What Do the Antitrust Hearings Mean for Startups?
Don’t fall victim to the IP bullies—and other important takeaways.
A few months back, the world tuned in to watch the tech antitrust hearings, which highlighted the risks big tech poses for our economy, as well as for society as a whole. Companies and the general public alike were forced to pay attention to the implications that these companies have on our lives.
Notably, the antitrust hearings cast a particularly bright light on the nefarious IP bully and IP theft tactics often used by the behemoth tech companies like Amazon, Microsoft, and Facebook. These big market players have, in the past, used smaller companies’ patented technology, proprietary information, and trade secrets against them in order to expand their own product offerings and market share. It’s critical that startups combat these risks by developing IP and trademark strategies from the start, as they compete in an often-unlevel playing field against bigger companies.
On the surface, these briefings seem less relevant for scrappy startups with less IP to worry about. But the reality is that they must see these briefings as a wake-up call to gaps in their understanding and investment when it comes to intellectual property management. There are three primary risks startups face when it comes to thinking about their intellectual property: assignment of invention, trademark strategy, and missed opportunities.
While these three primary risks can cause drastic negative consequences, there are steps companies can take to manage these risks effectively.
Establishing and understanding assignment of invention
Assignment of invention legal clauses (AOIs) are not uncommon, but unfortunately often not very well understood. These clauses give the rights of all inventions and intellectual property developed in an employee’s or founder’s tenure with a company to the company itself. Lack of clarity within assignment of invention clauses (or simply misunderstanding them) can result in major disputes between founders, investors, partners, employers, owners, and stakeholders.
Imagine an early-stage startup with two founders. In said startup, neither founder signs an assignment of invention clause with the company, and they jointly develop code that undergirds the company’s product. Six months later, as a result of working differences, one founder decides to leave, taking their idea with them, with the aim of starting a new company and using the initial legwork already completed.
This scenario happens all too frequently and can result in costly litigation and the complete shut-down of what would otherwise be a promising idea and venture.
Startup accelerators often advise and even encourage founders to compensate themselves and sign AOIs to ensure there’s clarity around what will happen if founder break-ups occur — which they do, far too often.
Developing a clear trademark strategy
First-time founders often don’t know to do the deep dive and understand whether there are existing trademarks on which they may be infringing — on their name, their product, their messaging, their branding. That, or they don’t recognize how generalizable a trademark is and therefore don’t realize when they’ve done so.
This can be not only a huge financial issue for companies but can be a huge reputation concern. Any employees or customers (or potential investors) made aware of a failed trademark strategy is likely to lose trust in you as a leader and in your business — it can appear careless or unoriginal.
Additionally, the financial impact of lawsuits can lead to huge problems for your business, and impact your employees directly.
Avoiding missed IP opportunities
If your business has original IP, file a patent right away. If you don’t, you’re risking opening yourself up to patent trolls.
Seems simple, but it’s a bit nuanced. Unless you can see the full scope of your IP from the get-go, you’re going to run into a problem later on — whether infringing on another company’s property, or being infringed upon yourself.
An interesting dynamic that what is “patentable” actually varies a bit over time. Ten years ago “process” patents were difficult to achieve — today, that seems to be changing.
Failure to patent your technology could result in the loss of your entire business or cause major limitations. For example, if your domain name is the ground you are building your business on, make sure you own the airspace above the ground, and the rights to build on your ground so that your business has the opportunity to scale and grow. If another company owns the airspace above your initial idea, you’ll remain stagnant and limited in the ways you can expand your company.
Avoiding the IP bullies
Despite the many potential risks businesses face when it comes to IP, there are steps founders and leaders can take to avoid these pitfalls, or at least lessen them.
First and foremost, every startup needs a clear intellectual property strategy, and as the founder, this starts with you. As with most startup decisions, this starts with determining your business priorities. Maybe that means not investing all the way, right away in your IP protection (unless you’re, say, a biotech company, where the risks are infinitely higher). But no matter your priorities, don’t put IP investment on the backburner to focus on your technology and innovation, because without it, your innovation won’t be yours anymore.
Constantly consult your legal team or General Counsel, and have him or her help you stay well-versed in the difference between trademarks, patents, and trade secrets.
At Vouch, our General Counsel was one of our earliest executive hires, for a multitude of reasons. She and I have had an ongoing dialogue since well before our launch about how we could carve out a clear path on IP. Work with yours to understand how your IP protection strategy ties back to your product and go-to-market strategy — both on a nation and global scale. And of course, it’s essential to know the ins and outs of your employment contracts, your partnership contracts, etc. to ensure you’re clear on who has rights to what IP.
Lastly, invest in adequate cybersecurity and business insurance. Cyberattacks can threaten your data, your code and, in the age of digital businesses and remote work, these risks are drastically increased. Comprehensive insurance is critical. Whether IP theft, cyberattack, or employment and invention dispute, the right insurance can help protect your business from costly incidents.
Antitrust and startups
While startups are clearly not at the center of the national conversations around antitrust and monopoly, there’s no question the implications these behemoths have on smaller businesses — especially the negative ones.
It’s essential that startups adequately protect themselves, especially during this particularly turbulent time for businesses.
Sam Hodges is co-founder and CEO of Vouch.
