Startup and Intellectual Property
Intellectual property gives you the legal right to prevent others from stealing the intangible assets which lie at the core of your business and affect the success or failure of your business. Hence, this is taken seriously by investors, who want to consider applying strategies to manage intellectual property assets. In the words of Mark Getty (“Blood and oil,” The Economist, March 4, 2000): “Intellectual property is the oil of the 21st century. Look at the richest men a hundred years ago; they all made their money extracting natural resources or moving them around. All today’s richest men have made their money out of the intellectual property,”
STARTUPS AND INTELLECTUAL PROPERTY:
Startups don’t usually have a significant asset base. They could include individuals with an innovative idea who are yet to begin a trade, or a small business, which has just started operating. If you have founded a startup, it is ironically this exact lack of assets that makes it vulnerable and hence, critical for you to identify and protect the assets you do have, i.e. your “intellectual assets.” This is because it’s your intellectual assets that will differentiate you, and become your USP, deliver your competitive advantage, and go on to drive revenue. Conversely, failure to identify and protect your intellectual assets can mean your business fails, generally because someone more established sees the business succeeding, and takes the essence of what is special about it- your innovation.
It could also be that you are inadvertently building your business around someone else’s intellectual assets, in which case they may simply require you to stop. How then do you protect your intellectual assets? The answer mostly depends on the type of intellectual assets. There are lots of different types of IP: copyright, trademarks, patents, design rights, and trade secrets probably being the ones you hear mentioned most frequently. People will often say: “But the business doesn’t have any IP.” This shows a basic misunderstanding about what IP is- it also pre-supposes that IP, like a physical asset, is something you always need to have in tangible form.
This article includes an overview of the different types of intellectual property and provides advice to startup companies on how to secure their own intellectual property as well as protect against intellectual property risks from others.
The three basic types of intellectual property that startups should understand are:
Not every startup business will be best served by investing its resources in building a patent portfolio, but the question of pursuing patent protection warrants a hard and early look. Knowledge of the role of patents is critical for two reasons:
- To protect your own business and invention from your competitors
- To avoid the risk of being exposed to assertions of patent infringement by competitors and other third parties
It is important for startups to understand the different kinds of patent protection and how they fit into their business.
Utility patents can be obtained for processes, machines, articles of manufacture, or composition of matter that are deemed new, useful, and non-obvious. The traditional subject matter of such utility patents covers tangible, technical inventions, such as improvements to client-server systems, motors, radios, computer chip, and various technical product features. For example, Boeing’s US patent no. 6,227,447 is a patent that covers methods of remotely controlling a vehicle. Patents can also be directed for new product features and functions. As another example, Facebook’s US patent No. 8,171,128, titled “Communicating a newsfeed of media content based on a member’s interactions in a social network environment,” protects its Newsfeed feature.
A separate category of patents, the design patent, may be sought to protect ornamental (non-functional) designs. Some examples of notable design patents include Apple’s D604305 covering the design of its iPhone interface and Lululemon’s design patent covering its yoga pants.
Trademarks take us into the world of branding. Trademarks serve to build brand awareness and business goodwill. They can impact consumer confidence in products by its association with a brand that the consumer recognizes and trusts. A trademark can be words, symbols, logos, slogans, or product packaging and design that identify the source of goods or service marks to designate products or services. However, only registered marks may be accompanied by the “®” symbol.
Although registration with the US Patent and Trademark Office is not required to gain trademark rights, registration provides certain important benefits to the trademark holder. For example, without registration, the trademark rights are limited to the territory and only begins after the product or service is available for sale on the market.
In contrast, federally registered marks provide nationwide rights. Registration also creates a prima facie case of validity of the ownership as well as an exclusive right to use the mark for specified goods or services. Once registered, the owner of a mark can stop the importation of infringing products through U. S. Customs.
Copyright is a form of intellectual property that protects the expression of ideas in the form of books, music, arts, photographs, architecture, and even computer software, etc.
However, while copyrights protect the expression of ideas, they do not protect ideas or concepts themselves. For example, a copyright can protect a particular photograph of a bird, but others may still create their own photographs of the same type of bird.
Another requirement for copyright eligibility is that the work must be “an original work of authorship. “Facts, titles, phrases, and forms per se cannot be copyrighted.
NEED OF IP STRATEGY
The challenge for founders of startups is that resources (financial and human) are generally limited, and so, hard decisions need to be made about how to allocate them. This makes it more critical that startups think about their IP strategy starting early on, and be clever to about keeping their costs down. For example, by keeping the details of their innovation confidential, an inventor can protect it as a trade secret, and so, defer the costs of applying for a patent until the startup is funded. By checking the assignment provisions in their agreements with consultants, a founder can ensure that the business owns the IP rights in the materials it pays for. Just because you pay for something to be developed does not mean you own it. Of course, the list of “easy if you plan for the” fixes goes on- formulating a clear and practical strategy to manage and protect your IP, and aligning this with your business plan is key.
A good IP strategy is based on the needs not only of the business in the present but also provides a framework for protecting the business as it grows. It will put simple processes in place to identify a business’s IP as it is created, then capture it, and finally protect it. It will also help a business in taking measures to check and make sure that it isn’t infringing on someone else’s IP. Protecting IP will mean different things to different businesses. It could mean protecting software, Al technology, furniture designs, or brands. It may involve preserving copyright and trade secrets or perhaps registering patents, designs, domain names, or trademarks.
Most startups will not have the luxury to apply and protect all of their potentially registrable IP rights at the outset. Financial constraints will mean that difficult decisions will need to be made regarding which IP rights or rights to prioritize. This is where a clear strategy comes into play. It enables a business to plan step by step and budget sequentially. Where the budget is insufficient and hard decisions need to be made, so long as this is recognized at an early stage, strategies can be employed to limit, or delay. Spend until the business develops.
While intellectual property issues may be something that gets brushed aside during the early stages of a business, developing a diligent and intelligent IP strategy early on is very important.
Startups should evaluate the types of intellectual property that can impact their business and strategically consider pursuing a patent, trademark, and copyright protection as appropriate.
Defensively, startups should also assess the intellectual property landscape of their business. That awareness should include clearance efforts to ensure that the company does not infringe the intellectual property of others, as it develops its products and services.