A startup’s failure to properly protect its intellectual property (IP) prior to presenting its pitch deck or making other outside disclosures (like at @TechweekKC) can sometimes have unintentionally devastating effects. This is particularly true for IP rights that are not afforded common law protection. While the experience of pitching to angel investors and venture capitalists can be exhilarating, below are four reasons why startups should take a step back and protect their IP prior to pulling the curtain open.
- Investors Will Conduct Due Diligence
Investors want to know that you’ve taken steps to protect your IP, as it can affect the valuation of your company. We’ve all seen it – Lori Greiner asking a Shark Tank contestant “Do you have this patented or is a patent pending?” And, if the answer is “no,” either discounting the company’s value or, worse yet, declaring “I’m out!”
Prior to making any investment in your company, investors will conduct some level of “due diligence,” which includes evaluating your IP portfolio and the barriers to market entry you’ve created.
Securing IP rights not only includes potentially filing a patent application, but also includes ensuring you have “clean” ownership of your IP. This often requires obtaining assignments from co-founders, employees, contractors or other collaborators who have taken part in the development of inventions, software, source code, websites and other technologies. Just because you paid them to develop the technology, doesn’t always mean you own the technology.
- First-to-File Patent System
The United States now has a “first-to-file” patent system. With a few exceptions, this gives priority to the first applicant to file for protection of an invention. To avoid someone else beating you to the Patent Office, you should consider filing as quickly as you can. While there are procedures for determining whether an applicant who filed first actually derived the invention from the actual inventor, such procedures are normally prohibitively expensive for startups.
When possible, startups should file a provisional patent application before disclosing or demonstrating patentable inventive technologies in a pitch or presentation. A provisional application is a lower-cost, low-maintenance placeholder patent application. While provisional applications are not examined by the Patent Office, they preserve an inventor’s rights during a 12-month period and permit use of the phrase “patent pending” during that time. Ultimately, a nonprovisional patent application will need to be filed within the 12-month period in order to obtain a patent in the United States.
- Absolute Novelty Required in Many Foreign Countries
Unlike the United States, which affords inventors with a one-year grace period, many foreign countries require “absolute” novelty (a.k.a. “strict” novelty) in order to obtain patent protection. This typically means that if an invention is made available to the public anywhere in the world prior to the filing of a patent application, such disclosure will bar any opportunity to obtain patent protection in many foreign countries.
To the extent obtaining foreign patent protection is part of your IP strategy, it is absolutely crucial to file an application (e.g., a provisional application in the United States) prior to making disclosures in your pitches and presentations.
- Preservation of Trade Secrets
Trade secrets can be cost-effective alternatives to patents and allow protection for an indefinite period of time. In order for a trade secret to remain protectable, the trade secret must not be generally known to the public and efforts must be taken to maintain its secrecy. Prior to any pitch or outside disclosure, startups should conduct an internal audit to determine which of their IP assets and information are best protected via trade secret. This may even include “abstract ideas” that are not patentable.
While secrecy can be maintained under a non-disclosure agreement (NDA), angel investors and venture capitalists are rarely willing to sign NDAs prior to pitches and early-stage conversations. Accordingly, prior to any pitch, a startup should decide what information should be kept a trade secret and then not disclose that information during their presentation.