Considerations for Startups Seeking to Protect Their Inventions
This article, written by attorney Jonathan Whitcomb, was originally published by the NH Bar News and can be found here (p25).
Startup companies have plenty on their plates, from hiring employees, setting up benefits and payroll, forming a corporate entity, finding a workspace, securing investors, and the list goes on. In the midst of all of this, protecting intellectual property can get lost in the shuffle. This is understandable, but since new technologies are often at the core of a startup, it is important for them to consider their options for protecting invented devices and processes related to the new technology. Patents and trade secrets are the two primary ways to protect inventions.
Trade Secrets
Maintaining trade secrets related to a product or process may be a viable option for some startups. A trade secret is confidential, non-public information that gives a company a competitive advantage. While there is no term limit on a trade secret, trade secrets only protect the startup if they are actively kept secret, for example, by securing the secret via locked cabinets or behind a password-protected computer firewall, where access is only
given on a need-to-know basis.
A trade secret loses its value if it is made public. While trade secrets offer limited recourse against employees who reveal them to a third party without authorization, there is no recourse against a third party independently inventing or discovering the invention. Therefore, trade secrets work best for inventions that cannot be reverse engineered or are unlikely to be independently developed.
Patents
A patent is an agreement between an inventor and the government, where the inventor agrees to disclose the invention to the public in exchange for a period when the inventor has exclusive rights to the Considerations for Startups Seeking to Protect Their Inventions invention. Specifically, a patent gives the patentee 20 years to enforce the claimed invention, for example, by suing a party who infringes the patent.
Obtaining a patent in the United States starts with filing a patent application with
the United States Patent and Trademark Office (USPTO). The application process may be costly and drag on for many months or years before a patent is issued. The USPTO has many criteria for rejecting patent applications that are difficult for non-patent practitioners to navigate. And not all patent applications mature to become patents. Startups should decide whether filing a patent application for their initial inventions fits their business model. Different business models based on inventions may include one or more of:
- Developing, producing, and selling a product or service based on the invention;
- Developing an invention to license to other parties; and
- Developing a technology to position the company or a product for acquisition.
For some startups operating under the first business model, obtaining a patent for the initial invention, while preferable, may not be critical. While startups can develop, market, produce, and sell a product based on an un-patented core invention, without a patent, there is no recourse against others co-opting the technology and using it to compete against them. But some startups may not have the financial resources to patent their initial inventions.
Here, the startup may use the success of an initial product to self-fund, or attract investors to fund, patents for subsequent inventions. For example, an improvement to the unpatented initial invention may itself be patentable.
Startups with business model 2 must establish ownership of their technology via patents, as technology licenses are based on the licensor owning the invention. Likewise for model 3, a business that does not own the IP for its assets is unlikely to secure buyers.
A patent issued by the USPTO only protects against parties using, making, selling, and importing the invention in the United States. Startups with aspirations outside the United States should apply for patents in each country/region where the invention will be sold, manufactured, used, or imported, and in countries where the startup wants to prevent the invention from being co-opted by competitors. The two vehicles for applying for patents outside the US are: Paris Convention applications (country-by-country), and Patent Cooperation Treaty (PCT) applications (multiple countries or regions).The PCT application lets the applicant initially file without specifying which countries or regions where they seek a patent, giving 30 months from the first patent application filing date to decide. Since it is costly to file in multiple countries, the PCT application may give startups extra time to secure sufficient capital.
Timing and Disclosure Considerations
There are some considerations a startup should be aware of when deciding when to file for a patent application. In general, an invention should be sufficiently developed so the patent application can describe a specific example of the invention.
There are also legal considerations. US patent law allows inventors to file a patent application with the USPTO up to a year after the invention has been publicly disclosed via a printed or electronic publication, used in public, or offered for sale. Most other countries do not offer this one-year grace period, so those seeking international patents should file a patent application in at least one country before any disclosure of the invention.
Other Considerations
All inventors must be listed in a patent application, and each inventor is treated as a co-owner of the patent, meaning each inventor can individually practice or license the invention without the consent of the other inventors. Therefore, startups should have written agreements in place with their employees or contractors where each inventor assigns their rights to the invention to the company. This is typically done as part of an employment agreement or work-for-hire contract.
It is important for startups to keep abreast of the development of their technology and processes, so they do not inadvertently let a new invention slip through the cracks, for example by scheduling a biannual patent harvesting meeting with the technical team.
Being forearmed with these basics can help startups protect and control their development efforts. Seeking counsel to assist with these matters can tailor an approach well-suited for your startup.