Five Intellectual Property “Landmines” Startups Face

August 16, 2013

(as published in Upstart Business Journal)


What This Means To You

  • Startups cannot afford to ignore IP issues
  • Consult with an IP attorney to ensure your company does not make common mistakes like:
    • Adopting a brand or technology owned by another entity
    • Waiving valuable IP rights through public disclosure
    • Unknowingly licensing your IP via Open-Source Software
    • Forgetting to document that IP generated by employees and consultants is owned by the startup
    • Failing to develop IP to help attract investors

Turning an idea into a business requires significant focus, time, and energy. Because intellectual property (IP) could one day become your startup’s most valuable asset, you cannot afford to ignore it – even if you are “too busy” or underfunded. Think of protecting your startup’s IP as investing in its future.

The following landmines are some of the biggest and, unfortunately, all too common mistakes startups make:

Launching Before You Look

Sometimes a startup will unknowingly adopt a brand that is already being used by another company. Doing so opens the door to being sued or could limit your company’s ability to use its trademark. Searching Google and the U.S. Patent and Trademark Office (USPTO) database won’t always uncover someone’s prior use, nor will working with a branding consultant. The best approach is to speak with a trademark attorney about a clearance search before you adopt a brand.

On the technology side, you won’t know whether your startup is commercializing technology that is already patented unless you obtain a “freedom to operate” search. If there are issues, launching before you look might land you in a patent infringement suit or kill deals with serious investors whom, you can be sure, will do their diligence. Understanding the patent landscape early on gives you time to look for solutions, if needed, like design changes or licensing options. You might even pivot into a partnership or acquisition opportunity instead of a battle in the market and the courts.

Failing to Understand What to Keep Secret

When you disclose an idea to the public, you risk waiving related trade secret and patent rights. Trade secrets are only enforceable when you have taken steps to ensure they are – and will remain – secret. While you have up to one year from a public disclosure to file a patent application in the U.S. (and some other limited jurisdictions), there are significant risks in disclosing an idea before you file for protection, including another inventor beating you to the USPTO or potentially killing your rights outside the U.S. An IP attorney can help you understand what can and cannot be said and done before legal protections are in place.

Believing Open-Source Software is Free

Open-source software (OSS) is an incredible resource, but it is not “free.” By using OSS, you may be entering into a license. Depending on the OSS, others may have the right to distribute the software your startup just developed without concerns about copyright infringement. Other OSS tries to grant patent rights necessary for another’s further use and distribution of your code. This might sound utopian, until you gain traction and a competitor shows up and competes against you – using your own software.

Ensuring Your Company Owns its IP

Ensuring that all the IP generated by your employees and consultants (staff) will be owned by your startup can be tricky. Generally, IP rights are attributed to the creator of the IP. However, a variety of different doctrines may either give your startup a presumptive right to use IP created by your staff, or may even transfer ownership of the IP to your company. The issues vary depending on the (1) type of IP at issue (e.g. patents, trade secrets, trademarks, copyrights, etc.); (2) the creator’s status (founder/high level employee, lower level employee, consultant/independent contractor, etc.); as well as (3) the terms of any agreements or binding policies in place at the time of the creation. Do not risk ending up in a situation where someone is suing your company (or competing against it) using IP they developed for it. Talk to an IP attorney to ensure the proper documentation is in place well before any disputes.

Failing to Develop Any IP to Attract Investors

Investors like assets and barriers to entry since they provide security and leverage. If your startup does not have any IP, it might be penalized by receiving a lower valuation when looking for an investment. Depending on the business, it might even be challenging to find a significant investment without IP.

Educate yourself so you can make deliberate and informed decisions about your startup’s IP. Even if you lack the funds for certain protections at the moment, you might be able to preserve your IP rights for pursuit in the future.

  • Adopting a brand or technology owned by another entity
  • Waving valuable IP rights through public disclosure
  • Unknowingly licensing your IP via Open-Source Software
  • Forgetting to document that IP generated by employees and consultants is owned by the startup
  • Failing to develop IP to help attract investors