How hardware startups can protect their Intellectual Property (IP)

This blog series shares learnings from the ELEVATE program (see info below) for the benefit of the wider hardware community. Contributors to the content presented herein include: Matthew Pini - Pini IP and Vela Georgiev - HardworX.


Having an idea, or concept, for a hardware product is an exciting prospect. Knowing how to protect that idea, however, can be complex for those unfamiliar with the various forms of protection.


In a competitive global market, with rife counterfeiting, there are many potential pitfalls for new hardware manufacturers. Failing to properly protect intellectual property (IP) can be costly, damage reputation, and at worst, drive companies out of the market.


A strong IP strategy is important in any hardware manufacture journey. Below we cover what IP is, the types and value of IP, and IP ownership and protection.

What is IP


Intellectual property is the property of a person’s mind: essentially, new ideas that may have a commercial value.

Intellectual property (IP) may be seen as any product of the intellect that has commercial value.

Examples of IP include artistic works, trade secrets, product functionality, appearance and design. And there are many ways in which to legally protect these ideas:

​Legal right

​What for?

​How?

​Patents & Utility Models

(Limited - 8/20 yrs)

New inventions - any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof

​Application & examination


Designs

(Limited - 10/15 yrs)


​External appearance


​Registration


​Copyright

(Limited d + 70yrs)


​Original creative or artistic forms


​Exists automatically


​Trade marks

(Perpetual)

​Distinctive name/sign for products or services

​Use and/or

registration

​Trade secrets

(Perpetual)

​Valuable information not known to the public

​Reasonable efforts to keep secret

One product - many IP rights


A strong IP strategy takes into account the different types of possible protections and applies as many as relevant to the idea. This may mean that trademarks, patents, trade secrets, and copyright all apply to one hardware product.

Image source: EUIPO - One product, many IP rights


Value of IP


It’s important to consider the different types of protections and the different value they hold. Patents, for example, protect inventions and market share by maintaining product differentiation, but normally only last between eight and 25 years depending on the type. Trademarks, on the other hand, protect a brand, and can last forever––normally in ten-year blocks––and can increase in value as market recognition increases.

Establishing ownership and enforcing IP


While intellectual property can legally be protected: IP police don’t exist. That means companies must be proactive to both establish ownership and enforce it.


To ensure ownership can be established, it’s essential to keep records of creations and inventions––like sketches, documents, or code––these can act as proof. It’s also important to identify where IP exists and take the appropriate action.


Infringing on others IP is another aspect worth considering. Infringement can prove costly and cause huge ramifications for your company and products. Mitigate the risk by searching for potential conflicts as early as possible, identifying your own IP, and maintaining ownership records.


Some tips for establishing and enforcing IP

  • Keep records: sketches, documents, meeting notes.

  • Establish ownership early: include IP clauses in employment contracts, contractors agreements, manufacturing and supply chain agreements.

  • Remember: creation/invention IS NOT ownership. Who creates/invents is a fact not changed, but who owns can be changed at will.

  • If appropriate, take legal steps to establish IP ownership and protection.

  • Know how open source affects IP rights. Note: the two can co-exist.

  • Open Source does not mean that all IP rights are extinguished or to be ignored.

  • Releasing your own hardware and software under open source licences, or using hardware and software received from others under open source licences, can involve business and legal risk.

  • Hardware and software that is subject to an open source licence can also be subject to IP protection.

  • As always: do your due diligence.

In some cases, legal means are not possible––for example where a patent is granted, or because of cost. But non-legal strategies can be very useful in reducing the risk of IP theft.

IP and the global supply chain

Today most companies have a supply chain that spans multiple countries and, therefore, legal jurisdictions. IP laws differ from country to country. Therefore, you need to be mindful that filing a patent or trademark in one country does not protect a company’s IP in another country.


A common misconception is that IP protection is only for companies wanting to sell into a country. But, if you’re manufacturing in a country, then you are using your trademark in that country.


In some countries, the right to manufacture belongs to the company which owns the trademark. That’s because a ‘first to file’ principle exists: the most common method of IP registration globally. ‘First to file’ grants IP rights to the first person who files an IP application for protection of that invention, regardless of the date of actual invention.


That principle has proven challenging for many companies. Even Apple has been unsuccessful in filing its trademark in China due to being ‘first to file’. That’s why it's important to think globally and consider registering IP in the markets you are manufacturing in, as well as the markets you’re intending to sell in.


Tips:

  • Consider IP protection in the context of where your product is going to be manufactured as well as sold.

  • Keep in mind: the right to manufacture belongs to the company which owns the trademark (‘first-to-file’ principle). This exposes you to the risk of someone else registering your IP.

  • Foreign companies must register IP within a country to enforce IP rights in that country.

  • IP Australia has very accessible content and great resources on this topic.

Strategies to mitigate copying and IP theft

Consumer electronics are one of the world’s fastest-growing areas of counterfeit goods. Globally, in 2021, according to OECD, the counterfeit market is worth as much as $464bn. That accounts for 2.5% of total world trade.


Not developing a strong IP strategy exposes a company to many risks including:

  • Someone else registering your IP or trademark.

  • Unauthorised overproduction and sale of surplus stock by your supply chain.

  • Copying of your design by other manufacturers.

  • Copying of your idea by others who are capable of designing and launching a product quicker than you. Remember: in manufacturing, success comes down to speed and execution, not originality.

While some of these threats apply more to the final product, rather than subassemblies and components, it’s important to be aware of IP risks in all aspects. That way you can mitigate appropriately whether through legal means or from an operational standpoint by controlling for risk.


Keeping product information as confidential as possible will also help minimise the risk of copying. It’s a lesson, Melbourne based company, Knog, learned the hard way. Knog produces innovative products for the road, trail and outdoors. The company produced a new product, a bike bell, Knog Oi, and placed it on Kickstarter with hopes of raising AUD$20,000. In just 20 days, Knog raised AUD$1 million from almost 21,000 backers.


Image source: Kickstarter - Knog "Oi" campaign. Knog website: https://www.knog.com/


Unfortunately, while the Kickstarter was a huge financial success, it opened up the company to major IP issues. Firstly, Knog Oi, while an elegant design, was simple and easy to copy. Knog was plagued by copycats who used both product information published on Kickstarter and physical samples to create similar products: a costly, and challenging lesson. Over time, these hard lessons led to Knog developing a strong IP strategy leveraging both operational means and legal means, including brand positioning and trademarks. Since then, Knog has successfully enforced their IP to cease sale of copied products. Knog also changed the way they approached crowdfunding by only posting the minimum amount of product information on public platforms.

Key takeaways


Think about your IP strategy early

  • Think about your IP strategy early––not only from the legal perspective, but operationally too––as decisions around IP risk mitigation can influence product design and manufacturing. As part of your IP risk assessment, you might consider whether it is preferable to:

  • Split manufacturing between multiple suppliers or

  • Choose a supplier who can do everything in house or

  • Manufacture yourself if you want to retain control, be it of final assembly and testing or an IP critical subassembly

Then make product design decisions, modularity and sub-assembly design, which support one or all of the above.


As an example, LIFX, founders of world-first WIFI controlled LED lights, chose a supplier which could produce every aspect of the lightbulbs in-house. This gave LIFX quality control while making it easier to manage IP risk in the supply chain. As a general rule: the more outsourcing that occurs, the greater risk to IP.


Think global

  • Think globally, not just from an Australian mindset. Consider IP risk throughout the supply chain.

  • Apply best IP practice for the country in which you are intending on manufacturing.

  • While a non-disclosure agreement is sufficient in Australia for some supplier relationships, it is not best practice on a global scale.

  • There’s not just a risk of confidential information exposure, but the appropriation and misuse of your confidential information to create competitive products.

Do you homework

  • When it comes to finding a manufacturing partner:

  • Before reaching out, always perform due diligence.

  • Share the minimum amount of sensitive information necessary, particularly when getting quotes.

  • Make factory visits an essential part of your supplier due diligence process. That way you can see firsthand their capabilities, get a sense of company culture, and see how they manage client IP and information sharing.

Be proactive and future-proof

  • During contract negotiations, consider if the manufacturer is providing value-add services that might be contributing to the generation of new IP. If so, your manufacturing agreement should specify that the new IP is assigned to you.

  • Pay for tooling and nonrecoverable engineering costs (NRE) upfront. This ensures there’s no undisputed ownership of the tool and that the tool is manufactured exclusively for use.

A strong IP strategy is important in any hardware manufacture journey. In a competitive climate, known for counterfeit goods, entrepreneurs, startups, and SMEs need to protect their ideas––and to do so early in the development process. Considering IP too late can mean costly price wars, being driven out of the market, and missing the opportunity to file the first trademark. A rigorous IP strategy is global, takes into account the entire supply chain, protects sensitive information, and is proactive, rather than reactive. With the right strategies, your ideas can, and should be, protected.

Additional Resources

About the ELEVATE program


Elevate is an innovation education series developed and delivered by HardworX and Western BACE, and supported by LaunchVic. It’s hardware content for hardware innovators, by hardware innovators. As a community-driven event, Elevate engaged with stakeholders across the hardware innovation ecosystem to design and deliver bespoke content. Elevate consisted of meetups, masterclasses, and bootcamps to help startups scale, anticipate risk, and establish manufacturing. This blog series shares learnings from those events for the benefit of the wider hardware community.