Intellectual Property

The One Question Every Startup Must Ask When Seeking IP Protection

Too many times there is too much attention is paid to how to protect the IP when equal attention should be paid to how such protection will help the startup make money.

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We have all heard that hindsight is 20/20, but when it comes to intellectual property, one can argue that hindsight is more like 20/15.   Hindsight is a luxury one can ill afford when it comes to intellectual protection — getting something wrong at the outset can have direct (if not devastating) consequences to not only what is protected, but whether it may be protected at all.  Strangely, many entrepreneurs fail to appreciate this point.  After more than 25 years in the practice of law, I have seen my share of startups succeed, as well as fail.  Oddly, many of the failures have one thing in common, and it is not what you may think.

True entrepreneurs have a great deal of passion for their projects, especially when it comes to its supporting intellectual property.  Although that passion is an essential component to business success, it can also induce the entrepreneur to miss the forest for the tress, so to speak.  I have written about the biggest mistakes startups make regarding their intellectual property, with the need for an intellectual property plan being at the top of that list.  Why is this such a problem?  Because that passion and zeal to get the product to market or the service launched often takes precedence over certain equally important needs, such as taking methodical (and necessary) steps for proper intellectual property evaluation and protection.  Sometimes this rush to market can be triaged with the appropriate agreements and applications to capture appropriate intellectual property within the basket of the business, and sometimes not.  Either way, the business is affected when such problems could have been averted.

For startups that believe that their business may have patent-eligible subject matter, seeking the advice of qualified patent counsel is essential to determining whether such subject matter exists.  I am not a patent attorney, but have a deep respect for my colleagues who take disclosures from clients to parse out patent-eligible subject matter, draft appropriate patent applications, and shepherd them through prosecution to (hopefully) issuance.  Needless to say, this process is involved (especially for software and business method patents), and usually more expensive than most clients think.  That said, obtaining a patent is necessary if patent protection is sought — unlike copyrights (which vest upon fixation of the original work in a tangible medium) or trademarks (which gain rights at common law simply from use), the right to exclude others from making, using, selling, offering for sale, or importing the patented invention for the statutory term (what I generally refer to a “patent protection” here) does not exist with obtaining an issued patent for the eligible subject matter.  Yes, you can register copyrights in published or unpublished works, and register trademarks at the state and federal level, as well as internationally for additional rights not otherwise available with unregistered copyrights or common law trademarks.  Nevertheless, the general point is the same — without filing and successfully prosecuting a patent application to issuance for the invention described and claimed by that application, the statutory patent protection described above for that invention cannot be asserted against others.

My point here is not to dissect the complexities of the patent application and prosecution process — such protection is an extremely important consideration for any startup.  That said, it is only one side of a very important coin, and includes other forms of IP protection as well.  The other side of that coin that many startups miss, or otherwise realize quite late in the process, is less subtle.   I prefer to present that other side of the coin as the question that every startup should ask when addressing intellectual property capital: How will this business successfully leverage its intellectual property assets in relation to the costs of protection?  It’s very important question, and in my experience, not asked enough (or early enough) in the process.

A good way to appreciate this point is in the context of software as an example.  Computer software is (and remains) a constantly evolving field, and it is not uncommon for software to become obsolete within years (if not earlier) due to improvements in hardware design, changes in the field addressed by the software, or shifts in consumer preferences and demand.  Computer software is protected by copyright, but may also be protectable under patent law.  Copyrights and patents are different types of IP and protect different things — copyright protects expression and does not extend “to any idea, procedure, process, system, method of operation, concept, principle, or discovery….” Although patent law may do so, changes in patent eligibility imposed by decisions from the Supreme Court of the United States (most notably, Alice v. CLS Bank) make the decision to seek patent protection for a software invention no easy task. Certain aspects of a software invention, however, may prove so novel, non-obvious and disruptive to an existing field that seeking patent protection is absolutely warranted.  Make no mistake, this is where good patent counsel is worth every penny! That said, the question that should be asked is not about whether the startup can obtain patent protection for the software invention, but whether obtaining such protection is worth the cost and expense in doing so.

Before you start criticizing how you can answer this question at the outset, I never said answering the question was easy — it’s not.  In many cases, seeking specific IP protection (especially patent protection) may be worth the cost, but the point is that you need to ask the question at the outset to get there — it forces the startup to look at its business model and engage in a cost/benefit analysis that will only strengthen any decisions made regarding such protection and IP strategy long-term.  The nature of the IP and target market for the product/service may or may not justify certain costs after careful evaluation.  That said, the point here is that there is an evaluation.

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Intellectual property rights are sometimes referred to as intangible rights, and in this case, the reference is all too apt.  Whether the cost of pursuing IP protection is justified requires addressing many intangibles beyond IP, but it is a necessary exercise for any startup.  Too many times there is too much attention is paid to how to protect the IP when equal attention should be paid to how such protection will help the startup make money. It’s a powerful question, with no easy answer.  Don’t fall victim to hindsight — it’s a question that must be asked, with the process of getting to an answer just as important as the answer itself.

Tom Kulik is an Intellectual Property & Information Technology Partner at the Dallas-based law firm of Scheef & Stone, LLP. In private practice for over 20 years, Tom is a sought-after technology lawyer who uses his industry experience as a former computer systems engineer to creatively counsel and help his clients navigate the complexities of law and technology in their business. News outlets reach out to Tom for his insight, and he has been quoted by national media organizations. Get in touch with Tom on Twitter (@LegalIntangibls) or Facebook (www.facebook.com/technologylawyer), or contact him directly at tom.kulik@solidcounsel.com.

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