By Edward J. Russavage and A.J. Tibbetts
Developing an intellectual property (IP) strategy early in a startup’s life is critical, as mistakes risk impacting valuation and long-term viability. This is easy to say, but any startup knows it needs to be judicious with its resources. Most startups’ IP portfolios will therefore not be getting the “Cadillac” treatment; instead, choices need to be made on how to invest time and resources.
If these IP choices are not tailored to each startup’s industry and business plan, crucial resources can easily be wasted. Worse, early waste on IP risks raising additional costs later, causing a cascade of expense that may hit a startup just when it is at its most fragile. Good IP counsel will help make those tough choices based on a deep exploration of the business, to get each startup the best bang for its buck.
The Need for IP
Early in its life, a startup’s most critical asset may be its ideas, and retaining value in the company may be all about preventing these ideas from being copied or stolen by employees and competitors. This is where IP can help.
Some IP may be inward-facing, like inexpensive agreements covering anyone contributing ideas or sweat. Informality might be free in the short term, but prohibitively costly over the long run, like having to buy rights from a friend who eagerly helped one day but later wants a significant payout when acquisition is on the horizon.
Other IP may be outward-facing, such as trademarking the company’s brands to prevent others from poaching customers using deceptively similar names or logos, or patenting a product idea to prevent emergence of rip-offs once the market is mature. Because such outward-facing IP can be leveraged in multiple ways, it’s easy to misdirect funds.
The complex process of choosing how to protect a business’s unique situation is called IP strategy.
IP Strategy
Intellectual property is a business tool, and like any other tool, it should be used only when appropriate. Many vendors can cash a check and write a patent application. Good IP counsel will ask whether you should even file a patent application.
Building a strategy will include identifying a company’s competitive advantages, how it and its products differ from the competition, and how it generates (or will generate) revenue. A business plan timeline may also be key, to ensure that IP will be protected when needed.
Only after this deep dive through a business plan can IP counsel begin developing a strategy that will allocate resources where they will provide the most value to the company, and eliminate waste.
Intellectual Property Types
IP counsel will help choose how to use IP, but knowing the types may help make that discussion a collaboration.
Copyrights
Copyright usually brings to mind the arts, but it can protect design choices reflected in a product. For example, copyright may protect software code, or the look and feel of a product.
Generally, copyright protection is automatic. Registering a copyright with the government provides several advantages related to lawsuits, but few startups are planning litigation. Delaying or even avoiding copyright registrations may be best for many startups, while others may strategically file registrations for elements that may be most at risk of copying.
Patents
Patents provide the broadest and strongest IP protection, but because this strength is often accompanied by a high cost, any patent filing should be closely aligned with business strategy to ensure funds are well spent.
It’s best to focus on the key differentiators between your product/service and the competition, rather than merely trying to file a broad patent. Filing “provisional” applications can reduce short-term costs, but also always risks later costs, so you should ensure it is the right option. Filing early is another significant way to reduce long-term costs, including opportunity costs. Unless a patent application is filed first, any sale or disclosure of an idea outside the company may make patenting more difficult or more costly, particularly internationally.
Given the high expense, the decision of whether and where to file outside the U.S. should always be driven by where the company plans to compete, and different options for those filings, including “PCT” (Patent Cooperation Treaty) filings, should be explored based on both short- and long-term goals and costs.
Trademarks
Trademarks protect the “buzz” around a company, including its brand names and logos, and prevent competitors from deceiving customers using similar brands.
Some startups may try to register trademarks associated with each product/service they offer. But brands and products come and go, and while registration has significant advantages, trademarks benefit from an automatic protection similar to copyrights. Prioritizing registration for key names and logos and delaying registration of other marks may help startups reduce costs.
Significant costs may also be avoided by carefully choosing brands before starting marketing or other publicity. For instance, prior use of a mark by other companies can trigger a costly trademark or domain name dispute. Performing low-cost trademark searches early may eliminate this risk.
Trade Secrets
Trade secret protection is often misunderstood. Only some types of information may be protected, and there can be a very high hurdle to keeping the information truly “secret.” Perhaps one of the most costly mistakes a startup can make is assuming they have trade secret protection without investing the necessary resources. If insufficient steps are taken to maintain “secrecy,” there may be no recourse, or only more costly options, when valuable information leaves the company—significantly hurting the company’s business strategy or valuation. An inexpensive conversation with an attorney can help avoid this risk.
Key Strategies
Two strategies are paramount for startups to ensure cost savings. First, don’t ignore IP issues in the early stages. Doing so may cause more serious issues to develop later down the road, when they are more difficult and more costly to resolve. Second, rather than jumping to an investment in a particular kind of IP, take the time to develop an IP strategy and ensure you are not wasting crucial resources.
Edward J. Russavage and A.J. Tibbetts are shareholders at intellectual property law firm Wolf Greenfield. They can be reached at [email protected] and [email protected], respectively.