Every company, but especially startups, looks for a competitive edge to provide an advantage over other companies. Intellectual property (“IP”) rights and the strategy of how to leverage them may separate a startup from other companies.
Because IP can be an essential part of a business and of significant interest to potential investors, startups often enthusiastically disclose their inventions, technology, and other IP when pitching to potential investors or at public events. However, pitching to potential investors or publicly presenting before protecting the IP can have devastating consequences for companies.
We provide below a few of the reasons why companies should consider protecting their IP before disclosing it to the public.
IP Assets Help Attract Investors
Investors will investigate a company and its IP portfolio to evaluate its strengths and weaknesses before deciding whether that company is a worthy investment. Investors want to see that a company understands the importance of its IP portfolio and has taken steps to protect its IP. For example, IP protection can create barriers to prevent competitors from copying a company’s business strategy.
Protecting a company’s IP often involves ensuring comprehensive brand protection through registering trademarks and domain names, as well as filing patent applications for inventions and other patentable technology. Potential investors will want know whether a company has filed for a trademark or a patent, and if they have filed, where they have filed the trademark or patent application. A company can also protect its IP through registering copyrights and establishing trade secret procedures. Ensuring the proper ownership of IP assets is another important consideration often overlooked by companies. It is important to consider all of the above factors – trademarks, domain names, patents, copyrights, trade secrets, and ownership of IP rights – in any IP strategy.
Registering Early Helps Protect Brand Elements
A company’s brand allows a company to build its reputation with its customers and the public. While it takes time for a company to build brand recognition and create a reputation, a company may begin by filing for a trademark and registering for a domain name. By filing for a trademark and registering for a domain name early, a company can prevent contentious territorial and priority disputes from other people unknowingly using the same name. It can also help a company avoid a situation in which a person or cyber squatter holds a trademark registration or domain name for ransom. By filing or registering early, a company can also save time and money if a conflicting trademark or domain name exists and forces the company to change its name or the name of its products.
Disclosing Could Impact IP Rights Around the World
Due to globalization, deciding where to protect IP assets before public disclosure can prevent losing valuable rights. Patent and trademark protections are largely based and enforced in the country the patent or trademark registration was issued. Unlike the United States, which allows for a one-year grace period for public disclosures, many foreign countries require absolute novelty to obtain patent protection. In other words, if there is any public disclosure prior to seeking patent protection, then there is no absolute novelty and the invention is ineligible for patent protection in any country that requires absolute novelty. Therefore, filing a patent application before publicly disclosing any potentially patentable invention is critical, and the failure to do so can prevent patenting the invention in some countries.
Unlike patents, trademark registration does not require absolute novelty. Instead, many foreign countries grant trademark registrations to the first entity that files for that trademark. Therefore, it is important to file for a trademark registration to prevent a company from being forced to use a different name or trademark in a foreign country.
Patent Strategizing Helps Protect Inventions
Companies should identify their IP assets and decide what IP they would like to add to their IP portfolio before any public disclosures. In addition to filing for trademark registrations, a company may want to file patent applications to protect inventions. However, sometimes a company is still perfecting the details of the invention or cannot yet afford the costs and fees associated with patent filings. In these situations, provisional patent applications are a fairly inexpensive method of preserving intellectual property rights with the United States Patent and Trademark Office. These provisional patent applications provide a company 12 months to continue to develop its invention before having to file a non-provisional patent application. In addition to preserving their intellectual property rights, filing a provisional patent application also gives companies the right to use the term “patent pending” in connection with products or processes incorporating the invention to warn others of their pending patent rights.
Registering Copyrights Helps Protect Valuable Elements
Copyright protects original works in various forms, such as sound recordings, literary works, computer programs, musical compositions, and photographs. In many instances, the public can view certain valuable elements of works upon release of the product or service. For example, other people can view the source code of applications, programs, and websites. Although the scope of copyright protection does not extend to the underlying ideas, procedures, or concepts, copyright registration can help protect companies against competitors producing low-effort knockoffs.
Identifying Trade Secrets Helps Prevent Unintended Disclosures
In addition to patent protection, trade secrets can be another effective way of protecting IP. However, trade secrets are only protectable to the extent that it is a secret. Therefore, a company should develop protocols to identify and maintain the confidentiality of the trade secrets. Companies should also limit the number of people who have access to the trade secrets. This includes identifying and deciding what information may be disclosed to potential investors or the public and what information must remain within the company. One method of preventing disclosures is through non-disclosure agreements. Best practices include signing non-disclosure agreements before sharing any confidential information. Click here for more information about non-disclosure agreements.
Diligently Establishing Ownership Records Helps Prevent Future Battles
Finally, a company should clearly establish ownership of the IP prior to any disclosures. Initial ownership of IP generally begins with the inventors or creators of the IP. These inventors and creators are often co-founders or employees of the company or third-party contractors. However, despite the company paying these individuals to develop the IP, the company does not necessarily own the IP. Therefore, in order to ensure the company owns the IP, the company should obtain assignments from its employees, co-founders, contractors and others who have participated in the development of any inventions, software, source code, trademarks, advertising and other marketing materials, websites, and other technologies for the company. By providing a clear record of the IP ownership and avoiding ownership disputes in court, obtaining these assignments can make a company more attractive to potential investors.
The assets in an IP portfolio can be a crucial part of a company’s business strategy and be a key consideration when potential investors evaluate a company. Therefore, all companies, particularly startups, should adequately protect any IP before there are any public disclosures. For further questions regarding intellectual property protections, please contact Marriam Lin or any other member of Husch Blackwell’s Intellectual Property team.