Don’t Get Blindsided: Common IP Pitfalls Startups Face [and How to Avoid Them!]

Demystifying Intellectual Property

So, let’s start with the big question: What is IP? In layman’s terms, it’s owning your ideas. If a startup develops a new invention or technology (or even a logo or a recipe), it has the right to decide who can use it and how.

Here are the most common types of IP and how they protect a startup’s assets:

• Patents: These are the exclusive rights to an invention (for a limited period), like a new kind of smartphone, for example. Patents allow startups to commercialize their inventions without fear of competition “stealing” their ideas. They can also help to attract investors.

• Trademarks: Think of the Nike swoosh or Apple’s apple — these are symbols, words or designs that identify a product or service. A strong trademark helps customers recognize and differentiate startups from their competition and builds trust and loyalty.

• Copyright: This protects original works — like music, movies and software — from unauthorized users and are important for startups generating revenue through licensing or sales.

• Trade secrets: Loose lips sink ships! These safeguard confidential information, such as a unique algorithm or recipe, that gives startups their competitive edge.

As you can see, IP plays an important role in protecting a startup’s assets. But how can you go about getting IP protection?

First off, you should look into hiring a US patent attorney. While they’re not cheap, they’re worth the expense. They can guide you through the protection and patent process and help draft the application and communicate with the US Patent and Trademark Office (USPTO). Next up is using the USPTO’s databases to find out if your invention is novel and non-obvious, as you can patent something already available.

Once you know your idea is original, you’ll have to prepare the patent application. This part is somewhat time-intensive as you must write a detailed description of the invention, any relevant background information, plus an outline of its specific features. Once the application is complete you are ready to file.

After the USPTO receives the application, an examiner will review it and ultimately allow the patent or issue a rejection. If your patent is approved, congratulations! Keep in mind this isn’t a one-time payment, and businesses need to keep up with maintenance fees to keep the patent in force.

Common IP Pitfalls for Startups

From our experience working with hundreds of startups, here are a few frequent mishaps we’ve seen unfold in the startup world.

Pitfall #1: Lack of IP Awareness

Most entrepreneurs are smart, driven and passionate, but this can mean they’re so preoccupied with developing their product or service that they overlook the importance of protecting IP rights.

This can have serious knock-on effects. Investors often calculate a startup’s value based on its own intellectual property assets and assets, so if a startup delays this process, this can hinder their investment opportunities. Also, the grace period for patent filing varies from country to country, so if you have plans for global expansion, missing this window can mean forgoing your patent rights.

Becoming proficient in IP protection isn’t rocket science, and startups should get the ball rolling on prioritizing this from the outset by conducting thorough IP research. Startups need to assess their assets and search existing patents to see if they want to file for any patents, trademarks, copyrights, and trade secrets.

Consulting with an IP attorney is always a best practice to follow as it ensures you’re following the correct IP creation procedure. They can also help you assess the value of your IP and advise on what is worth protecting. Once you’ve increased your IP knowledge you can now establish clear guidelines for handling confidential information, employee inventions, and IP ownership.

Pitfall #2: Not Having a Robust IP Strategy

A top-notch and well-defined IP strategy is key to startup success. This is your effective IP strategy bible, as it gives you clear instructions about what is worth protecting, how to protect it and how to use IP for business growth.

Without a clear approach, startups might react to IP issues rather than proactively protecting them. Such an approach can increase the risk of IP infringement lawsuits, leading to mounting bills caused by legal consultation services and litigation.

To avoid this myriad of issues, startups should create a detailed IP roadmap of business goals that includes:

• IP audit: Start off by identifying all potential IP assets, including patents, trademarks, copyrights, and trade secrets — an IP attorney can be useful here.
• Prioritization: Determine which IP assets are crucial to the business.
• Protection strategy: Develop a plan to protect each IP asset, considering cost, time, and the competitive landscape in your chosen field.
• Budgeting: Unfortunately, IP protection doesn’t run cheap, so startups need to raise and allocate sufficient funds for IP protection activities, including legal fees, patent filing costs and maintenance fees.

By investing time and resources in a robust IP strategy, startups can build a strong foundation for growth and protect their competitive advantage.

Pitfall #3: Misunderstandings about Copyrights & Trademarks

Copyright and trademarks are likely some of the most misunderstood IP assets. To start, claiming the rights to an idea you haven’t put on paper or recorded in any way is complex. The law can’t protect an intangible concept such as a business model you haven’t yet recorded somewhere — although the case is different for inventions, which can be protected with a patent. Ultimately, a mere thought or idea can’t be protected.

Another misconception is that you can copy an idea without infringing copyright just because it doesn’t have a notice. However, in countries that adhere to the Berne Convention (amended in the US in 1989), notices are optional to protect an idea, so a lack of one doesn’t mean you can use it partially or fully.

This also plays into the notion that anything on the internet is part of the public domain and can be used freely. While public domain rights vary per country, it’s worth exploring what constitutes public domain in the US as rights change depending on facts like industry, date of creation, or author’s death.

Lastly, trademarks and copyrights differ in protection. While copyright pertains to original ideas, trademarks apply to a brand’s identity such as logos, brand names, and symbols.

A notable example of the importance of proper trademarking in the startup world was Airbnb and the European copycat Wimdu. As the famous hosting company grew, they noticed demand inconsistencies in the European market, which led them to the discovery of Wimdu — the same concept under a different brand image.

The hosting giant feared they would lose this important regional market but didn’t back down operations or buy Wimdu, which would encourage other copycats to do the same. While the case didn’t go to court for infringement, Airbnb’s strong brand image and trademark advantage ultimately drove Wimdu to close in 2018.

Airbnb’s case and more remind founders that legal battles over trademark and copyright are more common than they seem, making it imperative to protect their creative and brand image assets as soon as possible. Investing in licenses reaps its benefits in the long run, helping successful startups retain their market share by deterring copycats through strong legal claims.

Pitfall #4: Premature Disclosure & Public Sharing of Potential IP Assets

Having a unique idea can be as exhilarating as it can be risky. In a rush to get the ball rolling, you might overshare with industry players — things can go awry. When it comes to ideas you might want to profit from, it’s best to secure IP protection before disclosing them to those who might act faster than you.

Disclosing an unprotected trade secret idea could end up in the hands of a competitor, leading you to lose patentability and trade secret status, which grant important protections to an idea. So, while it might be hard to tell people’s intentions before disclosing an idea, there are steps you can take before taking this risk:

• Start by providing non-disclosure agreements (NDAs) when involving new people in an innovative project that bears the potential of being stolen. Legally binding your collaborators will give you peace of mind beyond shaking hands or taking their word for it.
• Depending on how many collaborators you need, provide tailored NDAs to partners, employees, investors, etc. This will help you set legal grounds for specific situations rather than take an umbrella approach.
• Share information in tiers as the project progresses, reducing the risks associated with revealing full-fledged ideas from the onset while you build trust with your growing team.

Pitfall #5: IP Protection Weaknesses in Co-founder Agreements

Attaching co-founders as you work on a new idea can help fast-track it. However, it’s important to outline idea contributions and other agreements in a legal manner to avoid confrontations in the future. For example, two Snapchat co-founders faced this issue once they removed the third co-founder from the project: he claims he was the main contributor to the “disappearing images” idea, which gave the startup its biggest competitive advantage.

This concept was originally conceived verbally at a house party, leading co-founders to have different recollections of who said what. To avoid this, founders must record IP ownership rights and contributions in co-founder agreements — Snapchat ended up settling a lawsuit, which is never good news for a thriving company. Take the following aspects into account when bringing in co-founders:

• Involve lawyers in the co-founder agreement writing process to address IP ownership and account for every party’s idea contribution record.
• Establish a system for recognizing contributions once the agreement has been signed. This could be drafting documents and collecting co-founder signatures on the go, or recording recognitions via any legally binding medium (video, audio, digital drafts, etc.).

Building a Strong IP Strategy for Your Startup

Startups thrive on innovation and originality, so new ideas bear the most potential for success in the industry. A strong IP strategy isn’t just legal protection; it also communicates the value of your project to partners and investors. When fundraising, your early-stage startup will show more promise if you’ve implemented your IP strategies and protection correctly. So, is your IP strategy fundraising-ready?

As the Snapchat case showed, clarifying IP ownership terms and licensing agreements from an early stage will help startup leaders avoid costly headaches in the future. Beginning your founder journey on the right foot with an IP strategy also lays the foundation for company growth the same way Airbnb stood its ground in the face of a copycat.

To do the job right, you must identify your IP assets so no stone is left unturned. This is where an IP audit becomes essential. Having external eyes analyzing your assets helps spot unprotected assets and infringement risks inside your existing strategy. Doing this periodically sets your startup up for M&A or fundraising due diligence success, saving yourself another step when making partnerships.

Some useful tools to get started include the USPTO and WIPO databases, which are a preliminary step to licensing your ideas. An IP portfolio management software is another way to help you track your assets, as are publicly available tools like open-source and government resources to draft your IP strategy. Lastly, consulting IP lawyers or specialists is the best way to go to receive specialized guidance to handle and protect your assets.

Startups are driven by ideas, which is why protecting them should be at the top of your priority list. Imagine what could’ve happened to Uber if its founders hadn’t protected their unique ride-hailing idea, or if Steve Jobs hadn’t patented the iPod. By knowing what could go wrong and knowing how to start your company’s IP strategy, you’re shielding your business from future disruptions and securing wins from the beginning.

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