The Phoenix startup scene is hot right now, and not just from our months of 100-degree days. According to the founders of Tuft & Needle, who chose Phoenix over Silicon Valley for their startup mattress company, Phoenix is “unusually attractive—and more than a little underrated” for startups due to low costs, access to investors, and, of course, the weather. Not coincidentally, local startup incubators, accelerators, and funding facilitators like CO+HOOTS, Seed Spot and Tallwave have emerged to ensure Phoenix continues to put the heat on Silicon Valley for attracting the next Facebook (or here, the next GoDaddy).
Startups are all about the next big idea, so they should be aware of the law that protects those ideas, called intellectual property (IP). IP grants exclusive rights to ideas and other intangibles that prevent competitors from using them. IP can be the primary lure for a startup’s investors, can form collateral for loans and can be monetized through licensing. But as important as IP is, its costs and complexity present unique challenges to startups which, by definition, have few resources to spare. This article explains how a startup can identify its IP and take basic, affordable steps to protect it before the startup’s next plunge into the investor shark tank.
Identifying your startup’s IP
The first step is to have at least a general sense of what IP is and what it does. The four main types of IP are trademarks, copyrights, patents and trade secrets.
Trademarks protect brand recognition for business identifiers, like names, logos, slogans and even sounds (think NBC’s three-tone chime). Trademarks are limited to the goods or services on which they are used, and generally cannot cover something that describes or generically identifies that product or service (“Apple” is a trademark for computers, but not for selling apples). Copyrights protect original works of authorship that are fixed in a tangible medium, such as unique literature, music, artwork, photos, website designs, and software code or graphical interfaces. Similar, though rarer, design patents and trade dress protect distinctive ornamental aspects of businesses and their products.
Utility patents generally protect the structural and functional aspects of “inventions.” An invention can be any new and useful machine, apparatus, process, article of manufacture, or composition of matter—so long as it would not be “obvious” to ordinary workers in the industry. For example, GoPro patented its harness for cameras, and Facebook patented its news feed. Trade secrets, on the other hand, protects competitive information like customer lists, source code, know-how, recipes, and production methods—the startup’s “secret sauce.”
As if IP were not complicated enough, its various types often overlap within the same product or information. The key is to identify the ideas, products, or information that gives your business its competitive edge, which is where the IP likely resides.
Protecting your startup’s IP
The next step is to weigh how best to secure your startup’s IP, and how to avoid losing it to competitors (or, worse, to the public!). Some IP exists on its own upon creation, while other IP is secured only after obtaining approval from a government agency. And each provides slightly different exclusive rights for different lengths of time.
You own copyrights and trade secrets essentially the moment they are created. There are, however, certain procedural benefits for labeling copyrights with “©” and registering them with the Copyright Office. Trade secrets must be kept secret, so your startup should have a basic protocol for keeping information confidential and restricted, like through encryption or passwords. Trade secrets last as long as they are kept secret and give a competitive advantage (Coca-Cola’s formula is over 100 years old), and copyrights are good for the author’s life plus 70 years.
Patents and trademarks are a different story. While you have limited rights (and can display “™”) once you use a trademark in commerce, federal registration based on “interstate commerce” can give you priority throughout the country (and the right to display “®”). For registration, you submit an application to the U.S. Patent & Trademark Office (USPTO) with usage information and a description of goods or services. For patent rights, you file an application with the USPTO with figures, a written disclosure, and claims to the invention. Bear in mind that you can also lose patent rights when making certain pre-filing public disclosures or sales. These application processes are wrought with pitfalls where you can narrow, if not lose, your rights, and it is critical to file as soon as possible. Patents last for 20 years and give the right to exclude others from making, using, selling, or importing the invention, and trademarks give you exclusive use of the mark on your goods or services as long as it is used in commerce.
What startups should do now
So now what? All startups should consider investing in a trademark application. The costs, roughly a few hundred to a few thousand dollars, pale compared to the headache of another business adopting the same name. For more costly IP, like patents, startups should at least take simple measures to avoid abandonment. The key to that is getting solid contracts in place that govern your startup’s relationship with its customers, vendors, employees, contractors, investors and other third parties. These include non-disclosure agreements, protocols for keeping information secret and restricted, non-compete agreements, and “work-for-hire” provisions that ensure IP ownership retention.
Unfortunately, many startups choose shortcuts like downloading online forms or enlisting self-help online “lawyer-ish” services. While this can be shortsighted for any type of legal work, it is especially dangerous for IP due to its complexities and what is at stake. Startups should invest in at least a few hours of an IP attorney’s time to tailor form documents, advise on applications, and identify anything you may have missed.
The Phoenix startup scene is heating up. Keep your IP from melting.