Steve Blank

Early on in my career I took a “we’re moving too fast to deal with lawyers” attitude to patents and Intellectual Property (IP.) That changed when I joined the board of a startup, and we sued Microsoft and Sony on the same day for patent infringement – and won $120 million.

A few caveats, this post is not legal advice, it’s not even advice, and it deals with law in the United States. Outside the U.S. your results will vary depending on your distance to a consistent and predictable legal system.

At one of my entrepreneurship classes at Stanford, Dan Dorosin, of Fenwick & West LLP guest lectures about startups and Intellectual Property. Most of this post is from Dan’s lecture. (But there are no guarantees that I got it right.) It may seem full of legal definitions and terms but my two takeaways are: 1) Entrepreneurs need to know about these legal options, 2) Consulting an intellectual property attorney is a good move even before you get funded.

Intellectual Property
Intellectual property gives you rights to stop others from using your creativity.

The assets you can protect may include your “core technology” like source code, hardware designs, architectures, processes, formulas. Or it can be your brand, logo or domain name. You can protect business processes, know how, customer information, product road map. Protection is also available for content such as music, books, or film.

For some of these assets, you get protection automatically. For other classes, to get full protection, you should/must go through a registration, application or examination process.

 

Types of Intellectual Property Protection

Type of IP _____________	What is Protectable _____________	Examples _____________
Trademark _____________	Branding (i.e. Nike swoosh) _____________	marks, logos, slogans _____________
Copyright _____________	Creative, authored works; expressions (not ideas) _____________	software, songs, movies, web site content _____________
Trade Secrets _____________	Secrets with economic value (i.e. the Coke recipe) _____________	non-public technology customer lists, formula _____________
Contract, NDA _____________	As defined in the contract _____________	technology, business information _____________
Patent	Inventions	new technology

Trademark
A trademark protects branding and marks, it gives you the right to prevent others from using “confusingly similar” marks and logos. Trademark protection lasts as long as you are using the mark. The more you use the mark, the stronger your protection. Trademark registration is optional, but has significant advantages if approved.

Copyright
A copyright protects creative works of authorship; typically songs, books, movies, photos, etc. Copyright gives you the right to prevent others from copying, distributing or making derivatives of your work. It protects “expressions” of ideas but does not protect the underlying ideas. (If your product is software, copyright is also used to prevent someone from stealing your software and reselling it as machine and/or source code.) Copyright protection lasts practically forever. Registration is optional, but is required to sue for infringement.

Contract
A contract is a binding legal agreement that is enforceable in a court of law. There’s no official registration process. You have whatever protection is defined in the contract (e.g., a Non Disclosure Agreement gives you certain rights to protection of your confidential information.) The protection lasts for the time period defined in the contract.

Patents
A patent is a government granted monopoly to prevent others from making, using or selling your invention – even if the other parties infringement was innocent or accidental.

Just about anything can be patented: circuits, hardware, software, applied algorithms, formulas, designs, user interfaces, applications, systems. Scientific principles or pure mathematical algorithms cannot be patented.

Your invention must be “non-obvious.” The test for non-obvious is: given the prior art at the time of the invention, would a typical engineer 1) identify the problem, and 2) solve it with the invention? You must be “first” to patent.  In the U.S. that means “first to invent” while outside U.S. it means “first to file.” You must file in U.S. within one year of sale, offer for sale, public disclosure or public use.

Your patent application has to include a written description with details of the claims of the invention. The details have to allow others to duplicate your invention from your description and has to the “best mode” in describing critical techniques/technologies.  And it has to identify all prior art.

Patent protection lasts typically for 15-20 years.  There is a formal application and examination process that’s required.  Each patent filing will cost your company $10-30k and take 1-4 years. Filing of patents is frequently of major interest to people funding your company.

(There’s something called a “provisional patent.” It’s an alternative to a full patent. It allows you to claim “first to file” and use the term “patent pending.” Provisional patents get into the patent office quickly and cheaply. However they automatically expire after one year and no patent rights are granted. Provisional patents are a good placeholder because they are cheap to file and doesn’t get in the way of your other patent efforts.)

Key Idea #1 – Intellectual Property Creates Value
Intellectual Property is an asset for you company.  You need to acquire, protect and exploit  it. An intellectual property strategy will map out:

1. Who are the key players and technologies in its market(s)?
2. What are the most important ideas and inventions that need patents (or provisional patents?) Start filing these early!
3. What are the important patent applications that come next?

Key Idea #2 – Your Intellectual Property Needs Are Unique
What type of intellectual property matters to your company, and what you should do to protect it is highly company/industry dependent, requiring unique analysis and/or protection.  For example if you are a:

• Medical device company – patents are key
• Web 2.0/social network start up – trademark and copyright are more likely
• Enterprise software company – copyright and trade secrets are probable
• Biotech/phama – don’t even leave your bedroom until you have a patent counsel

Make sure you understand Intellectual Property for your specific industry.

Four Common Intellectual Property Mistakes by Start-Ups
1. Founders Didn’t Make Clean Break with Prior Employer
Under California law, employers may own inventions that are “related to employer’s reasonably anticipated R&D.” It’s a very subjective standard, and since startups don’t often have resources or time to spend in lawsuits large companies use threats of litigation to ensure you don’t take anything. Therefore the best advice is “take only memories.” If you’re at a university, they may have patent policies that apply, too.

2. Your Company Cannot Clearly Show That it Owns its Intellectual Property
Take the time to create a well documented, clear chain of title to your intellectual property. If you are using independent contractors make sure you have written agreements assigning work created. Make sure you have Employee Invention Assignment Agreements. (If you hire subcontractors or friends to do some work, get assignment agreements as well.)

3. Your Company Lost Patent Rights due to Filing Delays/Invention Disclosures
In the U.S. patent rights are forfeited if you wait greater than 1 year after:

– Disclosure in a printed publication: Red flags: White paper, journal/conference article, Web site
– Offer for sale in the U.S.:Red flags: Start of sales effort, Price list, price quotation, Trade show demonstration, Any demonstration not under NDA
– Public use in the U.S.

In most foreign countries there is no one-year grace period.

4. Your Company Grants “Challenging” Licenses to Intellectual Property
Startups acquiring their first customers may give special licensing terms in key markets, territories, etc. For example, a grant of “most favored nations” license terms or other licensee-favorable economic terms can make your intellectual property less valuable to future buyers of your company. Or you may cut a deal that you can’t assign or transfer (or can’t get out of) if you get acquired.

Lessons Learned

• Protecting your startups intellectual property should be a strategy not an after the fact tactic.
• You need a plan for trademarks, copyright, trade secrets, contracts/NDA’s and patents before you get funded.
• Your intellectual property may be an additional revenue stream or may add substantial value to your company.

Filed under: Technology, Venture Capital |