As a startup founder, there are a number of issues vying for your attention on a daily basis, most of which are essential to the success of your business. Issues such as differentiating your product from competitors, developing stellar code, creating effective advertising, hiring the right staff and of course securing enough capital to fund it all. But how long have you spent planning an effective intellectual property (“IP”) strategy for your product? While creating the next “Big Thing”, it’s important not to overlook this crucial step because adequately protecting your company’s IP will not only help protect your brand, it will increase your competitive advantage, could help position your company as an appealing acquisition target and may increase your company’s valuation. For any savvy investor, due diligence into a company’s assets is a prerequisite to any substantial investment; for a tech company, this means that its IP assets will be scrutinized almost immediately. Therefore, incorporating an effective IP strategy into your company’s corporate development from the outset is essential to ensuring your most valuable assets remain protected. Below is a checklist of the types of IP protections most relevant for startups.
Don’t Publicly Disclose Your Product Before Evaluating its Patentability
If your technology can qualify for patent protection, and you decide that seeking patent protection is the right next step for your company (as opposed to protecting your proprietary invention as a trade secret, discussed below), filing a patent application should be your first step. Remember, patents only give you the right to exclude others from making, using or selling your claimed invention; patents do not give you the right to actually make, use or sell the claimed invention. This is why conducting diligence into your company’s “freedom to operate” (i.e., determining whether third party patents exist) is an important part of your product development activities. This is especially true in the saturated consumer electronics industry, where components of your invention may be covered under separate patents owned by others. If you hope to receive global protection for your technology, it is crucial that you file a patent application before making any public disclosures–and yes, this includes pitch competitions! This is because, in order to obtain patent protection in some countries, you must avoid disclosing your invention anywhere in the world before filing a patent application. Therefore, failing to file a patent application before publicly disclosing your product could have seriously adverse consequences on your ability to obtain worldwide patent protection.
- File a patent application before you publicly disclose your product.
- Determine whether other patents exist that impact your ability to commercialize your product (including its components).
- Reevaluate your patents regularly as your product evolves. When applicable, consider filing new patent applications on new features.
Register Trademarks During Entity Formation
Once you’ve made the decision to form a company, your first step is typically to register your company with the relevant business authority in your jurisdiction. In the US, this will be your state’s division of corporations or the secretary of state’s office. No matter where you are, one of the most important parts of this application process is registering and gaining approval of your company’s name. However, it’s important to remember that approval of your company’s name only prevents duplication of company names (and often only at the local level). Therefore, conducting a trademark search in target markets will help you determine if someone else is already using your desired company name or trademark. In other words, just because you’re the only “Born to IPO, Inc.” in your state doesn’t mean that “Born to IPO” isn’t a protected trademark. Building a recognizable brand takes time, so get a head start and file a trademark application for your company’s name and logo. Also, consider registering your domain name. This prudent step may save you from territorial trademark rights disputes with other companies unknowingly using the same or a confusingly similar brand, or even worse, from having your trademark or domain held hostage by cyber-squatters who may register domain names and file trademark applications after seeing your public disclosures. If you qualify, use the Madrid System to register your mark in nearly 100 countries via a single application.
- Save yourself the hassle of having to change your company’s name or logo by first conducting a trademark search.
- File a trademark application and register your domain name at this time to protect your company’s name, logo and web address.
Be Careful When Asking Your Best Friend to Help You Code
You’ve got your big idea, a registered entity and some cash. Now it’s time to focus on building and launching that minimum viable product. So you hire contractors, ask your best friend to pitch in and help you code and your cofounders work around the clock to try and get your product to market. When the dust settles, you’ll notice that a lot of the people who worked on your product are long gone– and sometimes on less than friendly terms. Without the right contractual protections, they may leave with the rights to the IP they helped develop. Therefore, don’t overlook the importance of putting in place contractual protections with contractors, founders and employees.
- Require all contractors, founders and employees to sign written contracts that include a present assignment of any IP they developed to the company.
Think Before Copying Code
Copyright gives the author of an original piece of protectable work exclusive rights for such work’s use and distribution. Among the types of works protectable are books, music, motion pictures and software code. Although copyright ownership is automatic upon creation of the original work, protection against infringers isn’t. For example, in the US, you can’t sue an infringer unless the copyright has been registered with the U.S. Copyright Office. Registering your copyright would also make you eligible to recoup statutory damages such as attorneys’ fees and court costs, and would allow US Customs to halt the importation of infringing or counterfeit works. If your country is a member of an international copyright convention (the Berne Convention and the Universal Copyright Convention being the two principal ones) or a bilateral agreement, your registered work may also benefit from copyright protection internationally. It’s important to keep in mind that it is extremely rare for any software product to be made up of code 100% owned by the distributor as most software is used under license. This raises two important issues to consider when reusing code: 1.) does the license you’re utilizing permit commercial distribution or use at all, and if so, to what extent? and 2.) does the license have requirements for redistribution? The latter consideration is common in Open Source Software (OSS) licenses, which typically require that you make attribution to the original developer, forward the underlying license terms with any distribution that includes the OSS and distribute derivative works under the same license (which in turn may require making your source code available).
- Where possible, obtain the full breadth of copyright protection for your original works of authorship by registering it with the appropriate copyright authority within your jurisdiction.
- Carefully analyze any reused code to determine the rights and obligations that come with the license.
- Avoid using third-party pictures, music, or writings on your website, marketing materials or products without consent as this could lead to costly disputes with the copyright holder.
Protect Your Sensitive Information
While patents are often viewed as the holy grail of IP, in reality patents can be difficult to obtain and enforce (especially for software-based inventions), there are numerous costs involved, and the quid pro quo of filing for a patent is public disclosure of the invention. Regardless of whether your IP assets qualify for patent protection, consider whether they may be protectable as trade secrets. Generally, trade secrets meet three criteria: 1. it is not generally known or ascertainable outside of your organization, 2. you derive a business advantage from the information not being generally known, and 3. you take reasonable efforts to preserve its secrecy. Unlike the other forms of IP discussed, no official registration procedure exists for trade secrets. Instead, rights are procured and maintained solely by the efforts you undertake to preserve the information’s secrecy. This means restricting access to sensitive information within your organization (including by employees and contractors) and limiting disclosure among third parties to those who have a need to use or review the information (including customers, suppliers and prospective acquirers). This can be accomplished via security measures (both technical and digital) and the use of written confidentiality agreements.
- Require all employees, agents (including executives and board members) and contractors who will have access to sensitive information to sign non-disclosure agreements.
- Construct physical and digital barriers to restrict access to sensitive
Although easy to overlook during the hectic early stages of establishing a business, a thoughtful IP strategy could provide serious value for your startup in both the long and short term. Consider the types of IP that will have the biggest impact on your business and consider whether patent, trademark, copyright or trade secret protection is appropriate. Considering the importance of a tech company’s IP assets to its viability, safeguarding your IP could prove to be the most important investment you make.