As any entrepreneur is well aware, the early stages of a new business venture are an incredibly busy time. Entrepreneurs must focus on building the core team, structuring the company, attracting investors, developing the product/service, and developing key partnerships, sales channels and marketing plans. These tasks are typically all-consuming for the founders, taxing both their financial and time resources.

During this time, it may be challenging to allocate attention to intellectual property (IP) issues.  However, this early stage is also a critical time to ensure that a business takes steps to protect its core IP and avoids the risk of third-party IP issues. It is increasingly crucial to gain a solid understanding of IP and developing a strategy that aligns with the business to build a new venture on a solid foundation.

This article includes an overview of the different types of intellectual property and provides advice to startup companies on how to secure their own intellectual property as well as protect against risks from others.

The four basic types of intellectual property that startups should understand are:

  • Patents
  • Trade Secrets
  • Trademarks
  • Copyrights

In this first post in the series, we cover Patents.

Patents

Not every startup business will be best served by investing resources to build a patent portfolio, but the question of whether to pursue patent protection warrants careful and timely consideration. Knowledge of the role of patents is critical for two reasons:

  • To protect your own business and inventions from your competitors
  • To avoid the risk of being exposed to assertions of patent infringement by competitors and other third parties

It is important for startups to understand the different kinds of patent protection and how they fit into their business.

Utility patents can be obtained for processes, machines, articles of manufacture, or compositions of matter that are deemed new, useful and non-obvious. The traditional subject matter of such utility patents covers tangible, technical inventions, such as improvements to client-server systems, motors, radios, computer chips and various technical product features. For example, Boeing’s US Patent No. 6,227,447 is a patent that covers methods of remotely controlling a vehicle. Patents can also be directed at new product features and functions. As another example, Facebook’s US Patent No. 8,171,128, titled, Communicating a newsfeed of media content based on a member’s interactions in a social network environment, protects its News Feed feature.

A separate category of patent, the design patent, may be sought to protect ornamental or non-functional designs. Some examples of notable design patents include Apple’s D 604,305 covering the design of its iPhone interface and Lululemon’s design patent covering its yoga pants.

The role of patents

Although patents are the most expensive and time-consuming type of intellectual property to obtain, they also provide the best scope of protection. A patent provides its holder with the exclusive right to make, use or sell an invention. This means that it can exclude a competitor from making or selling the patented invention, irrespective of whether or not the competitor copied the invention or even previously knew of the patent.  For this reason, a patent that covers an important feature, drives consumer demand, and/or distinguishes one’s product or service, can be very valuable.

Benefits of patents for a young business

Patents may provide a number of benefits to young businesses. For example, a robust patent portfolio or a key patent can help attract investors, since it may serve as a barrier to entry by competitors. Furthermore, the filing of a patent application will enable the company to advertise patent pending along with its product or service. In addition to potentially attracting investors, the patented or patent pending labels may deter would-be competitors or force them to adopt different designs and technologies.

As indicated above, once a patent issues it may be used to stop competitors from entering the field and allows for recovery of damages for infringement. Patents can also help the finances of a business by providing an opportunity to generate revenue from licensing.

How to obtain a patent

A patent is obtained by filing an application with the United States Patent and Trademark Office. The application includes a description of the invention accompanied by drawings, followed by a list of the elements that form the invention, called the patent claims. The patent claims set out the metes and bounds of the invention.  Third-party products or services that practice the elements of a claim infringe the patent.

When a patent application is first filed, an examiner is assigned to it. The examiner will reject or allow claims based on an assessment of their patentability, and the patent applicant will have an opportunity to respond to the examiner’s decisions. This back-and-forth with the Patent Office, known as prosecution, can take several years and is best done by an experienced patent attorney who understands the procedures, legal requirements and the art of drafting strong patent claims.

Impact of the America Invents Act

Changes in the patent law implemented by the America Invents Act (AIA) over a decade ago have impacted the leading practices for businesses looking to file for patent protection. First, the U.S. is a first inventor to file system. This incentivizes early disclosure of inventions and early filing of patent applications.

When two people independently discover the same invention, the first inventor to file for a patent on his or her invention is awarded the patent, regardless of which actually invented first. For this reason, it is important for businesses to streamline operations and speed up the process from invention to filing of patent applications.

Early and cost-effective filing can be achieved through provisional applications, which are essentially invention disclosures that can be converted to full patent applications within one year.

In addition, the AIA also provides for a prioritized examination procedure, which expedites the patent examination process. While the use of prioritized examination is more costly up-front, it may reduce overall legal expenses since a patent can be obtained within one year.

Avoiding infringement of other patents

A second important consideration for startups with respect to patents is a defensive one: avoiding infringement of the patents held by others. As a matter of practice, startups should conduct a patent search to verify that their business is free of patents that could be asserted against their product or service. The up-front cost to perform and analyze this search is relatively minor and offset by the potential for huge savings, both in terms of litigation costs and wasted investment in an infringing idea. The cautionary tale of Vlingo underscores this point.

Vlingo spent years developing voice recognition technology that led to talk of partnerships with Google and Apple. However, another voice recognition company, Nuance, which held a patent on voice recognition, sued Vlingo for patent infringement. Although Vlingo ultimately won the lawsuit, by then the company had already lost its potential partnerships, and the cost of defending the suit forced Vlingo to sell its business to Nuance. An early patent search could have revealed the Nuance patent and may have allowed Vlingo to take appropriate strategic steps to address the issue. For example, they might have been able to adopt a different design to avoid a run-in with Nuance.