Intellectual property, post #12 of “Startup Briefs”
It drives me crazy that entrepreneurs don’t know the difference between patents, copyrights, trade secrets, and trademarks/service marks. How could you be so uneducated? More startup legal issues; this time intellectual property.
Here’s a remedy to that. I sometimes give a presentation to students/faculty so that they can understand the basics of IP. What follows is an adaptation of that information.
I would like to credit my current position as director of education and outreach for the University of Pittsburgh’s Innovation Institute, in particular the founding director, my boss, Marc Malandro, PhD, who has helped me decipher this important area of entrepreneurship and new technology commercialization.
By way of disclaimer, remember I am NOT a lawyer; I am NOT giving legal advice. Instead. I am demystifying an important but complex area of entrepreneurship that is often maligned and misunderstood.
Intellectual property, or IP, involves legal protection for original creations. IP stems from the recognition that certain creations of the human mind have commercial value. Let’s start with patents. The U.S. Constitution, Article 1, Section 8 states: “The Congress shall have the power…to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries…” To my knowledge the U.S. is the only country in the world to have intellectual property rights built into their foundation.
What does “patent” actually mean? A patent is actually a contract between the government and an inventor that provides for a limited monopoly in exchange for public disclosure. A patent does not give you the right to do anything with the patent. It does not give you the right to practice the patent. Rather, it gives you the right to exclude others from making, using, selling, offering for sale the invention in the U.S., or importing the invention into the U.S.
The term of the patent is 20 years from the date of filing. Even though it may take years to get the patent issued. People generally use the term “patent-pending” to mean that they have applied for, but not received, a patent.
The cost of obtaining a U.S. utility patent can range from $25,000 – $45,000; the cost of foreign patent protection can be estimated at $40,000 per country. So, to get a patent in the U.S., Canada, Great Britain, Australia, select European countries, and other countries throughout the rest of the world could be something close to $250,000. This is not for the faint of heart!
The standards to get a patent consist of: 1) usefulness, 2) novelty, and 3) non-obviousness. The first two are pretty self-explanatory – the invention needs to be new and useful. The third criterion is complex. It means that the invention cannot be a trivial extension. Nor can the invention be anticipated by someone reasonably skilled in the art. I often use the example of 2 plus 2. It’s obvious that the answer is 4. But, if someone were to somehow do something that made the sum equal to 5 or 6, or even 10, then that is not obvious and might be grounds to meet that third criteria of non-obviousness.
Well, if it’s this difficult, time consuming and costly to get a patent, why do it? Think about drugs for a second – not that type of drugs, reader, but pharmaceutical drugs. It takes a lot of money – anywhere from $1 to 2 billion to get a new drug to market (this includes the cost of the failures amortized over the successful candidates). But in order for a company to go through this they need a period of market exclusivity to give them a chance to recuperate that significant investment of time and effort. Patents guarantee a legal monopoly and give a company a chance to recover research and development expenses. Patents can also help a company increase its value, make it more fundable, improve its chances as a viable acquisition candidate, and assist it in developing opportunities for international expansion.
Patents are considered swords not shields in that they don’t give you the right to practice the patent but only to stop others from practicing it. Additionally, while you might receive a patent you might not have what is called “freedom to operate.” In other words, you might need to use someone else’s invention (patent) to practice your patent. Think of a door and a knob. If you invented the knob but you need the door to use your patent, and the door is patented by someone else, then you need to obtain the right to use the door from that patent holder.
Another misconception arises around the concept of inventorship. Inventors are those individuals who conceive of the new ideas that are embodied in the claims of the patent. Inventors are not corporations although companies may have rights to the invention through assignments or licenses. Inventorship is legally determined. This is not like authorship in academic settings where names can be listed as authors even if they didn’t write a word of the article. Rather, inventorship is based on participation, contribution and value. A patent attorney will help you determine inventorship. I will use a simple examples to explain. If you run a lab, and someone who works for you does what you tell them to do, then they are unlikely to be an inventor, even if an invention resulted from their tasks. However, if that person did what you said, plus added some additional steps of their own, and that effort resulted in an invention, then it is likely that they are an inventor.
A couple of years ago, the U.S. joined the rest of the world in accepting the first to file precedent over first to invent. This has many ramifications, one of which is that this favors r large corporations over startups as the latter can afford to keep filing patents one after another. Regardless, first to file means that inventors must file or potentially lose their ability to be first with their invention. This translates to potentially losing the ability to file a patent in the rest of the world.
Be careful of public disclosure. Do NOT divulge your secrets before you protect! A public disclosure doesn’t preclude patenting in the U.S. as you still have one year to file. However, public disclosure does mean you have lost the rights for your patent outside of the U.S. Insist on non-confidential discussions until you really need NDAs, discussed in a previous post (see Legal issues, post #11 of “Startup Briefs“).
One method that we allow in the U.S. (and not in most other countries) is the provisional patent. This is a simpler form of patent that is not examined but establishes a priority date. Once your file a provisional, which can be far less expensive than a full utility patent, then you have one year to file the full application. This bides you time.
I will not address here the issues with international patents. Suffice it to say that if you are looking beyond the U.S. borders you will likely file a Patent Cooperation Treaty, known as the PCT. Then you will convert to individual country applications after 18 months from filing. This delays some of the expense involved in patenting and gives you more time to decide what countries are your target for patenting.
Once a full patent application is filed, it becomes public information 18 months later. And I mean public, as in published on the Internet. You must disclose your invention and all of its details if you want to receive a patent. This is called an enabling description. So, sometimes a patent might not be the best protection for your secrets. Because anybody can find it – and copy it. A patent is great in theory, but good luck suing a large company. It will take years and millions of dollars. And, in the interim, you might have trouble keeping afloat. So weigh your options when it comes to IP! There are other strategies I discuss below that you can employ to develop a sound strategy around IP.
One final word of caution about patents: Just because you get a patent it doesn’t necessarily mean you have the greatest invention. Take for example patent #5,443,036 issued in 1995. This patent claims the following:
A method of inducing aerobic exercise in an unrestrained cat comprising the steps of:
- directing an intense coherent beam of invisible light produced by a hand-held laser apparatus to produce a bright highly-focused pattern of light at the intersection of the beam and an opaque surface, said pattern being of visual interest to a cat; and
- selectively redirecting said beam out of the cat’s immediate reach to induce said cat to run and chase said beam and pattern of light around an exercise area.
OK, it’s a laser beam for a cat! The U.S.P.T.O. let that one slip by.
Copyright is a form of protection to the authors of original works. Copyright gives you the right to:
- reproduce the work
- prepare derivative works based upon the work
- distribute copies of the work
Unlike patents, for which you have to apply, copyright is automatic once the effort has been fixed in a tangible medium, which might be written, on a computer disk, or a recording. You can get extra protection from copyright infringement by registering the work with the Copyright Office of the Library of Congress. But you can use the copyright sign on a work once it has been created.
What IS copyrightable:
- Books, periodicals and manuscripts
- Computer programs and databases
- Stage plays and screenplays
- Music and motion pictures
- Fine art, graphic art, photographs, prints and art reproductions
- Maps, globes, charts
- Technical drawings, diagrams, models
What is NOT copyrightable:
- Short phrases
- Blank forms
Questions about how software has IP protection are frequent. I get asked about copyright vs. patent for software. Here’s the skivvy:
- You can copyright the code
- You cannot patent the code
- You can reduce software to a method that can be patented
- You cannot copyright the method
Basically, you need to examine the pros and cons of patenting vs. copyrighting software. Since it takes a long time to get a patent, will the software still be using the same algorithms? This is a complex area and use your best judgement to determine if it’s worth it to patent.
This form of IP gives its owner a competitive advantage against unauthorized disclosure. The most famous trade secret used to the formulation of Coca-Cola. Well, until it leaked out. But trade secrets can be valuable inside a startup. Trade secrets are also called know-how, and they can cover information as varied as processes, systems, business methods, customer lists, strategies, etc. To keep trade secrets, companies have to use certain methods, such as keeping parts of the secrets locked up, making sure very few people know the full secret, and using non-disclosure agreements (NDAs). I find that trade secrets are valuable when you have people with specific domain knowledge. Trade secrets are a way to keep that special knowledge within your purview.
Trademarks and service marks
People confuse these terms all the time with copyright and trade secrets. A trademark is any word, name, symbol, device, or any combination used, or intended to be used, in commerce to identify and distinguish the goods of one manufacturer or seller from goods manufactured or sold by others, and to indicate the source of the goods. You see the TM mark next to many company names and products. The R with the circle around it means a trademark or service mark that is registered with the federal government. A service mark is the same as a trademark but is for use with services.
Trademarks can be renewed forever as long as they are being used in commerce. You don’t have to legally apply for a trademark to put the TM by something that you want to trademark. It’s a good idea to formalize it through an application but you can bide some time (and money) by waiting.
Before you name your new venture or your product, make sure that you do your homework, meaning a thorough search for the uniqueness of what you want to trademark. You can’t use it if someone else already uses it. The best place to search is on the U.S.P.T.O. site.
Remember: You will trademark your name of your company and product(s). You will copyright your software code. And you will patent a truly novel, useful and non-obvious invention.
Having strong IP and an IP strategy can be invaluable in your ability to build and grow a startup. IP can provide competitive advantages and barriers to the competition.
Patents are considered sexy. They are de-rigueur in certain industries, in particular life sciences where patents add tremendous value against competitive threats.
Patents are great. They can add value, protect inventions, and give startups a competitive edge. BUT, they are expensive, take a long time to get, and they are no predictor of success. You might take a more strategic approach to IP and think about a combination of patents, trade secrets, and copyrights to fully protect your valuable IP. And don’t forget to do your homework: search extensively the patent and IP landscape to make sure that what you are planning is protectable.