Experts say holding secrets too close can be more of a risk than sharing.
Eureka! You've finally hit upon that game-changing Smartphone app, insurance billing system or biodegradable water bottle. Now what?
Protect your intellectual property, say legal and business experts in central Ohio.
Intellectual property is defined generally as the ownership of ideas. Unlike tangible assets such as computers or manufacturing equipment, intellectual property is a collection of ideas and concepts. The three most common ways to protect IP are patents, trademarks and copyrights.
For startup businesses, protecting intellectual property is critical, says local attorney Christen Shore, who specializes in small businesses and IP. “Your idea is all you've got.”
Intellectual property protection, she says, “is like putting up a fence to keep people off your property. The question is, what kind of fence do you pick, and how do you change with the times in this increasingly digital world?”
It's always been important for entrepreneurs to prioritize intellectual property protection, but a couple of changes in the business and patent landscape make the need more vital than ever.
Nuanced and Complex
One change is the America Invents Act, which contains a First to File provision that says the first person or entity to file for a patent receives it. (The policy stipulates a one-year grace period if the invention is disclosed at a public forum such as a trade show or professional conference.)
“Intellectual property prosecution is becoming increasingly complex and nuanced,” says Wayne Embree, executive vice president of venture acceleration for Rev1 Ventures, a local accelerator. “First to File means that both research organizations and startups must prioritize IP and become much more aware of competitors' development efforts,” he says.
Secondly, the growth of accelerators, incubators and shared working spaces also heavily influences the need for IP protection.
“There has been a shift in the entrepreneurial culture to one of collaboration and sharing of ideas. That's definitely a positive, but it also presents a real opportunity to create thorny IP issues,” says business and IP attorney Steve Barsotti of Kegler Brown Hill + Ritter.
Local experts say while the need for IP protection is nearly universal, the size and scope vary tremendously by industry. Design and method patents, branding, trademarks and copyrights all may play a role to one degree or another.
Embree says from an investor's perspective, new businesses in very competitive markets with long development cycles and significant regulatory hurdles need substantial IP protection to justify the time and expense of getting the product to market.
He says most investors don't expect software and information tech companies to develop patentable software, with the exception of products using algorithms for data analytics and decision support applications.
Biopharma, medical devices, advanced materials, manufacturing and energy technologies, however, are very IP-dependent industries, and “investors fully expect to see robust and defendable IP within these companies,” Embree says.
IP protection “runs the gamut in terms of price points,” Shore says. “Your choice will depend on your commercial goals. A software patent may take $50,000 and 10 years to obtain, at which point the technology is obsolete. The life cycle of a product also is a factor. A patent for a car design feature takes fewer years and less money and is likely to remain viable for several years.”
Rules of Engagement
When it comes to incubators, accelerators and shared spaces, Shore and others say both common sense and cohesive guidelines should prevail.
Individuals operating in incubators and accelerators should address and agree on the rules of engagement from the outset, Barsotti says. Many accelerators have specific guidelines regarding confidentiality as part of their operating agreements with entrepreneurs and contractors.
“Having guidelines that explicitly state expectations for confidentiality and respect for other tenants' proprietary information reinforces good behavior,” Embree says.
He says companies “should never assume that a casual conversation is protected. It may be a bit chilling to ask another startup to sign a confidentiality agreement, but it protects everyone.”
Non-disclosure agreements are trickier.
“Rarely do investors sign NDAs,” says Matt Armstead, executive director of Fintech71, a startup accelerator for the financial services industry. “There are so many ideas floating around out there, and there is considerable overlap … Startups won't make it far if they insist on NDAs.”
Embree says if potential investors signed NDAs with everyone they talked to, they'd become so restricted they couldn't review any new technologies. Furthermore, he says, “Professional investors must operate with very high levels of integrity. If entrepreneurs thought any investor was stealing ideas, they would soon have such poor reputations that few entrepreneurs would seek them out.”
Shared workspaces can present another challenge, especially when accelerators or co-working spaces support a particular industry or niche.
That said, local experts agree most entrepreneurs are focused on their own projects and aren't looking to steal others' ideas. Plus, Barsotti says, “Idea appropriation is more likely to happen in a coffee shop than a co-working space.”
Fintech71, along with accelerators Lumos and Solidarity University Smart City Accelerator, operate in 15,000 square feet of space in a building at 107 S. High St. That space includes huddle rooms, private offices and “phone booths” in which people can make calls confidentially.
Share or Not to Share?
Protecting intellectual property can be a double-edged sword. While it's necessary to take steps to make sure ideas aren't stolen, holding information too close to the vest can hamper innovation and collaboration, experts say.
“The conundrum is that if you don't talk about your idea, you don't get partners, you don't get employees and you don't get customers,” Armstead says. Barsotti has found that the benefits of collaboration in accelerators and shared workspaces generally outweigh threats to intellectual property.
Says Shore, “My view is if you keep your great idea a secret, you can't get people on board. You need that emotional, and ultimately financial, support. I have seen people fail more often because they're afraid of disclosing information.”
Freedom to Operate
At the end of the day, what makes an entrepreneurial venture successful is its ability to get its product to market, and keep it there. A freedom to operate analysis gives the startup a view of the competitive landscape and is another vital tool in IP protection.
A freedom to operate analysis helps entrepreneurs see how much “white space” is available within its own market. The aim is to gauge how broadly the IP can be applied before infringing on another patent and to ascertain how well protected the IP is.
“Essentially, you're weighing how you can keep competitors at bay versus how likely are you to get sued for infringing on someone else's idea,” Barsotti explains.
Embree says a freedom to operate analysis is “incredibly important” for startups whose goal is to manufacture and take products to market. A typical analysis costs between $10,000 and $20,000, and “most investors will ask for it,” he says. “If you're in a good, competitive field, you can assume someone is looking at what you're doing” and sizing you up competitively.
For startups, deciding where and how to deploy limited resources can be challenging. Armstead says because the rate of failure among startups is high, “you have to pick your battles on where to direct your time, your money and your energy” in terms of IP protection.
Embree believes hammering out a robust IP protection strategy using experienced counsel is critical. “This is one of the worst places an entrepreneur can look to save money.”
Laurie Allen is a freelance writer.