- R. Scott Kimsey
Protecting Intellectual Property: An Easy Guide for Startups
NOTE: This article was written by Todd Baker, used with permission, courtesy of UpCounsel.
What Is Intellectual Property?
Intellectual property (IP) is a general term for the rights recognized by U.S law for creations of the mind, including:
Patents – rights granted to inventors for novel and useful inventions.
Trademarks – rights granted to businesses relating to the branding of their goods and services (company, product, and service names).
Copyrights – rights granted to authors for tangible expressions of ideas (art, literature, music, software code, architectural plans).
Trade secrets – rights granted to businesses relating to their unique and valuable intangible assets (business processes, client and customer lists, procedures, practices, formulae, research notes, market data).
Types of Patents
There are three types of patents that every startup should be aware of:
Utility Patents – According to the USPTO, utility patents are for inventions “… of a new and useful process, machine, manufacture, or composition of matter, or a new and useful improvement thereof.” Utility patents are for the protection of how an invention is used and works.
Business Method Patents – Business methods are also protectable under U.S. patent law. A business method patent is actually a form of utility patent that protects new methods of doing business, such as those used, for example, in banking, tax compliance, and e-commerce, to name a few.
Design Patents – Design patents, as described by the USPTO, are “Issued for a new, original, and ornamental design embodied in or applied to an article of manufacture.” A design patent, “permits its owner to exclude others from making, using, or selling the design.” A design patent may provide protection for IP when a utility patent is unavailable.
All three types of patents should be considered by a startup as part of its IP protection strategy.
Why Is Intellectual Property Important to a Startup?
If your startup or early-stage business has IP rights, you can:
Put the world on notice that you own those rights by registering them with the U.S. Copyright Office or the U.S. Patent and Trademark Office (USPTO), and by using the proper notice symbols on tangible materials that contain your IP (©, ® and Patent Pending).
Prevent unauthorized third parties (infringers) from unfairly competing with you by reproducing your copyrighted works, using confusingly similar trademarks on their products, making/selling products similar to your patented products, or stealing your trade secrets.
Use your IP rights to generate revenue by (1) directly selling copyrighted, branded, patented, or other proprietary products and services, or (2) licensing your copyrights, trademarks, patents and trade secrets to others in exchange for royalties.
Build joint ventures and alliances with other companies to develop and sell new products and services by combining your IP rights with intellectual property owned by your strategic partners.
Important Steps for Startups to Take for IP Protection
1. Engage an IP lawyer
IP rights function like government-sanctioned monopolies, and that exclusivity can potentially make them very valuable. For that reason, intellectual property law is complicated and imposes various requirements on IP owners to claim, protect, and preserve their IP rights (and to prevent IP assets from falling into the public domain — i.e., available for anyone to use without the owner’s permission). Your startup will need a reputable lawyer who specializes in IP law to help you devise an effective strategy for managing and protecting your IP, and to avoid the common mistakes business people make that can have serious legal and financial implications.
Because many IP rights depend upon confidentiality (for example, inventions that have been published prior to filing a patent application cannot be patented — see the discussion of “EPD” below), a lawyer is the ideal advisor for a startup since lawyers are ethically and legally required to keep all of your communications confidential. A non-lawyer IP consultant does not have strict confidentiality obligations unless you have a contract imposing such obligations.
2. Identify Your IP
Make a comprehensive list of every business idea, invention, new product or service concept (or any improvement or advance to an existing product/service), potential product name, slogan, logo, business process, market or customer niche, or other proprietary idea that you think your startup owns and is unique and potentially valuable. Your lawyer can help you figure out whether these ideas, concepts, inventions, names and business processes qualify as potential patents, copyrights, trademarks or trade secrets.
3. Make sure you own the IP
Before you can determine whether your IP is protectable (including, for example, by registering it in the U.S. or abroad) you’ll need to confirm that your company actually owns the IP (and can continue to own it if things happen in the future):
Do your former employers own the IP? If you and your co-founders created the IP for your startup while you were employed by other companies, check your old employment agreements to make sure that your prior employers do not have grounds for a potential claim. If you developed your new business’ ideas during work hours, or while using the prior employer’s resources, you could be at risk.
What happens if you and your co-founders break up? The startup should continue to own the IP even if one or more founders walk out the door. You don’t want a former founder setting up an identical competing business. Ask your IP lawyer to draft a simple Intellectual Property Assignment agreement that ensures the company owns the IP even if the relationship turns sour.
Have you given away rights in the DIY contracts you drafted? If your startup signed up customers or suppliers before hiring a lawyer (likely to save money), you need to have your lawyer review those agreements. Ask your lawyer to read through all of your existing contracts to make sure that you haven’t agreed to terms that grant more IP rights to your customers and suppliers than absolutely necessary.
4. Research Your IP
Once you have a list of your startup’s significant IP, you need to confirm the extent to which that IP is unique and original (and therefore legally protectable).
Search the patent records on the USPTO’s website to see if your invention (or something very similar) has already been patented. Then do a “prior art” search on the internet to find out if a non-patented version of your invention already exists. If your invention or an essential part of it is already in the patent records or out in the world, you will not be able to patent it.
Similarly, you’ll want to search the trademark database on the USPTO’s website and the internet in general to see if your startup’s potential business and product names are available. If similar names are already in use in the marketplace on similar products (or if similar names have been applied for or registered with the USPTO for similar products), those trademarks may not be available.
5. Avoid Enabling Public Disclosure (EPD)
As mentioned above, confidentiality is crucial for patentable inventions. Once an invention has been “publicly disclosed” by the inventor, she only has a year to file a patent application with the USPTO. The legal concept of enabling public disclosure (which helps determine what level of disclosure starts the clock running) means you’ve publicized enough information about your product to permit someone else in your industry to copy it. Trade shows, demonstrations to potential investors, press releases and articles in trade publications can be particularly risky for triggering EPD if you’re not planning to file quickly thereafter.
Your IP lawyer can help you avoid EPD as you develop and test your product.
6. Pick Your IP Battles
Money is in short supply for most startups, so you’ll want to map out with your IP lawyer what patents, registrations and other IP-related expenditures need to be prioritized over others. For example, you may decide that you will initially seek patent protection only for the company’s primary product, and protect other inventions as trade secrets using confidentiality agreements. Similarly, you may decide to initially register only the company’s main brand name as a trademark. Additional patents and registrations can often be deferred until more funds become available.
7. Protect Your IP from Investors
If are pitching your startup to potential investors in an effort to raise money, you will need to disclose at least some of your proprietary information to them. To avoid any loss of your IP rights, be sure to:
Keep careful records of exactly who has been given access to your private placement memo, business plan or slide presentations, and ask the potential investors to (1) confirm in writing, through non-disclosure agreements (NDAs), that they will not copy or share such materials with others, and (2) return or destroy all paper and electronic copies of the materials if they decide not to invest.
Distribute paper or electronic copies of your investor materials only to a limited number of pre-screened potential investors and their advisors. The fewer copies in circulation, the better.
8. Protect IP From Employees and Contractors
To prevent employees and consultants who work for your company from stealing your valuable IP assets and disclosing them to competitors (or starting their own businesses to compete with you), you’ll need them to sign NDAs to keep company information confidential, that is, not disclose company information to third parties. The agreements should also include an acknowledgment that all rights to the inventions or copyrightable material created by them while working for your company are automatically transferred to, and owned by, your company. (Your lawyer can draft an employee/consultant agreement template for you.)
9. Protect Your IP Globally
Many startups fail to recognize the importance of protecting their IP rights outside of the U.S. While applying for a patent in the U.S. is the right place to start, startups need to consider an international patent strategy if they believe their inventions will eventually be sold in other countries. As part of that strategy, startups should consider filing an international patent application (with the USPTO, if a U.S. resident) under the provisions of the Patent Cooperation Treaty (PCT.) A patent application via the PCT provides protection in over 100 countries for up to 18 months to allow for patent filings in those countries where protection is sought.
10. Consider a Provisional Patent Application
A provisional patent application is a document filed with the USPTO that establishes an early filing date for the subsequent filing for a non-provisional utility patent. It also allows for the applicant use the term “Patent Pending” in documents describing its invention.
Filing for the non-provisional patent must be done within 12 months of the provisional patent application. A provisional patent application requires inclusion of a specification, but is filed without a formal patent claim, oath or declaration, or information disclosure statement.
11. Consider Track One Prioritized Examination
The USPTO’s Prioritized Patent Examination Program (Track One) allows patent filers to expedite the examination and patent issuance process to less than 12 months. Track One prioritization comes at a substantial cost ($4,000 for large entities, $2,000 for small entities, and $1,000 for micro-entities). However, obtaining a patent earlier can provide a startup with several advantages, including a quicker resulting increase in company valuation, and the ability to obtain foreign patents in a shorter period of time.