A new business’s intellectual property or “IP” is frequently one of its most valuable assets. However, without proper legal guidance, many startups fail to take the necessary steps to establish exclusive rights to their IP. Early mistakes can be expensive or impossible to fix. Accordingly, emerging businesses should have at least a high-level understanding of some of the most common IP pitfalls and know when to seek advice.
IP safeguards a company’s unique innovations, ideas, and creative works that provide it with its competitive edge. IP is generally divided into four main categories: trademarks, patents, copyrights, and trade secrets. Although a business may use more than one form of protection for the same intangible asset, each type of IP is governed by different laws that present unique challenges and considerations.
Trademarks: Building a Sustainable Brand
A trademark identifies the source of certain goods and/or services. For instance, a distinctive logo on product packaging denotes a product made by a particular company. In this way, trademarks symbolize the goodwill garnered by a business over time and inform consumer purchasing decisions.
Startups often invest in a name, logo, or slogan before confirming that the same or confusingly similar name is not already in use by another business that offers similar goods or services. This can result in consumer confusion and lead to infringement claims from the first-in-time or “senior” user.
Further, establishing rights to a trademark generally requires that a business first use that mark in commerce. Consequently, startups that miss early diligence in selecting a name may invest significant time and money building goodwill in a brand only to discover that a third party has prior rights to the mark—at which point the later-in-time or “junior” user will be forced to undergo a potentially costly rebrand or face liability for trademark infringement.
Patents: Filing Late Can Mean Lost Rights
Patents provide patent owners with a temporary monopoly over novel and non-obvious inventions in exchange for the inventor’s disclosure of how to make and use the invention. However, the failure to timely file a patent application can result in a forfeiture of rights.
Specifically, under U.S. law, a patent application for an invention must be filed within one year of the invention’s first public disclosure—which can include events such as product launches, investor pitches, website disclosures, and other sales activity. Missing this one-year deadline puts the invention in the public domain and bars a person or business from obtaining a patent over it. Further, other countries do not have a similar one-year grace period—making filing early on paramount if foreign protection for an invention is desired.
Accordingly, startups should develop a patent strategy early on to ensure they are not unknowingly forfeiting rights to an otherwise lucrative invention by inaction.
Copyrights: Ownership Intricacies and Registration
Copyrights protect original works of authorship such as literature, schematics, software, and even data sets. In general, copyright protection vests in an author as soon as a work is created. In the case of works created by employees, the employer is considered the author for the purposes of copyright protection.
Startups often engage independent contractors to prepare work product for them. Aside from a few narrow exceptions, unless there is an assignment agreement in place with the vendor, the vendor will own the copyright in whatever deliverable is prepared for the business. Therefore, especially when third parties are engaged for work critical to the operation of a business, it is important for startups to have well-drafted engagement agreements to ensure they own the copyright to any work paid for.
While copyrights can be registered with the government at any time, obtaining a registration is a prerequisite to filing a lawsuit for infringement. Further, the date when the registration is obtained relative to the time of the infringing activity can have a potentially significant effect on the monetary damages available to the plaintiff.
Trade Secrets: Exercising Caution with NDAs
Trade secrets protect information which derives its value from not being generally known. They can cover product designs, manufacturing processes, business strategies, and other confidential information. However, for a trade secret to be protectable, the owner must have reasonable measures in place to preserve secrecy.
Non-disclosure agreements (“NDAs”) with employees and third parties can be an effective way for a business to protect its own confidential information as a trade secret. However, businesses also need to be wary of the NDAs they enter into as the party receiving confidential information. In some cases, exposure to another business’s confidential information under an NDA can complicate the receiving party’s ability to later develop or use a similar design—even if the party receiving the information would have otherwise independently arrived at the same solution.
Additional Consideration: Artificial Intelligence
As a final matter, it is important to note that the current state of IP law is set up to reward human innovation and artistic expression. Accordingly, little to no protection can be had under patent or copyright law for contributions to inventions/works made by artificial intelligence. New and established businesses alike should, therefore, exercise caution in utilizing AI platforms to develop assets that they intend to seek exclusive rights over.
Concluding Remarks
While the above discussion highlights common areas where new businesses make mistakes in relation to intellectual property, it is important to note that each topic discussed carries with it considerable nuance that is beyond the scope of this article. Accordingly, it is recommended that you consult with an attorney familiar with these matters early on before settling on an IP strategy.
If you have any questions, please reach out to John Burke at jburke@vedder.com or Marko Tupanjac at mtupanjac@vedder.com.
