Starting a new business can be an exciting and rewarding experience, but it’s not without challenges. One of the most important challenges facing entrepreneurs today is protecting their intellectual property, especially for startup founders.
Why is it so?
Let’s get back to the fundamental differences between a traditional business and a startup. The renowned startup incubator Y Combinator defines a startup as “a company that is built to grow fast.” Think Airbnb in 2009 after landing $600k in seed funding or Uber in 2010 after raising $1.25m. Both companies had novel ideas, the ability to quickly capture a big market, and the potential to disrupt an industry. In short, startups test novel, scalable ideas and prioritize growth to disrupt or revolutionize the market.
Whereas small businesses favour profitability, sustainability, and steady growth. A small business doesn’t need any novel ideas to grow fast or disrupt its sector. What it aims to do is to find a market, reach that market effectively, and earn revenue, just like any businesses do. Nothing fancy, let alone revolutionary.
Hence, the driving force behind a startup is a novel idea. Putting that idea into practice successfully is what transforms small startups into multibillion-dollar Unicorns. The IP of a tech startup is typically its most valuable asset and one of its key differentiators from traditional businesses.
In fact, based on my twenty years of legal practice, one of the most critical challenges facing founders today is protecting their intellectual property. Intellectual property is any creative work or idea you or your company creates, including inventions, designs, software, branding, and other original works. In general, Intellectual property (IP) for startups includes using copyright, trademarks, and patents.
The purpose of intellectual property law is to protect those ideas and concepts that underpin your startup. A significant part of your competitive advantage and attractiveness to investors is how well-defined — and well-protected — your IP is in your startup’s portfolio. In this way, IP is an asset to your new company, thus enhancing your commercial value.
Besides, exploring IP possibilities also helps protect startups from infringement claims against them. Part of the IP process involves searching for other companies that might already have rights to certain inventions or trademarks. Finding out about these companies early on can save your startup from costly infringement lawsuits after you’ve invested money and time into developing the idea on your own.
The benefits of getting its intellectual property protected are enormous, and below are some of them:
- Deterring other companies from unfairly profiting off your material. Proper IP protection comes with registration, which puts the world on notice that your patent, logo, or software belongs to you. This protection can help your company avoid litigation in many cases.
- Presumption of ownership. When you successfully gain legal rights in a copyright, patent, or other type of IP, you create a rebuttable presumption that the property belongs to you. In other words, when another company infringes on your IP, and you sue, the courts will presume that the IP belongs to you unless the other company proves otherwise. This position gives you an advantage in infringement litigation.
- Protection from infringement suits. If your startup doesn’t go through the process of securing IP rights, you have no way of knowing whether what you’re using already belongs to someone else. Properly acquiring IP rights protects your startup from expensive infringement litigation later when you discover that someone else already owns the rights.
- The key ingredient to competitive advantage. According to the Startup Genome Project, intellectual property is the most critical step in gaining a competitive advantage in your market, which is even more true for tech-based startups.
- Security and investor appeal. If your startup connects with a novel idea or software, not protecting your IP could put your entire business at risk. IP protection advertises stability and security to investors who like to see startups with a well-developed IP strategy from the beginning.
Yet, despite the long list of advantages of protecting their intellectual property, many founders are still hesitant to do so; why? The usual suspect is, again, cost. Understandably, startups are in the early stages of business development and may often be short on cash and other resources. Securing IP rights takes money, time, and other resources. International IP protection, like Madrid Protocol for international trademarks, can be expensive and time-intensive. For this reason, startups often put IP aside, figuring that a legal team can sort everything out once the company grows.
Another reason, I suspect, is the founders’ mindset towards protecting their IP rights. Some of them believe that “ideas are a dime a dozen; only execution matters.” The problem with this mindset is that the delay in securing a startup’s IP can do severe and sometimes irreversible harm to the startup, both from a legal and business standpoint. IP matters, which is why companies like Google, Apple, and other tech giants spend billions of dollars suing to secure their IPs.
The importance of the protection of IP rights cannot be overemphasized. A startup will only survive if its IP is securely owned and controlled. IP protection must be an integral part of every startup’s business strategy to facilitate growth, prevent infringement, and increase revenue.
The sooner startups realize that their intellectual property is the foundation of their startup’s survival, the better.