How Startups Can Avoid Costly IP Mistakes
Most startup entrepreneurs spend a significant amount of time creating business plans, product development plans, marketing plans, etc. However, startups often neglect one of the most important aspects of planning — developing a plan for the company’s intellectual property (IP) to minimize risks to the company’s intangible assets. This oversight can be a critical mistake that can doom the startup. To help avoid IP headaches down the road, here are some IP tips that every startup company should consider.
Don’t Confuse Which IP Is Necessary for Your Intangible Assets
Not all IP is the same. Different IP options offer different protections, so it is important to understand the distinctions. Generally, these are some key areas of IP to consider:
Patent protects the idea.
Copyright protects the expression of the idea and requires the memorialization of the idea on a tangible medium.
Trademark protects the logo or the name and acts as an identifier of the source of the product or services associated with the logo or name.
Trade Secret protects anything that is confidential or proprietary.
Incorrectly pursuing the wrong IP protection can be costly and can place your company at risk. More often than not, entrepreneurs are faced with having to decide whether a patent strategy should be implemented or if trade secret is sufficient. The answer is – it depends. Each offers different types of protection with distinct benefits and risks, so you will need to decide which path is right to meet your business goals. It is always best to seek the advice of an IP attorney in this respect.
Avoid Public Disclosure of IP
Inventors may inadvertently jeopardize their ability to successfully apply for or be granted a patent by disclosing information about the invention to the public. Three typical situations to make efforts to avoid are:
Research and Development (R&D) in the Open
With the proliferation of co-working spaces, many companies are conducting R&D in the open and making their prototype available for all to see. This practice can be considered a public disclosure and will likely foreclose patent protection in most of the world. The United States affords a grace period of one year to file for patent protection, but consider avoiding doing research in the open.
Publishing or Presenting your Innovation Too Early
Companies sometimes publish or present their research early to showcase their innovation, which is often the core technology around which the company is being built. In other instances, to fundraise, companies may meet with investors who often refuse to sign a non-disclosure agreement (NDA). In either instance, the one-year clock for protecting IP will have started ticking, while protection in most of the world will likely have been foreclosed. With this in mind, it is important for companies to file the innovation with the United States Patent and Trademark Office (USPTO) before doing any presentations.
Discussing Innovations You Plan to Pursue
Even after a patent application is filed, any presentation or discussion should be limited to the subject matter that is in the filed patent application. Also, during an interactive presentation or discussion, be aware of unintended brainstorming sessions between yourself and the other party. This type of discussion may result in an invented concept not previously in the patent application being discussed with or suggested by the other party. In such a situation, the inventive concept is now publicly disclosed, and the other party is now a co-inventor in the new inventive concept.
Remember to Secure IP Ownership Up Front
To help ensure the company has complete ownership of all IP assets, as soon as the company is incorporated or formed, all relevant IP should be assigned to the company.
Many companies don’t consider IP early on and do not have proper assignment agreements in place. If a founder leaves the company, and there is no assignment agreement, that founder owns the IP outright and can take it to a competitor or start a competing company. What can help avoid this situation is making sure that all innovations are assigned to the company as soon as the company is formed.
Similarly, companies should consider putting an assignment clause in the employment agreement stating that the company owns the IP generated during the course of employment. The assignment clause should include the magic phrase, “I hereby assign.” By having an employment agreement with such an assignment clause, should the employee leave before an assignment agreement is executed for an invention, the company can rely on the employment agreement to show proof of IP ownership.
If trade secret is an IP strategy or if there is a robust culture of exchanging ideas in a company, having a confidentiality protocol in place can protect the company from inadvertent public disclosure. At a minimum, every startup company should consider including the following provisions:
Making sure appropriate content is marked as confidential and educating employees on the risks of publicly disclosing the information;
Having written agreements with employees and outside contractors that require them to maintain business confidences.
Implementing policies that place limits on the extent to which employees may transfer sensitive material to personal devices (e.g., rules against sending material to a personal email address).
Steer Clear of Using Content and Resources from Previous Employer
As an entrepreneur, “borrowing” trade secrets, know-how, customer lists, etc., from a previous employer is strictly prohibited. In most cases, you likely signed an employment agreement with your previous employer that prohibits you from using such information to compete. If there was a non-solicitation provision in the employee agreement, you also cannot hire any talent from the previous employer to your new company. Violating either of these provisions can place your company in jeopardy even before it starts.
Make Sure Domain Name and Trademark are Available
In an effort to avoid wasting time, effort, and marketing dollars in branding your product and/or venture, you can make sure that the domain name you want is available first before deciding on a trademark for your product or venture. Without that domain name, having a trademark that your customers cannot easily associate with your product or venture can be a detriment to your business.
Likewise, performing a clearance study to ensure that your trademark is available before spending resources on a branding campaign can be helpful. It would be unfortunate if you were to find out late in the process that a competitor has a same trademark for a similar product. The costs associated with undoing and redoing a branding campaign can be significant.