IP: 5 Steps Every Startup Should Take

WHAT YOU NEED TO DO

• Secure your critical IP early; delaying protection could allow competitors to copy your ideas or even claim them as their own.
• Understand the differences between patents, trademarks, copyrights and trade secrets to safeguard each aspect of your invention.
• Think internationally. You may be purely local now, but ignoring global IP protection could limit your expansion later.
• Include IP in your business valuation; your brand and IP are often your biggest assets.
• Avoid surprise legal fees and inexperienced attorneys. Find an IP firm with both clear pricing and a proven track record serving startups like yours.

If you take a stroll down the bottled water aisle, you’re likely to see an outlandish outlier.

Unlike the rows and rows of products that boast superior hydration or refreshment, Liquid Death looks more like craft beer sold at a heavy-metal concert. It’s in tallboy cans with a Metallica font, almost daring consumers to drink “The Most Dangerous Drink in the World.”

It’s still just water, but the iconoclastic branding has brought significant return: Liquid Death now carries a $1.4 billion valuation on product revenue of $263 million.

It’s a powerful example of how the right intellectual property can propel your company to wild returns. The market values Liquid Death for its intangibles – its brand, its trade dress and its trademarks – not its reservoir of mountain water.

Indeed, IP is the “secret sauce” that makes a startup stand out in the marketplace: Your investors are most likely enticed by your ideas, methods and differentiation.

Yet many startups fail to adequately protect these core concepts. This not only hurts their ultimate valuations, but it also makes them vulnerable to infringement or downright theft from bigger and better-funded competitors.

When it comes to IP, what are the most important steps for startups to take?

Step 1: Protect Critical IP Early.

The typical founder has an endless list of things to do – and not enough time, money or help to do them. Some don’t seek protection for their IP until they have more funding; some want to weather-balloon their product first to ensure there is a market for it.

Either way, this can be a company-ending mistake. Waiting too long increases the risk that a competitor can rip off your concepts freely, or that a competitor could even seek protection for your idea.

IP strategy must be incorporated into your go-to-market planning. Whether it’s a trademark for your brand, a design patent for your product, or a utility patent for your methodology, the right IP protection will ensure you can grow with minimal risk.

And this isn’t just a matter of playing defense: Securing these assets creates opportunities, too. As anyone who has watched “Shark Tank” can attest, IP makes startups more credible and valuable in the eyes of potential investors and partners.

Step 2: Ensure the Right Type of Protection.

In the U.S., there are four types of IP protection available. Startups must choose the right type of protection for each innovation.

• Patents are a negative right: They prevent competitors from making or using the owner’s new and novel invention. (This covers your way of doing things.) There are two main subcategories of patents for startups:
  • Utility patents cover new useful products and processes, such as methods of manufacturing.
  • Design patents protect a product’s configuration – its look and feel.
• Trademarks cover the words, phrases, symbols and designs – or combinations of them – that identify a product and distinguish it in the marketplace. (This is generally your “brand.”)
• Copyrights protect artistic, literary or intellectually created work, such as novels, movies, songs or photos, as well as software code and elements of fashion design.
• Trade secrets govern economically valuable information that is actively guarded by the company and is not publicly known or shared; this includes processes, business plans, formulas and other confidential assets. Unlike the others, trade secrets don’t have an official registration process at the U.S. Patent and Trademark Office; also, unlike the others, they have no expiration date.

Owning a patent is powerful, to be sure, but it may not be the right strategy for every circumstance; the filing process requires the applicant to disclose its methodology to the world. (There’s a reason that the recipe for Coca-Cola is a trade secret, not a patent.)

The right IP lawyer can advise on the path that’s best for your company’s unique position. That may include combining multiple types of IP protection to create a forcefield and maximize options for combating infringers.

WARNING

In recent years, some startups have tried to use blockchain registration to declare ownership of their intellectual property. It isn’t a substitute for registering with the government. Blockchain simply lacks the same level of protection.

Step 3: Secure International Protection.

You may be hyperlocal now, but the savviest startups seek global protection early, as failing to look beyond the U.S borders limits your options for future growth.

Many early-stage companies never expect to do business internationally, so they skip that process to save time or money. A few years later, if they want to pursue cross-border opportunities – or if investors insist upon it – they may find someone else has already registered their IP and is profiting from it.

There are different methods for securing IP rights internationally. Sometimes it makes sense to apply directly in a specific country, but often startups can streamline registration by using programs that cover several jurisdictions at once.

Among them:

• The Patent Cooperation Treaty makes it possible to file for a patent in several countries through one system.
• The Hague System applies to design patents and offers coverage in more than 90 countries.
• The Madrid Protocol provides trademark protection in many countries through one filing.

Step 4: Incorporate IP Assets Into Your Business Valuation.

As the Liquid Death example shows, IP is often the most valuable part of a business; the Liquid Death founder has commented the company is “90 percent brand.”

Whether your unique ideas lead to customer affinity, more efficient manufacturing, or premium pricing, IP is the competitive advantage that investors seek. Startups must make IP strategy a key part of their business planning and investor presentations.

Explain how IP protections lay the groundwork for future expansion and fend off competition.

It’s important to note that IP also can serve as an asset of last resort if funding runs low. Properly protected IP can be licensed or sold to generate badly needed revenue.

Step 5: Find IP Counsel That Works For Your Budget.

Because most law firms charge by the hour, it’s hard to know exactly how much a patent or trademark will cost – but it’s easy for this work to cost more than expected. Unpredictable legal bills aren’t only frustrating, they take financial resources away from other mission-critical areas. This can lead startups to abandon essential IP protection projects.

At the other end of the spectrum, founders looking for bargains can be lured by what looks like a dirt-cheap price…. but turns out to be a less-than-comprehensive package. (Or they are surprised later with fees and markups.)

The right IP firm should have a clear focus and demonstrated knowledge in the field. While client work is certainly confidential, look for case studies or reviews from companies like yours.

Startups turn to AEON Law for its flat-fee approach: There are no surprises when the bill arrives. Clients also benefit from the firm’s proven processes for patents and trademarks that provide transparency and let them know what to expect at every turn.

Address IP Early, Smartly and Internationally

From the earliest days of your startup, make sure to incorporate IP into your business plan.

Don’t wait too long to file or consider international markets. Create the appropriate mix of IP protection to maximize your value and neutralize competitors’ gambits.

Neglecting to do so can mean the difference between a trajectory like Liquid Death’s….and an unfortunate liquidating death.