How Startups Fail to Protect Their IP

Startups sometimes make lots of mistakes with using or protecting their intellectual property. Oftentimes such mistakes boil down to a failure to appreciate of what intellectual property is or how to protect it. The first IP mistake entrepreneurs can make is using intellectual property from their current employer (or former employer if you’ve moved on to start your venture). You may use your employer’s intellectual property, particularly its trade secrets, or resources such as computers and equipment, to develop and refine your product or service. Most likely, you are prohibited from using your employer’s intellectual property or its “plant and equipment” from developing your own product or service. You might not even realize that you’re using your employer’s IP — perhaps you use intra-company manuals or guides to answer questions you may have. But doing so may be a misappropriation of your employer’s intellectual property. In addition, take a look at your employment agreement or employee handbook, if you have one. Many companies also have their employees agree to “invention assignments”, in which the employee assigns any inventions or development that the employee comes up with on company time or using company property, equipment, or intellectual property. In some invention assignment agreements, even if an employee’s development doesn’t qualify for being assigned to the company, the employee may nonetheless have an obligation to inform his or her employer that they have created something.. Second, startup founders sometimes fail to properly document the ownership of the IP that the startup will use. If the product is already developed or will be developed before the company is formed or incorporated, there should be some sort of assignment of the intellectual property rights from the founders or inventors of the product to the company. Key employees or independent contractors brought in to develop the company’s products or services should also be signing agreements to assign whatever IP rights they may have in developing products and services to the company. Lots of startups also make a critical error by launching or going to market before they’ve properly secured their IP rights, particularly with patent rights. Under patent law, when an invention is made public, which normally occurs when the product goes to market, but can also happen if the product is advertised or publicly demonstrated (e.g., demo days), the inventor or rights-holder has a limited amount of time to file the patent application. Launching a product that is eligible for patent protection before the company has filed an application or at least has plans to file within the statutory deadline can result in the loss of important IP rights. Finally, startups may make mistakes in protecting the IP rights it has. This is particularly important in the field of trade secrets. In order to enjoy the protections of trade secret law, a trade secret holder must — and this seems obvious in retrospect — keep the secret secret. In order to extend trade secret protection, courts generally require holders to take reasonable steps to protect their secrets. This generally involves designating confidential or trade secret information as such, limiting disclosure on a need-to-know basis, and securing information, either electronically or physically.

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