The High Cost of Going Cheap on Intellectual Property
Updated: Nov 28, 2018
We're pleased to welcome guest blogger, A.J. Tibbetts, an IP lawyer at Wolf Greenfield, the top founder-nominated Patent Law firm from our 2018 Boston Founders' Short List. We asked A.J. to share some thoughts on how early stage founders should approach patent law. He identifies several costly pitfalls, and shows how taking some time up front to think strategically about IP can save you down the line.
Making choices on where to commit resources is a necessary part of running a startup—a successful one, anyway. It’s not going far out on a limb to say that most startups are not looking to make legal spend their top priority. With intellectual property (IP), though, there’s lots of room for discretion in spending, and lots of room for error. Determining precisely how to reduce costs on IP is critical, to ensure you’re wisely choosing where to spend and where not to spend. Often, founders seeking to save a bit of money will make their own choices on where and how to spend, which unfortunately may be the most expensive option.
Often, founders seeking to save a bit of money on IP will make their own choices on where and how to spend, which unfortunately may be the most expensive option
The Cost of Informality
Startup founders often have informal arrangements with those assisting with product development. Even in cases where a startup has clear employee agreements, situations may arise (over lunch or drinks, or when someone drops by the office) where informality leads to non-employee contributions. Maybe a friend chimes in with a feature suggestion, or after a founder describes a hairy problem, offers a creative remedy. These things happen every day but can lead to show-stopper problems because those people may be gaining rights in the startup’s product.
In the U.S., absent a clear agreement to the contrary, IP rights typically vest in the people who are making the contribution. As such, in some situations where a friend informally contributes a feature or a solution to a problem, that friend may have IP rights in the contribution. They may be more than happy to help at the time they contribute, but later on, when acquisition money is on the line, they may resurface looking for their cut. Delaying the acquisition to deal with them, or even buying them out, is a much worse option than dealing with it upfront by being a bit more formal in how you deal with people who contribute to the product.
In some situations where a friend informally contributes a feature or a solution to a problem, that friend may have IP rights in the contribution
Many terms of an employment agreement or invention assignment are standard, such that drafting can be inexpensive. Once drafted, getting them signed when appropriate is often quick and can be done without an attorney. Spending that small amount of time and money upfront can often be much less costly than ignoring the problem and waiting for it to crop up later.
The Cost of Delaying Choice
Preparing and filing patent applications is costly. Some startups see high returns by investing in large patent portfolios. Others decide not to pursue any patents. Still other founders waffle on where to fall on that spectrum, putting off making the decision or even seeking counsel. What these founders often don’t realize is that the delay may take the decision out of their control.
In the U.S., the disclosure of your idea outside your company, including offering products for sale or publishing a description, may trigger a one-year clock to file your patent application. After that one year, an examiner can use your own work to reject a patent application. Worse, even within that year, if your disclosure prompts another company to develop an extension to your ideas, the examiner may cite their work against you. Outside the U.S., the rules are even more strict. Usually, if you disclose the ideas outside the company before filing a patent application, the examiner can cite that to reject a patent application.
The disclosure of your idea outside your company, including offering products for sale or publishing a description, may trigger a one-year clock to file your patent application
A disclosure can therefore greatly increase the difficulty and complexity of obtaining a patent, or even block patenting and ensure that competitors are free to replicate your work. In either case, there may be high costs: The higher dollar cost of a more complex patenting process, or the high opportunity costs to the lost ability to patent.
Compare this to the relatively low cost of seeking counsel on IP strategy: An IP attorney can often provide quick guidance in under an hour, answering critical questions and provide tailored advice based on your business goals. With that inexpensive advice, you can make deliberate choices on whether to file a patent application and then on the timing of any planned disclosures.
The Cost of Cheap Applications
Not all patent applications are created equal. Not every startup needs a top-shelf application, but most should be concerned about a bargain basement one. This includes provisional patent applications, which many erroneously consider the cheap option.
Once you file, you may naturally assume you are protected and disclose your ideas fully and freely. The filing only protects you, though, to the extent ideas are fully described; a cheap filing may lack sufficient disclosure. Bargain applications often skimp on details, providing a simplistic description. For provisional applications, the brief description may not be enough to qualify for an early date and those post-filing disclosures may come back to bite you, or competitors’ work may become prior art when the early date is lost. An insufficient description may also not survive examination, leaving you without a patent. And, of course, a low-quality filing could cause diligence problems.
Prior art is any evidence that your invention is already known
In some cases, a targeted filing that has a full description of some ideas may provide more value than a brief description of many different ideas. Wise choices can ensure the greatest return on investment, avoiding wasted funds.
The Cost of Trade Secret
Some startups say they are relying on “trade secret” when they decide to forego patent protection. Often, these founders don’t consult IP counsel, thinking they have chosen the inexpensive option.
Trade secret law is complex. Only some things qualify for protection, and to qualify strict efforts to preserve secrecy are required. It can often be more complex than pursuing a patent application.
If you haven’t taken the right steps from the beginning, you may not have preserved secrecy and may lose the ability to leverage trade secret protection.
If you haven’t taken the right steps from the beginning, you may not have preserved secrecy and may lose the ability to leverage trade secret protection. Or, even in the best case, you may need to take many costly additional steps to fix earlier oversights. Just as with the patent protection above, in these scenarios, a startup may see high dollar costs or opportunity costs. If you truly intend to protect a trade secret, a quick discussion with IP counsel can save costs down the line.
The Lower-Cost Approach
Some IP attorneys are just patent drafters. A good IP attorney, though, will discuss with you the goals for your business and your budget, and guide you on the most effective IP strategy to support the goals/budget. I routinely advise clients to skip freedom to operate searches, or to delay the filing of patent applications.
Freedom to operate is determining whether a particular action, such as testing or commercializing a product, can be done without infringing valid intellectual property rights of others
And I routinely advise clients the opposite. Making those deliberate choices for each business is the heart of IP strategy, and making those choices is the best way for a founder to keep his or her costs low and demonstrate to investors that the business is being run well.
About Andrew (A.J.) Tibbetts
A.J. Tibbetts is a leader in protecting intellectual property for software and business methods. He brings his technical expertise to representing clients in a range of industries, including speech recognition, bioinformatics, machine learning, networking and telecommunications, and medtech. While he works with multiple international and publicly-traded companies, he devotes part of his practice to counseling small and growing companies on IP strategies that will help them achieve their own unique business goals. He has been named multiple times to the Massachusetts list of "Rising Star" attorneys in the field of intellectual property.
About Wolf Greenfield
For nearly a century, Wolf Greenfield has helped clients protect their most valuable intellectual property. Now with over 140 legal professionals based in Boston and New York, the firm offers a full range of IP services, including patent prosecution and litigation; post-grant proceedings, including IPRs; opinions and strategic counseling; licensing; intellectual property audits and due diligence; trademark and copyright prosecution and litigation; and other issues related to the commercialization of intellectual property.