Intellectual Property (IP) is one of the main assets of modern startups. Still, quite often, it takes a backseat to product development, growth challenges, and capital-raising efforts. Ensuring an adequate level of protection of IP from the very early stages of startup life has significant practical implications as it allows for:
- Enhancing Competitive Advantage: Strong IP protection enables startups to maintain a competitive edge by preventing competitors from copying or replicating their unique IP. This exclusivity allows startups to more securely invest in differentiating themselves on the market.
- Obtaining Venture Capital Funding: Venture capital funds are more willing to invest in startups with solid and legally protected IP. Having a well-prepared IP portfolio speeds up the due diligence process and proves the company’s credibility and legal awareness.
- Attracting Top Talent: An adequate IP protection strategy indicates a company's commitment to innovation and its potential for long-term growth, making it an attractive employer for skilled professionals.
- Preventing Unfair Competition: In a global marketplace, IP protection shields startups from unfair competition by preventing others from profiting from their IP without permission. Having a well-documented IP title and effective legal support allows for quashing IP infringements early on.
- Building Brand Recognition: IP protection helps startups establish a strong brand identity and reputation. This recognition can attract investors, customers, partners, and talented employees, further propelling the startup’s growth.
Identify and Understand Intellectual Property Types
It is crucial to identify and understand the different types of IP assets your company may protect, and tailor the legal form of IP protection to the IP itself. Below, you may find a short description of the most common IP types:
- patent is a legal protection for an invention, granting exclusive rights to its creators (or their employer if created under an employment relationship). Under Polish law, an invention must be novel (not be a part of the prior art), inventive step (new innovative solution), and suitable for industrial application (practical use). By way of example, the following can be pointed out: new medical devices and treatments (e.g., an insulin pump), or manufacturing processes (e.g., 3D printing);
- utility model is often called a small patent, as it applies when the technology submitted for protection does not meet the innovation criterion. A utility model is a new and industrially applicable technical solution relating to the shape or structure of a solid object or to an object composed of functionally related solid parts. The utility model may be based on a patented innovation, provided it adds a new feature thereto. For example, the introduction of a new type of cardboard box closure can be considered a utility model;
- industrial design is a new and individual character of a product or part thereof, given in particular by the characteristics of the lines, contours, shapes, colors, texture, or material of the product and by its ornamentation. In a nutshell, industrial design is the look of a product that distinguishes it from others on the market - the shape of a product or its packaging may be regarded as industrial design;
- trademark protects the identification and differentiation of a product or service from other competitors. This covers most often brand names, slogans or logos;
- copyrights protect the authorship of original works such as art, photographs, films, logos, slogans, presentations, blog posts, app designs, software code, etc. A copyright gives its owner the exclusive right to use the work, replicate it, and create derivative works (such as adaptations) using the original work;
- trade secrets comprise any valuable information that is not publicly known provided that its owner has taken reasonable steps to maintain the confidentiality of the information. For example, the following may constitute a trade secret: technological trade secrets (recipes, manufacturing processes), business trade secrets (customer and supplier lists, marketing strategies, pricing algorithms, business plans, financial data).
File for Intellectual Property Protection
Once IP assets crucial to a business are identified one may focus on adjusting the protection model. One of the basic forms of such protection is filing applications for granting protection for given IP rights to IP offices. Not all IP rights are registrable under Polish law (e.g., there are no copyrights or trade secrets registers), but patents, utility models, industrial designs and trademarks are the most frequently registered in the Patent Office of the Republic of Poland. When considering the registration of IP rights, the following issues should be addressed at the very beginning:
- choose the type of IP’s protection – depending on whether the application is for a new logo, product design or perhaps a completely new innovative product, adjust the form of protection you are seeking. In this context, it is important to consider what conditions the subject of the application should meet under the various forms of protection. For example, if protection is sought for a product of questionable innovation (e.g. a similar invention has already been registered in another country), it may be more effective to apply for protection of the product in question as a utility model. In some cases, it may be possible that the relevant authority will refuse protection for a trademark, e.g., on the grounds that the mark is not distinctive, or the competitor will oppose the trademark based on the grounds that the mark is too similar to another mark already registered. Therefore, any filing of an application should be preceded by an examination of whether the product, name, logo or technological solution meets the conditions for the expected form of protection (to avoid unnecessary costs);
- identify the territory – consideration should also be given to whether protection should be sought in one country, in several countries separately, or whether it should be established within institutions providing protection in a particular region, or internationally. Registration made in the Patent Office of the Republic of Poland provides protection for in the territory of Poland. In the case of conducting business operations in more than one member state of the European Union, it would be more efficient to submit for protection with the European Union Intellectual Property Office (EUIPO), guaranteeing protection in all of the member states of the European Union. For international protection, on the other hand, an application to the World Intellectual Property Organization (WIPO) may be most advantageous. However, differences in the registrability of certain forms of protection must also be taken into account - for example, not all countries provide for utility model protection.
- identify the sector of industry – trademark applications also require an indication of specific goods and services which will be marketed under the trademark, usually they are connected with the the core business of the company. Within the European Union, the Nice classification is used for this purpose. The number of classes in which the application is filed will determine the amount of the filing fees, therefore choosing the appropriate classes for the type of business will help avoid excessive filing costs.
Once a specific IP right has been registered, it is important to keep track of the deadlines for which protection has been granted. For example, registered trademarks have a validity of ten years from the application date and may be renewed indefinitely for successive periods of ten years. The trademark renewal may be requested within the twelve months preceding the expiration date, or during the grace period of six months following it, subject to payment of late renewal fees. By contrast, the protection period of a patent can be extended up to twenty years from the date of registration and up to twenty five years in regard to industrial designs.
Review Contracts and Apply Non-Disclosure Agreements
One should be careful when drafting or negotiating agreements transferring IP rights to a company (start-up), especially with respect to copyrights.
Most importantly, an agreement specifying the transfer of economic copyright is mandatory. The agreement must be in writing (otherwise transfer of economic copyright is null and void), specify the original work, fields of exploitation, scope of use of the copyrights and remuneration for the assigned copyrights. One should also bear in mind, that in typically (and also Poland), authors benefit from their moral rights, which include the right to preserve the integrity of the work and to be recognized as its author. Although moral rights are not transferable, scope of exercising these rights may be contractually limited in the copyright transfer agreement.
In the absence of appropriate clauses for the transfer of economic copyright to the company, the result may be that the sub-contractor responsible for the creation of the application or code is in fact its owner, not the company on whose behalf the application or code was created. Reversing the consequences of such negligence may require negotiations with the creator and the payment of additional compensation, quite often in a much higher amount than expected at the beginning. In the worst case scenario, it may even not be possible.
It is also important to protect confidentiality and use non-disclosure agreements (NDAs) when sharing valuable information with third parties. An NDA or a confidentiality clause (e.g., included in a cooperation agreement with an investor, business partner or service provider) should outline the terms of confidentiality and restrict individuals from disclosing or exploiting sensitive information, and preferably include contractual penalties for breach of the agreement. While such contractual clauses are not a guarantee that no confidentiality breach will occur, when properly drafted they may be an important and efficient measure in protecting business from further infringements.
Regularly Monitor and Enforce your IP rights
Naturally, effective IP protection does not stop after securing registrations - regular monitoring is important as well. Startups should actively monitor potential infringements, registration renewal dates or unauthorized use of their IP rights. By employing monitoring tools, staying updated on industry trends, and conducting periodic checks, you can identify and take action against any infringements promptly.
If an infringement is identified, the primary means of protection is to request the cessation of such infringement. A warning letter should be addressed to the infringer, specifying the IP right infringed, the basis for its protection, as well as claims related to the infringement (for example, the payment of a specified amount).
Depending on the type of IP right, the protected entity may be entitled to certain additional claims. These may include an injunction to stop the infringement as well as a claim for a restitution of profits obtained by the infringing party. In the event of a culpable infringement, the protected entity may also demand compensation for the damage caused or payment of the amount corresponding to the license fee or other appropriate remuneration that would be due for the lawful use of a the IP right. Further, given the possible long litigation to resolve a dispute over use of IP rights, it may be advantageous to request to the court to secure the claims for the duration of the court proceedings (for example by restraining the sale of a product).
Of course, it is not only trademarks and inventions that should be subject to a specific regime of protection. Other elements constituting the IP value of a company are also important and it is advisable to have an internal procedure on protecting IP rights such as access to source codes and databases, updating web domain registrations, updating co-operating agreement templates.
Educate and Train your Team
Creating a culture of IP protection and awareness within your organization is vital. Educate and train your employees and contractors about the significance of IP rights, the types of IP assets your company owns, and the measures they should take to protect them.
In this respect, it is important that employees are aware of what documents and information are confidential and how they can use them in their work (e.g. when sharing company-related information during negotiations with clients or business partners). A non-disclosure agreement should precede any exchange of sensitive data.
Furthermore, it is advisable to include clauses in your cooperation agreements and/or employment agreements with key business partners and employees, as well as internal procedures and guidelines, highlighting the importance of IP protection.
Given the increasing scale of cyber-attacks, it is also worth exposing the company and its employees to regular penetration testing in order to identify potential vulnerabilities.
Key Conclusions
IP protection is one of the crucial aspects of building a startup. It is advisable to start early, get help from experienced advisors and be proactive in protecting your IP rights. By understanding the various forms of intellectual property, preparing a well-thought out IP protection strategy, filing for protection, and implementing internal procedures, startups can significantly reduce the risk of infringement and unauthorized use, potential threats to business, and hence focus on growing their business.
On the other hand, for start-ups that have not had the opportunity or means to apply for adequate protection of their IP rights, the recommended solution is to carry out an IP focused due diligence aimed at identifying key IP rights, their legal status, completeness, and implementing appropriate legal protection before the associated risks arise when least expected.
Related Posts:
Term Sheet Demystified: Key Clauses for Founders and Investors (by Leszek Małecki & Tomasz Kiełczykowski, Małecki Legal)
How To Successfully Get Grant Funding For Your Startup? (by Jure Tomc, Director, Cresco Innovation)
Startup Fundraising: How To Craft Startup One-Pager For Investors? (Olga Chechłacz, Editor, Vestbee)
