IP in the Start-up Process

One of the questions that comes up is where and how does the intellectual property process fit within the context of building a start-up. This is important because much of what we do in getting a start-up off the ground is to tell prospective customers about our ideas. Doing this at the wrong time and in the wrong way can damage your ability to patent your key technology. For simplicity we can think about the following five activities in a start-up company.

  • Finding the pain
  • Finding a solution
  • Finding investors
  • Development
  • Selling the company

see: Intellectual Property, Patents, Patent Strategy

Finding the pain

The early part of a start-up effort is the process of finding a problem for which people really want a solution. This involves a lot of listening to other people and watching what they do. In most cases you are not sharing your solutions because you do not want to push people into insincere agreement with what they think your position might be. You really want to know what is going on.

Some of your discussions might involve you providing feedback to them on the pain that you see. This is not a problem relative to intellectual property because the identification of a problem has no legal protection. The problem is what it is. Your attempts to confirm the existence of a problem will not jeopardize your intellectual property.

During this process you may see a variety of possible solutions to these problems. Filling notebooks with such ideas, as well as discussing them with people who are involved in your company or have signed a non-disclosure agreement (NDA) is fine. At this point your solutions are trade secrets and should be protected as such.

Finding the solution

Having identified a customer pain point you then need to identify a business solution to that pain. This is where some care must be taken to protect your advantage. You may enter a phase of generating possible solutions and exploring various technologies to address solutions. Your solutions are still trade secrets and should be protected as such.

As you develop solutions to the problem you have identified you need to test those solutions for user response and value. You are trying to answer the question “If I build this, will they buy?” To answer this question you need to show demos, videos or other ways for them to experience the solution. These will be public disclosures. This is a good time to use the provisional patent filing. It is relatively cheap to file the provisional and does not require a lot of legal review. The provisional filing will also help you think more carefully about what your value is and how the user value is identified.

One characteristic of finding the solution is that you should generate many more solutions then you actually implement. It is a good idea to file a number of provisional applications and then abandon some of them. Your ideas are protected cheaply. You should be able to identify whether your solution is valuable within the year’s time limit on provisional patents. For those ideas that do not generate customer response, your provisional filing did not cost much. You can still keep the inner workings of your proposed technology as a trade secret.

Finding investors

When finding investors, you need to show your ideas to them and you also need to show them evidence that customers care about your solutions. Most venture capitalists will not sign non-disclosure agreements. There are two reasons for this. The first is that they see many, many ideas in a year and to remember which ideas came from which companies is just impossible. In their line of work it is just unreasonable to expect compliance with all of those NDAs. Therefore you either need provisional patent protection in place or you need to make your pitch without the trade secrets.

The second reason that early investors avoid NDAs is that they see primary value in your customer base and your knowledge of the customers. A customer advantage is critical to a profitable business and customer relationships are not intellectual property. A technology without a customer base has little value to most investors.

It is also of value to describe your prospective patent portfolio to investors. They will want to see that there is protection around your business that will prevent the competition from rolling over you. A brief, effective description of your IP strategy is helpful.

Development

As you develop your technology and your markets, trade secrets will be your primary IP defense. All of the data you collect about customers, their needs, wants and responses are all protectable as trade secrets. Make sure you are marking them as confidential and using NDAs with anyone who you collaborate with.

As you demonstrate what you are building to other people, remember to protect your ideas. An NDA before a demo is a common practice. Also think about whether some portion of your product is worthy of patent protection. Try writing down 2-5 sentences that describe a unique capability of your product. If you can write down such a thing and you are certain nobody has done that combination of things before, you may have the start of a patent. Development time is the time to lay down a ring of patents around your work. Remember that you should validate customer value first before investing development or patent resources.

Keep an eye on your software base to make certain that any code is either original to you or your contractors or has appropriate licensing. You do not want code full of unlicensed software or even worse, license virus software such as GNU licenses.

Selling the company

In the end you want to either sell the company to another company, to investors or to the public through a stock offering. As part of the sale, a value must be established. There are three key parts to that value:

  1. Your customer base and income model
  2. Your intellectual property
  3. Your team – the people who make your company run

Your customer base should be easily documented from your business accounts. The value of your team is demonstrated by what you have built. Your intellectual property is demonstrated by number and quality of your patents and by the copyrights you hold on your software. The value of your trade secrets must be demonstrated by items 1 and 3. Trade secrets are hard to sell because they are so easily lost.

see: Intellectual Property, Patents, Patent Strategy