Startups Need to Protect Their IP Before Disclosing Their Technology
August 30 2017 - Written by Husch Blackwell LLP - Max Ellenbecker
Intellectual property (IP) is a key component of almost every startup’s business. It can distinguish a startup from its competition, attract potential investors, and provide a foundation for future success. Because IP can be such an important part of a company, startups are often eager to disclose their innovations, technology and other IP when pitching their company to investors or when presenting to the public at events such as #TechweekKC. However, a startup’s failure to properly protect its IP prior to making these outside disclosures can have unintended and sometimes devastating effects. Below are just a few reasons why startups should strongly consider their IP protection strategy before revealing their IP to the public.
Investors will focus on IP assets
Before making an investment into any company, investors (whether angel investors or venture capitalists) will do their due diligence to evaluate the strengths, weaknesses and assets of a company’s business. One of the most important assets investors will examine for a technology-oriented startup is the company’s IP portfolio. IP assets provide a means for valuation, and investors want to see that a startup understands the significance of its IP, and that it has taken steps to secure its IP and create barriers to entry for competitors.
Securing IP rights commonly involves filing patent applications for inventions and patentable technology. Potential investors often ask whether a startup has filed a patent application for its key technology, or whether its product is “patent pending.” However, adequately securing IP rights can extend beyond patent protection and can include obtaining comprehensive brand protection through trademarks and domain names, protecting IP rights on a global scale, ensuring proper ownership of IP assets and establishing trade secret procedures.
Seeking to protect IP assets before any public disclosures or investor pitches allows startups to begin protecting their brand early and prevent unfortunate branding issues later on. One often overlooked component of a startup’s IP portfolio is the company’s brand. While building a brand that is recognized by customers and the public takes time, a startup can get a head start by filing trademark applications and registering domain names to protect its brand during the initial stages. However, failing to adequately secure rights in its brand may prove costly for a startup down the road. For example, cyber-squatters may see a startup’s public disclosures and register domain names (or potentially file trademark applications) covering the startup’s company name or product or service titles and hold them for ransom. Or worse, after beginning to establish its brand, a startup may later identify another company that is unknowingly using the same or similar name or product title as the startup. However, because the other company filed federal trademark applications, the startup may find itself if a territorial trademark rights dispute that could have easily been avoided by early trademark filings.
Global IP Protection
Seeking to protect IP assets before any public disclosures or investor pitches allows startups to consider how they want to protect IP in the global marketplace and prevent costly disclosures. Globalization and the ability to more easily reach markets and customers internationally has made IP protection in foreign countries a more important consideration, even for less-established startups. However, unlike the United States, which provides a one-year public disclosure grace period for patent protection, many foreign countries require what is called absolute novelty in order to obtain patent protection. This essentially means that if a public disclosure for an invention is made anywhere in the world prior to the filing of a patent application, then that invention is ineligible for patent protection in any absolute novelty country. For startups looking to make foreign patent protection part of their IP strategy, filing a patent application (such as a U.S. provisional patent application) prior to publicly disclosing any potentially patentable invention is a necessary and crucial step, and failing to do so can have seriously adverse consequences.
Requires an Internal IP Audit
Seeking to protect IP assets before any public disclosures or investor pitches forces startups to take a step back and consider their overall IP strategy, including identifying their key IP and the strategies necessary to best secure and protect their key IP. For startups primarily involved in patentable inventions and technology, a common IP strategy is to consistently file provisional patent applications for new inventions and improvements before making any new public disclosures. Provisional patent applications are a low-cost, informal method for preserving invention rights with the United States Patent and Trademark Office. While these applications are not examined, they provide a company a 12-month period to fully develop the invention and seek form protection through a non-provisional application. Startups can also use the term “patent pending” with their inventions covered by provisional applications during the 12-month window to let others know of their patent rights.
For other startups, trade secrets can be a more effective means of protecting their IP. However, trade secrets are protectable only to the extent that they are not known to the public. As a result, it is critically important for startups relying on trade secret protection to keep track of their identified trade secrets and establish trade secret protection procedures to maintain the confidentiality of their trade secrets and prevent any inadvertent disclosures. This includes identifying what information can be disclosed during pitches to potential investors or other presentations and what information must remain secret to the company.
Finally, no IP assets can be fully secured and protected without establishing clear ownership of the IP. Initial ownership of IP generally begins with the inventors or creators of the particular IP. Commonly, these inventors and creators are employees of the company, co-founders or third-party contractors. However, the fact that these inventors and creators are paid by the startup to develop the technology doesn’t mean the startup owns the technology. Therefore, in order for a startup to ensure proper ownership of its IP, the startup needs to obtain assignments from employees, co-founders, contractors and others who have participated in the development of any inventions, software, source code, brand names, websites and other technologies for the startup.