Startup IP: 8 Reasons Every Startup Needs An IP Plan

If you are an entrepreneur in the midst of a startup, the last thing you want to hear is that there is yet another task that needs to be added to your “to do” list. Your list already includes (among other things): developing your product or service, working out a business plan, figuring out financing, divvying up roles and ownership for the various founders, and deciding on a corporate structure.

I get it; you’re busy and don’t want to add another task. But I am going to do my best to convince you to add one more thing to your list — creating an intellectual property plan for your business. In hopes of convincing you, I have put together this list of 8 reasons why you should have an IP plan.

1. Intellectual Property Is Valuable

We are living in an knowledge economy, where the majority of the value we provide is in the form of intellectual capital and/or services. While startups certainly have physical assets, the majority of the value for any startup derives from its intangible assets. A robust IP portfolio is often the key to funding and success for early stage startups. And, in the unfortunate case where a startup fails, it can salvage some value by selling its IP. Considering the value that intellectual property has, how can you justify not having an intellectual property plan?

Taking the time to develop an IP plan at the outset will ensure that the blood, sweat, and tears you poured into developing a brand name, slogans, processes, and physical products were not wasted. Through prudent planning, you can maximize the value of your own intellectual property to harness your intangible assets.

2. You Will Face Challenges

Many non-technology heavy companies think they don’t need an IP plan because — they assume — they are not creating IP rights. Leaving aside the fact that even these companies are creating potentially valuable IP (e.g., brands, slogans, processes), this outlook is shortsighted because it ignores the risk of being accused of wrongdoing. The chances are good that your company will be accused of patent infringement at some point during its life cycle. And as many craft brewers can attest, trademark issues are becoming increasingly prevalent.

While an IP plan can’t promise that you won’t be sued down the road, taking time up front will help you minimize your risk and will set the stage for challenges that may come. You are never going to be happy if you receive a demand letter or a lawsuit, but having an IP plan in place before you are sued will make it less daunting. With the plan in place, you will know who to call and how to respond.

3. It Will Save Time Down The Road

Developing systems now will save you time down the road. This is as true with IP issues as with the day-to-day processes that entrepreneurs are perfectly familiar with. If you don’t develop an IP plan now, you are likely to spend quite a bit of time putting out fires on IP issues later.

By developing a plan, you will systematize your responses to IP issues. Gone will be the ad hoc, emergency issues that can be consuming in the moment. Instead, you will have a process (and hopefully a team) in place to consider IP issues well before they become urgent. And when you face an accusation of infringement, you will be prepared.

4. Intellectual Property Problems Are Expensive Problems

If you find yourself in a legal dispute related to intellectual property, it will cost you a considerable amount of time and money — even if you win. There is no such thing as a “cheap” lawsuit, and intellectual property lawsuits can be particularly expensive to prosecute. Nearly every IP lawsuit will involve expensive experts on top of legal fees.

Patent lawsuits, for example, are notoriously expensive. Defendants in patent litigation cases regularly pay their lawyers $1 million or more in fees alone. After the fees for multiple experts and assorted costs are included, the total expense can easily balloon to more than $2 million. Beyond the expenses, an adverse judgment will almost always be expensive. In 2014, the median damage award in a patent case was $2 million.

Considering how expensive these issues can be, you will be well served to develop a plan to minimize your exposure and to minimize costs if you are sued.

5. There Are Numerous Pitfalls For The Unwary

Do you have employment agreements that are sufficient to automatically transfer the work of your employees to the company? Do you have policies in place to protect your trade secrets? Do you have someone monitoring inventions to ensure that you file a patent application within a year of first disclosing the invention to the public?

Chances are you did not even know you needed to ask these questions. IP law is complex and has a number of pitfalls for the unwary. Often, these are procedural issues that are easily addressed, but they require a plan. Taking the time to plan at the outset will help you avoid these traps.

6. IP Planning Lets You Avoid Issues Before You’re Committed

The best time to have an IP issue is when you can easily pivot to resolve (or avoid) the issue. Companies that plan can generally avoid issues before they are committed to a course of action. Startups that fail to plan run the risk of having to choose between spending hundreds of thousands of dollars defending against a lawsuit or giving up a valuable brand or product after spending hundreds of thousands of dollars to in development and marketing.

The value of planning is most obvious in the context of trademarks. The best time to rebrand to avoid a trademark issue is before you have spent time, effort, and money establishing your brand in the market. But you won’t know that you may run into an issue if you don’t take the time to plan at the outset. A good plan will look at the key elements of your brand and clear them to the extent possible.

Similarly, if you are producing a physical product, the time to find potentially relevant patents is at the outset. If you find a patent that is close to your product, you might be able to implement a simple design change to avoid any potential issue. This simple fix begins with a bit of planning at the outset.

7. The Planning Process Adds IP To Your Overall Focus

Companies that take the time to develop an IP plan will tend to consider IP issues as part of their ongoing strategic planning. The result is predictable — these companies tend to see opportunities to develop valuable intellectual property that they might have otherwise missed. Implementing a plan up front will tend to make IP thinking part of your company’s DNA. This, in turn, will mean that your employees will immediately see IP opportunities without having to spend time or effort.

8. Planning Lets You Build Relationships Without The Stress

Let’s be honest, the worst time to be trying to find and hire an intellectual property lawyer is when you are facing the time pressure of a lawsuit or demand letter. By taking the time to develop an intellectual property plan early on, you can take the time to establish a relationship with an IP lawyer while you are not under pressure. Taking your time to find the right IP lawyer for you is a worthwhile project in itself.

As an added bonus, by establishing the relationship early, you will give your IP lawyer a chance to learn your business and technology over time. These deep relationships will generally lead to better representation when crunch time comes.

Summing Up

I hope I have convinced you that your company needs an IP plan. In future installments of Startup IP, I will address questions about what should be included in the plan, who should be involved in creating the plan, and how you should go about developing a plan.

Originally published at www.klinckllc.com on January 4, 2016.