5 common IP mistakes startups make

7th Jan 2015
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As it is always said “Prevention is better than cure”, same is with Intellectual Property Laws. If you take certain precautionary steps, you can save yourselves from legal hassles and huge legal costs. Here are a few common Intellectual Property Rights mistakes or omissions, that some of the startups commit. These mistakes may depend on a case to case basis, and may also depend on the type of business they are dealing with. 1) Failure to sign the right agreements/contracts with employees, vendors and others.

Most startups are born due to passion towards a certain field or a certain idea. An informal atmosphere is present in almost all startups. It’s great to work and grow in such an environment, but may cause problems in the long run if certain formal requirements are not fulfilled. Legal Agreements with respect to Intellectual Property, among the founders, employees and vendors are extremely important in order to protect the intangible assets of an organization. Few elements of such Intellectual Property Agreements are:

  • Who owns the Intellectual Property?
  • Have you signed a confidentiality agreement among yourselves or your vendors? Does it extend to non-competent clauses?
  • Are you licensing an Intellectual Property to a vendor to solely manufacture for your company, or is there a wider connotation?
  • Does your vendor indemnify you, in case your developed or manufactured product has infringing material?
  • Who will bear the legal cost in case of an IP Infringement scenario?
  • If somebody is infringing your Intellectual Property, is your partner (vendor, distributor, etc) liable to take up the legal costs?

There are many more such elements which are required to be maintained for a sound legal position with respect to Intellectual Property.

2) Launching Before You Look

This aspect has two important concepts, (a) protection of one’s own Intellectual Property, and (b) protecting oneself from trespassing other’s Intellectual Property.

(a) Certain types of IP such as patents and designs have a strict statutory mandate, which do not allow patent and design protection after disclosure or the launch. So startup founders should be aware that is it better to assess the products and take expert opinions on what aspects of the product would be commercially viable for patenting or industrial design. Once these aspects have been strategized, and the required measures are taken, the product may be launched into the public domain.

(b) This next aspect has been deeply covered in one of our previous articles. It is essential that a startup performs a thorough analysis regarding third party Intellectual Property Rights, to ensure that there is no infringement activity on Intellectual Property Right of others. It is not as simple as doing a Google search for a certain trademark or technology, and assuming that it is safe to go forward based on those results. In order to ensure that a company is safe from infringement, it is advisable to take the assistance of a trademark attorney to perform a clearance search for the desired trademark, or of a patent attorney to perform a freedom to operate search to ensure a clean chit for the technology in question.

3) Following the ‘DIY’ approach.

Many legal processes and proceedings have become fairly user friendly and available to everyone through the internet. Some of these processes may seem simple to “Do It Yourself” but may come back to bite you in the future. Intellectual property rights are a very essential part of a company’s assets and it is always advisable to take an expert’s opinion, or even better, to take an expert’s assistance in all Intellectual Property registration and maintenance processes.

There are several aspects that a company’s owner/founder may not realize/identify, as a threat/strength to the company. Involving an IP expert will help the organization understand its strengths and help in drawing out a suitable Intellectual Property strategy for successful growth of the organization.

4) Assuming that Intellectual Property is unimportant or not valuable

The Intellectual property of a company is considered as one of the essential parameters in the valuation process. The absence of Intellectual Property may result in lower valuation with respect to investment and acquisition opportunities. So it is essential for a startup to keep this in mind, as most startups look out for funding at some point in time. Even if the startup lacks the funds at that moment, it is crucial to preserve the IP from disclosure, as the startup may seek protection for that IP at a later time when funds are available.

Maintaining IP assets is also vital for a company, and especially for a company that is aiming to get funded. Venture capitalists and other funding organizations will conduct a due diligence and this will certainly include due diligence of Intellectual Property Rights of the company. If the registrations are not up to date, and the company does not have ownership of the rights, and rather the independent vendors or employees own the rights, this will show badly on the part of the company as an act of negligence. It is always better to perform your own due diligence at continuous fixed intervals to ensure that nothing is off track when it is time to value your assets.

5) Using trade secrets or other materials from previous employer

Some startup founders may carry over crucial aspects from their prior employer. This may include trade secrets, customer lists, management strategies, computer software, etc. In some cases one may not realize how important these aspects are for the previous company and whether they are bound by certain legal contracts. The startup founder may not understand the complete significance of what he or she has agreed to when signing an employment or resignation agreement with the company. These kinds of mistakes may prove fatal to the startup. In serious cases, the founder may even be subject to criminal liability. In the present day scenario, many companies are very aggressive in defending their Intellectual Property Rights and this may lead the startup into a law suit.

Most of these mistakes can be avoided with the help of minimal effort. But on the other hand, neglecting these aspects and committing these mistakes will result in maximum amount of efforts resulting in uncertain outcomes. So stay clear of these mistakes, and you are sure to have a smooth IP pathway!

About the authors:

This post is co-authored by Gaurav Singhal and Ananya Dhuddu. Gaurav is the Director and Principal IP Attorney at Patracode Services Pvt Ltd. A B.Tech in Computer Science, LLB from IIT-Kharagpur and Masters in Business Laws from National Laws School of India University, Gaurav has been working in the IPR field since many years. Ananya Dhuddu is an IP Analyst at Patracode Services Pvt. Ltd. She is a Life Sciences graduate from Pennsylvania State University, USA. She holds a PG Diploma in Medical Law and Ethics from National Law School of India University, Bangalore and a PG Diploma in IPR and Patent Management from GIIP, Bangalore.

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