Beyond the Pitch
5 Expert Tips for Protecting Your Intellectual Property
Understanding and protecting IP
Intellectual property (IP) rights are critically important assets to any technology company. In fact, for early-stage tech startups, IP rights may be the company’s most valuable assets. Identifying and legally protecting IP is a complex process that requires continuing vigilance for the life of the company. Choosing appropriate legal representation from the beginning is a must.
Entrepreneurs can prepare by gaining a basic understanding of the vocabulary and the considerations that come with protecting and managing IP.
1. There are two general types of intellectual property; both are recorded as assets on a company’s balance sheet.
- Tangible property refers to physical objects, for example real estate, cash, or a room full of servers and computers.
- Intangible property is not a physical object, but can be owned, transferred, licensed, or sold. Examples of intangible property include goodwill, noncompetition covenants, and IP rights.
2. IP takes various forms, can be protected by law, and creates value for the company. Valuable IP rights can include the right to use particular IP or the right to exclude others from using the IP.
Types of IP rights and what they protect include:
- Patents protect inventions. This includes processes, machines, objects made by hand or machine or compositions of matter. An invention could be a device or software; it could also be the process by which that product is made. Patents don’t last forever; generally patent protection ends 20 years from when the patent application is filed.
- Copyrights protect the expression of ideas in text works and literary and artistic works, which could include software, technical drawings, and databases.
- Trademarks denote the source or origin of goods and services and form the foundation of a brand’s promise to its buyers.
- Trade secrets protect information that derives economic value from not being generally known and that is subject to strict measures to maintain its confidentiality.
3. IP rights, which can be owned, bought, sold, or licensed, are powerful assets to a startup.
- A business differentiator, IP may create barriers to entry for competitors or to a new market. It may extend a startup’s runway by keeping competitors at bay or by attracting potential investors who perceive value even though the startup hasn’t commercialized its product or signed paying customers yet.
- IP may create an exit opportunity for a startup as many large companies who seek to be nimble with new technologies set up internal funds or innovation hubs specifically to acquire startups with IP that has achieved proof of concept.
4. The owner of IP generally is the author, creator, or inventor. Assignment documents ensure that the company receives a transfer of all rights from the owner.
- It is important that assignment documents be in place so that employee-created IP is transferred to, and owned by, the company. Assignments should include the rights to know-how, patents, copyrights, trademarks, and anything that is created by employees in the scope of their employment that has value to the company.
- Independent contractors, outside developers, consultants, and independent project managers should also sign assignments. Sometimes the company mistakenly believes that a contract with consideration (compensation) is sufficient protection. It is not. The company needs a written agreement to assign IP rights to the company, and, like any other contract, take measures to enforce it
Creating an intellectual property strategy
When it comes to IP, startups should develop a comprehensive strategy that starts with a thorough analysis of the business and the products that will be produced.
- Identify anything that could be protected—don’t overlook trade secrets, manufacturing processes, know-how, formulas, and databases. Seek the help of a mentor or advisor who understands the technology and the goals of your business plan. Search the US Patent and Trademark Office (USPTO) online to learn what is already registered. Once you have an idea of what could be protected, and you have an IP development plan, begin discussions with a legal expert in IP.
- Consider and coordinate the full range of IP protections and alternative means to protecting IP assets. In addition to patents, copyrights, and trademarks, invention assignments, non-disclosure agreements (NDAs), and non-compete agreements work together to keep IP secure. Trade secrets, for example, are protected forever—but it’s up to the company to develop the protections, from security features, to physical access, to NDAs, and more.
- What is the end game plan for the IP? Is it to create a product to sell? Is the plan to license the protected technology, or perhaps once is passes proof of concept, sell it outright to a larger company with the expertise, resources, manufacturing capabilities, and industry expertise to add it to its product line? Or is the plan to build a company and take the product to market?
- When it comes to protecting IP, a company’s work is never done. A successful IP strategy is an evolving process, not a static plan that once created sits on the shelf. Startups, especially take twists and turns. With every pivot, revisit the IP strategy. Otherwise a company could end up with a plan that doesn’t protect the most important business assets, and that’s of very little value to entrepreneurs or investors.
- Seek an experienced attorney who will be proactive when it comes to protecting assets and creating value through IP rights. Look for someone with experience with domestic and international clients. Ask how many registrations that attorney has secured and how many she or he has defended.
Evolving technology creates novel issues. As the owner of intellectual property rights, the onus is on you to protect your rights and make the company’s IP a differentiator to drive value and profitable exits.
Susan Rector has over 30 years of broad experience in corporate transactions and specialized experience with intellectual property, e-commerce, technology, computer, Internet, advertising and startup issues. Her clients include startups, growing entrepreneurial ventures, family-owned and established companies and institutional clients in a variety of industries. Susan currently serves on the board of Rev1 Ventures, Columbus College of Art and Design, The Women’s Fund of Central Ohio, and Columbus Zoo. She is an active member of Women Presidents’ Organization, its national foundation board, NAWBO, and WELD. She is engaged in the local angel investment community through Ohio TechAngel Funds and X Squared Angels and serves on the board of Peoples Bank and its public company holding company Peoples Bancorp. Susan has been listed in Best Lawyers for general business and IP since 2002. She was named a Best Lawyers Columbus Lawyer of the Year for Trademarks in 2012, 2016 and 2018.
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