I was asked to respond to another Quora question—
How can a startup protect their intellectual property without filing for a patent?
Tim Berry provides a really excellent answer at Quora. But I thought it would be worth it to elaborate and come at things somewhat differently.
What I refrained from suggesting–and what Tim also didn’t get at–is that a time-honored approach involves what would be considered now to be criminal elements: the threat of force, or even the slightest intimation of danger should one cross a line. If you can get a copy of the movie Comfort and Joy (the one directed by Bill Forsyth and music by Mark Knopfler) with rival ice cream truck operators engaged in a turf battle, you get the idea without going all Godfather on it. But just because you decline to consider any such thing–and that’s good, really–does not mean that everyone else out there with a startup idea is also not going to cheat, threaten, steal, ruin, interfere, lie, or hurt to get their way. Intellectual property–including patents–appears rather like a civilized way of leaving the state of perpetual war and vigilante action and adopting Locke’s arguments for the value of government intervention to decide the justice of one’s claims. Anyway, obviously, holding a patent offers absolutely *no* “protection” from that sort of “protection” arrayed against you.
I also didn’t mention that university patent practice all but forces university-affiliated startups to deal with patents. The university forces inventors to file patent applications, having assigned the inventions to the university. The university then forces the startup to take an exclusive license and commit to paying the university’s patenting costs as well as “commercializing” the licensed invention. Talk about tying a startup down and encumbering whatever financial resources it may have. It’s all the worse if the startup does not need a patent and if there were not a patent the startup would also not need a license. Stuff happens despite university bureaucratic intrusions. It’s just that many university administrators refuse to consider such things and assert that “success” stories are the result of their work rather than that the “success” would have been even greater had they kept their thumbs out of the pie.
Anyway, here’s my Quora answer.
Read Tim Berry’s answer, take it to heart.
We can go at this question another way as well. Don’t fixate on “protection.” There are other ways to think about intangible assets in a startup.
Consider the value of gaining widespread adoption of a new technology—with the startup realizing its benefit from things that happen at or after adoption. A patent is a threat to exclude all others, and so works directly against widespread adoption and the business opportunities that arise from such adoption. “Protection” already assumes that people copying—adopting, using—is bad for your startup. But is it? “Protection” suggests that what you have got is so easy to do that only a piece of paper giving you a legal right to exclude keeps you from getting cut out by others. “Protection” also then implies that you know you cannot move more quickly than other startup—even if you have a head start—or more quickly than the fearsome but lumbering dinosaur big tech companies. To work over the problems of “protection” at depth, pick up a copy of Nassim Taleb’s Antifragile.
And consider this about “protection.” Geoffrey Moore in Crossing the Chasm makes the point that conservative buyers—such as at big companies—tend to avoid purchases in which there is a sole source. They want a backup in case of any failure or disruption in supply. They want to see competition to keep prices low and keep service levels highly engaged and responsive. They want to pick the strongest company.
Dan Ariely, from an entirely different direction, makes a similar point about what appears to be irrational choice. Faced with a choice between a thing in isolation on one side and two things that can be compared to each other, people tend to choose the better of the two things. Check out Ariely’s classic TED talk “Are we are in control of our own decisions.” So using a strategy of “protection” that isolates the startup might do just the opposite of what you expect—it doesn’t make your company unique and therefore desirable but rather gives buyers an unconscious incentive to look to where there’s competition and choose what appears to be the stronger competitor there. The startup might think in terms of creating its own competition. A weaker version of itself. A wingman. An uglier Jerry as Ariely calls it.
Let’s also be be clear about “property” in “intellectual property.” You don’t have “property” rights in your stuff until you take some action to treat your stuff as property. Yes, your startup can have a statutory right to copyright in original works of authorship created by its employees—so make sure the startup has everyone on board with clearly defined scopes of employment or otherwise agree to assign their copyrights to the startup (founders, for instance, might not be employees, and what they do might not be work-made-for-hire). But even here, you may not need ownership of everyone’s works of authorship—it may be all you need is permission to use. Why waste effort and money on stuff you don’t need to own, don’t need to make the startup’s “property”?
Trademarks, too, can be created common law simply by using the marks in commerce. Document your use and date of first use. It’s worth doing a search first to make sure you won’t be walking into someone else’s trademark rights. Trademarks connect a company with goodwill in a market. The mark is ascribed the value, but it is the goodwill attached to the mark that gives the mark its value—awareness of a product’s origin or point of control, confidence in that control with regard to quality and service and customer happiness.
One can seek a US federal trademark registration (or even with intent to use)—but there are caveats even here. The cost isn’t that great, (though in my experience it works best to use an experienced trademark attorney to get the registration right). The downside of a federal trademark registration is that some folks in other countries see that you are filing in the U.S. and figure rich Americans will one day show up in their country, and so they file on your mark in their countries and troll-like, wait for you. So if you are not really sure of your product on a global scale, maybe federal trademark registration will close off opportunities where you thought it was going to “protect” your company.
Trade secret is, like trademark, an ancient form. In a way, patents were developed as a social and economic response to trade secrets, targeting city-based trade guild-held secrets. A long time later, patents were used to target the secrets held by the “patent medicine” folks who didn’t actually use patents so one didn’t actually know what was in that “medicine.” A trade secret is not really property so much as it is information with economic value not generally known for which the proprietor takes reasonable care to prevent disclosure. So take reasonable care—identify the information that matters that folks don’t know about, have everyone that has access to that information agree not to disclose it except as provided by the company, and give access to anyone else only on a need to know basis. And forget about asking potential investors to sign non-disclosure agreements. If they are any good, they will refuse—and refuse they ought.
If you go with trade secret, keep in mind that once the secret is out, then it is out. And if someone else independently comes across your particular neat way of doing things, there’s nothing you can do about it. And if they patent what you chose not to patent or otherwise disclose, then it’s worse (at least in the U.S.)—you have to establish you are a “prior user” of the inventive bits, and that will include evidence that you are using the inventive bits, not just hoping to in the future. And even that won’t help your future customers if they cannot use your trade secret stuff because someone else now has a patent that excludes that use (without paying or whatever). And keep also in mind that sometimes going all silent that something is a trade secret creates suspicion rather than awe—that you just have more snake oil to sell and are looking for desperate rubes. So don’t think that just everything you have is a trade secret, even if everyone in the startup learns not to blurt out everything all the time.
Consider, then non-IP class of asset: Non-IP intangible assets, or NIPIA. It’s good to think about all the intangible assets that aren’t IP, and won’t ever be the startup’s “property.” Consider, for instance, the ability of your people to work together as a team, that you have some articulate and creative and technologically wizardly people on board. Being able to handle complexity with competence can be huge. Like Red Adair, ready and able to put out the most nasty oil rig blowout. If you have such talent, that can be your calling card. That anchors your reputation. That pre-sells your products. That’s your NIPIA. Few patents can touch that for immediate value.
Look at how your company might be positioned as a go-to resource, a node, centrality in an emerging social network. Think about the channels of trade that open up. You don’t own a channel—it’s not just your qualified lead list but rather the fact that the people you call are ready and willing to do business with you. Think about the customers who want your company to succeed—you can’t own that, can’t buy it. It’s NIPIA. Show a venture investor that five big companies want to buy your product right now, that they want your company to succeed with their business—that’s NIPIA. It doesn’t “protect” your company, and it’s not “property”—but it is an important asset that you can help to create and can put into play for your advantage. Take an inventory of your NIPIA, learn how to use it.
Finally, don’t dismiss filing for a patent. There are reasons to get patents that don’t involve “protection” or “excluding all others.” Guy Kawasaki puts it in Art of the Start (under Lie #7):
“Patents do not make a business more defensible…. When talking to investors, the optimal number of times to mention that your technology is one. Zero is bad bacause it implies you don’t have anything proprietary. More than one mention means that you’re inexperienced and think patents make your business defensible.”
So you might file for a patent as a simple way of making it clear to potential investors that you know what you’ve got, that some of it is truly new, useful, and non-obvious, and you may build on that base and have the ability to make more when you need it. The patent represents not so much property as it does NIPIA—your awareness that you have got truly new stuff and know what it takes to handle it should you come up with more, which you expect you will.
Patents may also get you a seat at the table for technology roadmaps and standards formation, seed share and share-alike commons to develop platforms, and even raise the valuation of your company should someone big come looking to acquire it. Think of a patent as peacock feathers—a mating aid—not porcupine quills—pain makers.