Today, Intellectual property can be the most valuable asset of a technology startup company. So, protecting IP is essential to obtaining venture capital funding warding off unfair competing.
Tim Harris, Partner at Bird & Bird, shared with Inside Counsel the five most critical IP strategies that a startup should implement. A startup usually lacks significant assets other than its IP, according to Harris, but aspects such as a startup's founder, culture and timing may be important in determining its success or failure. IP like the idea and brand upon which the company is built is certainly a factor that can make all the difference.
“A startup that proactively identifies, protects and manages its IP is likely to be in a much stronger position to attract investment capital than one that takes short-cuts,” he explained. If appropriate protection for IP is not sought and obtained, it is all too easy for a competitor to walk off with a startup's crown jewels.”
For instance, a venture capitalist is likely to invest in and give a higher valuation to a company that has given thought to and take appropriate steps to protect its IP. Without appropriate IP protection, a company is inherently vulnerable to losing its IP to a competitor or a potential investor with no compensation for the hard work or value that it has created.
Per Harris, the top five most critical IP strategies a startup should implement are:
1. Seek advice – IP is a highly specialist topic but there is a lot of free or low-cost advice available to start-ups. Harris advises speaking to a professional about what IP your start-up should prioritize and suggestions for strategies to deal with it.
2. Consider patent protection – A patent isn't necessarily essential, or even possible, to protect any idea. But a patent can be a valuable asset and useful offensively and defensively so it's worth considering at an early stage. A patent search is also recommended to minimize the risk of infringing third party patent rights, and the cost, time and uncertainty that can bring.
3. IP and your brand – Determine whether your brand may infringe an established brand before investing time, money and energy in building it. Then, ensure that you protect your brand. A registered trade mark is relatively cheap, quick and straight-forward to obtain and makes enforcement easier and cheaper than relying on unregistered rights.
4. Think confidential – Confidentiality is at the heart of any startup's thinking, along with the tension between needing to disclose information to obtain funding, recruit, advertise and so on. But, the adverse consequences of failing to protect critical information can be so severe it is always worth prioritizing confidentiality.
5. Contracts and IP – Under English law, paying a contractor or consultant to do work is not enough to obtain copyright in whatever is created. Deal with the company's IP rights up front in all contracts to avoid expensive arguments later.
So, what are best practices tech startups should follow to protect their IP?
According to Harris, a startup should always ensure that it has considered its IP and has a protection strategy for it. Different mechanisms may be available to protect an idea, all of which have trade-offs such as cost and time but also important decision-making.
“If a startup has taken suitable advice and pursued an appropriate IP protection strategy, this can make all the difference between a successful fund raising and starting again,” he said. “Most importantly, ensure that non-disclosure agreements and appropriate contracts are used whenever potentially valuable IP is being disclosed or created.”