Failing to safeguard intellectual property can jeopardize a startup
To a startup with no revenue, the most valuable asset is the product. Companies that don’t appropriately protect that product early in the game could see their operations sidelined — or even halted for good.
You’re probably familiar with the Winklevoss twins by now. Go ahead, roll your eyes — a San Francisco Chronicle columnist didn’t write that the twins “typify” the “culture of whiners” for nothing. The former Olympic rowers get lots of press, but it’s for a good reason.
A little background: Cameron and Tyler Winklevoss, along with their Harvard classmate, Divya Narendra, created social-networking site HarvardConnection, renamed ConnectU, in 2002. In 2004, the trio sued Facebook founder Mark Zuckerberg, claiming he stole the idea for his own social network. The twins received a $65 million settlement in 2008.
The fundamental lesson of the Winklevosses’ battle with Zuckerberg is to protect intellectual property. According to court testimony and media reports, a contractual agreement was not made when Zuckerberg went to sling code for the twins’ UConnect project. “Dorm-room chitchat does not make a contract,” said U.S. District Court Judge Douglas P. Woodlock, who heard the case in Massachusetts.
Patent attorney J.D. Houvener, founding principal of Bold IP in Mountlake Terrace and author of Bold Ideas: The Inventor’s Guide to Patents, said that patents, copyrights, and trademarks rule the majority of IP conversations. But protecting trade secrets should not be overlooked.
“Trade secrets are things you don’t share with anyone else, and you must be able to prove they’re valuable and that a competitor would be able to make money from them,” Houvener said. Items such as customer lists, computer code, and specific items or processes, such as how a rivet is installed in an airplane wing, are all trade secrets.
While the Winklevoss twins didn’t patent the source code UConnect was built on, they could have had Zuckerberg sign a contract to protect the idea and the code, both trade secrets, thus avoiding the whole kerfuffle.
The companion to protecting trade secrets is obtaining a patent for an innovation. Such things as machines, articles of manufacture, processes and business methods, and material makeup are all eligible for a patent. This process is not to be taken lightly, and might take as long as five years to complete. The applications are steeped in legalese and contract language.
“A lot of (CEOs) try to do it on their own, bless their hearts,” Houvener said. “They’re spread really thin, and they don’t give it nearly enough time.”
Houvener said startup executives who forgo hiring an IP lawyer often cite perceived costs as a reason, or they don’t feel an IP attorney is important. Houvener advises otherwise.
“Protecting your IP is a cornerstone to the business,” he said. “A CEO should not be spending time out of their realm (writing an application) even if they are the technical expert. You want to get it right because if you don’t author it correctly, you could end up giving up a lot of the rights of the invention.”
In the United States, only one individual may be credited as the inventor, so it’s important to file for a patent early. That is different from copyright law — if, for instance, two musicians happen to independently write the exact same song, both can maintain copyright privileges.
Another pit startup founders can fall into is failing to trademark their business name and logo. Securing a domain is not sufficient. Founders spend hours developing product and marketing strategies, building a supply chain, and making contacts in the market, but they run the risk of jeopardizing it all if they haven’t trademarked the brand.
“If they’re doing all this work and they haven’t even assured themselves that they can sell under (that name), now they have to change their name and people don’t know who they are. And that’s a big deal,” Houvener said.
Bellevue-based Neposmart, a home security and Internet-of-things company founded in 2014, wasted no time setting up its trademarks and copyrights. Cofounder Richmond Ang said the team developed the idea and product for a year before filing patent paperwork, but as soon as they were ready to go to market, they made sure their IP ducks were in a row.
“When you’re very confident that you have a product that is unique and you’ve done your research and your due diligence, that’s the time to make the commitment and hire a decent lawyer who can (file the applications),” Ang said. “Especially when you’re dealing with a product and things that can easily be replicated, or people can take your ideas. Investing in (nondisclosure agreements) and protections are key.”
Neposmart didn’t skimp when searching for the right lawyer, either. Ang said the team talked with multiple attorneys to get their take on the patent process. When they felt comfortable and confident in a lawyer, they went ahead with the paperwork.
“You can just never do enough research to find the right people,” Ang said. “Just being involved with the community, like the Chamber of Commerce, really helped to get an idea of where to turn for help, and other people’s perspective is always good.”
Even if a CEO can competently tackle the application or finances are too tight to hire a lawyer, it’s good to at the very least consult an attorney.
“I understand there’s cost constraints,” Houvener said. “But a lot of attorneys will do consultations just to help explain the process and emphasize why they shouldn’t do it on their own. They would just sell themselves so short, and I’d hate to see that.”
This article originally appeared in the May 2016 issue of “425 Business.”