Startups need more than just great products or services to succeed. A thorough understanding of what intellectual property (IP) is, its value to your business, and how to protect it is essential for success. We consulted attorneys at IP law firm Fish & Richardson (commonly known as “Fish”), to create this blog introducing key IP concepts and the risk of neglecting them. If you’re a founder, leader, or R&D/product manager in biotech and engineering, this is essential reading.
Generally, “IP” refers to creations of the mind. A broad category, IP can include inventions; literary and artistic works; designs; proprietary information; and symbols, names, and images used in commerce. The main forms of legal protections for IP assets are patents, copyrights, trademarks, and trade secrets. IP rights are property rights that give their owners the right to exclude others from the subject matter they cover, similar to the way a deed gives a landowner the right to evict trespassers.
Patents protect technological inventions, which can be broadly defined as machines, processes, manufactures, and/or compositions of matter. They last for a period of 20 years and are not renewable. Copyrights protect original works of authorship like books, movies, music, and theatrical productions. Like patents, they have a limited lifespan, which in many countries, such as the US, UK, and EU member states, is the length of the author’s life plus 70 years. Trademarks are words, symbols, logos, jingles, etc., that identify the source of products or services and distinguish them from those of others. Unlike patents and copyrights, they can last forever with continued use. Trade secrets are confidential information that gives businesses an edge over competitors, and they remain enforceable for as long as the information is kept secret.
For startups, patents and copyright are often the most immediate considerations, which are the main focus of this blog.
Patent law is essentially a bargain between inventors and society; inventors share their innovations publicly, and in return, the government gives them the exclusive right to stop others from using those innovations for a set time.
Despite a common misconception about patents, the purpose of a patent is not to provide an affirmative right to make, use, or sell your own invention; rather, it is the opposite. The essence of a patent right is the ability to prevent others from making, using, selling, or importing the invention during the term of the patent without a license.
In other words, owning a patent doesn’t necessarily mean you can use the invention it covers freely; you can do that only if the invention doesn’t infringe on anyone else’s patent. For example, if you create a diagnostic test that uses a patented detection method, you’ll need a license to the detection method, even if you have a patent on the diagnostic test you created. Failure to obtain the proper licenses can expose startups to costly and potentially devasting patent infringement litigation.
The U.S. Patent and Trademark Office has several conditions inventors must meet for their inventions to be patentable. At a very high level, the invention must be:
Unlike patents, copyrights are automatic; they come into existence as soon as an original work is created in a fixed format. This could occur, for example, when an artist puts a paintbrush to canvas, a musician records a song to a digital audio file, or a photographer captures an image on film. Nonetheless, copyright owners should still register their works with their country’s copyright office, which, among other benefits, makes them easier to enforce in infringement actions. As well as safeguarding your own copyright, it’s important to make sure you aren’t infringing on or illegally accessing others’ copyrighted material.
A strong IP strategy can increase your company’s valuation and assure investors that your innovations are unique and defensible. Robust IP protection also ensures that competitors cannot easily replicate your work, thereby securing your competitive edge. And it’s not just individual patents that matter; a large and diverse portfolio of IP assets indicates broader market coverage and reduced risk.
“Investors look favourably on startups with layers of patent protection, including both broad and narrowly tailored claims protecting the innovation,” advise IP attorneys Matthew Colvin, Jillian Shapiro, and Giordana Mahn. They recommend building a portfolio that spans a range of IP types.
Their colleague Peter Fasse says that startups should think beyond their specific technology, product, or process in patent applications. “Draft your patent applications to cover various alternative embodiments aside from the company's specific product,” says Fasse. “The market may ultimately adopt an alternative solution that… was not detailed in the patent application. Brainstorm and try to cover the ‘big picture.’”
Securing IP rights can be expensive, so prioritize the IP assets that best support and align with your business strategy. Also keep in mind that IP rights are location-based, and expanding globally requires filing in each market. Prioritising key markets will help to balance cost and complexity. “It is critical to develop a realistic budget for your IP, which can be the core value in a startup company,” Fasse notes.
Under U.S. law, companies do not automatically own the IP of innovations created by employees, contractors, consultants, or other partners unless those individuals assign them to the company in writing. Startups must thus ensure that the IP rights coming out of their R&D departments are properly assigned to avoid conflicts of ownership. If a patent has more than one owner, each owner holds a 100% undivided interest in the patent. Ownership can be transferred, but each owner still has the full right to license or assign their interest as they choose.
In a recent webinar on IP Agreements, Fish attorneys noted that startups that use employment contracts should “include provisions related to IP assignment… and should ideally be executed before the employee starts working for the company.”
“It’s important to get on the same page while the parties are on good terms and to be clear about what is company IP and what is not company IP,” Fasse adds.
Over the last decade, there has been a huge rise in university spinouts – startups created to commercialise academic research – particularly in life sciences and engineering. While universities often provide the launchpads startups need, they may also retain ownership claims to the spun-out startup’s IP, which can lessen its value. Such complex ownership issues make it even more important for spun-out startups to nail down inventorship, ownership, and patent licensing early in their life cycle.
IP law can be complex and varies by location, so it’s essential to take legal advice early on. Proactively protecting IP can enhance a startup’s valuation and ability to protect its innovations. Neglecting IP, both your own and others, could result in a loss of value to your business, reputational damage, or even legal action.
Generative AI will also raise new questions for IP. While precedent is beginning to emerge establishing that a ‘significant contribution’ by a human will make an invention eligible for patent protection, this is still an evolving area. Startups should be mindful of how and when they use AI in their innovation processes and keep detailed records.
Fish’s IP monetization guide for startups is a helpful tool for assessing the standing of your IP strategy, giving you an idea of what to expect before seeking funding.
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