Introduction

Many startups are pioneering technologies that are transforming the way we live, learn, and work. However, with great innovation comes great competition, and having a solid intellectual property (IP) strategy can make or break these companies, especially when these companies are in their early stages and IP may not be on top of mind. To secure a competitive advantage and attract investors, it is crucial that these startups have a strong legal foundation early on to protect their assets and maximize the value of their IP portfolios. This article explores the IP opportunities that startups should consider and also outlines strategies for protecting their innovations. 

Develop a Comprehensive IP Strategy

Startups should implement an IP strategy in parallel with research, development, and investment strategies. Before pursuing any kind of IP strategy, a startup should become familiar with the protections offered by different IP regimes. Robust strategies that include, for example, patents, trade secrets, and licensing can help companies develop an advantage in the increasingly competitive technology landscape. In general:

• Patents can protect innovations
• Copyrights can protect the expression of an idea and require the memorialization of the idea on a tangible medium
• Trademarks can protect a brand in the form of logos and names
• Trade secrets can protect anything that can be kept confidential or proprietary
• Out-licensing, which allows external partners the right to produce and sell products, can be a strategy to enhance the strength of an IP portfolio, extend market presence, and provide a revenue stream for a company
• In-licensing can help diversify and strengthen IP portfolios by obtaining rights where there may be gaps in your portfolio.

While these buckets of IP provide different scopes of protection, they may overlap in coverage. As such, it is important to understand the value add for each of these IP regimes. In addition to adequately protecting its assets with the appropriate IP regime, a company should clearly define its IP and have its employees properly assign IP ownership to the company. It is a best practice to seek the advice of an IP attorney to help navigate these questions.

Act Early, Conduct an IP Audit

In the early stages of product development, time and resources are often poured into building business and marketing plans. However, startups should not overlook the importance of integrating IP strategies from the outset. For example, under the U.S. first-to-file patent system, the longer a company’s innovations go unprotected, the greater the opportunity for competitors to claim rights to similar inventions. A first step should be to conduct an IP audit, which will provide the startup with a comprehensive understanding of their existing IP assets and the competitive edge that each asset offers. Further, audits help identify areas of opportunity, along with gaps in protection and areas of risk.

What Can Be Patented?

When patent strategies are implemented effectively, they can provide broad protection for your inventions, covering almost any novel aspect of a company’s technology. For example, in the virtual reality/augmented reality (VR/AR), artificial intelligence (AI), or gaming spaces, a combination of design and utility patents can be issued to protect innovations including:

• hardware, such as headsets, controllers, and display screens
• software, including algorithms, applications, and machine learning architectures
• interfaces and experiences that offer new ways of interacting with virtual environments
• graphics and rendering techniques that improve visual effects

Patents not only cover new technologies – they can also be used to protect improvements or modifications to existing technology. For example, a startup developing a new AI chatbot could file for a patent that covers the chatbot’s architecture, and obtain additional patents as the technology evolves and different iterations of the chatbot are released.

Consider a Provisional Patent

For many startups where resources are at a premium, provisional patent applications can provide a more cost-effective option for protecting innovations. These applications can be quickly drafted, as they need not conform to any formatting requirements and generally cost between $1,500-$7,000, which is significantly less expensive than non-provisional applications, which can cost $10,000-$20,000, or more. Provisional patent applications allow companies to file earlier while deferring the more costly full applications by up to a year, leaving time to refine technology, explore market opportunities, and secure funding.

Trade Secret Protection

In many instances, trade secrets can protect IP assets when complemented by, or used as an alternative to, patents. Unlike patents, trade secrets are never publicly disclosed – a requirement that can make trade secret protection difficult to maintain. Once a trade secret is divulged, it is no longer protected. For example, in the VR/AR, AI, and gaming space, trade secrets can protect:

• proprietary algorithms and code
• hardware specifications, like manufacturing processes
• user experience research and insights
• machine learning models
• business processes, operational insights, and marketing and launch plans

It should be noted that even technology that is available for purchase on the open market can be held as a trade secret, so long as such technology is not disclosed, cannot be discovered, and cannot be reverse engineered.

The matrix below provides considerations that can help in deciding when to pursue patent protection and when to keep an innovation a trade secret.*

Avoid Unintentional Loss of IP Rights

A common pitfall for startups is unintentionally disclosing innovations to the public too early. Any public disclosure can hinder the patent process, especially for companies seeking international patent applications. In most countries, the prior sale, prior use, or public disclosure of an invention may cause that invention to violate the patent filing requirement of novelty and/or non-obviousness.

Additionally, when an idea is disclosed to the public, there is a risk of waiving related trade secrets. As mentioned, trade secrets are only enforceable when steps have been taken to ensure that they are, in fact, a secret. Disclosing sensitive or proprietary information regarding not-yet-filed inventions can jeopardize the success of a startup, and can also reduce or eliminate its competitive advantage.

To manage confidential information and protect ownership of IP, a startup should always have the following documents in place:

• An invention assignment agreement, which obligates the employees to transfer ownership rights in anything developed within the scope of their employment to the company.
• Non-disclosure agreements, which can be used to maintain confidentiality if disclosure to third parties is necessary for business reasons.
• Employee handbooks, which outline the expectations of employment, including the expectation that the company’s IP is not to be shared, disseminated, or stolen.

Address Ownership Issues

A crucial aspect in the success of any venture is ownership of the IP created on its behalf. Ownership of the IP, in general, can be shared, transferred, or licensed. While sharing ownership can foster collaboration, it can also lead to disputes if IP protection fails to account for all individuals who contributed to the conception of the invention. Companies entering into a collaboration or partnership should establish, from the outset, ownership rights by each party including ownership rights subsequent to the termination of the relationship. Establishing ownership rights at the onset can minimize the chances of disputes in the future.

When entering into a collaboration or partnership, participating parties have several options for addressing ownership of jointly developed products. The IP may be assigned and jointly owned, giving each party the right to sell or transfer rights to the invention without consent. Alternatively, one company may own the IP and then grant the other party an exclusive or non-exclusive license to the IP in exchange for an agreed upon value or benefit. Under an exclusive license, the licensee may have the exclusive right to use and/or sub-license the patented invention. On the other hand, a non-exclusive license can define the terms and scope under which the licensee can use the invention, while the licensor retains title and all other rights to it. Addressing ownership of jointly developed IP before product development can minimize the potential of costly disputes in the future.

Conclusion

IP protection is essential to the success of many startups. As companies develop their products and processes, and seek commercial applications for their inventions, managing and securing protection is vital to their long-term survival. Engaging an experienced patent attorney early on and developing a strong IP strategy that includes patent, trade secret, and licensing protection can provide these startups with the edge they need to succeed against competition.