Intellectual property can be a powerful weapon for a startup. It can protect you from competitors using your technology and can dramatically improve your company's value. If IP prevents a large company from taking on new initiatives, that could, in itself, be a good reason to acquire the startup.
So what is IP? Well, it refers to “creations of the mind,” such as inventions, literary and artistic works, designs, symbols, names and images used in business. Some intellectual property is automatic (e.g., this article is automatically covered by copyright), and other intellectual property, such as trademarks and patents, must be more actively protected.
Digging deeper into the various types of IP, including patents, copyrights, trademarks and trade secrets, seen through the lens of startups, as a founder, what should you think about (where and when, and how much will it cost) when protect the intellectual property that the company is being created?
Start with the “why”
Often people think they just need to get the patent, because it checks a “box,” a requirement, for VCs. But if you really want the IP to be a foundation for the business and potentially create value, and perhaps offer support in the context of a future exit, and you have to take a broader view.
There are multiple considerations, but you have to start by thinking about where the company is in the market and what space it occupies compared to competitors. This includes thinking about the geographic location of the company and that of potential customers and buyers. Also consider the types of IP that can support the business and the people who should be involved in the strategy and execution of the intellectual property approach.
There are certain people in the company who are left out of the discussion group. That may be a mistake. From litigation experience, you see results that could have been different if certain marketing people had been part of the initial IP conversation. In a holistic reflection, the conversation begins with 'Where are we?' and 'Where do we want to go?'”
When to start with Intellectual Property
When to start thinking about intellectual property protection depends on several things, including what your product is. If, for example, a new semiconductor is being developed, patent protection is practically needed from the beginning.
For other apps, also as an example, when creating a mental health app, it's a little more confusing. Some more abstract ideas that apply to computer software are no longer as obviously patentable as they once were.
In the United States, the Decision Alice, a 2014 Supreme Court ruling, established that abstract ideas implemented on a computer are not eligible for patents under Section 101 of the local Patent Law. The court introduced a two-step test: Determine whether the claim is directed toward an abstract idea. If so, check to see if it adds “something extra” that incorporates an “inventive concept.” If not, you are considered ineligible. This decision significantly affected the patentability of software and business methods, causing many existing patents to be invalidated and future patent applications will face greater scrutiny.
Because of the Alice Decision, patent protection will not be available, or you may have to be very creative about it.
But even for companies that decide not to pursue patents, it pays to do so strategically. An investor is not going to accept “We don't think about our intellectual property protection” as much as they would “We talked to an intellectual property specialist and found out that patenting will be complicated in our case. “Instead, we rely on trade secrets and are thinking about ways to monetize our important data set through licensing.”
Developing an intellectual property strategy is crucial, both in terms of allocating resources (patents aren't cheap!) and setting the direction of the company.
The key is to think about three things: where the company and its technology are today, where it is going and where the market is. For the latter two, think about how IP protection could facilitate an opportunity in commercial exit, or an opportunity to fight with (or defend against) a competitor.
Non-Disclosure Agreements (NDAs)
As a general rule, investors do not sign confidentiality agreements when evaluating new companies before investing. That could be risky for any technology that isn't already patented. Realistically, it makes sense to avoid talking about the details of the technology before an NDA is established.
If a potential investor says they do not sign NDAs for filings, try to file the parts that are not directly related to the patentable technology. Talk about the size of the market, the quality of the team, and the problem you're solving, but stay away from the solution and the product you're building.
To unlock that part of the story, ink must meet paper. Serious investors will understand, and if filing patents is necessary before continuing the conversation with your investors, that is also an option.
Likewise, it can be tempting to talk to other people who are solving problems in the industry you are in. is developing technology, but that could also be a mistake. Let's say you're a small startup, just you and a few people, and you have a great solution. And you talk to a friend who He's at a big tech company., and provides a description of what is being built. It can become a serious problem: the interlocutors have thousands of engineers; They could do what has been described, faster. They may not do it as well, because they don't have what's in the initial idea, but it's a risk anyway.
You only have to share the patentable details with the strictly necessary people.
Apple's 5000 patents
They recently appeared on Apple's new VR headset and how it changed the game for startups. One detail that stood out was that Apple has been working on this for the better part of a decade and filed 5000 patents along the way.
For a startup that certainly doesn't have an Apple-sized army of lawyers and investigators, 5000 is an unreasonable number. But zero could also be wrong.
If a startup founder has something really novel, something really innovative and something that is a different way of looking at things, they should protect it. No one has looked at all of Apple's patents, but what I suspect is happening is that they are thinking about how the market might develop. They are thinking about what Meta is doing and how they can protect all the work they are doing as well as prepare for future trends.
For a small startup, focus is the differentiator; If there is a great idea that is broad and difficult to patent, there may be specific aspects of what you are doing that can be protected. For example, perhaps you can choose not to worry about the device and patent the cartridges; This is how the income will be generated.
Creation of a patent family
A patent family is a collection of patent applications covering the same or similar technical content, filed in multiple countries or regions. These applications are linked through priority claims based on a single priority filing, typically the first application (known as the "parent" patent). “Children” are patents that are related, either because they extract additional details from an implementation of a patent or because they cover regions and their specific regulations.
The biggest mistake I saw (at a bank, in B2B payments aspects) was that the entire patent portfolio was in one patent family, and the company did not keep the family alive. That means they stopped applying within the same family. The courts could then change what is required. If the family is not 'open', you cannot make that interpretation, go back and reshape the statements.
The risk is related to language. Patents are written and the language is inherently inaccurate; It's not the perfect way to capture ideas and technology. You may own the best idea in the world when it is described one way, but then a court decision comes along and completely obviates that characterization. If the patent family has become obsolete, you cannot update it. If the process is still in progress, it can be updated with the most recently approved language.
Different technologies that are separate inventions, therefore it is likely that we are talking about different "families" of patents. This might arise if, as an example, you are figuring out a particular way of making microprocessors, and in the process of making them, you come up with a new type of x-ray to test the microprocessors. They are related, you use both in your manufacturing plant, but they are different, because the microprocessors can have different customers than the use cases of the X-ray technology that was developed.
Trade secrets
We've talked a lot about patents, but there are many forms of intellectual property. And while patents are real, tangible documents that can have value, the others are also important pieces of the puzzle.
Trade secrets are a type of intellectual property that consists of information. This could include a formula, pattern, compilation, program, device, technique, or process. Trade secrets give the startup a competitive advantage. It is generally information that is not generally known or cannot be easily discovered by others, and must be subject to reasonable efforts to maintain its secrecy.
Unlike patents, trade secrets do not expire after a set period of time, offering potentially indefinite protection as long as the secret remains confidential. The classic example of a trade secret is Coca-Cola formula, which has been kept secret, in a vault! – for more than a century.
Trade secrets do not need to be registered, unlike other forms of intellectual property, such as patents and trademarks. Obviously, this can also be a disadvantage: other people who independently create or discover the trade secret can legally use it.
If there's a chance someone could reverse engineer or figure out how your trade secret works, consider trying to patent it. Choosing how to protect your technology is the whole point of having an intellectual property strategy in the first place.
Branding and trademarks
For some companies, branding is more important than trade secrets. Using our example above, even if someone could reverse engineer the Coca-Cola recipe exactly and create a copy of the drink, the new brand is unlikely to sell as well as the original. That's thanks to branding and brand recognition.
I could repeat the question for Facebook, what is more valuable: its patents or its brand?
For some startups, developing a brand and protecting it with registered trademarks is an important part of IP strategy, and particularly important for consumer-facing brands.
Copyright
Copyright is legal protection given to creators of original works such as literature, music, and art. It means that if your company creates something, whether documentation, graphics, or text of some kind, you have the exclusive right to use and distribute that work.
You have to be cautious when relying on copyright because the rules are changing.
As an investor, you don't have to focus too much on copyrights. There have been some important advances, such as the case of Andy Warhol. That case came after the Supreme Court ruled that the late artist had no right to use someone else's work, thus restricting fair use rules. If the only protection is copyright, the question is whether there will be long-term value. Currently it is not known.
Also The Oracle v. Google, which turned out to be a major copyright battle over the use of the Java programming language by Android, which was owned by Sun Microsystems until Oracle acquired the company.
Data is valuable too
Data, in itself, is not one of the categories of IP, but since you own the data that is created, and this data could be valuable, it means that it should probably be part of your IP strategy.
Data can almost be the product itself, and many platforms and code-based solutions are creating data, which has its own independent value and can be licensed. In that way, the data is similar to other types of IP. It may not be the core business, but it is an artifact that has been produced as a result of the activity.
Some data can be licensed and some is subject to privacy protections, which may still have value for other applications. An example of this could be if you are running a large sales SaaS solution. Customer data may not be licensed, but data analysis can show which emails are more likely to be opened and responded to than others. That data could be used to give others feedback on the effectiveness of your email efforts. Feedback that is based on a large data set has inherent value, and you could charge customers for this feature, or create a separate product that is based on this data set.
Defensive and offensive IP
Intellectual property should be considered as a tool for both defensive and offensive activities.
Defensive IP is typically used as a protective strategy to prevent others from suing for patent infringement. For a startup, that means creating (or even acquiring) patent portfolios to deter competitors from suing the company.
Offensive IP involves proactively enforcing patent rights, typically by suing alleged infringers to obtain financial compensation (through licenses, settlements, or both) or to be a thorn in the side of competitors.
Defensive intellectual property strategies focus primarily on risk management and fostering innovation; The offensive strategy aims to take advantage of the patent as a competitive tool or source of income. Both approaches are essential parts of a comprehensive IP strategy.
Another way to use offensive strategies is to patent technologies or innovations that are developed in the course of business, even if the decision is not to use those technologies internally. You can build a prototype, for example, and detect that there is a more efficient way to achieve what you are trying to do. The original approach may still have value in other contexts or use cases, and by putting IP protection around that approach, competitors can be deterred from using it. Revenue can even be generated by licensing the technology.
Who has to be in the room?
Innovation happens at many layers of the business, and as the team grows, different business units or teams may have a different perspective on what could be valuable intellectual property.
The C-suite should be part of the intellectual property strategy. In fact, the CEO is likely the inventor of the product. But as the technology team grows, innovation starts to happen elsewhere. The C-suite has to understand and be interested. They determine how to prioritize resources, so they must participate.
Beyond senior leadership, the legal team or external advisor must be involved. It's also a good idea to involve an intellectual property specialist; The litigants who appear will do what they are told to do, but that may be at odds with the overall vision and strategy. It's easy to fall into the trap of trying to patent every little improvement, and that could easily become a huge resource drain.
Technical people are needed to have a say on intellectual property strategy. They will explain what new things they have built. They may want to cover everything. So you'll have to constructively argue "'Ok, I heard it's novel, new and exciting, but it's not core to the business and it won't create value for the company, so we won't do it at this time."
One team that is often overlooked is marketing. This is the team that is creating the language for how to position the company and keeping an eye on what competitors are doing. Often, the materials used in sales and marketing give a very clear indication of what has commercial value in the industry in which the startup is developing.
A little secret: if you're going to litigate and sue someone over a patent, it's much easier if the patent has to do with a core feature that my competitor touts as an advantage. This means that if profits come from your technology, that can increase your chances in court if the decision ultimately is to sue.
Keep the strategy up to date
Strategy is not set in stone. In business, and especially in the startup world, things can change quickly. The engineering team moves at breakneck speed, building new innovations left and right. Product teams generally hate “scope creep,” when new features keep being added, but it happens as customers provide feedback and the company learns more about the value propositions the product offers. In that scope, new innovations are found, some of which can be protected by IP.
Plans cannot be static. If I'm a salesperson and the sales plan doesn't work, you change the sales plan. The same thing happens in this aspect: if the IP world changes, it requires adaptation. Changes in patents cause a shift toward reliance on trade secrets right now, for example.
The real risk is not keeping an IP portfolio up to date with technological advances, or allocating resources to IP that will not be usable, defensible, or strategically important to the business. It is important to remember that you are not Apple and you cannot afford to file 5000 patents for a single product. Being smart and strategic about where to deploy resources is crucial.
As a company, there is an advantage: you are located deep in a market or industry, and you can probably estimate with some degree of precision the direction in which a market is heading. Knowing this and the market has not yet caught up, it is a great opportunity to deploy resources and protect the intellectual property that the company generates.
