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Why are intellectual property rights important especially for a startup?

After abandoning my usual nine-to-five desk job and expanding my working territory to various different startup incubators, accelerators and events, I soon realised that startups really play a different game from that of the more “regular” businesses. Here’s my choice of the most important reasons why it is crucial for a successful startup to take care of their intellectual property (IP) rights:

Valuation on the basis of IP rights

Firstly, just simple logic says that if you wish to acquire funding, your company has to be worth something. As a typical startup rarely possesses massive stocks of goods or divisions of workers, most of the value of a startup usually derives from their IP rights. It has been estimated that on the average, over 80% of the value of a startup company is based on their IP portfolio. Thus, it should be no surprise that successful modern startups usually have strong protection for their brand in place.

Don’t over-stretch your pennies

Secondly, way too many startups get caught up in worrying about the costs. Since the cash flow of newly founded companies is usually not humongous, it is just natural and even smart to carefully monitor your expenses. However, even at the risk of sounding like the biggest cliché ever, it has to be stated that unless your startup offers something that has zero production costs, you’re going to have to loosen the purse strings at times to make money. What most startups don’t consider, are the expenses that may derive from not taking proper care of IP rights. For example, launching massive marketing campaigns around a new product can become very costly if you’ve failed to do proper research around already existing IP rights. In the worst case scenario, all your marketing goes to waste, all the hypothetical goods are demanded to be destroyed and you might even need to reboot your whole brand with a different name.

Control what’s yours

Thirdly, you can’t control what’s not yours. Countless times I’ve heard the phrase “we do not care if someone copies us, it’s just free advertising!”, and countless times I’ve cringed. Sure, it is nice to have someone else promote your services or goods for free but what are you going to do when the quality of the copies does not satisfy your standards anymore? In many cases the answer is a simple “nothing” if you haven’t taken care of your IP rights.

To conclude, the importance of a strong brand has grown exponentially in the last years. The growth is the result of several factors, but I would personally “blame” it mostly on the spread of social media and development of information technology. These two factors together have created the modern atmosphere where brands can be brought in front of millions of people worldwide almost instantaneously and at a very little cost. As in the three examples above, this factor also has a flipside, as brands are now also vulnerable to misuse and copying on a significantly larger scale. Hence, now more than ever, it is crucial to take proper care of your intellectual property rights. After all, your brand can become someone else’s brand faster than you might realise.

Jerry Härkönen
Trademark lawyer
Papula-Nevinpat

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