Intellectual property (IP) protection is as important today as it has ever been for start-ups. For beginners, the prospect of where to start can be daunting.
Why do startups need IP protection? Registering IP can do several things, including:
- Creates an asset that will have value even if the business model fails
- Creates an asset that can be used as collateral for commercial loans
- Justifies a higher valuation when seeking venture capital
- Provide higher value for its products/services when listed in public market by facilitating licensing or sale
- Identify more contribution margin which could reduce the need to raise investment fund
- Helps in making strategic choices when new opportunities or change of direction is required
Here are a few IP-related approaches a start-up can should consider while formulating strategy.
In 2013, the United States IP system changed to a first-come-first-served basis. So regardless of who actually invented, the first one to file the patent gets all the protection. And more importantly, the one-year grace period given by the USPTO to file an application is not applicable outside the US. Therefore, start-ups planning to seek IP protection abroad should not publicize their invention before filing an application. File early and keep your invention under wraps until you do so.
The initial patent filing is not enough, since the technology will evolve as the company goes about refining the product before entering the market. As the product evolves, the patent protection therefore needs periodic re-evaluation. Continuations are an effective way to extend the coverage of the initial filing.
Initially, start-ups may not be able to afford broad IP protection. Compared to larger corporations, startups must have a better understanding of the impact that IP can have on their business. In some cases, IP may be their only asset. So prioritizing the revenue spend on IP protection according to the overall business plan may be necessary.
While all the concentration is on patents, trade secrets can be an important option, if feasible. Generally, patent protection lasts up to 20 years but, trade secrets continue indefinitely as long as the concerned party decides not to disclose it to the public. Companies like Coco-Cola and KFC are well known to have benefited from their well-protected trade secrets (recipes). However, maintaining secrecy of valuable information could be a challenge.
Worth of the invention
Patents are without doubt intended to protect the assets most valuable to a startup. So startups must assess the potential of the invention through suitable metrics before venturing to protect it.
Types of IP protection
Understanding the benefits, expenses, and the level of protection offered by various forms of IP is crucial. Trademark or service mark protection is necessary to protect each unique business or product identify. Another important area where startups need to have clarity is in ownership of IP assets. The company needs to have well-drafted agreements with its employees as to ownership of IP, non-disclosure of valuable information or avoidance of conflict in the event of separation.
Startups must engage with a skilled intellectual property counsel so that their business can meet the due diligence requirements of investors. This will also prepare them for commercialization of their product or service, when it would be required to ensure freedom from third party conflicts that can jeopardize that step. Being IP-savvy will prepare start-ups for the next phase in their journey.