IP incubation: the FuturePlay approach
Patents can greatly increase the value of a start-up and its prospects of success. Korean venture studio and start-up incubator FuturePlay has developed a model for lean start-ups that does not shortchange patent protection
The value of start-ups comes not just from their stable, scalable and rigorous problem-solving skills, but also from their ability to rapidly realise small yet brilliant ideas. Ideas are crucial for increasing the value of start-ups – which makes it crucial to protect them. Patents and trademarks allow start-ups to protect their business, maintain their competitiveness and maximise their value. This article examines how the patent system works for start-ups, and discusses how FuturePlay functions as a start-up accelerator and how start-ups are growing up with intellectual property.
Historically, patents have provided an excellent system for inventors to protect their ideas in the market. One company which thrived as a result of the patent system was General Electric (GE). In 1876 GE was established by Thomas Edison and his colleagues at the first private institute for invention, Edison Lab. Edison and his colleagues obtained over 400 patents – GE’s present success stems from these patents, as well as a series of mergers and acquisitions. Another example is Dolby Labs, which specialises in audio noise reduction, audio encoding and audio compression. Dolby Labs’ success can be attributed to its 2,300 patents. Unicorn start-up GoPro is another testament to the importance of patents to the modern-day start-up – founder Nick Woodman wrote the company’s first patent after studying a book called Patent it Yourself by lawyer David Pressman.
Patents can dramatically increase the value of start-ups. For example, Nest Labs was acquired by Google in 2014 for $3.4 billion. This three-year-old company was valued at almost 10 times the average value of similar stage companies, due in part to its strategically developed IP portfolio. Nest Labs is not the only company whose IP portfolio has increased its value: Facebook has calculated that Oculus VR is worth $2.2 billion, while Swype was estimated to be worth $1 billion by Nuance Communications. All these stories emphasise the importance of patents for start-ups.
Start-ups’ strong arm
In terms of size and value, every start-up is different. Although there is no ‘one size fits all’ IP strategy for start-ups, there are some basics that apply generally. Intellectual property can play various roles at each stage of a start-up.
At this early stage, start-ups should share their promising ideas with customers, co-workers and investors. Often while the company is working on the idea, it has no tangible product to display. At this point, intellectual property can be a powerful tool which company owners can use to persuasively illustrate the future which they are pursuing and its expected value.
Patents give a company exclusive rights to claim its technology in the market. The earlier that companies file patents and trademarks, the better and more cost effective they are. Late filing can lead to serious trouble further down the line. For instance, ORDR.IN – an online food delivery service – successfully secured an investment of $1.4 million, but subsequently had to shut down its business due to patent infringement. Cash Slide and App Disco – a pair of lock screen ad companies – incurred severe financial losses as a result of infringement lawsuits involving cost per install technology. Further, Ticket Monster – a Korean online shopping service company – had to pay good money to acquire a trademark which it had initially failed to file.
Moreover, intellectual property can sometimes be used as a successful marketing tool. Twitter’s 2012 ‘patent pledge’ gained it a reputation as a high-tech company willing to contribute to the larger ecosystem. Tesla garnered significant media attention after opening up its electric car patents to the market – the move allowed it to advertise its technology almost completely free of charge. Such cases show how intellectual property can play a vital role in marketing and company branding.
At the exit stage, intellectual property can also add significant value to start-ups. Before its initial public offering, Facebook maximised its value and built a strong IP portfolio by acquiring patents, including about 750 patents from IBM and about 650 from Microsoft. Chinese transportation company Ninebot is another example of a company which enjoyed a successful exit thanks to the strength of its IP portfolio: it purchased Segway (along with its patent portfolio) after Segway had previously sued it for patent infringement.
Further, intellectual property can be used to pay off debt during liquidation. A strong IP portfolio retains its own value, even when the company that owns it is valueless. When online advertising platform Edigio was shutting down its business, shareholders were able to salvage a good portion of their investments by transferring their patents to Looksmart. One start-up in which FuturePlay invested, Sentience Inc, sold its patents to another company when it went into liquidation to pay off its debts.
Although other tasks – including team management, fund raising and development – are of course vital for success, these examples illustrate that a strategy to create strong IP portfolio is also crucial. Such a portfolio will not only help companies to take a strong position in the market, but also give them an edge when it comes to keeping their current competitiveness and achieving sustainable growth.
Start-ups and intellectual property
The patent system gives companies exclusive rights to technologies which they have submitted to the appropriate patent office. The patent office in turn opens registered ideas to the public so that others can then use these ideas. Although this sounds attractive – allowing companies to protect their ideas and society to reap the benefits of advanced technology – there are some technical barriers for early-stage start-ups. The first is the application fee and the second is the processing time. While the amount of the fee varies from country to country, application fees per se are a common financial burden for start-ups.
If a start-up plans to expand into foreign markets, it may want to build a strong IP portfolio in multiple countries. However, the cost of registering patents in multiple jurisdictions might well exceed its budget. Moreover, start-ups are sometimes unable to benefit from the patent system because of long delays in the processing of applications. Patent offices might take too long to review start-ups’ patent applications to effectively protect their technology or even their business in the market. These technical limitations have made many start-ups assume that the patent system is not for them and put IP strategies to the back of their minds.
Some IP experts with an understanding of these technical limitations have tried to fill the gaps in the current IP system. One possible solution is provided by venture capital companies which incubate multiple start-ups. The internal IP experts at such companies participate in the start-up evaluating stage as well as the IP development process. This collaboration makes it possible for start-ups to develop their patent portfolios without the high costs and for venture capital companies to maximise the growth rate of start-ups. With that, let us examine the story of Korean start-up accelerator FuturePlay to get a better understanding of this venture capital-supported IP development model.
From idea to intellectual property to start-up
An idea itself has little value in the market. A patented idea has more value; while a patented idea that has been proven in the market could have even more. The jump between a patented idea and a patented, market-proven idea provides the greatest increase in value. To this end, FuturePlay has designed an IP development model which accelerates the value of companies by developing a strong IP portfolio in tandem with a start-up’s product development process. This model maximises gains from investment by building up the patent value concurrently with the company value – in sharp contrast to how non-practising entities traditionally monetise granted patents.
FuturePlay is a Korean venture studio which incubates and invests in start-ups. It focuses primarily on start-ups developing advanced technologies, such as wearables, drones, healthcare, Internet of Things, artificial intelligence, finance technology and robots. So far, it has invested in about 30 start-ups globally, about 10 of which were established through FuturePlay’s internal incubating programme, TechUp. A TechUp IdeaBoosting session with internal inventors, IP experts, developers and patent attorneys provides start-ups with a flexible and professional IP development process, which is well suited to today’s agile and rapidly changing environments.
In recent years, Eric Ries’s lean start-up method has gained wide recognition and acceptance. Ries introduced a method of rapid, iterative development cycles designed to create a minimum viable product, which allows start-ups to interact with customers and in turn to enhance their business model. The key is to minimise unnecessary time spent on development, which provides the most cost and time-efficient start-up cycle. This model works by introducing a new idea and then testing it with rapid prototypes. It aims to find a profitable business model through iterative development and design cycles.
In the meeting room of an IdeaBoosing session
Lean IP design process
FuturePlay has developed a lean IP design process, which applies the lean thinking method to the IP development process. FuturePlay uses this process in both its IdeaBoosting sessions and IP ValueUp sessions. The IdeaBoosting session is designed to create a minimum viable patent (MVP) from raw ideas. In this session, all seed ideas are collected and MVPs are created from the core ideas. The IP ValueUp session then uses these ideas to generate various specifications and detailed scenarios reflecting market needs. This is especially useful when a start-up keeps its core technology, but changes its applications. At the end of the process, a start-up will have an IP package with several patents covering its product concept, system, application and business model.
The IdeaBoosting session starts with brainstorming. Developers from the start-up, IP experts, inventors and a patent attorney get together and figure out which questions to solve, sharing ideas for each company. All the ideas are instantly reviewed by IP experts in the meeting and then organised in a FutureMap report. This contains crucial information for companies to follow, such as current market conditions, target issues to solve, target users, potential solutions and technologies to use.
Every idea is filtered through a rigid prior art search and only those that make it through are selected for MVPs. Applications are then filed quickly as a form of provisional – to claim the idea with a lower filing fee – or a form of Patent Cooperation Treaty (PCT) application for the international market. When regular patents are required, applications are filed strategically in countries with lower filing fees (eg, the Korean Intellectual Property Office).
Start-ups have the freedom to alter their business models and products until they find the right fit for the market. The ValueUp session is especially designed for updating the MVP originally created during the IdeaBoosting session. In the ValueUp session, the MVP is updated and scaled up in an iterative cycle. This is where the key feature of Ries’s lean start-up model is applied to the FuturePlay IP development process. This updates or extends the MVP to reflect the updated business plan, while conserving its priority date. Such patents have the option of going global with the PCT. After a few iterations in this session, start-ups will have a solid package which encompasses their core technology in multiple potential markets.
In summary, the key feature of the lean IP design process, which includes both sessions, is to file an MVP containing just the core ideas and to update the MVP to reflect the adjustments to the business plan based on the target country. This process can be used to help start-ups to build up their IP portfolio in a more flexible, cost-effective way.
Lean IP design report
At the end of each successful lean IP design process, FuturePlay creates a lean IP design report to deliver the summarised IP strategies. The report can be a customised reference to build a specific IP strategy at each business stage. Generally it comprises three chapters:
- seed ideas;
- competitors’ IP portfolio analysis; and
- IP strategy.
The seed idea chapter lists the ideas brought up at the IdeaBoosting session in order to give start-ups the ability to refer to their previous ideas for extending their IP portfolios, depending on their future business plans. The second chapter is an analysis of potential competitors’ IP portfolio. This helps start-ups to understand their market position and the potential infringement risks they face. These resources are particularly useful when it comes to establishing a future business plan. The last chapter details customised IP strategies based on the data gathered in the IdeaBoosting and ValueUp sessions. The complete report helps start-ups to understand their strengths and weaknesses, as well as the opportunity to work on a strategy based on a given situation.
FuturePlay has successfully applied the lean IP design process to IP development for start-ups in its incubating programme, TechUp. Here are three interesting examples.
ab180: app advertising platform with deep links
ab180 provides an app advertising platform using state-of-the-art app indexing, app previews, deep link crawling and in-app content crawling technologies. While the company is pioneering the use of deep link technology for app ads, it was a little too late to claim the rights to its idea of deep links because the concept was already obvious in web technology. During the IdeaBoosting session for ab180, it was decided that the company should focus on future scenarios – including possible application for wearables, virtual reality and smart cars. As a result, ab180 was able to build a strong IP portfolio focusing on the future market rather than the current market. It focused its strategy to cover current deep link technology, as well as possible applications in the future.
An example of an IP design report
Luxrobo: programmable modular robot
Luxrobo produces a modular robot development kit for people trying to learn robot programming. The product is based on the personal experience of the founders, all of whom have received awards at several world robot Olympiads. Luxrobo’s rapid prototyping and efficient project management allowed the company to collaborate effectively with FuturePlay’s mentors during the lean IP design sessions. This in turn led to significant improvements in its business plans, as well as its IP portfolio. This case shows how hardware start-ups can grow their company’s value in the lean IP design session.
Fluenty: automatic reply message suggestion
Fluenty is developing an automatic machine to suggest a human-like response to any message on wearable devices. The machine composes natural messages by learning from conversation data taken from social media, such as Facebook Messenger, WhatsApp and Google Hangouts. Its service was recently highlighted as an alternative method for controlling in-car devices. Fluenty has an interesting founding story. When the current Fluenty CEO came to FuturePlay as a pre-entrepreneur, FuturePlay helped him to start the company with an idea patented by it. The patent inventor, Sungjae Hwang – the chief commercial officer at FuturePlay – has been involved with Fluenty as a co-founder and a part-time partner.
Fluenty’s story is significant because it demonstrates that an invention can become a company and not just a product. This company also provides an example of how an invention can be an attractive investment which enriches the industry ecosystem, rather than chilling it with a series of litigations.