“So, what’s your IP?”
This question is common among investors, especially those evaluating your startup for potential investment, and it can be tricky to answer if you haven’t given it much thought. Crafting an intellectual property (IP) strategy at the onset of establishing your startup is critical. A thoughtful IP strategy provides a plan for using your IP to build and protect company value and is an excellent answer to the question above.
What is intellectual property? According to the Legal Information Institute, "intellectual property is a type of property encompassing the products of original human thought." I love that definition because it clarifies that you'll find people at the center of IP—more on the importance of people below.
When folks think of IP, they often think of patents. There are, in fact, four types of intellectual property worth discussing: patents, copyrights, trademarks, and trade secrets (each of these links provided by the Legal Information Institute is worth a quick read). Every IP type is worth your consideration, so understand each and their differences.
Ready to craft your IP strategy? Here are eight key considerations:
- Don't wait. Allowing the horse out of the proverbial barn can be disastrous for your company. So, think about how you're protecting your intellectual property before building your company infrastructure. For example, you may lose the right to file a provisional patent application if information about your potential invention is already public. Additionally, you may have to change your company's name if another company has already trademarked it. Word to the wise: The availability of a web domain doesn't equate to an "all clear" signal.
Your company is worth protecting, and one way you can protect your company is to use all the legal means available to safeguard your "products of originally human thought" (I told you I love that definition). Trust me, you'll get the most protection by deploying these means at the company's earliest stages.
- Build your IP strategy team. What's the best way to build a robust strategy? Assemble an exceptional IP strategy team! Don't hesitate to speak with and hire a law firm that can help you craft an optimal IP strategy. You'll need counsel from attorneys with experience in intellectual property and employment law. These folks will need to be experts who can help you answer difficult questions, such as whether certain innovations rise to the level of patentable inventions or are best protected as trade secrets.
A strong team will help you evaluate and choose from all types of IP protection at your disposal, address costs, create optimal processes and documents, and increase your company's value. That's why you pay them!
- It's not all about patents. It is easy to get excited about patents. It is the most celebrated IP type in the startup universe. An issued patent can feel like an automatic moat around your business. Spoiler alert: It's not.
As you establish your IP strategy, you must consider all the potential means by which you can protect your IP, including patents, trademarks, copyrights, and trade secrets. Get your name and key logos trademarked. Place copyrights on the appropriate digital and physical materials. And make sure trade secrets are protected with all the proper mechanisms and documentation.
- Build your moat. Not an actual one, although who wouldn't want a deep, broad trench providing fortification around your metaphorical castle? Instead, every startup needs fortification around the business, preventing other entrepreneurs or competitive companies from "storming the castle."
Now, let's be clear: The ultimate moat is revenue. Products of original human thought should generate income. Otherwise, your IP is pointless. If the IP is the foundation of a scalable, high-margin product, look out! A strategy that fortifies and protects your IP, combined with growing revenue, is the type of protection investors will love and want to support with their capital.
- Remember the people. Back to the definition of IP: Products of human thought. We derive intellectual property from the fantastic people working for your company. This means you should design your IP strategy to work with and act as a motivational force for your people.
What does that mean in practice? First, you must create an appropriate process to log IP. For patentable innovations, this could mean an invention disclosure form that employees use to memorialize the invention's date, manner, and description. Second, celebrate the inventions, innovations, and creations, recognizing your employees to support a culture of innovation. Third, establish and implement suitable agreements with your employees, such as an Employee Obligations Agreement or Intellectual Property Assignment Agreement, that assigns intellectual property they create during their employment to the company and keeps its intellectual property confidential. Sometimes, such agreements, which should always be signed at the start of the employee's employment, will include non-solicitation and/or non-competition agreements. Ensure your employment counsel weighs in here to help you create the correct contracts that align with your goals and comply with state laws.
- Build a budget. Here's the thing about implementing your IP strategy: it can get expensive. As in hundreds of thousands of dollars of legal fees to prosecute multiple patent applications globally, expensive. So, when building your IP strategy with your expert team, ensure you understand the costs of implementation and design your strategy accordingly. Patents are great, but trade secrets are more economical.
- Don't over-NDA it. In addition to creating the processes and documents to manage IP amongst your employees, you'll need to develop processes and documents for managing your IP with third parties. This is typically done through a non-disclosure agreement (NDA). Either mutual or unilateral, NDAs are designed to protect your IP when it must be shared with outside parties.
NDAs allow an outside party to review your IP for a specific purpose but stop them from disclosing it to anyone else (hence the name "non-disclosure"). NDAs can be critical, but make sure you don't overdo it. Some folks won't sign NDAs (like investors and journalists). And for those that do, you need to keep a repository of all the NDAs you sign. Come up with a balanced plan and stick to it!
- Track your IP Portfolio. Once your company starts building a collection of IP, you'll want to create a registry that tracks it. Consider a simple one-page "IP Registry" that lists all your IP by type, along with the description, relevant dates, and status. Your registry could also include domain names that you own and/or other critical branding assets. With this registry in hand, you've got a mechanism to track your IP for internal management and fundraising activities. Think of the IP Registry as one of the first items to head into your data room during a capital raise. Eventually, you'll want to hire firms to help manage your IP portfolio (especially for patents and trademarks to ensure all payments and filings are kept up to date). But for the company's initial stages, an internal IP Registry will work just fine.
There's a lot more here, but that's why you'll build an IP strategy team, so these experts can help you manage your IP strategy through every phase of your company's growth. The right strategy and the right team will create value for the company and give you ample time to spend creating more products of original human thought!
