4 Intellectual Property Mistakes Startups Make and How to Avoid Them

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There are many legal issues that startup founders must attend to. Ensuring that a company’s intellectual property (IP) is protected is one of the highest priorities. If there is a product, then there is IP. But the critical question is: who owns it?

Just because a startup is working on a product doesn’t necessarily mean it owns the IP — and even if it does, the IP is protected. A founder may also overlook the full breadth and scope of IP, which often includes a combination of patents, trademarks, copyrights and trade secrets.

Many startups fail, or at least needlessly struggle because they fail to properly recognize and protect their potential IP assets from the start. This can create considerable challenges while raising capital or going to market with a product. In short, mistakes related to IP can be fatal to a startup.

Here are four of the most common intellectual property mistakes startups make, in no particular order, and some steps to help avoid them.

1. Making wrong assumptions about IP ownership

Let’s revisit the question posed above in the context of the following scenario. Two friends, one a developer and one a product manager at two separate companies, meet for beers after work. The developer talks about some exciting software he has written which could potentially solve a problem that the product manager has noticed in the B2B marketplace.

They sketch out a few ideas on the back of a napkin and decide to launch a SaaS business to bring the product to market. They form a corporate entity and get to work on the product.

So, who owns the IP?

Without knowing more, it’s impossible to say — and therein lies the problem. It’s a bad idea to assume that, just because co-founders start a business, the business owns any IP one founder worked on before the company started (or even after).

In general, the shorthand rule for IP ownership is that the creator of a thing, whether a co-founder or freelancer, owns the thing. Ownership rights can be proactively or retroactively assigned to the business by contract (such as through operating, employment, or independent contractor agreements). Where startups run into trouble is making flawed assumptions about IP rights, forcing them to scramble and expend resources to correct oversights.

2. Adopting a do-it-yourself approach

There are ways that founders can cut corners and avoid legal fees without creating existential threats to the underlying business, but adopting a DIY approach to intellectual property is not one of them. The simple rule to adhere to is: Don’t use a form you find online for any agreement that could impact IP. As the old saying goes, “penny wise, pound foolish.”

IP is too important to leave things to chance. And when founders use online forms to create agreements with employees and vendors, they’re taking a big chance that could lead to the business losing control (or never securing in the first place) of critical IP.

3. Skipping simple steps that could help with IP problems

It happens more often than you might think: a founder incorporates and begins operating using a name for the business already taken. This mistake can easily be avoided, and in this case, there are a few DIY steps a founder can and should take.

Before settling on a name, do a trademark search on the United States Patent and Trademark Office’s Trademark Electronic Search System (TESS). The fact that a name doesn’t show up on TESS doesn’t guarantee that someone else doesn’t own the trademark, but it’s a good starting point.

Other simple searches can be done on Google, relevant secretary of state websites, and a domain registrar, such as GoDaddy.com.

4. Failing to develop an overarching IP strategy

As we’ve discussed, IP is among the most valuable assets of a startup. Therefore, a startup should invest in developing a comprehensive strategy so that its IP can be protected and monetized as the business races to raise capital and bring its product to market.

Working with experienced IP counsel, a startup should formulate a strategy that, at a minimum:

Identifies all IP and steps necessary to protect it.
Evaluates whether the business needs to acquire any IP rights from third parties through licensing agreements.
Creates appropriate agreements between founders and between the business and employees and contractors to ensure that the business has the IP rights it needs and that confidential information is protected.

Growing a startup is hard enough. Don’t make it harder on yourself as a founder by overlooking some of the critical steps required to protect your business’s IP. Don’t try to do it yourself. Work with an expert who has seen all the common IP mistakes startups make — so you don’t have to.