United States: Startups Need To Address IP Earlier

Many startups these days are being advised to "go global quickly." Whether this means relocating, opening offices in startup hubs or overseas, or simply appealing to foreign customers, it takes money, advice, and talent to grow―and even more to grow quickly. Software has reduced the time and costs required to translate ideas into consumer products. Improved communications and the growth in independent contracting have made finding talent a bit easier. But technology disruption does not advantage startups evenly. Startups in markets where money, experience and advice remain in better supply are finding it easier to access global markets and to access them more quickly. Larger, well-established companies access these markets still quicker.

One way local startups have remained competitive is by moving in greater numbers and earlier in their growth cycle into co-working spaces, joining technology accelerators, and seeking crowd financing and government grants. Whether or not this works for a particular startup, it means that startups as a whole are confronting very real legal risks sooner than they might otherwise. Increasingly often, these risks are presenting before internal policies, processes and strategic planning have had enough time to mature to a point where they provide sufficient protection for these risks.

Consider the following example: During a networking event at your co-working space or your technology accelerator you share with one of your new friends how your new technology works. He or she suggests a tweak that makes it work even better, which of course you then implement. Months later you begin looking into how you can protect your hard work, only to learn from your patent attorney that: (1) you may not be able to protect against others using your coworker's or mentor's improvement and you may have to pay to license it; (2) your coworker may now be a co-inventor on your own patents and may have separate rights to license them to others; (3) your coworker may have gone out and separately patented the improvement and may have intervening rights to use your inventions; or even (4) your "public" use or disclosure of your invention has cutoff any rights you would have had to obtain patent rights in some of your global markets, like Europe.

Worse still, you may not mention to your patent attorney that the improvement came from a friend, co-worker or mentor, who, not being an employee, has not assigned it to your startup. Years later, when your technology is wildly successful, you get sued for a portion of your profits. Even if ultimately successful, you will invest considerable financial resources and time simply defending the business you built with years of sweat equity and the investment of soon-to-be former friends, business connections and family. Movies have been made about such friends.

It is natural to talk with others about the problem you are solving and how you are solving it in a co-working space, when applying to a technology accelerator, or seeking investors. For example, many accelerators, venture capital funds, and even government programs request in one form or another that your startup describe your solution, your competitive advantage, barriers of entry into your market, and what your competitors are doing. You would expect anyone willing to invest their time or money in your startup to ask such questions. But, public use or disclosure of an invention before filing to protect it may prevent you from obtaining intellectual property rights in many of your key markets, particularly overseas in Europe, Asia and Australia. It may also provide others with intervening rights to use your invention or a license to use your technology for little or no compensation.

Large companies sponsor accelerators in part because it gives them early access to highly relevant innovations and reduced time to market them. Unfortunately, in litigation we have seen some of these companies later incorporate participant technology into their own products without compensating the startups. We have also seen industry standards associations get captured by a few member companies with special interests, including obtaining license rights to the technology at "fair, reasonable and nondiscriminatory" licensing rates that in many instances translate to "free" use or something close to it.

In many areas of a startup's growth, missteps can be excused or overlooked. Intellectual property is not one of these. A single misstep at an early stage could compromise legal rights completely or greatly reduce the scope of these rights, jeopardize larger markets, sabotage potential investment, foreclose interesting business exists, and lower global growth and profit projections.

Therefore, before entering a co-working space, joining an accelerator, or seeking crowd funding or government investment, and before disclosing or even characterizing your innovations to any of them, you should:

  • Review accelerator or financing documents to understand confidentiality, disclosure and nonuse provisions.
  • Seek legal advice before describing to anyone your IP, your point of novelty, your licensing intentions, or the IP owned by your competitors.
  • Review and document the IP likely important to your business and the businesses of your customers and competitors. Consider whether your startup even owns your existing and future IP, and how to prove it.
  • Begin to formulate a strategic plan to protect your IP globally. This will help you prioritize costs to match risks, and keep you focused on your most important markets first. IP rights differ from country to country, so you cannot merely assume a local plan will protect a significant share of your startup's growth potential.
  • Consider using nondisclosure agreements to address perceived risks and increase your chances of obtaining meaningful legal remedies for the misconduct of others.

An initial consultation with an experienced intellectual property lawyer can be quick and relatively inexpensive. He or she can give you an idea of some general forms of IP rights relevant to startups like yours, a snapshot into a potential global IP strategy and how it can add value, a sense of likely costs, and some pitfalls to look out for until you can afford more regular legal advice.

Your IP can be a valuable business asset, but only if you nurture it.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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