Top 5 IP Mistakes Startups Make — and How to Avoid Them

Samar Shah is a patent attorney at Outlier Patent Attorneys, PLLC, where he represents startups and enterprise companies on patents in the AI, robotics, cybersecurity, SaaS, and health-tech sectors, as well as advanced tech for medical devices, mechanical devices, and biotech applications.

Startups often make costly intellectual property (IP) mistakes due to inexperience, lack of resources, or simply not addressing IP ownership and protection in agreements. 

Here’s a guide to help you understand what IP is, what to avoid, and the best practices you can implement as a startup navigating a seemingly daunting legal landscape.

What is Intellectual Property or IP?

IP generally covers creations of the mind but, more practically, can refer to a product idea, software, song, or even customer list. Think of it like traditional property law, but instead of protecting tangible assets, IP law protects intangible ones (computer software, inventions, logos, etc.).

The most common categories and the type of legal protection that is used to protect IP rights typically include:

• Inventions (utility patents/trade secrets/design patents)
• Literary and artistic works (copyrights)
• Designs and symbols (design patents/copyrights/trademarks)
• Names, images, shapes, and smells used in business (trademarks)
• Recipes, customer lists, manufacturing processes (trade secrets)

Practically every product and service can be defended with intellectual property rights. Most companies use a combination of IP rights to protect their offerings.

Here are the top five mistakes startups make when protecting their IP.

Mistake #1: No IP Clauses in Employment or Contractor Agreements

One of the biggest mistakes we often see is that startups fail to include intellectual property clauses in their employment or contractor agreements.  

IP clauses in employment or contractor agreements address intellectual property ownership and protection. These clauses specify who owns the IP created during employment or engagement and may include confidentiality and non-compete provisions. The two most common types of agreements used in this context are non-disclosure agreements (NDAs) and assignment agreements.

Failing to include IP clauses in employment or contractor agreements can also create confusion and uncertainty about ownership of IP created by employees or contractors. It’s common for employees to bring about costly legal disputes due to a lack of explicit provisions. 

We know startups often keep flexible and informal structures that encourage innovation and creativity but keep a more formal approach to your IP rights. Have all your IP sorted (not just your patents) and include them in all agreements with employees and business partners so that everything is clear before you include others. An attorney can help craft these agreements, ensuring they comply with the laws and are enforceable.

Best practices for how to address your startup’s IP clauses include:

• Start early: Implement IP ownership and protection measures right from the inception of your business to avoid future confusion or disputes.
• Be specific: Ensure your IP clauses clearly define what constitutes intellectual property and who owns it. Tailored agreements to the particular needs of the startup and the IP assets involved can help mitigate disputes over ownership.
• Include confidentiality and non-compete provisions: Protect your startup’s IP from disclosure or misuse by employees or contractors. Before your employees start working or confidential information is disclosed, ensure the agreements are signed.

Mistake #2: No Vendor, Supplier, or Joint Venture Partner NDAs

Startups often work with vendors, suppliers, and joint venture partners to create and distribute products. These partnerships can help bring their products to life but give rise to the possibility of IP disputes if NDAs or non-disclosure agreements are not correctly implemented.  

NDAs help protect trade secrets, business plans, customer lists, and other confidential information. They can be one-way or mutual (both parties agree to keep certain information confidential, or only one party discloses confidential data). Here are a few best practices for your NDAs:

• Require your vendors, contractors, and suppliers to sign an NDA before sharing confidential information. The NDA should clearly state the types of confidential information and the consequences of violating the agreement. It should also include provisions for returning or destroying personal data after the relationship ends.
• Ensure all joint venture partners sign an assignment agreement before starting the partnership. Without an NDA, a joint venture partner could quickly disclose confidential information to competitors, suppliers, or other third parties, risking your startup. Joint ventures can be an excellent way for startups to share resources and expertise to bring new products to market. But joint venture partners can also claim ownership of IP created during the partnership.
• Consider using assignments – legal agreements that transfer ownership of intellectual property rights from one party to another – to protect your ownership. Your agreement should state that the startup owns any IP created during the partnership and that the joint venture partner assigns all rights to the startup to avoid disputes over intellectual property ownership.

Mistake #3: Lacking an IP Strategy

An IP strategy is your startup’s action plan to manage and protect your IP assets. Because every business is different, you’ll need a personalized IP strategy. Others can more easily circumvent your IP protection without a structured IP strategy. Having that strategy in place from the outset can help startups to leverage their intellectual property assets to create a competitive advantage and position themselves in the market.

Check out my patent strategy guides for biotechs startups, medical device startups, and software startups. A well-planned IP strategy can be valuable, especially if you are a startup in an IP-intensive industry. It should account for business milestones, future funding rounds (to ensure sufficient funds are available to execute the strategy), customer relationships, and the competitive landscape of your industry. 

Mistake #4: No IP Harvesting or Auditing Plan

Determining which of your ideas is patentable can be a challenge. IP harvesting is a process to identify and protect your startup’s most valuable IP assets from the outset.  

Post-IP harvesting, perform an IP audit to review the company’s IP portfolio. A good IP audit will identify any gaps in IP protection and provide insights on maximizing the value of IP assets.  

• Ask an experienced IP attorney to do an IP audit. They can comprehensively analyze the company’s IP portfolio and help identify areas where additional protection may be needed. This should involve meeting regularly to list and brainstorm potential IP in addition to any new IP developed.
• Software startups should regularly conduct open-source technology code reviews. Claiming open-source software as proprietary (even if unintentional) can derail an acquisition or an investment during the due-diligence phase.

Failure to systematically capture innovations can lead to piecemeal IP protection, higher costs, and lower asset protection. A common downfall is losing control of your startup’s IP assets or facing costly legal action from competitors who have registered similar patents or trademarks.  

Mistake #5: Not Educating Your Employees about IP

Your employees can inadvertently torpedo your ability to protect your IP. For example, they may inadvertently disclose patentable material in your marketing material or a trade secret in a sales call. These types of disclosure can prevent you from filing a patent later on and may completely bar you from claiming something as a trade secret.   Regarding IP, you cannot put the toothpaste back in the tube.

You can avoid this situation with employee IP education, so your team members will understand what is considered confidential, the value of IP, and the kinds of discussions that can hamper your efforts to protect your IP.    An added benefit of such education is that it can also improve your IP harvesting efforts discussed above. When your employees are aware of the importance of IP, they are also more likely to come up with new ideas and inventions that can be protected and monetized.  

What should founders do to educate their workforce?

• Ask your IP attorney to give a company-wide presentation. Try regularly organizing these “training” sessions for your employees on the IP basics.
• Include IP protection in your onboarding process. This way, new employees and contractors know the startup’s expectations from the outset. IP should be a priority for everyone in your company, not just the legal team.

Final Thoughts: Know Your IP Rights

As a startup founder, understanding and protecting your IP rights is not just a legal obligation; it’s a strategic necessity impacting your company’s success and longevity. Taking the time to educate yourself and your team and taking proactive measures to protect your IP is an investment that will pay off in the long run. 

Avoid these common mistakes and implement these best practices. You can safeguard your IP, empowering your startup to thrive in today’s competitive business environment and laying the groundwork for long-term success.

The featured image is of a patent, image courtesy of Outlier Patent Attorneys, PLLC.