Intellectual Property Strategy for SaaS Startups

Intellectual Property Strategy for SaaS Startups
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As many startups know, the development of intellectual property can often determine their valuation, consumer and investor interest, and ultimate success, and is often the company’s most valuable asset.  As a new startup, the challenges you face may seem insurmountable, having to balance product development, marketing, and raising capital while developing a strategic intellectual property portfolio with limited resources.  For startup founders and entrepreneurs juggling the many hats they wear during the infant stage of their companies, success often requires becoming a jack of all trades. While it may seem expensive and time-consuming, the investment in intellectual property will protect the most valuable assets of the company and the hard work being put into other areas of the business. Moreover, securing the intellectual property rights to any proprietary products and technology will help the business stand out when seeking venture capital funding.

In terms of value to investors, think of securing your intellectual property as the equivalent of obtaining an insurance policy for both their investment and your time, energy, and work.  Although the goal of registering intellectual property is typically to set up a deterrent to ward off potential infringers, and it is often successful at this goal, it provides you with a basis for enforcing your rights and a mechanism to recover any losses or damages that may be suffered because of any infringement.  Likewise, registration allows the intellectual property to become a more substantial asset of the business that is better defined, which may then be leveraged to establish value based on different monetization strategies.

Despite the challenges of COVID-19 and changes in consumer behavior and workforce engagement, global venture funding is hitting record highs in 2021, proving that it could not be a better time to be a startup.  Over 160 billion dollars of venture funding poured into global startups, more than double the previous year, with records highs at every round, from angel/seed rounds to Series E; however, the Achilles heel for many of these startups remains the same: a lack of understanding about how and when to best protect their intellectual property.

How to Develop an IP Strategy

There is no “one size fits all” when developing an intellectual property strategy for your startup.  Careful consideration of what types of intellectual property protection are best suited for your business should include an evaluation of several factors including the nature of your company’s technology, market sector, and competition.  The most common reason why startups are forced to close their doors is their lack of understanding of their market sector demands and subsequent loss of business to their competitors.  Therefore, the primary considerations that startups must analyze in developing a long-term business and intellectual property strategy are to understand their market goals and what gives them a competitive advantage.  Is the advantage derived from superior product development, marketing strategies, complacency amongst their competition, being first to market, or an ability to obtain regulatory compliance within a niche market?  During our discussions with startups, we often hear about the new, flashy features or products that they are developing, but they often struggle when asked “what stops others from doing what you are doing” or “what is your strategy for maintaining a competitive advantage?” Understanding how your startup maintains a competitive advantage over other businesses in the space is fundamental to determining which forms of intellectual property are best.  Remember, there is no “cookie cutter” approach when it comes to building a portfolio to help monetize and scale your startup.

Here are two examples of how addressing intellectual property from the start can often determine the path to success or failure for a company.  The first example is the startup that does not understand the value of intellectual property and wants to avoid legal costs to allocate more of its budget to promote their future products, believing that its “disruptive technology” cannot be reproduced because of its popularity on social media.  In this example, the rush to get a product on the market has created “tunnel vision,” preventing the startup from considering potential liabilities or assessing the risk of infringing another party’s patents. In doing so, it is only after their product launch that the startup learns that they may be subject to an intellectual property infringement suit, which could have easily been prevented by conducting a Freedom-to-Operate Search at the research and development stage.

The second example is the startup that emphasizes collaboration and retains intellectual property counsel to research and discuss the competitive landscape and what steps will be necessary to mitigate liabilities and provide them with a competitive advantage over their competition.  In this example, the startup can enter the market with complete awareness of the challenges they face before incurring any liabilities and before taking actions that may prejudice their ability to secure intellectual property rights.  These two examples illustrate how company culture and an emphasis on third-party collaborations can be essential to protecting the business.

The single biggest mistake that startups make is not engaging an intellectual property attorney early from the infant stages of the business.  The right counsel combined with a collaborative company culture will help startups best prepare for venture capital raises, taxes, equity compensation, and future growth.  After the startup has been formed, an intellectual property attorney can help identify new opportunities for internal intellectual property development and outside acquisition and ensure the key intellectual property is owned, assigned, or licensed back to the company. Likewise, counsel can assist with creating and advising employees on the privacy policies and trade secret practices to ensure that the proper procedures are in place to protect the confidentiality of any proprietary information, including that of the startup’s consumers.

Protecting Your Brand

For a new startup whose products are not yet well known, their brand is how consumers will get to know them. Whether it is a name, logo, or icon, these trademarks become the face of your company and products, allowing new consumers to get to know you and the unique new offerings that you provide. With software companies, there is an incredible amount of development taking place, and the markets can quickly become saturated with products that on their face appear to be the same. To distinguish your offerings from the rest, creating and registering the trademarks used to represent your business and its products will allow consumers to associate the quality, robust features and functionality more easily, and superior reputation that you will develop over time with your offerings rather than those of a lower quality competitor.

Pursuing trademarks early can help a brand stave off competitors who may otherwise attempt to use confusingly similar marks to wrongfully benefit from the reputation and consumer goodwill built up around the brand.  With trademarks being the primary method that consumers will use to search for and find your products, if competitors have confusingly similar names, logo designs, or icons for their software, it can be difficult for a consumer to quickly identify your product as the one that they were looking for. This confusion can result in several issues, including lost business due to consumers inadvertently going to a competitor. Your consumers may also accidentally leave positive reviews for a competitor’s application rather than your own or attributing a negative experience with a competitor’s product to your brand. By identifying and securing the rights to unique marks, you can enforce those rights against third parties who may otherwise attempt to use marks that are likely to cause consumer confusion.

Additionally, ensuring that a startup has the right to register a trademark will help it identify how broadly it can enforce a given mark within related fields and industries or whether other businesses have already secured the rights to the same or a confusingly similar mark that may cause a likelihood of confusion, and thereby potential infringement.  Before a new software product is launched, it is always worthwhile to ensure that you will not be infringing on any third parties’ rights with the way you market and advertise your brand.  Failure to do so can result in launching a product under various marks that raise a claim of infringement against the business, which will drive up otherwise avoidable legal fees to defend against the claims and may result in common consequences including having to pay damages to the trademark owner and having to rebrand. If you are forced to rebrand, not only will you lose the reputation and consumer goodwill you established under the earlier marks, but this can be a costly endeavor. By addressing potential trademark issues early in the process of establishing your branding, you can ensure that your marks will both be enforceable and will not subject you to additional liabilities.

As trademarks are relatively straightforward and clearly show what they protect, both in terms of the claimed mark and the goods or services that mark is protected in connection with, they are a powerful and easy tool to enforce.  Often, trademark infringement is one of the few grounds that platforms such as the Apple App Store or Google Play Store can act on, as they can quickly verify the use of the infringing mark by a third party without significant interpretation or legal expertise being required, resulting in infringing listings being deactivated, removed, or otherwise changed to omit any marks that may have caused consumer confusion. These tools give startups more control over their brand identity and commercial presence.

Protecting Key Features of Your Software

Computer-implemented processes such as software and business methods may be patent-eligible if the key features are properly identified and described in the specification and claims.  One of the best strategies to help identify these key features is to start with a prior art search to better understand the relevant patents, published applications, and non-patent literature (NPL) in the U.S. and worldwide.  A prior art search will help avoid drafting an application that broadly describes all aspects of the embodiments and will help focus the claims on the patentable features that were not disclosed in the prior art.  One tip when drafting your application is to ensure you remain laser-focused on the novel features and technical process of your software.  The more thorough and robust you can draft your specification, the more it will help you through prosecution. 

To identify patentable features in your software, one strategy is to begin by considering the unique functionality of your software and working backward.   This can be accomplished by first understanding that functionality is how your combination of features works to provide the desired outcome.  If you can identify the unique functionality, it will help identify what specific features (i.e., tools) are both functional and utilized within the system to create the desired functionality. 

In determining whether your software will be patentable, here are a few questions to ask yourself that may provide some guidance:

  • What is unique about my software functionality?
  • What are my software’s features that help create the novel functionality?
  • What is the inventive concept in my software?
  • What is the user interface like?
  • What technical problem does my software solve?

Lastly, you should understand and adhere to the 35 U.S.C. 102(b) statutory bar requirements and not disclose your invention in the public domain more than one year before filing your patent application.  Most inventors understand the need for secrecy when discussing their invention but don’t understand they have one year from “public disclosure” anywhere in the world, not just in the United States, to file their patent application.

Examples of Non-Patentable Subject Matter in Software?

One of the more difficult aspects of determining the patentability of your software is to first determine which parts are not patentable. As a result of the 2012 and 2014 Supreme Court cases of Mayo and Alice, the USPTO introduced a two-part test for determining the patentability of subject matter such as software that may be considered “abstract” under 35 U.S.C. § 101:

  1. Are the claims at issue directed to an abstract idea?
  2. Do the claims contain an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application?

If the focus of the patent application is directed toward a generic process such as data gathering, automation, or analysis and display, it will likely fail to meet the patent eligibility requirements and be rejected as “abstract” under 35 U.S.C. § 101. For example, automatically tabulating data entered by a user or converting a user’s spoken words into text by a computer, even if done using software, would be considered generic. Without additional features, such generic automation would fail to recite an inventive concept.

Additional examples of non-patentable subject matter from recent cases include:

  • Mathematical concepts such as formulas, equations, relationships, and calculations;
  • Organizing human activity such as managing personal behavior, social activities, etc.;
  • Fundamental economic practices, such as forecasting market trends, running a hedge fund, preparing tax returns, etc.; and
  • Mental processes such as evaluations, judgment, observations, and following instructions.

If you want to avoid having your SaaS invention substantively rejected by the USPTO Examiner as being “abstract” under 35 U.S.C. § 101, it’s best to detail both the technical challenges others have faced before your invention and the inventive technical improvements implemented by your software.  Detailing how the inventive technical functionality of your software has been narrowly tailored to provide a technical solution or improve on these existing technical deficiencies will aid in the Examiner being able to conclude that the system is patentable. Remember while drafting that the goal is to prepare a robust specification, including a definition of necessary industry terms, so the Examiner and reader can clearly understand the concepts being expressed. This will ensure the broadest reasonable interpretation of your claims during examination and follow-on prosecution.

Protecting Your User Interface

The graphical user interface, or “GUI,” is what clients use to visually interact with your software. Your GUI is crucial to the success and recognition of your software, as a great user interface and graphical content leads to useability and popularity.  How clean, responsive, and user-friendly are your interfacing screens?  The better your user interface and front-end technology experience, the higher the influx of traffic and success of your software.  What steps are you taking to protect your Graphical User Interfaces?

You can obtain a design patent to protect the ornamental elements of your GUI.  A design patent protects the ornamental and non-functional appearance of your GUI for a term of 15 years from the issue date. Design patents for GUIs are advantageous as compared to utility patents for many including a faster prosecution, higher allowance rates, and relatively inexpensive costs. Likewise, because a design patent shows in its figures the exact design elements being claimed, they are often more easily enforced through third-party platforms to remove infringing applications, as it requires less interpretation or legal expertise to compare the designs and confirm that the design elements are present in the infringing software. Remember that a design patent for your Graphical User Interface is one of the most cost-effective strategies to protect these elements of your software. 

Are There Alternatives to Software Patents?

Although patents are arguably the most important form of intellectual property protection for your SaaS platform, not all software may be patentable subject matter.  For those SaaS companies who are unable to protect their software with a patent, other aspects of the system, such as the written code, may be protected with a copyright.

Copyright protection for computer programs attaches to “original works of authorship fixed in any tangible medium of expression to the extent that it incorporates authorship in the in the programmer’s expression of original ideas,” allowing developers and programmers to automatically own the copyright on the written code for any program they write for up to 70 years after the death of the author. Copyrights on software code are considered literary works under copyright law and can prohibit not only the literal copying of the software code, but also the “nonliteral elements” such as the program’s organization, structure, sequence, and certain variations.  For example, if your source code is re-written or converted into another computer language, this adapted version is considered a derivative work requiring the author to obtain a license before use to avoid a claim of copyright infringement.

Registering software with the U.S. Copyright Office provides owners with legal protections and the ability to collect statutory damages in an infringement suit if successful and may provide a further layer of protection to your patent and trademark portfolio.

Consult With an Experienced Software Patent Attorney

There’s no doubt that the rules governing software patents can be difficult for even well-versed parties to understand. That’s why consulting with a knowledgeable and experienced intellectual property (IP) attorney with experience specifically in procuring software patents can help set you up for success. Since patent laws relating to software are constantly evolving and, in many areas, remain ambiguous, a qualified patent attorney can help you stay up to date on the latest rulings and best ways to position your patent application for approval. Call us today at (954) 951-0154 or take our intellectual property quiz here by clicking on the link. 

Andrew Rapacke

Andrew Rapacke

Andrew Rapacke is a registered patent attorney and serves as Managing Partner at The Rapacke Law Group, a full service intellectual property law firm. If you would like to speak with Andrew Rapacke, click here to schedule your free consultation.

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