Three simple steps entrepreneurs should take to protect their businesses
There’s a common misconception that only larger companies need to protect their intellectual property. But that can’t be further than the truth. According to the FBI, IP theft costs U.S. companies $225 to $600 billion annually, and the reality is, thieves specifically target start-ups and smaller companies because of their limited ability to respond legally.
Nevertheless, Marco A. Gonzalez Jr., an attorney at OGC Solutions® | Santomassimo Davis LLP, a New Jersey-based firm with offices in New Jersey, Philadelphia, and New York. says he’s always “amazed” at the number of fledgling companies with whom he works that don’t have a plan in place to protect their intellectual property.
“You can’t believe how many entrepreneurs I meet who have poured capital into their businesses but don’t protect it by patenting their inventions, protecting copyrights, registering their trademarks or taking steps to protect their trade secrets,” says Gonzalez, who conducts a training program for entrepreneurs through the Statewide Hispanic Chamber of Commerce of New Jersey. “There are simple things that start-ups should be doing but just aren’t.”
Here are three key steps to developing IP strategy for startups Gonzalez says all entrepreneurs should take to protect their intellectual property:
Step #1 – Develop an IP Plan
All successful start-ups have a business plan. Make sure the plan has a section in it that determines what IP tools you need to support your business model, Gonzalez recommends.
In the section in your business plan where you highlight the company’s value proposition, it’s important to explain how IP will support it. “Determine what aspects of your company’s products or services are protectable, and spell out how you’re going to protect them,” he says. For instance, if you’ve already applied for trademarks or patents, describe their status and the timeline for completion. If these tasks haven’t yet been completed, describe the process for doing so, including estimates of the costs involved, deadlines for doing so and the personnel who will handle the maintenance and development of the IP plan.
“Including this information in your business plan isn’t rocket science, but it’s essential,” Gonzalez says.
Step #2 – Conduct a risk/reward analysis before disclosing confidential information
All start-ups are going to be in situations where they need to disclose sensitive information to tout their new companies. For instance, many will exhibit at trade shows, interview new hires, meet with potential investors, do media interviews and evaluate possible suppliers. But before you go spilling your company’s secrets, “Tread carefully to protect your IP rights,” warns Gonzalez. If you don’t do so, others might take your idea or disclose it to your competitors.
Gonzalez recommends doing a risk-reward analysis that weighs the value of disclosing certain information against the risk of having it compromised.
In certain cases, you may ask others to sign a Non-Disclosure Agreement (NDA), which obligates someone not to use or disclose your company’s confidential information. In most situations, the NDA will say the receiving party can’t disclose the confidential information to third parties, cannot use the confidential information for their own benefit, and will take reasonable steps to protect the confidentiality of the information.
It’s good practice to work with your legal counsel to navigate the ins and outs of NDAs and decide what to do if someone refuses to sign one. “Angel investors in particular aren’t keen about signing them,” he notes. In such cases, Gonzalez works with his clients to evaluate whether to insist on an NDA or take alternative steps to safeguard their intellectual property.
Step #3 – Consider ‘work made for hire’ agreements
If you hire someone to, say, develop a piece of software for your company, your company owns the rights to that software . . . right? The answer is not always a crystal clear “yes,” according to Gonzalez.
Entrepreneurs often are mistaken in thinking that hiring someone to create intellectual property work automatically grants the start-up with ownership rights in that work. And as a general rule, that may be the case. But there are many nuances involved. For instance, intellectual property that is created by an employee, other than in the course of employment, may be owned by the employee, not the employer. Ditto for intellectual property created by an independent contractor, unless he or she has signed a contract giving your company the IP rights.
The best way to protect your company, Gonzalez says, is to create ‘work made for hire’ clauses in employment contracts that outline each party’s rights and responsibilities and makes sure both parties agree that ownership rights remain with the company.
But work for hire agreements can be tricky and are subject to numerous restrictions. To ensure your provisions are effective, Gonzalez recommends working with an experienced intellectual property lawyer.
His final piece of advice? “As an entrepreneur, you’ve already spent considerable time and money developing new ideas and products,” he says. “Taking a few simple steps to protect that investment upfront will save you a lot of headaches down the road.”
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