Most common problem businesses face is the loss of technology, business, or some part of it. Entrepreneurs need to correctly document all the property rights in the very beginning. The most common mistake is not documenting the rights of each team member in a startup. The second type of error concerns the filing for patenting applications before the release version of the product is ready, says iPNOTE CEO. The mistakes entrepreneurs make with regard to intellectual property rights and how they can be avoided.
iPNOTE helps to protect and manage your intellectual property online.
Many clients of intellectual property agencies are at least several years late when they first make contact. Very often, startups will not pay any attention to intellectual property protection during the first 2-3 years in business and consider this “minor” issue only when the founders, at last, have some free time or money. This is the common scenario of how we are getting new customers for iPNOTE, an IP management solutions.
The only problem here is that this issue is not secondary at all – IP litigations can drag on for years and cost companies millions of dollars. But even if it does not go to court, trying to untangle the contributions of each team member in a startup is a complicated and expensive task.
To prevent this from happening, you need to correctly document all the property rights in the very beginning. In this article we’ll talk about the most common mistakes entrepreneurs make with regard to intellectual property rights and how they can be avoided.
Not documenting the rights of each team member
The most common problem businesses face is the loss of technology, business, or some part of it. How does this occur? When a number of people are working on a project, and the relationship between them is not formalized in any way, all joint developments can simply go to the most active team member, who starts a new company and continues to develop the project independently.
Everyone makes the same mistake – due to informal relationships, startups don’t document any agreements, the results of intellectual activity, and investments at the early stages of product development. This is true for any type of business: software, hardware, industrial development, etc. Many well-known companies have gone through similar situations.
Here’s just one example: a key developer left the online ticketing service AnyWayAnyDay, founded his own company OneTwoTrip in 2011, and took over half of the AnyWayAnyDay market share.
There is no statute of limitations for author’s rights violation cases – the problem may arise even after 30 years. In theory, the author of the development, who left the company a long time ago without signing any documents, can still sue for their rights.
Practically, such litigations are quite common, and companies lose millions of dollars on them. It also happens the other way around – sometimes you have to sue employees because they, without knowing it, violated the company’s rights.
The Avtec Systems case can be a good example. The management of the company announced an internal contest for the creation of software. Jeffrey Peiffer developed the Orbit program, which enabled calculating the orbits of satellites. For this solution, he was rewarded $ 5,000, and the product was offered to individual customers of the company. Peiffer also made a second version of the program, which could work as a separate market product. He signed an agreement with a third-party company and began to receive profit from the sales of this second version. Avtec Systems noticed that and sued the employee. The court found that Peiffer had worked for two employers to the detriment of Avtec, so he was obliged to pay 15% of the income received for the commercial version of Orbit and continue to pay 15% to Avtec Systems.
How can you avoid this? From the outset, document the entire chain of the major business decisions and the underlying technologies. Make a checklist for each employee and each development and check with it from time to time – do you understand the rights of all the team members and of your own?
To ensure the rights of the company, draw up regulations on intellectual activity, on confidentiality, and non-competition, which clearly states that employees automatically transfer the rights for their developments to the company and receive remuneration in return. All software in which work is carried out should be registered with the company, while all employees (including freelancers) should have a work email address to access these services. It is also worth evaluating all the IP assets and putting them onto the company’s books so that you will be able to bring this estimated value as damage in the event of theft by an employee.
Applying for patents before the release version of the product is ready
The second type of error concerns the untimely filing of applications for registration of rights. Many entrepreneurs begin to worry about patenting when they do not yet have the necessary resources. Nor do they have a clear understanding of the final product.
Let’s say you came up with the concept of a chair with arms – for the first time in the world you added a back and armrests to a stool. In a basic application, you lay out this concept and get a huge patent – now, any chair with arms will be covered by the patent. But suddenly, you realize that a chair can be without arms, and in general they are not really needed. However, you can no longer amend the patent, so all your competitors are legitimately making armless chairs, leaving you on the sidelines.
How can you avoid this? Apply for registration of an invention only when you are sure of its real implementation as a product, its functionality and customers who will be willing to pay for it. Consider the question of whether you can remove anything from the product. Then it’s time to register IP rights.
Not researching what has already been invented and by whom
Often, entrepreneurs do not conduct patent research before serious development begins. As a result, many of them reinvent the wheel – something that has already been done and that can no longer be patented.
And there’s another consequence. Often a team spends time and resources on solving an issue that does not allow them to move on; however, it has long been solved in the existing patents. We had such cases in our practice, too – the client had been working out a chemical formula for several months, and then we found an English patent dated 1982, in which it was clearly outlined how to do it, step by step, with numbers and tables.
How can you avoid this? Research the market and patent bases at the idea stage. If you don’t find similar solutions – well, you can start developing them. If you do – that’s even better because you won’t waste time and money on something that has long been patented.
Missing the deadlines and losing the opportunity to register IP rights abroad
Even if the product is intended only for the foreign market, the founders are legally bound to first file an application for the registration of a patent in their own country. This is called the basic application.
After that, you can patent the product abroad, but the terms are limited. Within a year, the founder must file an application under the international patent system Patent Cooperation Treaty, PCT. Following that, for another 18 months, the startup can patent inventions in other countries. The whole process can take up to 2.5 years – for a technology startup, this is very short term.
However, founders are often unaware of the tight deadlines for international patenting. They submit basic applications, start to work and miss the deadlines described above. 3-4 years pass, now they are ready to patent abroad, but this is already almost impossible – the new invention will compete with their own basic application.
Let’s go back to the chair example. As we remember, any chair with arms will be covered by the patent. But to get a new patent, you’ll have to clarify some characteristics – for example, make the back curved or soft. So, your scope of rights will be narrowed significantly – any competitor will be able to produce chairs with arms since you can only prohibit the production of chairs with a special back. In real life, it is often almost impossible to re-patent your own application so that it remains truly expedient.
How can you avoid this? Find out all the peculiarities of foreign patenting in advance: check the deadlines, consult a patent attorney, mark the dates on the calendar and carefully monitor every word in the patent application so that your inventions do not interfere with each other.
Refusing to apply for international patents due to their high cost
About a year after the filing of foreign applications and the beginning of the examination (in our experience, this varies from 2 months to 5 years), you will receive an invoice from the patent attorney for preparing a response to the examination request. Let’s say $ 2000 for every country on the list. The cost is calculated based on the technical field in which the invention is registered, as well as the complexity of the request itself. It is impossible to postpone the payment (usually, the company is given from 3 to 6 months), so if you miss the response period, the application will be canceled. In addition, you need to pay an annual fee for maintaining a patent, and in some countries, these fees must be paid at the stage of examination of the application, while these fees increase every year.
In some cases startups cannot withstand the financial burden and refuse some applications. Often this is not an informed decision – they leave the market that they have not yet researched, but for some reason, they are not interested in it. Suddenly, in a couple of years, this market turns out to be one of the top priority ones. It turns out that founders make rash decisions only due to the lack of resources, and this can be avoided.
How? In almost any country in the world, for any application, the examination process can be postponed from several months to several years. You can submit an application, consolidate the priority, but start the examination process, for example, in three years.
To figure out how to do this, you will have to read the regulations of the corresponding agencies in each country or region: for example, in Europe, it is impossible to postpone the examination at all, in the USA it is possible for three months subject to payment of a small additional fee, in Russia, it can be postponed for three years and in Canada up to 48 months.
Not checking the patent purity
Business owners often forget to analyze patent purity – they enter a new market and receive claims for infringement of other people’s rights. This applies to both trademarks and patents.
To carry out such an analysis, you need to take the alleged product, find all valid patents in the area of interest that relate to the product, its components or technology, and then conduct a comparative analysis for each feature.
For example, you want to produce a chair with a curved back and arms in the United States.
- You’ll need to find all valid patents for chairs.
- Then you take each patent and look at the signs of the formula.
Suppose in one patent there are legs, a mesh seat, a curved back, and arms. It seems to have all the features of our product, but the patent points out one additional feature – a mesh seat that we do not have in our product, which means that we do not violate the patent rights. It turns out that the patent that you found has a narrower scope and does not cover your own product.
In our practice, there was an example when we assessed the patent clearance in several countries for a cybersecurity startup, and they decided to include Russia for good measure even though they were certain that no patents were violated there. But it turned out that it was in Russia that they were violating a Kaspersky patent, while there were no violations in other countries.
This problem is especially urgent for the Chinese market, where tens of thousands of patent applications are filed each year. The Chinese patent everything – you can enter the market with a regular chair that was invented 100 years ago and be covered by someone else’s patent. The same is true for trademarks.
How can you avoid this? When entering any market, order a patent clearance study or at least consult with patent attorneys. You can look through the patent databases on your own, but it is better to consult a specialist. Or you can come to an attorney with specific questions without requesting a full analysis of patent clearance, which can cost from $1500 to several tens of thousands, depending on the complexity of the product. Even if you are sure that you are not violating anything, even if it’s expensive or you have no time, litigation will be even more expensive.
Dealing with “patent trolls”
Another common mistake is related to the trademark registration process. For example, we were applying to register a company in China for our clients. We analyzed existing applications and trademarks but did not find any similar ones. However, a year later, an expert request came in that there was an identical application for exactly the same brand; and it was filed a couple of weeks before us. We tried to find out where it came from, and it turned out that the manufacturer had issued press releases before registering the brand, where all the products were mentioned. A couple of days after the publication, these applications were submitted.
Similar cases occur in other countries, too. There are entire businesses that are making money on other people’s brands – these are the so-called “patent trolls”. They monitor all new brands and file identical trademarks for registration, and then offer the real company to buy or withdraw their applications for a fee, and they can do the same with patents.
If a company has already released goods under this brand, it will have priority in court and will probably win the case. However, the cost of such proceedings can reach millions of dollars. Sometimes it is easier and cheaper to buy your brand back from scammers, but it’s still more expensive than taking care of its protection in advance.
How can you avoid this? File timely applications – before any announcements, releases, even mentions of the company or brand.
Properly formalized intellectual property not only protects the rights of founders but often helps to attract investors. The fact that the company has 150 patents in 100 countries of the world adds weight in the eyes of the investor and adds to the company’s capital in the form of fixed assets.
Of course, if there are certain doubts about the team, the product, and the business itself, the abundance of patents won’t save anyone. But if patents are added to a steady business, it can have a great effect on increasing your capitalization.
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