action. Even when a case is won, the returns sometimes barely justify the cost of legal action. They tend to concentrate on key markets and have learned a lot since engaging with attorneys on these matters.
Knog has found the value of protecting its IP is a powerful deterrent for many and good ammunition against those that clearly aim to copy.
‘IP protection is a peculiar beast’, Malcolm said. ‘You never know when you’re going to need to rely on it and it can be tough deciding which products and marks should be protected. We are not in a position to protect absolutely everything, so we have to make a judgement on where we spend the IP budget.
‘In recent years we have spent an annual US$200 000 – US$300 000 enforcing our IP. However, experience suggests that it is the high volume products that are generally the target.’
Knog used an innovation patent successfully in an infringement case involving a Chinese factory. An innovation patent is a relatively inexpensive form of IP protection. It has a shorter term of protection than a standard patent, eight years as opposed to 20, but offers the same level of protection as a standard patent (if it is examined and certified) in preventing others from copying your invention. An innovation patent is worth considering where protection is needed for an invention with a short market life that might be superseded by newer innovations.
Knog has also been able to combat infringers by enforcing the rights of their trade mark.
As the owner of a trade mark - or any other registered right – you have a range of legal and enforceable rights that allow you to take action against people or companies that infringe your right.
Knog has found that IP advice has been critical to its success. Malcolm explained that finding an IP attorney that understands your brand, products and direction – the things that matter in the market you operate in – are crucial.
‘In the very early days we made an attempt at submitting a patent application. We didn’t know what we were doing and didn’t understand the process. It soon taught us the importance of seeking expert advice – and getting GOOD advice. For example, don’t seek advice from a patent attorney that doesn’t specialise or have experience in those areas appropriate to your application.’
Another tip Malcolm offers is the competitive advantage of speed to market and marketing. ‘There’s nothing more powerful than speed to market and a powerful marketing presence. Be different and don’t rely on just the product’s merits. Get good, solid, experienced advice on IP protection.’
With the accumulated knowledge of light technology Knog has gained over the last ten years, it recently extended its product suite to include a range of dedicated video lights specifically for use with action cameras and smart phones.
COMBAT INFRINGERS BY ENFORCING YOUR IP RIGHTS.
Find out more about trade marks and IP protection at protecting your IP.
The ins and outs of alternative dispute resolution
When you have a registered intellectual property (IP) right it is your responsibility to enforce your rights. Sometimes that means you need to take action against a person or business who infringes your rights.
Alternative dispute resolution is a way of settling disputes out of court. It is when an impartial person helps disputing parties to sort out the issues before involving a court or tribunal. Alternative dispute resolution covers all processes other than judicial (court) or tribunal ones.
There are three main types of alternative dispute resolution processes:
- facilitative processes use a variety of methods to help parties identify the issues and reach an agreement, for example is mediation
- advisory processes use an alternative dispute resolver to more actively advise the parties about the issues and range of possible outcomes, for example conciliation or expert appraisal
- determinative processes use more formal techniques to inform the arbitrator who determines a resolution, for example arbitration.
A combination of these processes can also be used where a dispute resolver might play many roles. For example, in conciliation and conferencing, the dispute resolver may facilitate discussions as well as provide advice on the merits of the dispute.
Currently, there is no comprehensive or uniform legislative framework for alternative dispute resolution in Australia. There are many different laws in different Australian jurisdictions.
Why use alternative dispute resolution?
Compared to taking the litigation path, alternative dispute resolution can offer you:
- the ability to keep control of the resolution process instead of being bound by the formal litigation process
- a cheaper alternative (no court fees or legal expenses)
- a quicker alternative (no long drawn out trials)
- the results can be kept confidential and not used in any later proceedings.
However, achieving resolution can’t be guaranteed. It is possible that even after spending time and money on the dispute resolution process, you may still need to resort to the courts.
Contacting a dispute resolver
Resolvers can be contacted by either party involved in the dispute to begin alternative dispute resolution.
There are many national and state-based resolvers, and some of these are experienced in IP. For more information visit ag.gov.au and search for ‘access to justice’ or visit the ‘resolving disputes’ section of asbc.gov.au. You can also contact LEADR, the Association of Dispute Resolvers in Australia.
The World Intellectual Property Organization (WIPO) Arbitration and Mediation Center provides a range of services designed to resolve domestic and international disputes for IP and technology.
The WIPO Center services include:
- reduced-cost arbitration
- expert determination
- case administration
- assistance with selection of resolvers
- domain name disputes.
State law societies and bar associations may also help you locate either a dispute resolver or publicly available lists of dispute resolvers.
Trade mark classes: a guide to describing your goods and services
Did you know, when you apply for trade mark registration you’ll need to make a decision about what goods and services you are going to nominate? A registered trade mark is not intended to cover every type of good or service, just those things you will use it for in the course of trade.
When applying for a trade mark you need to indicate what you are, or are intending, to use your trade mark for, and apply for your trade mark to cover those things.
At IP Australia we use a classification system called ‘Nice’, which divides goods and services into 45 classes. Classes 1 to 34 are for goods and 35 to 45 are for services. Each class has a heading which will give you an idea of the goods or services covered. For example Class 25 is Clothing, footwear, headgear and includes a wide range of wearable items.
Before you start to apply for a trade mark, it’s important to think carefully about the goods or services you want protected, as once you’ve filed you can’t expand your list. If your business does expand in the future, don’t panic, you can file another trade mark application to cover new goods or services.
What should you claim?
A common mistake is applying for goods and services that aren’t really necessary; this can be expensive and mean you have a higher probability of conflicting with existing registered trade marks, reducing your chance of having your trade mark registered.
To help decide, think about the nature of your business and ask yourself:
What do people pay me for?
Let’s say you have a clothing start-up. Typically your application should be in Class 25 for ‘clothing’. If making clothes is your only activity, you wouldn’t need to register in any other class. ‘Clothing’ in Class 25 is a claim for goods and it covers you for selling the clothes you make in the course of business. However, if you open a shop and sell other people’s clothes as well, this would be a ‘retail service’ and you would have to consider a claim in Class 35. Or if you are a freelance designer, you might need ‘fashion design’ in Class 42.
Do I make goods or provide a service?If you are making your own designs you should claim the final product. If you’re selling other people’s designs you should claim retailing services.
Some applicants might ‘cover their bases’ by applying for both, just in case. There’s nothing to stop you future proofing your business plans in this way. But if you’re not using your trade mark for what you’ve claimed, you might be left open to a non-use claim, which could be quite costly and the application fees for trade marks are charged on a per class basis, so the more classes you apply for a trade mark in, the more fees are payable.
THINK CAREFULLY ABOUT THE GOODS OR SERVICES YOU WANT PROTECTED.
What do my customers and clients know me for?
This is a key question to ask yourself before you apply, because what your customers know you for are the areas your trade mark will apply to. For example if you are a coffee seller and have a website to sell your goods, your customers know you for coffee, not web services.
Unfortunately with such a variety of goods and services spread over the 45 classes, there can be confusion about what fits where. Let’s stick with clothing for the moment. While most clothing is in class 25, ‘protective clothing’ belongs in class 9. It’s important to be specific when applying, so you can get coverage for the right goods or services.
To get a sense of what things fit in what category you can use our trade marks classification search database which is a search engine for the Nice Classification System. This is a good place to start searching key words related to your product or service, it will give you a chance to try out some key words and learn about what classes might work best for you.
Start learning by exploring
We’ve made a lot of changes to the trade mark section of our website, including improvements to the tools to help you understand trade marks. There is a checklist of the things you need to research before applying, a price calculator, and Choose Wise – a series of videos designed to make your trade mark application process easier. The series highlights common questions people experience when applying. You can find the series on our YouTube channel at youtube.com/IPAustralia.
Check our trade mark with TM Headstart
A great way to assess whether the trade mark you want to use is available and able to be registered is to use IP Australia’s TM Headstart.
The Value of IP to investors
What does it take to launch a great business?
How do you convince investors to come on board?
There are numerous factors an investor will consider when deciding whether to back your business or not. Here are five common ones:
- a great founder
- a great idea or invention
- a scalable business - something that can grow big
- a competitive advantage and knowledge of your customer base
- intellectual property (IP) protection – patents, trade marks, designs and plant breeder’s rights.
Almost every business has some form of IP that it needs to protect. Whether that’s a unique idea, creation, service or branding, it’s no good if you can’t protect it. Why would investors want to invest in something that doesn’t offer them adequate protection?
IP has implications for nearly every important attribute in a business. Ideas – even great ones – are nearly worthless unless they can be protected. IP protection gives great ideas a fighting chance of working in the real world. IP puts a protective hedge around the future cash flows of innovative companies.
Investors care about IP because it makes your business defensible. IP provides future protection for business assets and in a start-up business it’s often the IP that the investor finances.
Likewise, IP protection strengthens a business’s likelihood of obtaining financing from investors and lenders because of the defensible competitive advantage. Investors can invest in your business and be assured that it has the rights to license, sell or commercially use the IP. This is because IP rights establish ownership and the rights to use that intellectual property.
You may have heard renowned Australian entrepreneur investor, start-ups mentor and ‘Shark’ on Network TEN’s Shark Tank Australia series Steve Baxter say, ‘the only value is in the IP’. An investor needs to make sure your business owns the IP for your idea and aren’t likely to face any opposition from other competitors or companies.
For Janine Allis, Boost Juice Founder and fellow Shark on Shark Tank Australia judge, her Boost Juice brand has always had a competitive advantage. Her company is protected by a registered trade mark which is then licensed to franchisees willing to invest money and labour into growing their own business.
Another company that uses their trade mark well is Coffee Club – read about how the owners have used IP to protect and grow their business in this case study.
Today, IP is important in virtually all industries. A part of the value of your business is the IP, so you need to know what it is and its value. You also don’t want to lose it to a potential competitor in the market, or be infringing on someone else’s IP. There are some simple steps you can take to ensure you’re not infringing the IP of another business as well as steps to help you stay on top of your IP rights. To view the steps visit IP Infringement.
No matter what type of investors a business attracts, they will want to know the IP has been safeguarded. Among other things, this means registering trade marks and applying for patents to protect inventions in all the relevant markets. If you have a new innovation or business idea, why not start with looking at the basics of understanding IP.
Disclaimer: This publication is designed to help you understand intellectual property issues. You should not regard this publication as an authoritative statement on the relevant law and procedure. You should also note requirements and fees may change from time to time. While we make every effort to ensure the information presented is accurate, you should check our website before making any application. While we can’t give you advice about your particular circumstances, we can provide general information and answer questions about our processes and fees. Commercial legal advice is best sought from a registered patent or trade mark attorney or experienced IP professional.
You may share and adapt the information in this publication for any purpose, as long as you attribute the material as follows: “This work by the Commonwealth of Australia is licensed under a Creative Commons Attribution 4.0 International Licence.”