This is a reprint of my article published originally in LinkedIn Pulse and featured in Entrepreneurship.
As a startupper, you don’t live in an isolated world; you meet with potential investors and partners, go to networking events and have to share your ideas with peers and established brands to get support and attract funding. And because we all don’t live in a perfect world, the risks are high that someone will steal your idea or concept just because you don’t bother to protect your copyright and intellectual property (IP). Also, your startup can become a subject to legal issues as you can be accused of plagiarism or copyright violation, or if your former employer proves you’re violating the Nondisclosure Agreement (NDA) / Non-Compete Act (NCA) you'd signed before.
Here are five lessons learned from startups that have made critical mistakes and, as a result, lost their IP rights / failed their projects.
1. Document every single meeting / avoid verbal agreements!
Once upon a time, attorney Kin Jang improved a language processing technology and thought her innovation might be interesting for Google. In 2008, she met with Google’s software engineer Nick Mote over a cup of coffee in Santa Barbara where they confirmed all confidentiality terms...verbally. Then Jang demoed her innovative technology to Nick. According to her, they agreed to meet a week later to sign NDA and discuss further steps. However, when Jang called Nick before the expected meeting, he pretended not to know her at all.
Some time later Jang found out that some of her developments had actually been implemented by Google. Jang and her licensee company Booloon filed a lawsuit against Google, Inc. and Nick Mote accusing them of confidentiality breach and fraud. In court Nick confirmed the meeting had taken place, but more as a consulting session, and didn’t recall Jang asking him for confidentiality. As a result, Jang lost the trial because no solid evidence of Google’s fraud was presented.
No matter who was right in that situation, it proves well that any agreements should be done in written, not verbally. To avoid such cases, do the following:
- Sign a Nondisclosure Agreement (NDA) prior to having any negotiations with each potential investor or your prospective business partner. NDAs are legally valid in most of the world’s countries and if you’re negotiating with an entity outside the USA or EU, don’t forget to include a Clause where you indicate clearly that in case of disputes US or EU legislation will apply for resolution.
- In your NDA indicate each type of information you’re going to share and terms in which a 3rd party is permitted to share it further.
- Identify a person you’re communicating with and make sure s/he acts on behalf of the company they represent, check their position with the company and overall reliability and involvement in decision making.
2. Patent your idea or technology!
Many startuppers I’ve talked to have no or very basic knowledge about patents and how they can help avoid falling prey to intellectual property (IP) fraud. Had Kin patented her language processing technology before presenting it to Google, she’d have been able to charge the technology giant with violation of patent rights and might have won the trial.
What you should know about patenting your idea or technology:
- Identify countries you want to do business with upfront.
- In the United States, you have to submit provisional application and pay a fee ranging from $65 to $260. The date of provisional application will be considered the date of patent priority. So, you can submit provisional application and start sharing your idea / negotiating with investors and/or partners right away without waiting for the main patent to be issued (you have 12 months for this). However, when applying to a patent in a country other than the United States, you should explore their local patent policies carefully, as they’re different in every country.
- Based on the national application, you can submit an international application in the frames of Patent Cooperation Treaty (PCT). This Treaty allows you to reserve one international application for the period of 31 months since the date your national patent application was submitted. In this case, your idea will be double protected with minimal expenses.
3. Make sure you don’t have any obligations to your former employer!
Many startup founders come from the corporate world and were employed by companies prior to going free-floating. As a former employee, do you remember signing NDA and NCA on your first day of work? Bad news is that sometimes you keep having obligations to your former employer even after you quit job with them. So, do the following steps to avoid any legal surprises in the future:
- Find out who is IP owner of solutions, services or products you developed as a company employee. Some companies own IP even for their employees’ pet projects, so be careful with this!
- If you were involved with a foreign contractor, make sure you know how disputes are resolved in their home country.
- Make sure you act in compliance with NCA if you signed any before. NCA usually forbids an employee to work for a competitor or create competitive products for a certain amount of time after resignation. If you fall under NCA jurisdiction, it may be worthwhile to register your relative or a person you trust (that has no obligations to former employers) as a startup owner.
4. Register a trademark!
Common mistake of many startuppers is that they make a lot of efforts protecting their technology while ignoring the importance of trademark protection. In 2010, a new social network Pinterest was launched in the United States. Despite its global outreach, project owners forgot to register a trademark in other countries, namely in the European Union. As it turned out, UK-based company Premium Interest Limited submitted an application to register a Pinterest trademark. So, Pinterest had to dispute use of their brand name in the UK. As a startupper, you don’t want to face such legal issues with your brand name, do you?
What you should know about trademark protection and how important it is:
- First of all, prior to pitching your startup idea to anyone, double check that there’s no registered trademark that can be associated with your brand name
- Make a list of all countries you’re planning to work in and explore their trademark protection policies
- When applying for a trademark, remember that it’ll apply to all products and services you’ll list in your application. So, make sure this list is truly comprehensive and all-embracing
- If you’re applying to register a trademark in the USA, you must start using its name or submit a declaration of intention to use its name prior to the application! Note that each country has own trademark registration peculiarities.
5. Do your Freedom to Operate (FTO) analysis!
In 2013, Apple that owns the world’s most expensive trademark, paid $60 million to Taiwan company Proview International Holdings Ltd for having the right to use the iPad trademark in China. As a matter of fact, Proview registered their own trademark IPAD (acronym for Internet Personal Access Device) that was sold to a British company in 2009. In 2010, this trademark was purchased by Apple. However, few years later it turned out that the copyright transfer applied to Taiwan only and was blocked in China. Apple’s flagship product was at risk as it couldn’t be legally sold in China, a huge market no one wants to miss. Entering the market with iPad cost Apple $60 million.
What you should know about FTO:
- Make a list of all countries and territories you’re planning to target with your product / service and check the exceptions. For instance, Chinese patents don’t apply to Hong Kong and Macau, and French patents don’t apply to French Polynesia.
- Note that you’ll have to check existing patents for both software and hardware component if that applies to your product (e.g., a new smartphone or VR glasses).
- Determine the protection scope. Copyright violation applies when your product has all of the features of an already existing product. If a patented product consists of A, B, C and D, and your product only has A, B and C, no copyright violation will apply!
Even if your FTO doesn’t allow for product launch, there’s no reason to get upset. You can appeal to the patent owner and negotiate patent purchasing, getting a license to use a trademark, etc. If it doesn’t work - you can always try to dispute the case in court.
To conclude with, any IP protection should be systematic and savvy. No need to keep your startup idea a closely guarded secret and stay away from prototyping just because you’re afraid someone can steal it. Lack of trust is archaic in today’s hectic and volatile business reality. If you believe you have a great idea - protect it and feel free to demonstrate it to all those who can potentially help you bring it to life. Good luck!
