Intellectual property, or IP, is the lifeblood of a technology startup company. IP enhances a startup’s enterprise value by providing (1) a competitive advantage (other companies can be excluded from using your company’s IP); (2) differentiation from legacy solutions and competition; and (3) the ability to extract license fees or royalties. IP can be protected under a variety of legal doctrines – namely patents, trade secrets, copyrights, and trademarks.
A patent provides the right, for a limited period of time, to exclude other parties from exploiting an invention. In order to be patentable, an invention must be novel (no prior art), useful, and non-obvious. Potentially patentable inventions include compositions, machines, methods, software, and business methods. Patent protection in the U.S. can be obtained by application to the U.S. Patent and Trademark Office, or PTO. Once issued, a patent can be monetarily exploited by suing third parties for infringement or obtaining licensing fees based on third-party use of the patent.
Patent applications can be provisional or nonprovisional. This is an important distinction, as nonprovisional patent applications can ultimately result in issued patents, whereas provisional patent applications must be refiled as nonprovisional within one year of filing in order to result in an issued patent.
Why do many startup companies choose the provisional patent application route? Provisional patent applications are confidential and not available until refiled as a nonprovisional application and made public. Additionally, the fees for filing a provisional patent application with the PTO are less than the fees for filing a nonprovisional.
Many startup companies rely on trade secret protection in order to safeguard their IP until the time comes to file a patent application. A trade secret is any confidential information that derives value from not being generally known or readily ascertainable by others who could obtain value from its disclosure or use, and that is subject to reasonable efforts to maintain its secrecy. Formulas, compilations, programs, devices, methods, techniques, and processes are all types of IP that can be subject to trade secret protection. A startup company should take efforts to maintain the secrecy of its IP by controlling access to the IP, marking the IP as confidential and requiring individuals and entities that receive access to or disclosure of the IP to sign confidentiality agreements. In contrast to patent protection, trade secret protection lasts as long as the information remains a secret.
Copyright protection is afforded to original works of authorship (not ideas) that are fixed in a tangible medium. Examples include writings, music, movies, and computer programs. In the case of individuals, copyright protection lasts for the life of the author plus 70 years. In the case of corporations, e.g., works made for hire, copyright protection lasts 95 years from first publication. The fair use doctrine allows third parties to use copyrighted material under limited circumstances, and whether such use is “fair” will require an examination of the purpose, the amount of work used, and the effect on the value of the copied work.
A trademark is a word, name, design (including product design) or distinctive symbol (logo) used in commerce to designate the origin of a particular good or service and distinguish it from other goods. The first trademark many startup companies obtain is their company name. In order to determine whether the proposed mark is available for trademark protection you should first search other usage of the mark. Assuming there are no obvious issues, you then need to file an intent-to-use application, use the trademark in commerce, and complete the application for registration. You can then use the mark TM or ®.
The test for determining whether your mark infringes on another mark is whether it will cause confusion in the marketplace. Trademark protection will last as long as you use the mark; however, if a mark becomes “generic,” i.e., synonymous with your company, then you can lose trademark protection. Notable examples of once registered trademarks that died due to becoming generic include Aspirin, Escalator, and Thermos.
A startup company should develop an IP strategy in consultation with its IP counsel. Protecting your company’s most valuable assets is essential, and potential investors will also expect to see adequate IP protection measures in place before providing your company with any funding.