To Invest or Not Invest in Protecting IP in a Startup

When walking down the glass hallways of the Atlanta Tech Village, a popular question is, “how do entrepreneurs keep all their trade secrets and intellectual property (IP) secure?” My response is that every idea someone is working on can already be found on Google. Nowadays, it isn’t about coming up with a novel idea, rather, it’s about out-executing everyone else.

So, if ideas aren’t the value anymore, how does investing in protecting IP fit in with startups?

Here are a few thoughts on investing in IP in a startup:

  • Paying for trademarks for company and product names is a no-brainer and an easy process (see the USPTO Trademarks site)
  • Avoiding patents is what most software entrepreneurs do now due to the high costs and long lead time to get a patent issued (it’s typically tens of thousands of dollars and 3-5 years and to get one patent, and there are no guarantees it’ll work out)
  • Filing a provisional patent is one way to start the process at a much lower cost than a full patent (again, most software entrepreneurs I know don’t bother with them)
  • Requiring confidentiality agreements and using non-disclosure agreements is one of the most straightforward ways to protect trade secrets

Naturally, these recommendations will elicit a strong response from software entrepreneurs where patents were a big driver of their success. From my experience, most value is created via execution and not from intellectual property.

What else? What are some more thoughts on investing in protecting intellectual property?

7 thoughts on “To Invest or Not Invest in Protecting IP in a Startup

  1. For startup enterprise software companies, have a solid licensing agreement that provides some level of protection on your product in terms of rights given to the end user. Pay an experienced tech attorney to draft some boiler plate agreements that are specific to the type of arrangement that you need (perpetual, term, SaaS) and have them create a checklist of potential pitfalls depending on the end user licensing terms (ELA, site, user, PMPM, etc). The small initial investment will save a lot of money on the back end.

  2. This is a great topic. We created Last Minute Tee Times back in 1998 and filed a provisional patent for some of the methods we used to display tee times to golfers and the ways we allowed golf courses to select which tee times to make available. We started with an IP attorney that was a friend and gave him warrants in our company for doing the initial work. The project then evolved into a full blown patent project with a major law firm that wound up costing around $100k in the end. After 6 years, letters to congressmen, etc I FINALLY got the patent. http://www.patentbuddy.com/Patent/7249041

    From what I’m told (by our eventual acquirer), our patent turned out to be pretty valuable in the end, but in general a patent is nothing more than a “license to sue somebody”, so when it comes down to it, you better have something else about your business that keeps you at the top. Unless you’re told by someone that you have a lot of trust in that pursuing a patent is super important (and that expert thinks you can get some pretty broad coverage), I’d think long and hard before going down the path of pursuing a patent.

    I’ve often wondered if the trademarks we got had any value at all. So many early stage businesses think that if they have a good logo or a catchy tag line, they are all set. Not so fast! You still need a real business with a really good idea and good people to execute. And trademarks can mean more $$$ out of your pocket. There are all sorts of “monitoring” services out there and you wind up paying for someone to watch for anyone using your “mark”.. more costs that you probably don’t need in the early stages. Money better spent on growing your business.

    With respect to agreements, etc I agree that if you can get some boilerplate type agreements drafted in the early days, those are worth getting and you can likely fill in the blanks to save $$ on legal fees.

  3. David, thanks for sharing. This is the same advice I’ve been giving new entrepreneurs for the past 10+ years. In addition to the time and costs involved with an application, most startups don’t have the resources to adequately defend themselves in a lawsuit if they are challenged (think about who might want your product in theirs).

  4. The trademark of your company name is very important in securing your brand IP. I highly recommend doing a full trademark search/filing before officially incorporating because changing your company name after any traction is painful. We learned this lesson with DocTime and before launching had to change the name to TapCue.

  5. David, a great topic that the reply is longer than a post can hit on, but there are so many variables from the business strategy aspect of IP that need talked about before a company jumps into the tactical points like filing a provisional. Startups need to really consider their exit plans, market position, incumbent position (both tech and patents), pace of technology (cell phone tech can go obsolete before the patents grant, but other hardware features may not) – all of this culminates into an IP scope or footprint that a startup needs to have, and from there the tactical question of provisional vs. trade secret, vs other forms of IP can be considered. Too often I see startups dive into getting a patent (often a provisional) because “they were told they needed to”, as they stepped through the checklist of trademark and patent provisional filings. The better question to ask is WHY do you need IP, and WHAT does it need to look like to actually have business relevance for the startup now, and also in the future.

    From the angel investor view, the same approach should be considered – not just do due diligence and have an attorney check the validity of the IP, but have a business focused review done by IP/Business experts that can give feedback on the relevance of IP protection they have in the practical world.

    In short, there is a distinct difference between “getting IP” and “getting relevant IP” that startups and VC’s need to consider before they focus on the points raised above about what kind of IP to get. If a startup isn’t going to approach IP from a strategic view, they have to 110% rely on execution, so they better get going.

  6. I think it comes down to making it easier to buy from you than to steal from you. Whether that is by raising the cost to steal (with patents or other means) or lowering the cost to buy (time/effort/price), depends a lot on the industry and the product, best example I think is Neflix/steaming video vs. Torrents/piracy in recent years. The same logic applies to any other business.

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