Intellectual property (IP) tends to comprise the most valuable and closely-guarded assets in any modern startup’s holdings. Understanding the different types of IP rights and the importance of protecting them is essential for maintaining a competitive edge and ensuring long-term success.  Given its importance, we’re going to do a series of posts from Bowery Legal on the topic.

Understanding Intellectual Property Rights

Intellectual property rights are legal protections granted to creators and inventors to safeguard their innovations, artistic expressions, and brand identities. Here are the primary types of IP rights:

1. Patents: Patents protect inventions and processes that provide a new and useful way of doing something. There are three main types of patents: Utility Patents (to protect new and useful processes, machines, articles of manufacture, or compositions of matter), Design Patents (to cover new, original, and ornamental designs for an article of manufacture) and Plant Patents.  Patents typically survive for 15 to 20 years.

2.Trademarks: Trademarks protect symbols, names, slogans, colors and even scents, and are used to identify goods or services, distinguishing them from those of competitors. Registering your trademark is a great way to establish your brand identity. Trademark protection can last indefinitely so long as the mark is in use and properly renewed.  (Pro tip: we often advise very early-stage clients of Bowery Legal that they might want to hold off on filing for a trademark at the earliest stages of building a company, to preserve much needed budget for building, and wait to spend money on a trademark once there’s a little more certainty around the potential for the company to succeed.)

3.Copyrights: Copyrights protect original works of authorship, including literature, music, art, software, and other creative expressions.  In addition, and often most importantly for many of our technology-based clients, copyrights protect computer code! Copyright protection lasts for the life of the author plus an additional 70 years, granting the creator exclusive rights to reproduce, distribute, perform, and display the work.

4.Trade Secrets:

Trade secrets encompass confidential business information that provides a competitive edge, such as formulas, practices, processes, designs, or any proprietary information. Unlike patents, a trade secret does not require registration and can last indefinitely so long as (1) there is ongoing demonstrable value from its remaining a secret, (2) it is not generally known to the public (or within the relevant industry) and (3) the trade secret holder takes reasonable steps to maintain its confidentiality.  Trade secrets are very highly protected under US law, and in many cases companies will choose to forego patenting certain inventions even where patenting would be possible, and rely instead on the very strong protections afforded by trade secret law (sometimes this is to avoid exposing invention ideas to massive corporations that could actually use patent law in many ways against small inventors).

The Importance of IP Protection

Protecting your intellectual property is essential for several reasons:

1. Preservation of Value:

Intellectual property can represent a significant portion of your company’s overall value. In many cases, it can be a critical factor in securing funding from investors and establishing your market position.

2.Competitive Advantage:

Exclusive rights to your innovations and creative works allow you to differentiate your offerings in the marketplace. This advantage can be critical in attracting customers and establishing brand loyalty.

3.Legal Protection:

Without proper protection, your IP may be vulnerable to infringement or misappropriation. Legal protections, such as patents, trademarks, and copyrights, provide a framework for recourse in the event of unauthorized use. This can deter competitors from infringing on your rights and provide a basis for legal action if necessary.

4.Attracting Investment:

A well-defined IP portfolio can strengthen your position in negotiations for partnerships, licensing agreements, and fundraising efforts. Investors are more likely to invest in businesses that have taken steps to protect their intellectual property. A solid IP strategy demonstrates that your company values its innovations and has a plan for leveraging them effectively.

How to Protect Your IP: Five Key Strategies

1. Conduct an IP Audit

Start by identifying your existing IP assets. You need to determine which assets need protection. This includes documenting existing IP and determining its value. What are the gaps in your current IP protection strategy? Are there any valuable assets that are not protected (or amply protected) against copyright infringement?

2. File for Protection

Depending on the nature of your IP, consider filing for patents, trademarks or copyrights. Don’t leave your IP assets unprotected. In some cases you may even submit certain patent or trademark registrations before your product or service enters the marketplace. For example, you may apply for a provisional patent to get temporary protection while you refine your invention. Engaging with legal professionals can ensure proper filing and compliance with regulations.

3. Implement Confidentiality and IP Assignment Agreements

One of the most important things that founders and/or management of a company can do is to ensure that anyone who develops IP for your company enters into the appropriate IP assignment agreements.  When first forming a legal entity for your new business, the founders should enter into what is known as a Technology Assignment Agreement, which assigns over to the company any relevant IP conceived prior to the entity’s actual formation. (Pro tip: this transfer of IP can be treated as the consideration for the initial shares such founder receives in the new entity.)  The founders, as well as all future service providers, should also sign a proprietary information and inventions assignment agreement (often called a “PIIA”), which is a forward-looking document that ensures any IP developed for or on behalf of the company belongs to the company alone.  For engagements with consultants or advisors, the consulting or advisory agreements should contain similar IP assignment language, making sure that anything created in performance of services for the company is assigned in full to, and owned by, the company.

The company can also execute non-disclosure agreements (NDAs) with employees, contractors, and potential commercial or strategic partners before providing access to sensitive information. (Pro tip: the PIIA mentioned above contains language that protects proprietary information, which is similar to what you’d find in an NDA and therefore would replace the need to enter into an extra agreement with employees.  The same should be true for your consulting and advisory agreements!) It is advisable not to share any sensitive information with potential partners or strategic investors before they sign an NDA. These agreements can help establish clear expectations and legal obligations regarding confidentiality and give you leverage against anyone who misuses this information. NDAs come in handy when you’re discussing proprietary technology with someone.

4. Protect Trade Secrets

Ensure that everyone at the company with access to anything that the company is protecting as a “trade secret” is fully informed as to the highly sensitive and protected nature of the information they possess, the fact that the company is proactively taking measures to protect such information as a trade secret and is bound by either a PIIA or NDA that prohibits them from sharing such information.  It might also help to provide training and resources to your employees around how to protect the company’s trade secrets and the potential ramifications they might face if such trade secrets are disclosed.

5. Monitor Your Competitors and Enforce Your Rights

Actively monitor the marketplace for potential infringements and take swift action if you discover unauthorized use of your IP. This includes keeping an eye on competitors and conducting regular audits of your own IP portfolio.

What Lies Ahead?

In an increasingly competitive and innovation-driven economy, protecting your company’s IP is vital to maintaining its value and competitive advantage.  Making sure that all of your company’s IP is assigned to and properly owned by the company, and not the individuals providing services to the company, is going to be vital to building the company’s value and to its ability to raise money from investors and, if you so desire, selling the company or its assets to a potential future acquiror.  Protecting and enforcing your IP rights will prevent rivals and copycats from stealing your ideas and diminishing your startup’s value. By understanding the different types of IP rights and implementing a comprehensive protection strategy, you can safeguard your assets and position your business for long-term success.

At Bowery Legal, we specialize in guiding companies of all stages, from formation to exit, and every step in between. Don’t hesitate to reach out if you have any questions as you grow your business, whether it relate to IP or any of the hundreds of other matters that arise in the daily life of a modern startup!