One issue that often gets neglected is intellectual property. It’s almost always somewhere on the “to-do” list, but it’s typically not near the top.
It’s not that the executives consider it unimportant. Instead, it is usually deferred until the company matures, the market reaction to product introductions is gauged or other issues are brought into focus over time.
Unfortunately, by then the issue that moves to the forefront is the cost of neglecting intellectual property assets at an early stage.
During fundraising, acquisition or an initial public offering, intellectual property is often considered a critical asset. Defects or weaknesses in a company’s intellectual property, which could allow competitors to copy key aspects of a technology, can easily torpedo a deal.
Lack of intellectual property protection can also significantly degrade the valuation of the company, sometimes to the tune of tens or hundreds of millions of dollars.
If a company has not solicited capital from outside sources (who conduct intellectual property due diligence prior to making investments), defects in intellectual property assets might not be identified until much later.
The consequences are often compounded, since the company has invested that much more in a business model on the assumption that the company will be able to execute and protect it.
So how can a company best protect its intellectual property? While there is no substitute for a thoughtful and thorough analysis of a particular company’s specific situation, there are some mistakes that are commonly made.
1. Too little, too late.
Startups often get intellectual property counsel involved long after products have been launched or process technologies have been disclosed. Such companies often find themselves precluded from pursuing patent applications on key technologies. Don’t wait. Get counsel involved early.
2. Measure twice, cut once.
Startups sometimes file patent applications on selected narrow technologies without first developing an intellectual property strategy. Much like mines on a battlefield, patents probably won’t stop competitors unless the applications are strategically positioned.
Developing an overall intellectual property strategy before filing also enables the patent drafter to more broadly describe the solutions and thus obtain broader protection for the company.
3. Bad advice begets bad decisions.
Regrettably, startups are all too often the recipients of questionable legal advice regarding intellectual property. That in turn causes them to miss key opportunities to create and protect their intellectual property. Once those opportunities are missed, they are gone forever.
Companies should hire the best intellectual property counsel they can find right from the start. Intellectual property counsel should be selected as carefully as a contract manufacturer or software developer.
And don’t worry too much about the hourly rate. Like good tax lawyers, good intellectual property lawyers will pay for themselves many times over.
4. Perfunctory provisionals.
It is not uncommon for a startup to file provisional, or informal, patent applications to save on legal fees. However, that sometimes turns out to have been money (and opportunity) wasted, because care was not taken to fully describe the inventions in a way that can properly support a formal “utility” application.
5. Everything and the kitchen sink.
Patent applications filed by startups are often narrowly directed to technologies embodied in a commercial product or core process.
However, it is often the case that the market ultimately adopts an alternative solution that the inventors did in fact have in mind, but which was not detailed in the patent application. Once the opportunity is missed, it’s gone forever.
6. I thought we owned it.
Start-up companies sometimes incorrectly assume that they own the relevant intellectual property rights associated with products and processes developed by employees, vendors, contractors and joint venture partners.
To the contrary, intellectual property rights are usually owned by the employees or third parties absent express written agreements. Moral of the story: Make sure your company has appropriate agreements in place with all employees, vendors and partners before work begins in earnest.
7. My competitors have patents.
Although awareness of competitors’ patent portfolios has increased in recent years, most startups still tacitly assume that they will be entitled to market and sell whatever product they invent, particularly if they hold a patent on an underlying technology. Not so.
Other companies may hold patents on one or more features included in the product. For instance, even though a company may hold a patent on the LCD screen and display driver used in a cell phone, other companies may (and probably do) hold patents that cover the processor, memory and video adapter.
8. We’ll just keep it a trade secret.
Similarly, many startups assume that they will be entitled to sell their product or service because they were the first to develop the technology or have maintained the technology as a “trade secret.”
To the contrary, if other companies independently develop and obtain patents on the same technology, those patents may be successfully asserted against the startup.
9. What’s in a name?
Some startups are surprised to find that they do not have the right to use their selected corporate, product or domain name. Trademark, service mark and domain-name availability searches should be executed early on, before a name change involves significant expense and loss of goodwill.
10. Opening a can of worms.
Use of open-source code can effectively dedicate much of a startup’s intellectual property to the public. Open-source code should be used only after careful consideration of the ramifications.
Few companies make all of these intellectual property mistakes, but almost every young company makes some of them. Knowing how to avoid them can mean the difference between success and failure in the marketplace.
