Intellectual Property

A new business that’s in its early stages has many important steps that the entrepreneur must take to grow the startup to success. Finding and hiring the right team, creating the structure, developing the product/service, and strategizing a go-to-market plan are these critical steps.

Entrepreneurs must also find the time to build relationships with potential partners, create sales channels, and bring investors that can fund the future.

Spending time and effort in these areas is the right to do for your business. In addition to planning their business strategy, entrepreneurs should devote time to creating an intellectual property strategy. Ensuring that your valuable design, inventions, technology has legal protection from competitors will alleviate problems in the future.

It is also true that enforcing IP is often too expensive for a startup.

This step is often missed by companies that are in these early development stages. We’ll talk more about intellectual property and how to protect your startup during this critical time.

What is Intellectual Property?

According to the World Intellectual Property Organization, intellectual property (IP) is defined as creations of the mind that are used in commerce. This includes such things as inventions, literary and artistic works, designs, symbols, names, and images.

Patents, copyrights, and trademarks protect intellectual property and its creators. There are many laws that protect intellectual property rights. There are various laws regarding different types of IP and these laws differ between countries, regions of the world, and international laws. This makes IP law quite complicated to navigate.

Why is it Important?

Startups aren’t dependent on their intellectual property alone for the company to find success.

It’s no different than if a college basketball has a great game that will elevate them to being part of the NBA. It’s common for the founding team in a technology company to trade secrets and hold other IP assets.

What happens if someone with this type of ownership leaves the startup?

You’ve put a lot of time, money, and energy into developing this innovation. Your company will use your intellectual property to generate sales and continue to grow. Ensuring that your IP is protected will give you the chance to make an equitable return. Protecting your intellectual property will provide these rights from a legal standpoint.

Investors and potential buyers also have a vested interest in a startup’s intellectual property. These assets are among the things that could help your startup receive a buy-out offer or investment money.

Types of Intellectual Property

Intellectual property can be something that’s tangible or intangible in nature. These are viewed just like the property rights of anything else. The owners of intellectual property have control over how it’s used. There are different types of intellectual property that can be put into three different categories:

·         Patents

·         Trademarks

·         Copyrights

Startup founders should have a clear understanding of each of these types so they know who to protect their intellectual property. Let’s go into each of these types of intellectual property to learn more.

Patents

The 1790 Patent Act created the first Patent Board that was regularly reviewing patents. This was later changed in the Patent Act of 1793 to a registration system. This makes patents among the first intellectual property types that were recognized in modern legal systems.

Patents are for inventions such as iPhone, which Apple owns the patent for. The owner of a patent gets exclusive rights over intellectual property. If anyone attempts to make or sell the invention, the patent owner can prevent it from being.

The period of time that a patent lasts for a limited time. This timeframe varies by the type of patent. The most common patent protection period is for 20 years from the earliest filing date. After this period ends, the invention can be used by anyone to make, sell or use. It Is called “off-patent” when this occurs.

Startups should learn about patents and their role to protect their business (inventions) from the competition and avoid exposing themselves to patent infringement by third parties such as competitors.

This doesn’t mean that should come up with a plan to hold a portfolio of patents. But they should understand the kinds of patent protections that are out there and how they may relate to their business.

One such category of patents is the design patent. This is a type of patent that could protect non-functional designs. For example, one of the most famous design patents is the curvy Coca-Cola bottle that was originally patented in 1915.

Process, articles of manufacture, compositions of matter, and machines are called utility patents. Inventions in this category include computer software, medical equipment, genetically altered life forms, chemical compositions, investment strategy, and improvements.

Trademarks

It’s hard to avoid seeing trademarks in our everyday lives. From driving by a Mcdonald’s with the golden arches to the Nike commercial that has their famous “Just do it.” line at the end. Trademarks are a symbol, design, phrase, word, or a combination of these that can be distinguished and recognized to belong to your company.

Creating and building a recognizable brand will help increase the effectiveness of your marketing and advertising campaigns. Consistent branding in your messaging will ingrain the symbol in the eyes of your potential customers.

The use of trademarks not only helps build brand awareness but will bring goodwill. Associating your brand with one that a consumer recognizes, and trusts will increase their confidence in your company.

Trademark rights can be obtained through use. The symbols “TM” (trademark) and “SM” (service marks) can be used even without registration to designate a product or service. The registered mark of “®” can only be used when the marks or slogan have been registered.

Although you don’t have to register your trademark rights with the US Patent and Trademark Office, it has certain benefits that should be considered. Without registering your trademark, your trademark rights will only apply to the geographic region that sells (or is marketed to) your product or service.  This protection only starts after the product or service is available to sell in this area.

You’ll receive nationwide rights by going through the process of obtaining federally registered marks. This protection also extends to imports from other counties. As the trademark owner, you can stop infringing products from coming into the U.S. through U.S Customs.

Copyrights

A copyright is protection for original works of authorship that in a tangible form of expression, including published and unpublished works. “Original works of authorship” mean that you can’t copyright titles, phrases, or forms.

As this definition implies, this protection includes things such as musical, dramatic, literary, and artistic works (novels, movies, songs). Copyright can also be used for computer software and architecture.

What’s important to understand is that copyrights only protect the expression of ideas. The ideas or concepts themselves are not protected. For example, let’s say that you painted an image of wild bears in the woods. The painting itself could be protected with a copyright. However, there’s nothing that stops other artists from painting their own picture of wild bears in the woods.

Registering a copyright is optional just like it is for trademarks. When your work is considered “tangible” through being written, for example, it is also copyrighted. The rights to reproduce the work and distribute copies are among the exclusive rights that copyright owners are granted by U.S. law.

Of course, there are significant benefits to registering your copyright. Let’s say that you want to file a lawsuit for copyright infringement with the legal system. This is also possible if you have gone through the process of registration. If you want to be compensated for statutory damages or attorney fees, you must also take this initiative. U.S. Customs can also stop importing items that are counterfeit or otherwise infringe on your copyright when it’s registered.

All materials that a business distributes should have the word “Copyright” or “©” symbol. The year of first publication, owner’s name, and “All rights reserved” should also be included. Any important materials should also be considered for registration in case there’s a future infringement, so the option of a lawsuit is available.

The startup should also ensure that they are the copyright owner in the cases that the work was created by an employee or a third party. The author by default will otherwise be the rightful copyright owner.

How to Develop an IP Strategy

Without formulating a strong IP strategy, your startup could be subject to distracting and expensive issues that be a drain on your limited resources.

Protecting your valuable assets will keep your competitors from competing unfairly against you and secure venture capital funding.

Here are three strategies that you can use to develop an IP strategy below:

Examine Your Assets and Determine the IP Protection to Pursue

To simplify the process of protecting your intellectual property, start with evaluating your core assets.

Identify the ones that are the most critical to the value propositions offered by your company. This cost-effective technique will target the assets that make the most sense to invest in protecting.

Make sure to do a sweep of all the different types of intellectual properties out there. We reviewed the most common types; Patents, Trademarks, and Copyrights. But there are also:

·         Trade secrets

·         Confidentiality Agreements

·         Confidentiality Agreement for employees and consultants

·         Terms of Service and Privacy Policy

Confidentiality agreements are particularly important because plan for. It’s inevitable that you will share your technology when showcasing your startup to potential investors and contractors.

Make Agreements with Your Co-Founders from the Start

When there is more than one founder, it is important to agree on the terms of your relationship with them. This applies not just to for the purposes of developing an IP strategy.

Clearly spell out in a written founder agreement things such as:

·         How much percentage each individual receives in the company

·         The roles and responsibilities of each founder and release of the IP to the company.

·         Salaries that each founder will receive

·         What happens to your IP when a founder leaves or the company is dissolved

Remember, intellectual property is an asset of the company, just like real estate. Company assets will typically get sold in an auction when a company is dissolved. If founders voluntarily agree to dissolve the startup, they must have an agreement about ownership retention. Otherwise, this intellectual property will get sold like these other assets.

You also want to make sure that the co-founders and any contributors release the IP associated with the work done to the company. Otherwise, the risk is that IP will be associated with the individuals and not with the startup.

Choose a Great Name

Branding your company effectively will be highly valuable as your start your marketing plans. Take care to decide on a name and logo that’s clear, memorable, and distinctive. Do a search on various websites including Google, the U.S. Patent and Trademark Office, and Secretary of State corporate (or LLC records in states you will conduct business), find what names/logos might already be out there. Also, check Godaddy.com to make sure that the domain name for your name is available to use.

Consequences of an Underdeveloped IP Strategy

Not having or under-developing your IP strategy could lead to serious consequences in the future. In fact, even promising startups make key IP mistakes that may lead to waste of money, disputes among co-founders, and failure.

Here are some of the common errors that startups make with their IP strategy:

·         Not seeking proper legal counsel – Funding may be scarce for some startups, which causes founders to handle the job of IP protection themselves. But hiring a qualified IP attorney will save money in the long run by putting it in the hands of someone who understands the complexity of IP protection

·         Using the wrong documentation – This is another mistake that often occurs when founders use the above DIY approach to their legal documents. Using standard forms for documents such as a non-disclosure agreement (NDA) won’t always capture the necessary protections for your IP.

·         Side-stepping IP practices to go to market faster – Instead of using standard IP processes to protect your IP rights, a startup rushes to market. This is a dangerous mistake that can open the risks of your IP assets being used by your competitors or be involved with a lawsuit for using someone else’s marks.

·         Not establishing clear ownership – Without clear ownership rights, there could be disputes about who owns the IP. Founders can delay the dissolution process by disputing who is the rightful owner. Potential buyers will also ask questions about ownership as part of their due diligence process.
A buyer may back down from an offer or reduce their purchase amount (if they are still interested) upon learning of these ownership issues.

·         Failing to create/implement an IP strategy – Even if you have a thorough IP strategy, if you fail to put it in motion, it will often have serious consequences. The reason that startups miss on creating or implementing an IP strategy is that fail to take a proactive approach and hire the right counsel to navigate the process.
There are just certain things that are done more efficiently and cost-effectively than doing it yourself.

After all, if you have never written a line of code, you wouldn’t create a software program to sell.

Lay a solid foundation for your IP strategy by engaging with an IP counsel that helps create and execute your IP plan.