March 10, 2016
If you currently seek funding, among the first things you are asked to present, apart from your business plan of course, is the state of your intellectual property. Your product idea and other IP are your most valuable assets. The companies, who protect their IP from day one, are usually deemed as more attractive investments.
While having a registered trademark is the obvious step to make, below are four more essential tips to protecting your ideas and intellectual assets.
Non-Disclosure Agreements and IP-Assignment
IP-assignment agreements are a common practice these days among tech startups. You should require all employees, founders and even third-party providers to enter into one before starting the job. Without these in place, your startup at certain point your company may not be able to use the core portions of the IP.
While you may not see any need in doing this right now, things might get a bit complicated later on. For instance, when you try to complete another seed round, invite new investors or even sell the company, the absence of IP-assignments can cause a huge turmoil – re-enforcing negotiations or even killing the deal at the root.
Non-disclosure agreements are another industry standard and should be signed by all founders and employees, who have access to confidential and proprietary data. Your NDA should extend to any third-party subjects, who have access to your company’s confidential data. Consult with an attorney to draw the standard forms for you.
During the early stage most probably you’ll prefer to save some dollars and opt for a free cloud storage, email and data sharing solutions. However, if you use unprotected channels constantly, you increase the risks of losing the key IP data.
Consider moving your operations to encrypted channels as early as possible. Make email encrypting part of your web security policy, especially when it comes to sensitive communication about finances and product specifications. Require using strong passwords both on desktop devices and portable gadgets, especially fleshing drivers, which are typically neglected.
Require your business partners to adhere to your security policy as well. Make sure your partners are using their own safeguards with equal diligence and don’t provide them with supplementary data access.
A lot of startups fail to assign all the IP created prior to the company’s incorporation once the company is established. The standard practice is to assign the IP created by one of the founders (e.g. brand name or domain name) to the company as part of the founder’s restricted stock purchase agreement or subscription agreement.
However, here arises another problem – what if one of the founders leaves prior to company’s incorporation and takes the rights to some IPs as well? That’s another point to adopt early IP-assignments.
Another issue to consider – IP created before pre-incorporation by outside parties (e.g. developers, consultants etc.). Things get particularly complicated if the personas were based outside the US. The most common scenario is that this IP never gets assigned to the company as there was either no written agreement or because the company was not a party of the agreement (as it simply didn’t exist at that time).
Bottom line: Consider different scenarios and don’t neglect IP rights even at the pre-company stages.
IP Protection Strategy
Your IP protection should exist in form of a complex strategy, rather than scattered practices. IP protection comes in different shapes and forms. A lot of smaller companies with limited budgets typically opt for “trade secret” protection to avoid the hassle with patent registration.
However, as Lily Li, a patent strategist, mentions: “Though trade secret law allows you to go after employees who leak confidential information or companies that steal your technology, it does not protect you from competitors that independently develop your technology”.
Your competitors can freely patent the same invention and sue you afterwards for infringement. On top, separating manufacturing processes and disguising your technology may end up costing you more than patenting at the first place.
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