Risky business: the five biggest IP mistakes startups make

Author:Tom Kulik
Position:Partner (Intellectual Property and Information Technology), Scheef & Stone, LLP, Texas, United States
SUMMARY

Starting a new business is a daunting task, and not something for the faint of heart. Entrepreneurs require passion, drive and a stubborn perseverance borne of a determination to succeed. Entering my 25th year of legal practice, I have the great privilege to represent many startups and to witness the trials and tribulations associated with launching a successful business. Sometimes these... (see full summary)

 
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When it comes to businesses and their IP, many young companies fail to recognize the breadth of their potential IP assets or to appreciate their importance. Although wholly avoidable, there are a number of persistent errors that hamper startups from the capital raising process to launch, and beyond. Here are five of the biggest mistakes, in descending order, that I have witnessed in practice that others should not ignore.

  1. A piecemeal, "do-it-yourself" approach to IP

    This silent killer of young companies is understandable. For some startups, funding may be scarce, or in its infancy, forcing the entrepreneur-founder(s) to take on tasks with little or no capability (or experience) to handle them. For others, the race to market trumps a more methodical approach. A "do-it-yourself" (DIY) approach is risky at best. Intellectual property (IP) rights require a deft hand and appropriate guidance from qualified IP counsel. Experienced entrepreneurs usually understand the importance of such guidance and anticipate their IP needs.

    But for young, less experienced companies, it can be quicksand. Startups need to engage qualified IP counsel to help identify needs and guide solutions from the outset. And believe it or not, this is not terribly expensive! There is no excuse for not having an initial consultation with a qualified IP attorney. Without question, such a consultation will help lay the groundwork for the IP rights the startup may have (or seek) and its attendant IP needs. At the very least, it will equip the company with an understanding of what it needs to do so it can plan accordingly.

  2. Improper document foundation

    This problem plagues most startups, for a variety of reasons. Whether the result of "forms" received from other colleagues or a natural extension of the DIY approach outlined above, failing to keep company documents in order is dangerous. And when it comes to IP, it can be fatal. For example, the founder of a technology startup may seek to use a pro forma non-disclosure agreement (NDA) with prospective investors or, better yet, potential developers. All too often, the startup gives little or no consideration to how such a pro forma agreement defines “confidential information," its terms, and indeed, what it includes, what it excludes and its duration.

    Does the NDA limit use of the confidential information it covers to an expressed purpose? And what about provisions that prevent any implied license for IP under the NDA, and the...

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