10 Intellectual Property Strategies to Help Technology Startups

Intellectual property is often one of the most important issues that a tech startup will face. There are many challenges startups will face when developing a product and hiring qualified staff. Intellectual property can become costly and distracting for startups.
Intellectual property is often the greatest asset of a tech startup. To secure venture capital funding, or to prevent your competitors from unfairly challenging you, protecting intellectual property is essential.
We have compiled a list of 10 important intellectual property strategies we recommend you use.
1. You should keep your work and employment separate from the new idea.
It’s certainly frightening to leave your job and work for free. But, founders who start working on a new idea simultaneously with their current job are one of the greatest pitfalls when starting a company.
In the event of conflicting obligations, ownership rights to intellectual property can be put at risk. It is essential to know exactly what was done and how much was spent on resources. Know your job obligations, including obligations related to assignment and noncompetition. Most companies will require that employees sign Confidentiality, Invention and Assignment Agreements. In this agreement, the employee acknowledges that all ideas and inventions relating to the employer’s business are the employer’s.
Side projects must be approved by the employer. This means that you cannot use company resources or time for something other than your job. Many people do not want to tell the employer about their new venture and keep it “under the radar”. This is especially true for those who are closely connected to the employer.
2. Do not let others claim your IP or your company.
Some of the best ideas are born out of conversations over drinks and coffee with friends, dorm room buddies, or with other entrepreneurs. It’s fun to exchange ideas and learn from others. Because these conversations are informal, people often submit funding requests together. This allows them to be co-founders and to talk loosely about equity share.
If you do have a cofounder, you must agree on terms. This can lead to major problems later. The founder agreement can be viewed as a “pre-nuptial” agreement.
These are the key terms to be included in any type of written founder agreement.
• Who gets which percentage of the company?
• Is the percentage ownership subject or not to vesting depending on continued participation in a business?
• What are their roles and responsibilities?
• What rights does the company and the other founder have to buy back the shares of a departing founder? How much?
• Which founders are expected to commit the most time to the company?
• What salaries are founders entitled, if any? How can this be changed?
• How will the business make key decisions?
• How can a founder be dismissed from the business as an employee? (Usually this would be decided by the company’s Board of Directors.
• Which assets or cash does each founder contribute to or invest in the business?
• How will the business’ sale be determined?
• What happens if a founder fails to meet the expectations of the founder agreement. How does it get resolved? The preferred approach to any dispute is confidential binding arbitration.
• What is the overall objective and vision of the business?
• Are all people in agreement that all intellectual Property is owned by the company? And if so, how can they ensure their right to use technology that was developed for their benefit?
Neglecting to document or clarify any informal understandings is dangerous. Friends and acquaintances should be cautious when discussing ownership stakes or sharing information. Keep track of all discussions and ideas, including those about equity stakes. You should keep a copy if a proposal is sent to potential funding sources. Investors may need that information.
This is the difficult part. If you make a change in your life and your friend or colleague decides to stop being part of it (even if they are not part of your plan), communicate your feelings clearly. If you have a billion dollar idea, it’s cheaper and more efficient to solve these kinds of issues early on than waiting until you sell the company or file for an IPO.
3. Assign IP to contributors
Your company could have many stakeholders who may share intellectual property. Additionally, innovation is often a result of prior company formation. Unless an agreement is made, intellectual rights are generally owned by the creator of the work. California has state laws that allow employees who create inventions in their own time to keep intellectual property and assign rights, provided they don’t use any company equipment, supplies, nor facilities. Independent contractors have additional rights. Written agreements can be used to make sure all rights are given to the company. A written agreement is necessary for certain types intellectual property assignments.
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It is important to ensure that startup owners have the right to intellectual property. It is vital to clearly identify who the owner of what intellectual property rights is. The following steps should be taken by a startup to make sure it owns all intellectual property that is necessary for its business.
• All intellectual property acquired before incorporation must be made available to the company by way of a written agreement. Most often, the transfer is in exchange for shares of the company or for cash.
• All employees should sign Confidentiality and invention assignment agreements, which require the assignment or transfer of intellectual property. (See Key Questions with Confidentiality, Invention Assignment and Employees.
• All consultants and independent contractors must sign agreements that clearly state their obligation to transfer intellectual property developed for the company. (See Key Issues regarding Confidentiality, Invention Assignment agreements for Consultants.
• Joint development efforts and business partners must clearly define the ownership rights, including ownership of joint development activities.
These agreements should also stipulate the following:
• You agree that confidential information of the company is for the company’s benefit only.
• There is a disclosure requirement for any ideas, inventions, or discoveries related to the agreement, employment,
• It is clear that ideas, inventions and discoveries are owned by the owner.
4. Take stock of your core assets and determine what type IP protection you need.
In startups, cash is key. Startups in technology may be wary of increasing their burn rate and might hesitate to invest in intellectual properties protection. Protecting intellectual property can feel complex and expensive to those who are not experienced in the process. Too often startups end up losing intellectual properties rights for not protecting their hard work.
These cost-effective, simple techniques can help reduce anxiety and protect core assets. The best place to start is to critically assess the company’s value proposition, and any intellectual property assets that may be critical to these value propositions. This is a great way to raise funds and protect your core assets.
Patent protection can be a false belief for companies. Tech startups often ignore the value and potential for exploitation of non-patent IP. While patents can have an incredible value, they do not guarantee that a company’s product will be a success or that it will sell well. IP can be protected for trade secrets and trademarks as well as cybersecurity policies and copyrights. It is important to take time to understand the company’s value proposition in order to determine the best protection.
Here’s a listing of the various types of intellectual propriety that are available.
• Patents Patents are the best protection available for a new product. Patents grant the right to the inventor to stop others using, making, and selling the patented subject material described in the patent’s claims. When deciding whether or not you can obtain a Patent, the following are the key points: (1) You must patent the specific embodiment of an invention, formula, or product. (2) The invention cannot be used or sold by others. (3) The invention cannot have been previously patented or described in print. (4) The invention must have some practical use. You can obtain a U.S. Patent and Trademark Office patent in the United States. This process can take years and be very complicated. A patent lawyer will usually help you to draft the patent application.
• Copyrights Copyrights protect original works of authorship like advertising copy and books. They also cover music, movies, games, software, and other media. A copyright grants the owner the exclusive right of making copies of the work as well as to create derivative works (such like sequels and revisions) based off the work.
• Trademarks A Trademark renewal rights protects the symbolism of a word or name, symbol or device that is used by the trademark owner to distinguish its goods or identify them from others. The IBM trademark, American Express trademark, and Coca-Cola trademark are some of the most famous trademarks. If you use the trademark in commerce, you can obtain trademark rights. Federal registration is not required to acquire rights, but it does provide some advantages. Register a trademark with the U.S. Patent and Trademark Office.
• Service marksService marks can look similar to trademarks, and they are used for identifying services.
• Trade secretsStartups can use trade secrets as a valuable asset. They can be very cost-effective and will last for as long it is kept secret. The owner of a trade secret right can take legal action against anyone who violates an agreement, confidential relationship, or steals or uses inappropriate means to obtain secret information. Trade secrets include customer lists, computer programs, and even the formula for Coca-Cola.
• Confidentiality agreement.These are also known by the NDA (Non-Disclosure Agreements). The agreement allows the holder of confidential information such as a product, business idea, or other proprietary information to share it to a third party. However, the agreement states that the third party is bound to keep the information confidential and not make any use of it, unless authorized by the owner. There are often standard exceptions to confidentiality obligations, such that if the information already exists in the public domain. SeeThe Key Elements Of Non-Disclosure Agreements.
• Confidentiality Agreements for employees, consultants.This agreement should be signed by every employee or consultant, as described in Section 3 above.
• Privacy Policy and Terms and Conditions.A terms of services agreement is necessary for companies that do business online. It will restrict what users can do on your website as well as the information they have access to. The Privacy Policy, which outlines what privacy protections your users have, is closely linked.
Investors and buyers often have to be aware of your IP and its protection. These assets will often be required to be disclosed using a “disclosure list.” (See How Important are Disclosure Schedules in Mergers, Acquisitions. To make sure that everyone knows what they have, it is a good idea for companies to keep copies of everything in an internet data room.
• Patents, patent applications (including the patent numbers, jurisdictions included, filing, registration, issue dates, and patent numbers)
• Confidentiality, Invention Assignment agreements with employees or consultants
• Trademarks and Service Marks
• Key trade secrets, proprietary know-how and trade secrets
• Technology licenses purchased from third parties and sold to the company
• Technology licenses can be sold from the selling organization to third parties
• Software and databases
• Contracts that allow for indemnification to third parties in IP matters
• Open source software can be used to create or modify the services and products of the seller
• Claims of infringement of IP, which includes any IP litigation or arbitration
• List of domain names
• IP-related liens and encumbrances
• Source code or object code for escrow
• Social media accounts (Twitter. Facebook. LinkedIn.
See also 13 Key Intellectual Property Problems in Mergers or Acquisitions and The Importance to Online Data Rooms in Mergers or Acquisitions.
5. A great name is essential
Your brand is an asset that can make you stand out in the market. Startups should ensure that their names and logos can be used commercially. Here are some steps to avoid naming issues
• Google the name to discover what other companies may have used it.
• Look up the U.S. For federal trademark registrations, visit the Patent and Trademark Office site.
• Search the State Secretary of States corporate records or LLC records for the state where the company will conduct business to find out if anyone else is using the same name.
• Search GoDaddy.com for the domain name you desire. If the “.com” domain name is not available, this can be a problem and should be flagged.
• Make sure your name is memorable and unique
• A professional trademark search might be something you want to have done by your intellectual property lawyer.
• The name should not be so restrictive that you have to change it later when the business grows.
• Develop five names you like and market them to potential employees, partners and investors.
• Consider the international implications for your name. A name that’s embarrassing or negative in another country is not a good idea.
• Avoid unusual spellings. This can lead to confusion later. Google and Yahoo are examples of companies that have enjoyed success with unusual names. However, it is not common for them to be successful.
See also 12 Ideas for Naming Your Startup Business
Startups need to register the names and logos they use as trademarks. The trademarks protect a company’s name from being stolen or used by others. They also help to establish a brand that is unique and distinguishable for the company. This increases a startup’s visibility on the market. You can also establish a record by being an early user or a registered holder of the name and/or logo. Trademarks are relatively affordable, with U.S. Patent and Trademark fees of as low as $225 per application.
6. Patent strategy should be cost-effective.
Patents are valuable assets that can help companies. Patent portfolios often provide offensive benefits to companies, as a way to limit competition in similar technology fields. However, patents offer many defense benefits. If a competitor threatens a startup with patent infringement, a portfolio of defensive patents could be an effective bargaining tool. This could result in a favorable outcome, with a potential for cross-licensing or better settlement terms. You may be able to file counterclaims, if litigation is initiated.
Common questions include: How many patents can I file? Companies spend enormous amounts on a broad array of patents. Others don’t spend anything. Both of these decisions are often a mistake. The process of creating a large patent portfolio for a technology startup is expensive and time-consuming. In the long term, it will not provide any return on investment. Startups will not benefit from filing many cheap, poorly drafted patents. Best practice is to seek patents that are directed at the core value and innovation of your idea. Another option is to pursue patent claims that you can monitor. Also, it’s important to be able and willing to study the products of competitors to identify if they are infringing.
Startups can begin the process for patent protection without having to pay a fortune. A startup might file a provisional application, which is a concise description (it could even be a manual) of its technology and how it works. This preliminary filing is used to prove when you invented your technology. You also have a year to create the formal documentation that will be required for the patent-application procedure.
The U.S. Patent and Trademark Office’s Track One program can be used strategically by young companies who are worried about a long and costly process. This program allows a startup to go through a prioritized examination of its application and receive a Patent within one Year of filing.
Companies fear “patent trolling” due to the nature their business. Your patent does not always provide a defense against the claim of another. Consider low-cost services to help you deal with patent trolls. There are many low-cost and no-cost options to help protect against the risks of patent infringement. For small companies, LOT network may be free. Other organizations like RPX and Unified Patents are also worth your consideration. These services are available to provide additional protection for some types of companies.
7. You might consider a global strategy for patents, including China
Startups need to consider a global strategy from the very beginning. Startups tend to overlook international standards of protecting their inventions in an effort save money and protect them quickly. When a startup wants to expand into international markets, it might find itself without protection in crucial countries. Without understanding the requirements for international protection, filing an international application may lead to international application timeframes being extended and a company losing its international protection. Your patent attorney should discuss international protection.
You should think about patent protection for China if you are a manufacturer of hard products (rather than software). Many people think China is a horrible place to protect intellectual properties. While it can be difficult to protect intellectual assets in China, the laws and remedies are continually evolving. Chinese patents often come at a low cost. A Chinese patent can help you to conduct business in China.
8. Open Source software is best used with caution
Startups might choose to use open source software when developing software. Open source software is often free and can speed up development. Open source licenses are to be carefully read. Startups can be threatened with copyright infringement and breach of contract if they use open source codes in ways that are not allowed under the license. In certain instances, the open source code used in a customized startup product could inadvertently turn a startup’s proprietary code into open software. IP protection may not be maintained, but the confidential and proprietary code of a startup could be disclosed to the public. Open source software development is a risky business venture. Companies should be aware and follow a strict protocol regarding how and when it can be used.
9. It is rare to litigate IP disputes in principle.
Company employees can be distracted by lawsuits that can cause cash and time drains. Emotions are high when an employee leaves a company due to poor business practices, a business partner who broke a deal or a patent-troll sues them for a significant amount. The board is upset, employees become angry and “policy” arguments raised. These strong emotions trigger a dialogue about “we have to fight this on principles.”
Fighting on principle is an error, except in the most rare of cases (or when the opposing side is unable or unwilling to have a business level discussion), The company will have its core employees focusing on litigation, rather than company growth. Litigation is often slow and costly. The principle of the case is very important to business executives. The company feels very differently after nine months, $1M in legal fees, no case progress, and often feels completely different. It is important to consider the long-term if you feel the need or desire to litigate. If you feel the upside of litigation is extremely beneficial, don’t hesitate to litigate.
10. Take care when you hire new employees
Employers of competitors should be careful when hiring new employees. To avoid any litigation from the prior employer, you must be very careful when hiring new employees. The following are some examples:
• Check that the employee is not subject to a binding noncompete agreement.
• The new employee must agree to not bring over confidential or proprietary information.
• The new employee must agree not to use any confidential, proprietary or other information belonging to third parties.
• Before you hire, check references.