Intellectual Property Strategy for Startups

10 minutes

As many startups know, the development of intellectual property and can often determine their valuation, consumer and investor interest, and ultimate success, and is undoubtedly among one of the most important issues facing startups today.  As a new startup, the challenges you face can 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 largely 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 as a result 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 potential streams of income that you could derive.

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 remain the same: not understanding how and when to 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 should be made based on several factors including the nature of your subject’s technology, market sector, anticipated competition, and corporate culture.  The most common reason why startups have to close their doors is not understanding the market sector demands or simply losing 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 many of our discussions with new startups, we will hear about the new, flashy features or products that they are developing, but they often struggle when asked “what is your barrier to entry” or “how would you strategically deploy new capital if raised.”  Understanding what gives your startup a competitive advantage over other businesses in the space is fundamental in determining which forms of intellectual property best protect both the short and long-term strategic goals of your startup.

The culture of any startup can greatly impact the intellectual property policies and strategies right from the start.  Having the right team in place that is mission-oriented and defines the standards and purpose of your startup will not only improve your startups performance and productivity but will cultivate innovation and emphasize collaboration from the founders.  This innovation and collaborative working will help your team both develop and identify when new, valuable intellectual property is being developed so that it can be secured early in the process.

Here are two examples of how addressing intellectual property from the start can often determine the path of success or failure for a company.  The first example is the startup that does not build a culture of communication amongst members of its team and simply wants to avoid legal costs in order to allocate more of its budget to promote their future products, believing that it’s “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 visions” and prevented them from considering potential liabilities or assessing the risk of infringing another party’s patents through conducting a freedom-to-operate search. In doing so, it is only after their product launch that they learn they may be subject to an intellectual property infringement suit.  The second example is the company 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 risk to the startup.  In this example, the startup is able to enter the market with complete awareness of the challenges and risks it may face so that these can be addressed before incurring any liabilities and before taking actions that may prejudice their ability to secure intellectual property rights of their own.  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, your 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 your consumers.

Remember, investing early on in your intellectual property, founders’ agreements, regulatory and security compliance, trade secrets, and intellectual property will minimize uncertainties and possible future disputes in the future, saving the business time, expense, and frustration in the long run.

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, in particular, there is an incredible amount of development taking place and the markets quickly can become saturated with products that on their face appear to be more or less the same. In order to distinguish your offerings from the rest, creating and registering the trademarks used to represent your business and its products will allow consumers to more easily associate the quality, robust features and functionality, and superior reputation that you will develop over time with your offerings rather than those of a lower quality look-alike 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 that they were looking for. This confusion can result in a number of issues, including lost business from consumers inadvertently going to a competitor instead, your clients accidentally leaving positive reviews for a competitor’s application rather than your own, and consumers attributing a negative experience with a competitor’s product to your brand. By identifying and securing the rights to unique marks, you are able to enforce those rights against third parties who may otherwise attempt to use marks that are likely to cause consumer confusion.

Additionally, ensuring that the startup has the right to register a trademark will help it identify how broadly it could 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 is launched, it is always worthwhile to ensure that you will not be infringing on any third parties’ rights with how 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 need 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 are able to take action 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 Your Software Key Features

Software features, commonly referred to as “computer-implemented processes,” maybe patent-eligible if they are 1) unique, 2) tied to a machine, and 3) offer a type of identifiable improvement. It is not enough for the software to do something on a computer that is already known or merely that automates a known human process.

To identify the patentable features in your software, you must look at it from various perspectives. Although source code itself may not be patentable, this doesn’t automatically prohibit a software invention from receiving a patent.

In determining whether a piece of software will be patentable, it helps to think about whether the invention offers up a technical solution to a technical problem. In doing so, you may want to consider the following questions:

  • What is unique about my software process?
  • What is my software’s unique feature or functionality?
  • What is the inventive concept in my software?
  • What is the user interface like?
  • What technical problem does my software solve?

What Parts of Your Software Are Not Patentable?

One of the more difficult aspects of determining the patentability of your software is to first determine which parts of it are not patentable. In the 2014 case of Alice v. CLS Bank, the Supreme Court introduced a two-part test for determining the patentability of a piece of software:

  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.

Examples of abstract ideas 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 trend, running a hedge fund, preparing tax returns, etc.; and
  • Mental processes such as evaluations, judgment, observations and following instructions.

Examples of non-abstract features that may be eligible to receive a patent:

  • Encryption techniques;
  • Machine learning models;
  • Some types of new data storage techniques;
  • Processing techniques; and
  • Network security techniques.

If you want to avoid having your computer-implemented 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 prior to your invention and the inventive technical improvements implemented through your software within your non-provisional patent application.  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. The more specific you can articulate the inventive concepts of your software and how your claimed software provides a technical solution to a technical problem, the better the chances your application will withstand an “abstract” rejection.  Preparing a robust specification, including a definition of necessary industry terms so the Examiner and reader can clearly understand the concepts being expressed, ensures the broadest reasonable interpretation of your claims during examination and thereafter with enforcement.

Protecting Your User Interface

The graphical user interface, or “GUI,” is what clients use to visually interact with your software. Your GUI can be very important to the success and recognition of the system because users often associate your software directly with your user interface. Many handheld mobile devices, gaming consoles, smartphones, and mobile apps utilize GUIs to assist users in interacting with the devices by manipulating the graphical icons, audio indicators, and text-based user interfaces. For many software and mobile apps, protecting the ornamental design of their GUI’s can be extremely beneficial and valuable. 

You can obtain a design patent to protect the ornamental elements of your GUI (but not its functionality – that would fall under a utility patent). 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. This cost-effective strategy allows SaaS companies to protect a variety of GUIs for a fraction of the cost of a utility patent application.

Are There Alternatives to Software Patents?

Although patents are arguably the most important form of intellectual property protection for protecting your proprietary processes and methods being executed within a SaaS platform, not all software may be eligible for patent protection.  For those SaaS companies who are unable to protect their software with a patent, other forms of intellectual property protection can be pursued to protect other aspects of the system including copyrights.

Copyright protection for computer programs attaches to only “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.  With the inexpensive and expedited filing options available at the U.S. Copyright Office, every developer or programmer should seek copyright protections for their computer programs. 

Consult With an Experienced Software Patent Attorney

There’s no doubt that 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 to request more information regarding our services.

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