Startups looking for new, uncontested markets often rely heavily on proprietary technologies and services to differentiate themselves in the marketplace. Innovations drive valuations during early fundraising. Traditional intellectual property (IP) protection, such as patents, trademarks, copyrights, and trade secrets, makes companies attractive to investors and provides defense against potential competitors’ market entry.

However, one must determine how much IP protection is required to overcome the established competitors’ advantages.

Evaluating Patent Pursuit Costs Against Benefits

Patents are powerful tools that provide startups with legally enforceable rights to stop competitors from making, using, and selling novel features developed by the patent owner.  Patents require significant time and costs, but result in up to a 20-year monopoly on new ideas in the largest market in the world.

There are few problems with knock-offs and competing products when startups are small and not widely publicized.  However, when the products/services become successful, there is more publicity.  Larger companies employ patent attorneys to research the IP of successful startup products.  If no IP (patents) cover the products/services, they can release a similar product/service.  A large company has much more advertising and marketing power on a level playing ground and will easily win most sales.

However, if the startup was wise enough to file patents on its product/service, they now have a way of stopping the large company from ‘eating your lunch’.

Researching Patent Portfolios

Before spending time and money on developing new features, products or services, do yourself a favor and first find out what is out there.

Consider patents from both an ‘Offensive’ and ‘Defensive’ viewpoint.

From an Offensive view, an entity is trying to get a patent to possibly enforce the patent to stop a competitor from making, using, or selling a product or service described in the claims of an issued patent.

A Defensive view of patent involves finding and analyzing enforceable patents owned by others that cover products or services you intend to make, use, sell, or import into the US.  Both begin with a patent search.

A patent professional can perform a ‘State of the Art’ patent search.  This search will result in enforceable, non-enforceable, and published patent applications relating to your proposed product/service.  If one performs a patent search to determine if a feature, device or service is patentable, it will be supplemented with a search of non-patent disclosures, such as product reviews, advertisements, white papers, or any disclosure similar to the proposed idea.

The enforceable and non-enforceable patents, published applications, and non-patent subject matter help identify the players in your space and what features or inventions they have developed. It also indicates what features/products they are planning to produce.  These can identify if you have any features that have not yet been disclosed and are non-obvious in view of the references found.  These identify what is left to patent.  Sometimes, even though something can be patented, it may not be worth the time and costs if the resulting claims are narrow.

The enforceable patents found in a search are important for determining a likelihood of infringement (assuming a reasonable judge and jury) if you make, use, sell, or import into the US a product/service.  These determine if you would be walking into an infringement of patents owned by another entity.  Patent infringement litigation is usually large, expensive, and takes years.  It can easily put a startup into bankruptcy.

The published patent applications are pending applications that are either a) active or b) those that have been abandoned and are inactive.  The active patent applications may issue into enforceable patents in the future.  If any of these cover any part of your product, you must follow the prosecution of these patents to make sure that you do not get blindsided.

Alternatively, you may consider a redesign of the features/structures/services covered by the patent to find a non-infringing alternative design.

If there is no desirable design-around, you may consider having a patent firm anonymously approach the owner of the enforceable patent or active patent application to discuss a license to make, use, sell, or import.  Licenses typically benefit both parties since the Licensee is allowed to produce a product, and the Licensor receives royalties.

Also, patent searches can be used as competitive intelligence to predict future features/products of a competitor. By identifying company developments over time, one can then extrapolate to predict the next advancements.

Asserting Trademarks Codifying Market Identity

If your business goal is to market directly to the consumer, visibility is important. Distinctive branding assets like visual logos, taglines, and core product names provide market recognition.

Trademark registrations create public identity for your products and services.  It represents the ‘goodwill’ your company has achieved through its services and products.  Trademarks are the means by which consumers connect with your company in stores or online.

When others begin selling products, services or use a corporate name similar to you name, for similar goods/services, it creates confusion with consumers.  This confusion results in consumers buying products/services that are different from your products/services.  Usually, the consumers are unhappy since the products/services do not meet their expectations.  The consumer incorrectly attributes this inability to meet expectations with the trademarks, which are similar to your trademarks, and decides not to purchase products/services with these trademarks. This decision results in lost sales, not only now but also in future sales.

Trademarks provide enforceable tools against confusingly similar trademarks for similar goods/services, sometimes referred to as ‘knock-offs’.   A federally-registered US trademark provides exclusive rights to the trademark owner to stop confusingly similar trademarks for similar products/services in the 50 states and US Territories.

Selling goods/services in connection with a trademark name gives an entity “Common Law’ rights, provided that the entity is the first to use the name for the goods/services.  Common Law Trademark rights provide protection to the entity only in regions where the entity was the first to sell the goods/services.  It does not provide any protection in regions where the entity was not the first to sell these goods/services.

However, federally registered trademarks provide protection over the entire country, regardless of whether the trademark owner has made sales in a given region or not, unlike ‘Common Law’ trademarks.   Therefore, we advise entities to file for federal trademark protection.  Federal trademark protection will clarify your corporate identity to the consumer and significantly reduce consumer confusion.  So don’t overlook the value trademarks contribute to early intellectual property planning.

Selecting unique trademark names or logos is beneficial in several ways.  A unique trademark name quickly passes through the US Patent and Trademark Office (USPTO) with little prosecution.

The more unique a trademark is, the larger its ‘penumbra’.  A penumbra is like a shadow surrounding the registered trademark’s exact name and goods/services.  Not only can a trademark owner stop one from selling goods/services with a name that is the same as the registered trademark, but it can also stop one from using a name that is ‘confusingly similar’.  The constellation of all names, which are not exact but confusingly similar, is the penumbra.

Even though it may be somewhat costly to startups, there are few things that yield a greater return than properly filed Intellectual Property. Patents reduce competition, allow for higher selling prices of your offerings, and protect the company from copying unique features. They allow a small startup to grow without having to fight competitors.

Trademarks and corporate identity represent your company, your research, hard work, and dedication embodied in your products and services. It is what people think of when they refer to your products/services.  You should not be confused with other entities or all of your hard work, research, and development can be attributed to another entity.

Trade Secrets

Trade Secrets cover confidential, proprietary ‘know-how’ and are protected under the Federal ‘Defend Trade Secrets’ Act. A separate blog will cover trade secrets soon.

For additional comments or discussion, feel free to contact Zale Patent Law.

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