Startups of all sizes are feeling the pressure to use precious early-stage funds on intellectual property (IP), even when the benefits are not very obvious at first.
Sarah-Marie Rust, CEO of EVE Mobility, a startup developing a SaaS solution for fleet electrification, stated: “One of the things investors ask me during a first meeting is whether we have a patent for our software. We have researched IP protection extensively, and although protecting our idea and software is most important to us, it doesn’t look like patenting our solution is necessarily the best route for us. It is not only costly, but it also doesn’t provide us – a software-only company- with the security we need. But for a lot of investors, particularly in the US, it seems that not having a patent is a dealbreaker.”
With innovation as their lifeblood, startups must prioritise protecting their ideas to secure their future prosperity. But for early-stage startups protecting groundbreaking ideas from imitation or theft is a challenge, particularly when initial funds are too tight to bring on a legal team and when the inevitable pivots to get the right product market fit might make early IP efforts obsolete.
Yonca Braeckman, General Partner at Impact Shakers Ventures confirms: “IP is important to us but if a startup can demonstrate to me that they have done their research into their IP, and come up with a solution that works for their product in their market within their financial means, then that is a good enough starting point in early conversations”
I asked Donald McCombie, a partner at the law firm Clifford Chance who specialises in Intellectual Property Rights for some advice to help early-stage startups get their IP right from the outset. Before digging into his top tips let’s quickly lay out the various forms of intellectual property and their significance as each type offers distinct protections and requires different application processes.
- Patents are registered IP rights that cover technical inventions. These require an application to a patent office before protection can be granted.
- Trademarks protect rights in trading names, logos and other branding. You can apply for registered trademarks (which are relatively cheap to obtain), and you can also obtain unregistered trademark-like rights just through trading and generating “goodwill.”
- Copyright protects books and other written content, music, video, artistic works and computer software. Copyright arises automatically without needing to apply for registration. For example, by writing and sending an email, you create a copyrighted work.
- Trade secrets can cover a wide range of subject matter, from chemical formulae and recipes to datasets, investment opportunities and pricing information. Essentially, if information can be kept secret and has economic value, it can be a trade secret.
With definitions now squared away, here are Don’s top five tips for IP for early-stage startups:
- Your optimal strategy will depend on your budget. How best to prioritise your (inevitably limited) IP spend will depend on the nature of your business. For B2C businesses, branding is very important. For tech companies, managing open-source software risks and keeping your own source code secret is key. For life sciences companies, patents are essential. There is no “one size fits all” strategy, but there are many handy rules of thumb.
- The most effective ways to protect trade secrets are all practical/technical rather than legal:
- The best way to keep a secret is not to tell anyone. That can obviously impede collaboration(!), but with valuable secrets, you should share only the information you absolutely need to share in order to get the job done and nothing more.
- Technical protections can be cheap and effective, e.g. disabling USB ports, blocking access to webmail and Dropbox, sharing content via SaaS read-only access rather than providing copies, etc. These all help prevent valuable information from leaving your company’s own systems.
- Don’t just rely on NDAs. They are commonly breached, but you will probably never discover most breaches, and enforcement is expensive even if you do catch someone red-handed.
- If someone creates something for you, you don’t automatically own the IP just because you paid for it – you still need a written assignment. This is the most common IP mistake we see, and it is very easy and cheap to avoid by including just a single clause in the agreement with the relevant developer (or designer, photographer or other creator).
- Patents aren’t suitable for every business. But if you have a technical idea that you might want to patent, don’t tell anyone about it before speaking to a patent attorney. You certainly shouldn’t write about it in a blog post, academic paper or on your company website. By disclosing your invention publicly, you might kill your chances of getting patent protection in future.
- Think about trademark protection before spending a lot developing a brand. Some brands are really easy to protect as trademarks, others are really difficult. Here are some rules of thumb:
- Logos and made-up words are generally the easiest to protect;
- Widely-used or descriptive words are hard to protect, and will probably receive lots of objections; and
- Phrases and taglines are hard to protect, but if you register your core logo and name first, your accompanying tagline might become distinctive over time, and eventually become protectable in its own right.
Taking this wisdom into consideration, it is advised that all early-stage startups consider their IP strategy by looking at the elements of their product or company that they need to focus on protecting, the best strategy to achieve this within their financial means, and how they would defend this strategy to a potential investor.
Editor’s Note: Our partner Insperanto has reserved €5 million to support founders in the EU-Startups network. This grant helps you file patents, designs, trademarks, and access to top IP attorneys worldwide. The application process is quick and easy, taking under 5 minutes with no strings or costs attached. Learn more
