Waiting to Protect Intellectual Property Could Doom Your Startup
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Entrepreneurship Innovation Aug 3, 2017

Wait­ing to Pro­tect Intel­lec­tu­al Prop­er­ty Could Doom Your Startup

Patent attor­neys offer four tips for entre­pre­neurs on safe­guard­ing ideas from the get-go.

Ideas are valuable assets for entrepreneurs and startups, so it is critical they get intellectual property protection.

Michael Meier

Based on insights from

Mark McCareins

Pete Slawniak

Does your fledg­ling start­up real­ly need to pour time and mon­ey into pro­tect­ing its intel­lec­tu­al property?

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Most like­ly, yes, says Mark McCareins, a clin­i­cal pro­fes­sor of busi­ness law at the Kel­logg School and for­mer senior part­ner at the law firm Win­ston and Strawn LLP. Almost every start­up has an idea that’s prob­a­bly worth pro­tect­ing, whether it’s a piece of soft­ware or a bit of code or a total­ly new invention.” 

Yet for many ear­ly-stage entre­pre­neurs, intel­lec­tu­al prop­er­ty (IP) is an after­thought, a top­ic for con­sid­er­a­tion once the prod­uct has been devel­oped, the busi­ness plan has been put in place, and dis­cus­sions with poten­tial investors or cus­tomers are already in the works. 

McCareins recent­ly sat down with Pete Slaw­ni­ak, an intel­lec­tu­al prop­er­ty lawyer at Argonne Nation­al Lab­o­ra­to­ry, and advi­sor to Argonne’s start­up incu­ba­tor called Chain Reac­tion Inno­va­tions.

Their con­ver­sa­tion touched on what star­tups of all stripes should know about patents, nondis­clo­sure agree­ments, and the wis­dom of using that inex­pen­sive online legal service. 

Here are some take­aways from their dis­cus­sion, edit­ed for length and clarity. 

Think about IP ear­ly on — while you are still devel­op­ing your product.

Slaw­ni­ak: As soon as a com­pa­ny starts to invest in research and prod­uct devel­op­ment, it’s time to begin plan­ning some sort of pro­tec­tion for that invest­ment. Ide­al­ly, this hap­pens when a com­pa­ny is eval­u­at­ing its busi­ness strat­e­gy. The ques­tion to ask is, Will this intel­lec­tu­al prop­er­ty offer com­pet­i­tive advantage?”

It’s nev­er too ear­ly to think about this, because pre­lim­i­nary ground­work agree­ments — whether that’s a grant appli­ca­tion, an incu­ba­tor mem­ber­ship, or some sort of joint ven­ture agree­ment — are all going to have IP terms. 

McCareins: If you don’t address IP ear­ly, you run the risk of either A, spend­ing all this mon­ey in research and devel­op­ment on some­thing that isn’t patentable, or B, incu­bat­ing with a third par­ty, but because you have not pro­tect­ed your IP rights suf­fi­cient­ly, you allow the third par­ty or oth­ers to extract your IP away from you with­out you even know­ing it. 

Slaw­ni­ak: U.S. patent law is very gen­er­ous — you have up to one year from the date of a pub­lic dis­clo­sure to file a patent appli­ca­tion. But in most oth­er coun­tries, you lose patent rights as soon as there’s a pub­lic dis­clo­sure of the invention. 

And pub­lic dis­clo­sure doesn’t have to be a sale: it could be an adver­tise­ment or even test­ing a pro­to­type out there on the street with­out hav­ing nondis­clo­sure agree­ments in place. Let me give you just one anec­dote from an old case that jumps to mind: an inven­tor designed and pro­to­typed a great new motor for their boat – some­thing that had seri­ous mar­ket poten­tial. Then that inven­tor went on a boat­ing trip with one of his friends. Many years lat­er, when that inven­tor went to enforce his patent against a com­peti­tor, lo and behold, the court deemed the boat trip a pub­lic dis­clo­sure that inval­i­dat­ed his patent rights, even though the friends nev­er knew how the motor worked. That should serve as a cau­tion­ary tale about dis­clos­ing an invention. 

So it’s impor­tant to start think­ing about patents even before you start talk­ing to any poten­tial cus­tomers and attempt­ing to mon­e­tize an idea. 

Yes, nondis­clo­sure agree­ments (NDAs) are worth the has­sle.

McCareins: I see inven­tor-types say­ing, I don’t want to scare off peo­ple with some over­ly legal­is­tic doc­u­ment. I don’t real­ly want to spend the mon­ey right now on an NDA. I think you’re putting the cart before the horse.” 

But trust­ing” some­body with infor­ma­tion that can poten­tial­ly cause a pub­lic dis­clo­sure is just not worth the risk. So if there’s a per­son­al risk that you may offend some­body by requir­ing an NDA, you’ve got to bal­ance that against the long-term legal ram­i­fi­ca­tions of not get­ting it. In my expe­ri­ence, it’s always bet­ter to demand the NDA

Slaw­ni­ak: I couldn’t agree more. And then the NDA sets the expec­ta­tions of both par­ties. It’s bet­ter to set those expec­ta­tions up front rather than leave them ambigu­ous and sub­ject to inter­pre­ta­tion — or mis­in­ter­pre­ta­tion. If some­body doesn’t want to sign an NDA, you might want to think about whether or not this is the right per­son to show your tech­nol­o­gy to at this point. 

It pays to be cer­tain your idea is original.

McCareins:pri­or art search needs to be done to make sure that what you’re get­ting patent­ed is real­ly and unique­ly your own. There may be a temp­ta­tion not to do a com­pre­hen­sive search because it’s expen­sive, but you don’t want to find out lat­er that some­one had the same invention. 

Peo­ple say, Well I got a patent so I’m good to go,” but that’s only half the bat­tle. Even when the U.S. Patent and Trade­mark Office has grant­ed a patent, that doesn’t mean a fed­er­al court might not come in lat­er and inval­i­date that patent based on anoth­er party’s complaint. 

Slaw­ni­ak: When you file a patent, look around and do a search. See what oth­er folks in the indus­try are doing. See what oth­er patents are out there. Read the schol­ar­ly work around tech­nol­o­gy in your field and have some con­ver­sa­tions with peo­ple in the indus­try. Your patent is a reflec­tion of your R&D invest­ment and your tech­no­log­i­cal advan­tage, so it’s impor­tant to know exact­ly where that prod­uct dif­fer­en­ti­a­tion is. An exhaus­tive search will ensure you have a strong patent, and hope­ful­ly help your patent issue faster. When you have some­thing you believe has val­ue, it’s worth the invest­ment of time to devel­op and pro­tect it. 

Even lean star­tups shouldn’t skimp on pro­tect­ing IP.

McCareins: Star­tups are often frus­trat­ed by the time that it takes to get the patents done right. 

I usu­al­ly cau­tion against using online sites that pro­vide legal ser­vices for patent pro­tec­tion quick­ly and cheap­ly because this is too impor­tant to do on that lev­el. It’s like hav­ing brain surgery done at a dri­ve-through clinic. 

Slaw­ni­ak: In my expe­ri­ence, it takes about two months to get a thor­ough and well-researched patent appli­ca­tion with broad claims on file. Inter­est­ing­ly, I have seen that the prod­uct improves dur­ing that time, because you have a more robust dis­cus­sion about what the com­peti­tors are doing, and you learn some poten­tial short­com­ings about your own prod­uct. So yes, it takes time, but what many folks don’t real­ize is that this is actu­al­ly part of the com­pet­i­tive eval­u­a­tion and prod­uct-devel­op­ment process. 

Peo­ple say, Well I got a patent so I’m good to go,” but that’s only half the bat­tle.” —Mark McCareins

McCareins: It’s like look­ing at a half-frozen apple pie in the oven. You’re hun­gry, but you know you should let it bake for anoth­er fif­teen minutes. 

Slaw­ni­ak: As for mon­ey, if it’s your fourth or fifth add-on patent in the area, don’t over­spend. As for the oth­ers, ulti­mate­ly, you’re going to get what you pay for. 

If you’re boot­strap­ping your busi­ness, the ten to fif­teen thou­sand dol­lars that it costs to file a patent appli­ca­tion can seem like a lot. But if you want to attract angel investors — and, hope­ful­ly VC investors — you’re going to need to assure peo­ple that your idea won’t be snatched up by some larg­er incumbent.

McCareins: Plus, if I’m talk­ing to peo­ple about invest­ing in my idea, the fact that you’ve gone to a rep­utable firm that spe­cial­izes in IP, got­ten a good nondis­clo­sure agree­ment, and done the patent due dili­gence — that tells out­side peo­ple, hey, these peo­ple are seri­ous and they know what they’re doing.” 

Don’t for­get for­eign juris­dic­tions, includ­ing where you’ll want to grow in the future.

McCareins: If you have a prod­uct that has some usage out­side of the U.S., you’ll want to get into for­eign juris­dic­tions ear­ly with com­pe­tent coun­sel. Because one slip-up in, say, an Ital­ian patent fil­ing could cause a huge rip­ple effect in oth­er jurisdictions. 

Slaw­ni­ak: Absolute­ly. With sup­ply and dis­tri­b­u­tion chains becom­ing more inter­na­tion­al, you need to be aware not only of the mar­ket in which you’re oper­at­ing, but the mar­ket in which your sup­pli­ers are oper­at­ing. It’s com­mon now to see law­suits in more than one coun­try, so you want to be pro­tect­ed in all rel­e­vant markets. 

You also want to think ahead. Where do you envi­sion growth? A decade ago, it was rare for an Amer­i­can com­pa­ny to file for patent pro­tec­tion in Chi­na, but now we’re see­ing more and more fil­ing over there. The rea­son is clear: it’s a huge mar­ket, and IP pro­tec­tion is quick­ly becom­ing just as impor­tant and mature as in more estab­lished markets. 

Editor’s note: Mr. Slawniak’s views are his own and not rep­re­sen­ta­tive of the Uni­ver­si­ty of Chica­go, UChica­go Argonne LLC, or the Depart­ment of Ener­gy.

About the Writer

Drew Calvert is a writer based in Iowa City, Iowa.

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