Startups are the engine that drives innovation in the United States. These businesses generate new ideas at every turn, from the inventions that power the devices we use on a daily basis to the brand names and logos attached to those products.
With the right steps in place, companies can convert these ideas and intangible assets into valuable intellectual property (IP). Unfortunately, all too many startups stumble across IP issues, adding challenges to their already difficult path to success. Avoiding the common IP mistakes that startups make will increase your company’s chances of defying the odds and excelling where others have failed.
Here are five of the biggest IP mistakes that startups make and how to avoid them.
[Related article: Are Hashtags Intellectual Property?]
Mistake 1: Underestimating the importance of intellectual property
If you are like most entrepreneurs, you don't spend much time focusing on your company's IP. Instead, you spend your day working on creating (or perfecting) your product and executing your business and marketing plans.
You probably have some sense that your business has intangible assets and that those assets have value, but you think of intellectual property as a legal issue that can be dealt with by the lawyers.
This common approach is a fundamental mistake. The most successful businesses understand that intellectual property is an important business tool.
In fact, valuation experts estimate that intellectual property represents the largest asset class held by American companies (representing 40% of the value of all assets).
Intellectual property assets represent a significantly larger percentage of the value of the most successful companies – those in the S&P 500.
By some estimates, IP represents up to 90% of the value of these companies.
Considering that intellectual property assets represent such a large asset class, you need to stop thinking about intellectual property as a legal matter and instead understand that your business can create value by making intellectual property part of your business plan.
Mistake 2: Not creating an IP plan
Most startup founders create all sorts of plans: business plans, product development plans, marketing plans, and so on. In fact, business people seem to be planners by nature.
Unfortunately, all too often, entrepreneurs don’t take the time to create a plan to harness their intangible assets or to ensure that they are not infringing the rights owned by third parties. This is a critical mistake that can doom your startup.
Companies that don’t take the time to create an intellectual property plan are creating significant unnecessary hurdles along their path to success.
An IP plan serve as a roadmap for your business to use to harvest the most value from the innovations you are creating. The plan will help you prioritize tasks and ensure that you are not missing opportunities to build value.
Just as important, the plan will map out how to minimize your risk of being sued by others. The last thing any startup needs is to face a costly IP lawsuit that will force it to spend precious time and money.
Taking the time to create a plan at the outset will drastically decrease the chances that your company will face this prospect.
If you want to increase your startup's chance of succeeding over the long haul, you should take the time to develop an IP plan at the outset. Think of this as an investment that will compound over time.
Mistake 3: Not setting up communications
Once your company has grown past a handful of employees, you will certainly get to the point where the people creating intangible assets are not the ones making decisions about protecting those assets.
In the haze of growth, many companies miss this shift and don’t set up systems to ensure that the creators and deciders are communicating on a regular basis.
Communication between creators and deciders is important for a couple of reasons. First, decision makers can’t protect assets they don’t know about. Thus, without communications, you won't be able to harness the value from the innovations you are creating.
Second, the deciders can't make sure that your company is taking prudent steps to minimize the risks it faces if they don’t know about new initiatives. Keeping these deciders informed will allow them to protect you from a costly lawsuit.
To avoid this mistake in your business, you should develop a plan to ensure that the deciders and creators are having regular communications. The plan should fit with your company’s culture, but make sure the communications are happening.
Mistake 4: Failing to run a trademark search
One of the ultimate ironies is that many entrepreneurs spend unimaginable time coming up with the perfect name for their company but then don’t take the step to run a trademark search for the name. This is a major mistake that could cost you dearly.
The best time to discover a trademark issue for your name of choice is at the outset. Sure, you’ve probably spent a good bit of time brainstorming for the perfect name, but you haven’t invested anything else in the name. If you discover a trademark issue for the name at that point, it’s easy to pivot and find a new name.
Entrepreneurs who don’t take the time to run a trademark search for their name are running significant risks. These business owners will spend time and money building a brand around their company name and building goodwill associated with that name without being sure that they will actually be able to continue using the name for the entire life of the business.
What will happen if a trademark issue emerges for one of these companies a year (or more) after it was founded? Most likely, the company will have little choice but to rebrand. In the process, the company will lose its brand awareness and the value of the built-up goodwill.
Failing to run a trademark search is a critical mistake. There are plenty of attorneys and search firms who will perform this task at a reasonable fee. But at a minimum, entrepreneurs should run a search through the Federal registry and should conduct an Internet search for the name.
Assuming the name is clear, you would be well served to file a trademark application, but, at a minimum, you should ensure that there are no obvious conflicting marks.
Mistake 5: Not setting up confidentiality protections
The fifth mistake that startups often make is failing to put in place adequate confidentiality protections.
Trade secret law allows companies to protect confidential business information that has business value. Trade secret protection has been used to protect some of the most valuable business secrets in the world, including the recipes for Coca-Cola and Kentucky Fried Chicken.
The key to obtaining and preserving the protection is that the company must take reasonable steps to ensure the confidentiality of the information. The Coca-Cola recipe, for example, is known by only two employees, and the written version is kept in the vault of a bank in Atlanta.
While most confidential information does not require that level of protection, too few startups establish systems and procedures to maintain the confidentiality of their sensitive business information.
A company should have:
- Written agreements with employees that require them to maintain business confidences.
- Policies that put limits on the extent to which employees may transfer sensitive material to personal devices (e.g., rules against sending material to a personal email address).
- Written agreements with outside contractors that require them to maintain business confidences.
- Policies that limit who may access the information.
- Reasonable security protocols (e.g., password-protected computer access) to limit access to the information.
A company that does not have these minimum protections in place risks losing the right to protect its supposedly confidential information as a trade secret.
[Related article: Confidential Information: The Importance of Keeping Trade Secrets]
Summing up the common IP mistakes
This list could have included many more mistakes that startups make with respect to their intellectual property. Most of the specific mistakes that startups make stem from the first two mistakes in this list, failing to recognize the importance of intellectual property and failing to take the time to create an intellectual property plan.
Startups that recognize the importance of IP from the outset and spend the time and money to develop a plan have a significant leg up in the market.