Intellectual Property Punch List for Startups
When you create, design, or invent things, the rules of intellectual property (IP) determine who owns your creations, whether or not you can prevent other people from copying them, and whether or not you yourself can use them freely. If you are starting a company, you should know enough about IP to make intelligent decisions about your business to add value and reduce risk.
IP law is esoteric, arcane, and often counterintuitive. Normal business assumptions do not always apply, and can prove to be dangerous. Aggressive, thoughtful management of your IP portfolio is a sound business practice, and you should start as early as possible.
You don’t have to know a ton about the theoretical philosophy or legal underpinnings of IP in order to use it effectively. As you begin your entrepreneurial saga, be sure to pay attention to the following IP issues:
Clear trademark rights before naming things
You cannot use a brand in commerce if your use would be confusingly similar to someone else’s brand. So, do not name your company or your product or service without clearing trademark rights first. Once you choose your name, scour the internet using the search engine of your choice to ensure no one else is using it as the brand name of similar goods or services. Also check the TESS trademark database at uspto.gov to see if your name turns up. Remember that trademarks are compared on the basis of their overall visual and phonetic impression, so clever spelling inconsistencies–substituting a Z for an S, for example–should be ignored in this process.
If you cannot find your name in use anywhere else as the brand of similar products, go ahead just in case and have a formal trademark search conducted by a competent trademark lawyer. They can tell you whether you will be able to get a trademark on your brand and, perhaps more importantly, whether someone else is going to sue you if you start using it.
Then, and only then, is it safe to start naming your company and branding your products with the name that passes through the above clearance process. Remember, trademark rights are obtained neither by forming your corporation or LLC at the secretary of state’s office, nor by registering a domain name. Those ministerial items, while important, do not matter to the trademark process and should happen only after trademark rights are clear.
Everyone signs the agreement
Have your lawyer prepare a short noncompetition, nondisclosure, and IP ownership agreement to be signed by every co-founder, employee, independent contractor, and anyone else in the company who is contributing to the conception or development of creative and innovative assets. The agreement should ensure that: (i) everything they create is owned by the company; (ii) they are bound to keep all company information confidential; and (iii) they will not compete with the company while they are working for it (and, depending on your state, for some time thereafter).
Pre-audit your IP portfolio
Investors and acquiring companies really like IP, because of the exclusionary path to market it can afford. When you are being examined by a potential investor or acquirer (in a process known as “due diligence”), they will want to know the following:
- Do you own your IP?
- Is your IP portfolio complete? Are you protecting everything that is capable of being protected?
- Is your IP strong and enforceable? If you sue someone for infringing it, will you win?
Why not be prepared for the due diligence examination ahead of time? Identify the creative and innovative assets in your company for which the answer to any of the above questions is “no,” and take remedial steps for changing the “no” to a “yes.” Then put appropriate processes and procedures in place for ensuring that the answers will henceforth always be “yes.”
Correcting IP title defects requires getting the proper ownership agreements signed between the company and the people who created the IP assets. If any creative contributor did not sign the IP agreement described above, make that happen as soon as possible.
Correcting completeness defects is simply a matter of filing for whatever patents, copyrights, and trademarks are missing in the portfolio, and instituting internal disclosure and management procedures for identifying and assessing new innovations on a constant basis so that new IP doesn’t slip through the corporate cracks in the future. Basically, every novel and nonobvious invention should be patented, every brand should be trademarked, every important piece of content should be copyrighted, and every vital secret should be protected.
Finally, correcting strength & enforceability defects requires a measure of strategic attention to ensure the company’s innovations are being protected in the strongest possible ways in light of the competitive landscape in which they exist. For some innovations, a slew of patents will be the answer; other innovations will best be kept confidential in reliance on trade secret law; for yet others, a mix of patents and trade secrets, as well as copyrights and trademarks, will provide the most bang for your buck.
Make sure NDAs don’t expire or terminate
If you own valuable information that your competitors don’t know and that gives you an advantage over them in some way – perhaps your secret formula or manufacturing technique or algorithm -- congratulations, you probably have a protectable trade secret. If you have occasion to divulge your trade secrets to an outsider, you must have that person sign a nondisclosure agreement (NDA) to maintain the secrecy of your secret. If you reveal the secret to someone who is not bound by an NDA, it is no longer protectable as a trade secret. Here’s the thing: trade secrets can last forever as long as you keep them secret. So read your NDA carefully to ensure that the obligations of secrecy do not terminate after some period of years. The person signing your NDA should be bound to keep your secrets secret for as long as they are protectable as trade secrets!
To make this process more painless, all Gust Launch founders get access to workflows to easily create one-way and two-way NDA agreements.
Patents are your friend
Patent trolls have given patents a bad name. If you create, own, or deal in technological or scientific inventions, software, certain designs, and certain other inventive creations that advance the state of the art, you need to consider filing lots of patents. Patents protect inventions, some designs, gene sequences, business methods, some plants, and software. Patents are obtained by inventing the invention and by applying for and being awarded a patent. Registration is mandatory. Patents in useful inventions last for 20 years, and 14 years for designs, from the date the application is filed, in the U.S.
In the U.S., inventors can file a document known as a provisional patent, sometimes referred to as a provisional patent application. In truth, both names are misleading because a provisional patent is neither a patent nor an application for a patent. Strictly speaking, a provisional patent is merely a document that is filed with the USPTO in which the inventor describes an invention. That’s it. This document is never examined or reviewed by the USPTO; it is merely placed on file for a year in anticipation of the filing of a follow-on nonprovisional patent application that is based on it. If, during the year after a provisional patent is filed, the inventor files a nonprovisional patent application on the invention disclosed in the earlier provisional patent that enables the same invention, the nonprovisional patent application will obtain the original filing date – called the priority date – of the provisional patent.
Nonprovisional patent applications generally cost around $10,000 for patent counsel to prepare and file. Provisional patents, however, can be much less expensive. If prepared by counsel, a thorough provisional patent can run from $3000 to $4000. But because provisional patents are never examined, they can be much less rigorously prepared than nonprovisional applications; as the inventor, you are often in a great position to draft your own provisional application asking counsel only to review before filing. This can reduce your fees to perhaps $500 or less.
Because a provisional patent can be prepared quickly and inexpensively, filing a provisional patent is useful when a company wishes to begin to obtain a measure of patent protection without committing to the expense of time and money required to prepare and file a nonprovisional patent application. After a provisional patent is filed, for example, the inventor can use the phrase “patent pending” when publicly referring to the invention disclosed in the provisional patent. This notice that a patent application is in the works can sometimes forestall others from copying the invention.
As a general rule, anyone doing a lot of inventing should be filing a lot of provisional patents. You can even include more than one invention in the same provisional while paying a single filing fee at the USPTO.
While these applications and processes may sound somewhat onerous and a little expensive, having to protect your inventions (and being allowed to protect them) is really a good sign—it means that you are developing the technologies that will give you an advantage over your competitors, and being recognized as their inventor. If you are starting a technology company, or any company really, IP must become a part of the things to which you pay attention to maximize your company’s value and reduce its risks.
This article is intended for informational purposes only, and doesn't constitute tax, accounting, or legal advice. Everyone's situation is different! For advice in light of your unique circumstances, consult a tax advisor, accountant, or lawyer.