In the midst of the many things that go into starting a new business, it can be easy to overlook one of the most fundamental, and most valuable, aspects of any business: the protection of its intellectual property, or “IP.” And, even when the protection of IP is considered, protecting a startups can seem too expensive a proposition in light of limited resources.
What is “IP?”
The first questions a startup should ask are: What is “intellectual property,” and does my company have any “intellectual property” that can be protected and is worth protecting? The World Intellectual Property Organization (WIPO) defines “intellectual property” as “creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.” This may include the name of your company name or its brand, its logo, any patentable processes, and designs which enable your company to earn recognition or financial benefit from what it invents or creates.
There are three primary ways in which a startup (or any other entity) can protect its intellectual property: (1) patents, (2) trademarks, and (3) copyrights.
A patent is a government-granted monopoly that provides an exclusive right to make, use, and sell a particular invention for a period of 20 years from the date the patent application is filed at the United States Patent and Trademark Office (USPTO). In order to obtain a patent, the patent application must demonstrate that the invention constitutes patentable subject matter, and that the invention is new, non-obvious, and useful.
Patent applications can be costly (approximately $10,000 per application), and can take more than a year to prosecute, which is one of the reasons that companies without a confirmed patent often state that they have a “patent pending.” Once a patent is obtained, however, it can be an exponentially valuable weapon in protecting a company’s inventions and marketplace, e.g., Amazon.com’s “one click” shopping, or “sliced bread.”
A trademark is a name (“McDonald’s”), logo (the “golden arches”), or slogan (“I’m lovin’ it.”) that serves to associate a specific product or service with a specific company. A trademark owner can protect its trademark in the U.S. by registering the mark with the USPTO and globally by registering with the WIPO.
In order to register a trademark, the mark must be distinctive and must be used consistently in commerce by the applicant, and cannot already be in use by another entity in association with the same or similar type of goods or services.
The legal expense of applying for a trademark is approx. $750, with additional filing fees for separate categories, such as retail, restaurant, etc., depending on the breadth of the services or products that the startup seeks to associate with the mark.
Copyright protection is afforded to “original works of authorship.” Copyrightable works include, for example, literature, music, plays, choreography, pictorial works, graphics, sculptures, motion pictures, games, architectural works and, in some cases, software. Copyright protection includes the right to reproduce, distribute, and publicly perform the copyrighted work. Copyright arises automatically upon the creation of a work of authorship, but in order to sue for copyright infringement, the copyright must be registered with the U.S. Copyright Office.
How IP Adds Value to a Startup
Protectable IP is crucial to a startup on several levels. Startups compete against other startups and existing companies for (i) customers and market share, and (ii) investment from angels, venture capitalists, and other established investors. Protectable IP can help a startup succeed in both areas. In some cases, protectable IP can differentiate a startup’s service or product and aggressively protect against competition for customers and market share.
Additionally, one of the most important factors investors look at in making their investment decisions is IP. In many cases, a startup’s IP is its most valuable asset that can increase the valuation of a startup, sometimes by multiples of two, three, and even four. In these instances, the investment in IP will be well worth the initial hardship that it may cause by paying quick and immediate returns in terms of increased valuation and investment. Taking steps to protect your IP will also give clients, competitors, and other stakeholders a sense of assurance that your company is committed to long-term success.
IP goes both ways. In addition to protecting your own IP, it is also crucial to take care to not infringe on IP held by other entities. This is typically achieved by performing a patent, trademark, or copyright search, which can provide some comfort that your company will not be preempted by a costly and time-consuming lawsuit before it even gets on the ground. IP searches can typically be conducted for between $1,000 and $1,500, depending on the scope and complexity of the IP involved.