Chapter 2:
Protecting Intellectual Property

Estimated Read Time : 4 minutes 
Protecting Intellectual Property rights can be crucial to the value of a new company, especially high tech companies. There are two IP-related concerns for startups: (1) employment related issues, and (2) creating and protecting IP rights (IPR). Since the employment related concerns were addressed in Chapter 1 and will be addressed in further depth in Chapter 4, we will limit our review here to how to create and protect a company’s IPR.

How To Own Your Intellectual Property

Protecting Intellectual Property (IP) include patents, trademarks, copyrights, trade secrets, and customer lists, and is considered an asset. Patents and IP in general can and often do attract investors. They can also serve to deter others with similar ideas.

IP disputes can and often do arise in employment related matters. While no agreement is ever 100 percent airtight, IP disputes can be mitigated with careful, advanced planning.

A business needs to ensure that all IP created by employees in the scope of employment is owned by the company. An employee who authors or invents a work that successfully generates income for their company can often feel that they own the work, or are entitled to a portion of the proceeds. A company with the right employee agreements and clear policies about employee-generated IP will go far in minimizing the risk of litigation and maximizing profit by having 100 percent ownership of the IP rights associated with any protected work.

Since a business does not automatically own the rights to employee-generated IP, it is critical to obtain from all employees - even those who do not participate in creating the IP - all of the necessary agreements that will protect the company’s exclusive ownership of the property.

Different types of agreements cover different types of property. A confidentiality agreement and noncompete agreement are two more general contracts that obligate all employees to not share their knowledge of the IP and trade secrets with anyone outside the company, particularly competitors.

For works of authorship, copyright assignments and work-for-hire agreements are advisable. A work-for-hire agreement will be more favorable to an employer because it is not subject to future termination, as is a copyright assignment. For patents, an IP assignment will generally be the best option. Executing an invention assignment agreement with the employee-inventor will allow a company to file for patent protection with the U.S. Patent and Trademark Office (USPTO) as the owner of the patent.

For bootstrapped tech startups, there are more cost effective alternatives that can provide relatively robust intellectual property (IP) protection. General business strategies include confidentiality agreements, noncompete agreements, employee handbooks, and company policies. All employees, board members and advisors should be required to sign agreements obligating them to assign all business-related IP to the company, as well as to maintain confidentiality about all trade secrets, confidential processes, customer lists, and of course traditional IP works.

You will also want to extend IP protection through agreements with non-employees, including vendors, outsourced designers and engineers, and testing facilities.

Patents

The patent strategy for a startup is going to be fundamentally different than it is for an established company. For one thing, an established company has the resources to evaluate its markets and customers when protecting intellectual property. Moreover, it has existing distribution channels that startups lack. These are critical ingredients to assessing whether a new business should invest the enormous sums of money patent registration - and enforcement - requires.

Contrary to some conventional wisdom that holds there’s deterrence value in patent registration, the reality is that large companies can - and do - often prevail in this type of litigation. Its value as a sword or shield is, therefore, debatable.

With all of that said, patents can offer a tech startup many benefits when it comes to protecting intellectual property. It can attract investors and deter competitors. In order to address the high costs, mounting litigation and general burdens associated with patent registration, Senators Patrick Leahy and Lamar Smith introduced a reform bill that was ultimately passed and signed into law in September 2012. The America Invents Act (AIA) is the single most important change to US Patent law in 60 years.

The AIA is likely most relevant to high tech startups with potentially lucrative patents. Significantly, the law changed US patent rights from first-to-invent to first-to-file for applications filed on or after March 16, 2013. The new law also expanded the definition of “prior art,” which is immensely useful for first-to-file patent applicants.

This law can be a game-changer for tech startups. Whether a company’s IP assets are assets that should be protected with patent registration or with other strategies can best be determined with the assistance of an experienced IP attorney. Since IP creation and protection is extremely technical work, demanding the highest degree of precision over a long period of time (usually, several years), engaging legal counsel is highly advised.

Software

On average, software patents will cost somewhere around $8,000, which includes attorneys’ fees and filing fees. I’ve seen them at low $3,000, and as high as $16,000. Intellectual property (IP) lawyers are among the highest paid attorneys. You can minimize high rate billable hours by doing as much research as possible on your own to verify the eligibility of your patent, and assembling all relevant documentation and material to reduce a lawyer’s billable hours down the road.

Alternatively, you can spend roughly $2000 to file a provisional patent when protecting intellectual property, which works like a starting date placeholder. Provisional patents are popular with software companies who are trying to buy time in order to evaluate the proprietary value of their software innovation before committing bundles of money and time to a full-scale patent filing.

As for time, software patent registrations are taking, again, on average, about two and a half to three years. Sometimes it takes less time, sometimes more - there is no magic number. The US Patent and Trademark Office (USPTO) offers a dashboard that unpacks all kinds of patent information (their link is: http://www.uspto.gov/dashboards/patents/main.dashxml).

The gauges are pretty current and can help you get an idea of their unexamined application backlog, as well as how long it’s taking them to make final determinations on those applications.

Trademark

Trademarks are also known as service marks. They can be your trade name (the name under which your company does business), but they also include logos, symbols, and slogans.

Trademarks represent a company’s brand - its reputation - and therefore is a valuable asset that can and should be protected.

Trademark protection demands more than registration: it is vital for a company to proactively assert quality control over its mark.

Quality control is context-specific: it depends on a myriad of factors including the nature of the services or products that use the mark. Without exercising quality control, a licensed marked is considered abandoned property.

A company that strictly enforces usage guidelines will enhance its ownership of the mark. For example, color, format, font, size, style and placement are all deemed appropriate quality controls.

Trademarks should be registered on both the federal and state levels. You can register for federal trademark protection online with the U.S. Patent and Trademark Office. Many states will also allow you to file for trademark protection online. For those states that have not yet adopted online services, you will need to contact the business division of the Secretary of State’s office and request an application for trademark registration.

If you think trademarks are insignificant or a bit on the frivolous side, think Apple, Coca Cola, Delta Air Lines, and Starbucks. This slim list represents the power of trademark - and brand.

Copyright

Copyrights are often overlooked by companies as a valuable business asset. In addition to books, there is a considerable wide array of other works that are appropriate for copyright protection. These include: computer programs, websites, newsletters, databases, directories, technical and architectural drawings, manuals, technical works, training films, digital works, movies, and musical recordings.

Ownership of a copyright is automatic: it emerges as soon as the work is created. Claiming the copyright and marking the work with the copyright symbol © - even if handwritten - will further establish ownership.

With that said, it is strongly recommended that you register your copyright with the U.S. Patent and Trademark Office. The cost is minimal and registration will help ensure your rights in the event that the work is misappropriated.

Like patents and trademarks, copyrights can also be used as collateral for securing a loan or as an additional asset for purposes of valuation in an acquisition.

Summary: Protecting Intellectual Property

For bootstrapped tech startups, there are alternative/more cost effective routes that can provide relatively robust solutions for protecting intellectual property (IP). Business strategies that incorporate employee agreements (e.g., noncompete and nondisclosure agreements), policies, procedures, and regular training will all help to reduce the misappropriation of a company’s IP. A startup can also extend the reach of its IP protection through agreements with non-employees including vendors, outsourced designers and engineers, and testing facilities.

Chapter Two Checklist

Register A Domain.