Intellectual Property for Startups: Everything You Need to Know
Intellectual property for startups includes using copyrights, trademarks, and patents to preventing others from infringing on and profiting from your ideas10 min read
What Is Startup Intellectual Property?
Intellectual property (IP) for startups includes using copyrights, trademarks, and patents. Safeguarding IP is much easier in the beginning phases of your business than after those ideas have become successful. IP protection puts legal checks on your competition, preventing others from infringing on and profiting from your property. A sound IP strategy from the beginning can also help attract investors, suppliers, partners, and more because this form of protection offers more security with any potential success.
Typically, startups seek protection for inventions, logos, business names, and software. Different types of IP protection apply to these various works. For example, patents would protect an invention, copyrights would protect software, and trademarks would protect a startup's brand name and logo.
Why Is Intellectual Property Important for Startups?
The driving force behind a startup is a novel idea. Putting that idea into practice successfully is what transforms small startups into multibillion-dollar corporations. The purpose of intellectual property laws is to protect those ideas and concepts that underpin your startup. A major part of your competitive advantage and attractiveness to investors is how well defined — and well protected — your IP is in your startup's portfolio. In this way, IP is an asset to your new company, thus enhancing your commercial value.
The other side of the issue is as important; that is, exploring IP possibilities also helps protect startups from infringement claims against them. Part of the IP process involves searching for other companies that might already have rights to certain inventions or trademarks. Finding out about these companies early on can save your startup from costly infringement lawsuits later, after you've already invested money and time into developing the idea on your own.
Reasons Not to Secure IP Rights for Your Startup
The strongest argument against formally protecting your startup's IP is cost. Startups are in the early stages of business development and may often be short on cash and other resources. Securing IP rights takes money, time, and other resources. International IP protection can be expensive and a time-intensive process. For this reason, startups often put IP aside, figuring that a legal team can sort everything out once the company grows.
Reasons to Secure IP Rights for Your Startup
Many startups simply can't afford not to secure rights in their IP. A startup doesn't need millions of dollars and a team of attorneys to get basic IP protections. Getting basic domestic IP protection usually involves only a few small fees and some legal research. The benefits, by comparison, are huge:
- Deterring other companies from unfairly profiting off your material. Formal IP protection comes with registration, which puts the world on notice that your patent, logo, or software belongs to you. This protection can help your company avoid litigation in many cases. Other companies should first check with the United States Patent and Trademark Office (USPTO) to see if material like yours is already in use.
- Presumption of ownership. When you successfully gain legal rights in a copyright, patent, or other type of IP, you create a rebuttable presumption that the property belongs to you. In other words, when another company infringes on your IP and you sue, the courts will presume that the IP belongs to you unless the other company proves otherwise. This position gives you an advantage in infringement litigation.
- Protection from infringement suits. If your startup doesn't go through the process of securing IP rights, you have no way of knowing whether what you're using already belongs to someone else. Properly acquiring IP rights protects your startup from expensive infringement litigation later when you discover that someone else already owns the rights.
- The key ingredient to competitive advantage. According to the Startup Genome Project, the most critical step in gaining competitive advantage in your market is intellectual property, which is even more true for tech-based startups.
- Security and investor appeal. If your startup connects with a novel idea or type of software, not protecting your IP could put your entire business at risk. IP protection advertises stability and security to investors who like to see startups with a well-developed IP strategy from the beginning.
Deadlines for Securing IP Rights for Your Startup
While the best strategy for all forms of IP is to register as quickly as you can, patents are the most time-sensitive ones. In the United States, inventors have a grace period of one year after they make an invention public to file for a patent. After that time, the law offers no protection.
But even waiting one year could put your startup's inventions at risk. In 2013, the USPTO moved from a first-to-invent system to a first-to-file system. In other words, under the new system, it doesn't matter if your startup thought of the invention first: What matters is who files the patent first.
With other forms of IP, such as copyrights, trademarks, and trade secrets, the time constraints are less rigid. Still, you should register your IP early. Remember that with copyrights, you can't copyright an idea. Rather, you can only protect the idea once it's in some type of fixed medium, such as a software program or a catalog.
With trademarks, the law can protect your mark as soon as you begin using it, assuming that you're not infringing on another's trademark. Once you're sure the mark isn't already in use, display it on your products, website, letterhead, and business cards so that you can establish how long you've had it.
What Can Happen With and Without IP Protection for Your Startup?
With IP protection, your startup has a legal claim to what you've registered. In other words, you have the right to sue when another company attempts to use IP that belongs to you. If you win the lawsuit, the company infringing on your IP is not only prohibited from doing so further, but also may have to pay your company monetary damages. Additionally, because formally registering your IP gives notice of ownership, no one who infringes on your startup's IP rights can claim ignorance of that fact.
Without IP protection, you put not only your IP at risk, but also your whole business at risk. Startups are often heavily dependent on their IP for competitive advantage, so unprotected intellectual property could be potentially fatal to a new company. Below are several risks your startup takes by not protecting IP:
- Someone else can patent your inventions. Imagine all the hard work you've put into your novel invention going to waste because someone else files for a patent before you. If you don't patent your invention, anyone can apply for a patent and exploit it for profit exclusively for 20 years. Even if you conceived of the invention first, the inventor who files first will be able to make money from that invention for decades.
- You limit or destroy your ability to profit from your IP. When you own patents, copyrights, and other IP, that ownership allows you to make money from licensing, selling, and transferring those rights. These revenue streams can easily make or break your startup. For example, if you have a patent, but you don't have the resources to commercialize it yourself, you can license or sell the invention as a source of income. Likewise, if you don't have a copyright, others can more easily copy your work, such as a software program, without having to pay you anything for it.
- You put your startup at risk for costly litigation. If you're using a patent or trademark without proper registration, you likely do not know who else may be using that same IP. Part of registering your IP is a search for similar inventions or trademarks to make sure your IP isn't infringing on someone else's idea. Without proper registration, another company with legal rights to that IP could sue you and win, even if you invented or created that material before the other party did.
Common IP Mistakes Startups Make
Startups often don't prioritize their IP strategy or don't have one at all. Mishandling your IP can doom your startup before it can develop. The most common — and most fatal — mistakes startups make with IP include the following:
- Undervaluing intellectual property. IP often is not considered equally when it comes to products, business strategies, and marketing plans. In reality, your startup's IP is likely the most valuable intangible asset your company has. IP isn't only a legal issue. In fact, IP accounts for a larger percentage of a company's value the more successful a company is. For example, for companies on the S&P 500, IP accounts for up to 90 percent of their value.
- Not creating an IP strategy. Just as you would with the marketing, supply chain, and financial aspects of your startup, you need to develop an IP plan. Without an IP plan, you expose your intangible assets to expensive infringement lawsuits in the future, which few startups would be able to withstand. A solid IP plan should include what IP assets you have, how and when you plan to protect those assets, and how you will protect your startup from being sued over IP.
- Not keeping the creators communicating with the decision makers. As your startup grows, you'll eventually reach the point where the people who are creating your intellectual property are separate from the people who make strategic decisions about how to protect it. For example, your team of engineers who invent will differ from your legal team and executive team. Make sure your creators and deciders stay in touch. The people in charge of safeguarding your IP can't protect what they don't know about or don't understand.
- Not protecting confidentiality. One type of potentially valuable IP to startups is the trade secret. A trade secret is only protected if it stays what its name implies: a secret. For example, only two employees know the recipe for Coca-Cola, a protected trade secret, and the recipe itself remains in a vault in Atlanta, Georgia. Confidentiality can be equally important in developing inventions and writing patents. To avoid breaches of your confidentiality, make sure you have employees, partners, and suppliers sign non-disclosure agreements (NDAs). You'll also want to password-protect all computers, limit which employees have access to certain information, and limit the type of information employees can access on personal devices.
- Failing to do a trademark search. Before you begin using a trademark or business name, make sure you do a thorough search to see if that mark or name is already in use. You can use a free tool through the USPTO's office called the Trademark Electronic Search System (TESS). If you don't take this step before you start building a brand and associating it with that mark or name, you'll lose your investment in that IP if you find out after the fact that you're infringing on a trademark from another individual or company. A TESS search will let you know early on if your mark is infringing, keeping your losses minimal and preventing you from reworks.
Frequently Asked Questions
- What is intellectual property?
Intellectual property (IP) refers to mental creations, such as inventions, symbols, artistic and literary works, and images used in commerce. IP is protected by law and typically falls into the categories of trademark, copyright, patent, and trade secret.
- What is a patent?
A patent gives the owner of an invention exclusive property rights for that invention for 20 years in the United States. During this period, others cannot claim IP on the invention.
- What is a trademark?
A trademark is a word, design, or symbol that identifies a product or service as coming from a certain source. Startups can save money by trademarking their name and logo together instead of protecting each element separately.
- What is a copyright?
A copyright is an exclusive right to use and copy a creative work in a fixed form, such as a book, article, software program, or song.
- What is a trade secret?
Trade secrets are processes, devices, or techniques used by a company and not known to the public. Examples can include a recipe, a list of customers, or a search algorithm used by a certain search engine.
- How can a startup protect its IP?
In most cases, a startup would need to register the IP with the United States Patent and Trademark Office (USPTO). However, the processes for registration differ according to the type of intellectual property.
- What can a startup do if another party infringes on its protected IP?
File a lawsuit. With copyright and patent claims, you would need to file the suit in federal court. For trademark and trade secret claims, you can typically file in either state or federal court.
Steps to File for IP Protection
- Trademark. After you've performed a thorough trademark search, complete the trademark application form on the USPTO's website. The cost to file online as of January 14, 2017, is now $400.
- Copyright. Complete a copyright application with the U.S. Copyright Office. The fees associated with copyright registration can range from $85 to $130.
- Patent. File online with the relevant patent application. The cost of filing for a patent can vary widely depending on the nature of the patent and the complexity of the invention. The most expensive part of filing for a patent is usually attorneys' fees, as you'll most likely need a patent lawyer to help you. Patent application fees range from $65 for individuals to more than $700 for large businesses, depending on the type of patent application needed.
- Trade secret. What makes trade secrets valuable is their secrecy, which is why, unlike other forms of IP, you can have legal protection for your trade secret without registration. For the law to protect your trade secret, you must take reasonable steps to safeguard its confidentiality. Non-disclosure or confidentiality agreements are typically the best way to protect your startup's trade secrets.
Startups have to defy the odds to succeed. Competition is always there for new companies, and startups can't afford to make costly mistakes. One way you can help safeguard your new company and stay on the path toward success is by properly protecting your IP from the beginning. Not only will you insulate your startup from legal problems later, but you'll also better position yourself for investors, partners, suppliers, and other stakeholders.
If you need help with the intellectual property of your startup, you can post your question or concern on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. UpCounsel lawyers come from law schools such as Harvard and Yale and average 14 years of experience, working for companies such as Google, Stripe, and Twilio.