I've been dealing with startups in one form or another for the past 28 years, and I've noticed that there is one set of legal issues that arises more than any other - intellectual property issues, particularly patent issues. Intellectual property, and in particular patent rights, are often critically important to a startups growth and success. Many if not most startups are centered around a key technical innovation. Having exclusive rights to that technical innovation is one of the principle ingredients to a successful startup. Investors are more willing to back a startup if the startup holds exclusive rights to the technical innovation being championed by the startup. Unfortunately, securing those exclusive rights is not always intuitive and, depending on how the startup is launched, mistakes early on in the process can render securing those exclusive rights all but impossible. Here is a quick guide that can help startups avoid legal difficulties down the road while protecting their exclusive rights.

1. Create a "Paper Trail"

Ever heard the expression "possession is 9/10's of the law". Usually, when trying to resolve an intellectual property or other legal dispute, the party which possess the best evidence nearly always wins. Unfortunately, recreating that evidence after a dispute has arisen is often difficult. Worst of all, unless proper systems are put in place, there is a high probability that vitally important evidence may be lost or forgotten. That's why its important to store and index all "paper work" relating to any project. Setting up a system where by emails are kept, text messages stored and all paper documents are filed is a must. Keeping a proper paper journal can also be strategically valuable. See my article on keeping an inventor's journal for more.

 

2. Sign Confidentiality Agreements

Any startup requires the involvement of multiple people with different talents. This in turn requires detailed information about strategic opportunities to be disclosed and discussed freely among like minded people. Investors need to be told details before they will invest and outside consultants need to learn details of the project in order to do their jobs. The probability that strategic information being accidentally leaked is very high unless steps are taken to safeguard the confidentiality of that information. This is where signed confidentiality agreements can help. Without exception, the parties to any new venture should be legally compelled by contract to keep strategic details about the venture secret until the project launches. Confidentiality agreements can be surprisingly complex and, if executed poorly, can fail catastrophically. I've written a detailed article on confidentiality agreements and how to properly use them.

 

3. Patent Searches

Remember the expression "look before you leap". Before investing time and resources into a new startup, it's always a good idea to check out the "lay of the land" beforehand. Your idea for a new product/service may sound good. It may be just the right product at just the right time - but is it new? Is the product/service you intend to pioneer already protected? Will you receive a cease-and-desist letter from a lawyer 12 months after you launch your startup? Over the years I've seen several projects fall flat promptly upon launch due to allegations of patent or trademark infringement. To avoid those cease-and-desist letters it's vitally important that you search for potential pitfalls as soon as possible, preferably well before you start investing serious time and money into the project. Perform patent searches early on and double check the availability of trademarks before adopting them. There are numerous useful (and free) tools for conducting both patent and trademark searches. Google.com/patents is a good tool for searching patents. Both the Canadian and US trademark offices maintain websites where you can search trademarks without cost. See www.cipo.gc.ca for Canada and www.uspto.gov for the US. If your search reveals potential issues, have someone with more experience, like a lawyer who practices intellectual property, take a deeper look.

 

4. Protect Yourself When Hiring Freelancers, Consultants and Contractors

It's very likely that your startup enterprise will require services to be performed by independent people who are not partners to the project. Depending on the nature of your project, you might need images to be prepared, code to be written, or components to be engineered and designed. Unless you have very deep pockets, your likely to hire independent contractors to create these things. It often surprises people to learn that any intellectual property rights in the images, designs, or inventions created by independent contractors belong to the contractors, not to the party that hired the contractor. The price paid to render those services is not relevant – ownership remains with the contractor even if that contractor was paid handsomely to perform the services. To ensure that you retain ownership of the intellectual property rights you paid to create, there have to be specific intellectual property clauses in the retainer agreement with the contractor. To be effective, those provisions must specify that you (or your company) shall be the owner of any intellectual property created by the contractor as a result of providing the services. Furthermore, the intellectual property provisions must ensure that the contractor will actively assign these intellectual property rights to you (or your company) in writing. Without these written provisions in a signed agreement, you cannot claim ownership of the intellectual property created and may be at the mercy of the consultant.

 

5. Apply for Patent Protection BEFORE Disclosing to the Public

Being granted one or more patents gives a startup a significant advantage. Patents effectively give the patent owner a monopoly on the patented invention, allowing the patent owner to block competition and charge higher prices. If there is any chance that your startup project involves innovations which could be patented, then you should discuss protecting those inventions early on in the life of the startup, and certainly before you disclose details of the innovation to the public. The patent laws of most countries require you to file for patent protection before any public disclosure of the invention. A few countries, such as Canada and the United States, give you a “grace period” of one year within which to file for patent protection. The problem with waiting that one year to file for patent protection is that it someone might beat you to the patent office. Your startup's disclosure of the invention to the public could prompt a third party, such as a potential competitor, to file a patent application for a similar invention. The competitor's patent application could interfere with your later patent application, and should your competitor be granted a patent, they may be able to hobble your business. Therefore, its important to maintain the confidentiality of the innovation until patent application(s) are filed.

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