Introduction to Essential IP Issues for Start Ups

Intellectual Property (IP) is a term which includes patents, designs, trademarks and copyright. Virtually all of the assets of a start-up or of a new project within a mature company emanate from the knowledge on which the start-up or project is based. As such, the ability to defend this knowledge is of crucial importance. In most cases inventors and/or entrepreneurs establish the company’s claim of exclusivity over its knowledge by filing one or more patent applications before seeking investment. 

In order to effectively protect their assets, founders of start-ups must consider the following questions:

  • How solid are the foundations of our claims to exclusivity over our knowledge?
  • Will the entrepreneurs’ efforts to protect their knowledge pass the scrutiny of investors whose sole interest is in taking advantage of a business opportunity? Or will they fail by having taken steps that essentially eviscerated their apparent patent rights of any real content?

The following tips are designed to help start-ups successfully navigate the world of patents and to build a proper IP portfolio from the outset. Internalizing these tips and making use of the tools they describe can make the difference between obtaining investment and achieving business success — or failure.

Public Disclosure

Divulging knowledge relating to an invention to a third party who is not obliged to keep the knowledge secret before filing a patent application for the invention will, in most circumstances, make it impossible to obtain patent protection in almost all countries, including Europe, Israel and the Far East. In an exception to this rule, the United States provides a grace period of one year following the date of public disclosure during which a valid patent application can be filed.

Secrecy Agreement

Also known as a Non-Disclosure Agreement (NDA), a secrecy agreement theoretically enables an invention to be revealed to a third party without prejudicing the inventor’s right to obtain subsequent patent protection for the invention. In practice, we advise against relying on an NDA prior to filing a first patent application. If information that is the subject of an NDA is disclosed in breach of the NDA, the owner of the secret knowledge has the right to sue the party in breach of the NDA for damages, but must prove that the disclosure was made in contravention of the terms of the NDA. Suing, however, will not put the genie back in the bottle: Once an invention has been disclosed to a third party who is not bound by the terms of an NDA, it cannot be patented (See discussion of Public Disclosure). It is therefore always preferable to file a patent application before divulging information on the basis of an NDA.

Keeping a Secret

We do not recommend that you automatically register all inventions as patents. A small number of inventions may be better protected by maintaining them as trade secrets. In most jurisdictions, including in Israel, filing a patent application normally leads to publication of your invention after 18 months and virtually all patents become available to the public once they are allowed. Be sure to consult a professional before deciding whether filing a patent is the best course for your business.

Your Invention

A patent can only be obtained for an invention, defined as a method, apparatus or system that is novel, inventive and useful, in a technology that is considered patent eligible by the law of the country in which you would like to obtain protection. But what constitutes a valuable invention for your business? How do you decide what you should protect?

The invention that you seek to patent should be a technological or business bottleneck that your competitors must pass through in order to compete with you effectively. By definition, a successful patent will give you ownership of that bottleneck and control of that junction.

Patent (Novelty) Search

After defining what you believe to be the invention, it is advisable to perform a search of the prior art. This includes all the publicly available information prior to the date when you filed your patent application. While both Patent Attorneys and Examiners primarily search patent databases, this is mainly for convenience. All public sources of knowledge and the information they contain are valid for use as prior art against which your patent application will be measured. This is true both during the examination of a patent application, the process in which a Patent Examiner in a national or regional Patent Office examines your application for a patent, and during litigation. While you are not legally bound to perform a patentability search, it is generally highly advisable to do so to increase your chances of receiving a patent and to make that patent is as strong as possible. 

Note: Patentability should not be confused with freedom to operate. 

Most potential investors will want to know if you have performed a search and will ask to see the results. In some jurisdictions, notably in Israel and the US, you are obligated to disclose to the Patent Office relevant prior art of which you are aware. Failure to do so can result in the loss of patent rights.

Make Sure You Own the Invention

Many R&D companies employ scientists or researchers who are contractually obligated to a 3rd party employer university, government corporation or hospital. Prior to signing an agreement with these scientists or researchers, it is important to establish whether the rights to inventions they develop on your behalf will belong to their employer or to your company. Once you have clarified the situation, which may also be subject to negotiation with the 3rd party employer, it should be clearly defined in a written agreement. This is usually easiest done early on, as becoming close to commercial success normally causes the 3rd party to drive a tougher bargain.

What is a Patent?

A patent is a legal right which enables inventors to prevent unauthorized exploitation of their invention in a jurisdiction (country where a patent for that invention is registered). It can also be used to generate income by licensing the patent to 3rd parties who might otherwise be infringing the patent.

Patent Pending

Patent Pending indicates that a patent application has been filed for an invention but not yet granted. It does not provide the rights of a patent, but it ensures that the applicant will be awarded a patent if the relevant legal criteria are met.

Priority Right

In accordance with the Paris Convention a priority right is awarded to the first applicant to file a patent application for a particular invention in a country which is a member of the Convention. The date on which the first application is filed is known as the priority date. Possession of a priority right permits the subsequent filing of additional patent applications corresponding to the first or priority application in additional countries, within one year of the priority date. While the date of the patent applications in the additional countries is the date on which the applications were actually filed, the priority date causes these applications to predate and take precedence over all applications for the same invention, filed after the priority date. In addition prior art is considered relevant to the additional applications only if it was in the public domain prior to the priority date.

Where Is It Worth Filing a Patent?

Patent rights are based exclusively in the national law of each jurisdiction and can be enforced only in that jurisdiction or jurisdictions. Since patent infringement is any unauthorized exploitation of a patented invention within a jurisdiction, including manufacture, trade or transportation, a patentee (normally a company that owns the rights to a patent) should determine a patent filing strategy which corresponds to the nature of the invention and the markets for its business interests.

International Patent Application

There is no such thing as an international patent. However, the Patent Cooperation Treaty (PCT) enables the filing of a single international patent application which establishes temporary filing rights in most countries (currently more than 140 jurisdictions, not including Taiwan, several Arab and South American countries). These rights are in force for up to 30 or 31 months from the priority date, with some possibilities of extension in accordance with local law. This gives patent applicants valuable time to make decisions regarding where applications should be filed, and time for money to be raised to cover the application process.

Provisional US Patent Application

It is often desirable to obtain an early filing date in the United States. Since 1995 it has been possible to do so by filing a Provisional Application. Because provisional applications expire after one year, a regular or Utility Patent Application based on the Provisional Application must be filed by the end of the year to maintain rights in the US after this time. Alternatively, the US may be designated in an international application based on the Provisional Application. 

Provisional Applications offer the following advantages:

  • Low filing cost
  • Few formal requirements
  • Additional year of protection in the United States
  • Establishment of a priority date like all other patent applications
  • Establishment of an early date for prior art considerations vis-à-vis other US applications under certain conditions

Provisional Applications must be used cautiously. A Provisional Application has the same disclosure requirements as a utility application and its preparation should be similarly thorough, preferably with the assistance of a professional Patent Attorney. Improper use of a Provisional Application without careful planning and merely as a low budget alternative to filing an application properly can lead to fatal flaws in patent protection. In some cases, it can lead to complete loss of patent rights years after patents have been granted and large sums invested. 

Note: Filing a Provisional Application is only one of a number of different first filing possibilities. No one strategy fits all situations and each application should be evaluated on a case by case basis, with the expert assistance of a qualified Patent Attorney.

Freedom to Operate

Also known as non-infringement, Freedom to Operate is an issue that many inventors and companies are concerned about but lack the financial capability to evaluate. Freedom to operate indicates that by implementing your invention or otherwise going about your everyday business, you are not infringing someone else’s patent rights. Because determining whether you have freedom to operate can be complicated and expensive, it is advisable to discuss it with competent professionals. 

It is important to be aware of two very basic facts regarding freedom to operate:

  1. If you have performed a patent novelty search and have been told that your invention may be patentable, do NOT confuse this with freedom to operate. The issues are completely different. Unless the opinion you received uses the words “freedom to operate” or “non-infringement”, then you have not received a freedom to operate opinion.
  2. You may receive 100 patents or no patents at all. This fact has no bearing on whether you have freedom to operate. A patent enables a patent owner to prevent others from performing an act. It does not grant the patent owner license to practice a particular invention.

Taxes

Patents, like all forms of intellectual property, have tax implications that vary and are influenced by the geographical location of the entity that owns the patent rights, when such rights are assigned from one or more inventors to a company. It is advisable to consult tax professionals who specialize in these matters to avoid unpleasant surprises.