27 Oct 2023
You’re starting a tech company to commercialize a new technology, and one of your first priorities is developing long-term relationships with investment partners – venture capital firms, angel investors, etc. The near-term goal might be to attract seed funding, or maybe you’re gearing up to Series A funding. Regardless of the specifics, there’s an essential aspect to consider: your intellectual property (IP) strategy.
I’ve worked with a lot of early-stage tech founders in this exact situation.
Most of the clients that we counsel are working on so-called “tough tech” or “deep tech” innovation. This is where the frontiers of science emerge from the laboratory and mature into real-world technology—there’s typically a very long road (often several years) of R&D before a working prototype (MVP), let alone a profitable business.
For this type of company, securing patents isn’t a choice; it’s a strategic imperative. And sophisticated investors will know this. They will expect you to have a solid patent strategy.
From my experience working with these types of companies from the earliest stages of fundraising all the way to successful acquisitions and IPOs, I’ve learned what works well, and I was recently invited to share my experience with a group of tech entrepreneurs. In connection with that, I developed a practical framework to help tech companies develop their own patent strategy, and we’re going to capture that in a series of blog posts.
In this four-part series, we’ll give you the tools that any patent-intensive tech startup needs to develop a sophisticated patent strategy. This includes:
- Existing IP;
- Future IP;
- IP management; and
- IP mapping.
We’ll help you develop bullet points that can be directly incorporated into your pitch deck, with additional details for those who want to dive deeper. Let’s begin with Part 1: Existing IP.
Understanding the Foundation of a Tech Start-Up Patent Strategy: Existing IP
In the world of startups, especially in the tech industry, patent protection can be the cornerstone of long-term business success. Patent-intensive tech startups rely on innovative ideas and cutting-edge technologies, making the development and management of IP a crucial aspect of the journey.
The most logical place to begin developing an IP strategy is to catalog your existing IP assets, risks and opportunities. Even if you haven’t filed any patent applications, that doesn’t mean you don’t have any existing IP. For example, the vision for your initial product, the technologies that you plan to develop, and possible solutions for technical problems that you plan to solve can be captured at this stage.
To help you begin documenting your IP strategy, we’ll dive deeper into the five key questions and steps that you can go through to map out your existing IP.
- What are the key innovations that will make your product or service different and valuable?
- Make a list of any existing IP that you have developed to cover these innovations.
- Are there any third parties who have rights in the existing IP listed above?
- Do you need to obtain permission or IP rights from any of these third parties? If so, how will you do that?
- Do you know of any other third-party IP (i.e., not developed by you or owned by your company) that would prevent you from executing your business plan?
Leveraging Your Innovations
You should first identify your key innovations, even if they are still amorphous concepts in your brain. These are the technological advancements that will set your business’s product or service apart in the market.
1. What are the key innovations that will make your product or service different and valuable?
Consider the core technology or unique approach that defines your offering. Is it a groundbreaking algorithm, a novel hardware component, or a revolutionary user interface or user experience? Pinpoint these innovations clearly.
To give you a concrete idea of what this might look like, here’s a fictional example: Imagine you invented the smart home thermostat 15 years ago, your summary of key innovations might start like this:
The founders of SmartOStat, Inc. have developed a home thermostat that connects to Wi-Fi and monitors home occupant behavior and automatically learns how to adjust its settings to conserve energy.
This will help homeowners reduce their energy costs and avoid energy waste. The thermostat will use a unique combination of sensors to monitor behavior, and a new algorithm (running in the cloud) to identify patterns and generate schedules for thermostat settings.
The thermostat will also have an intuitive user interface and smartphone app that make it very easy for the user to control settings.
Once you’ve identified your key innovations, it’s time to look at all your current assets related to the ideas and/or inventions.
Existing IP Assessment
With your innovations in focus, it’s time to evaluate your existing IP assets. For patent-intensive tech startups, this requires taking an extensive inventory.
2. Have you created a list of any existing IP that you have developed to cover these innovations?
There are three focus points in considering your full list of assets, and the wider your scope, the higher your likelihood of a fully protected invention. They include:
- Patent Applications: Have you filed patent applications to protect your innovations? It’s crucial to maintain a comprehensive list, complete with filing details such as application numbers and current status. Keeping track of your patent applications is essential for gauging progress and strategizing effectively.
- Trade Secrets: Beyond patents, there may be aspects of your tech that can be protected as trade secrets. These could include proprietary algorithms, manufacturing processes, or customer lists. Recognizing these elements is vital to preserving your competitive advantage.
- Future Patent Potential: As a forward-looking startup, consider potential inventions or innovations within your company that could become subjects of future patent applications. Staying proactive in identifying these opportunities is a hallmark of a robust IP strategy.
Navigating Third-Party Rights
In the complex world of IP, it’s essential to look beyond your startup to consider all angles on rights and contributions for the inventions, including joint ownership and multiple inventors.
3. Are there any third parties who have rights in the existing IP listed above?
- Collaborators or Co-Inventors: If you’ve collaborated with others in developing your innovations, they may hold joint ownership or rights in your IP. This often occurs in academic or collaborative settings.
- Prior Employers or Academic Affiliations: Review any agreements or contracts from your past. Previous employers or academic institutions may assert claims to innovations developed during your tenure.
- Funding Sources: Government agencies or investors who’ve financially supported your startup may have IP rights tied to their contributions. It’s essential to fully understand these dynamics.
Our company SmartOStat Inc. was founded by Davis Chilly and Carl Sweat, who were graduate students at St. Bartholomew University (SBU) when they developed the proprietary sensors described in the patent application “Smart Thermostat Sensors”. SBU was not interested in pursuing patents, so they allowed Chilly and Sweat to file their own patent applications at their own expense. However, SBU said that they would retain a license for research and teaching purposes.
All other IP was developed by Chilly and Sweat after they had completed their graduate degrees at SBU.
Permission and IP Rights
Identifying third-party rights is one thing; addressing them is another. If third parties hold rights in your existing IP, you may need to obtain permission or secure IP rights from them.
4. Do you need to obtain permission or IP rights from any of these third parties? If so, how will you do that?
Negotiating permissions or rights agreements can be a critical step in ensuring your startup’s path remains clear. As covered in an earlier blog post, Patent Ownership vs. Inventorship: Who Really Controls the Rights to a Patent?, inventorship doesn’t always equate to patent ownership, and different jurisdictions in the U.S. define inventorship differently.
Many startups emerge from academic environments in university spinoffs. In this case, you might need to consider getting appropriate licenses or waivers from the university. This is an area of patenting that I discuss often, and you can read more detail on ownership transfers in a separate blog, Patent Assignment: How to Transfer Ownership of a Patent, where I discuss how to have an existing patent assigned from one owner to another.
Regardless of whether the idea or invention was created in or outside the company, you can secure your company’s right to the IP in a way that is fully enforceable.
SmartOStat does need to formalize its license with SBU. Discussions with SBU have been informal, and nothing has been documented in writing yet. SmartOStat Inc. is in the process of working with IP counsel to get formal, written documentation that SBU has waived ownership in the inventions. SBU has been cooperating and is expected to sign the necessary documentation.
Chilly and Sweat have assigned all related IP to SmartOStat Inc.
Scanning for Roadblocks
Lastly, consider the broader IP landscape.
5. Do you know of any other third-party IP (i.e., not developed by you or owned by your company) that would prevent you from executing your business plan?
Ideally, the answer here is simply “no.” It’s a boring answer, but it’s important.
But if the answer is “yes,” you need to know that early and it might be a sign that you need to shift your business strategy.
If the answer is “maybe,” you should make sure you have a clear strategy for answering any questions that might arise from investors. For example, if you were an inventor on a relevant patent that’s owned by your prior employer, you should be able to explain why that isn’t going to be a problem for your new venture. If an investor spots this issue and you’re not prepared to (convincingly) tell them how you’ll navigate it, it could be a deal killer.
We have not done a comprehensive IP clearance search, but we are not aware of any blocking IP.
Keep in mind that you don’t have an obligation to search for roadblocks or third-party IP. In fact, it might be a better idea not to go looking for trouble. But you do need to be upfront about what you actually know exists.
This is also important because you will likely have to make representations/warranties about known threats of infringing third-party IP when you accept venture capital funding.
In Part 2 of our series: Future IP, we’ll dive deeper into the world of patent-intensive tech startups. Stay tuned as we continue to guide you through the essential steps of crafting an effective IP strategy tailored specifically for startups where patent protection is critical for long-term business success.
Building your IP strategy can be a complex and rigorous process. If you’re looking for additional information on what’s covered in this overview, we recommend consulting a qualified patent professional.
At Henry Patent Law Firm, our attorneys have developed and executed patent strategies for a number of successful tech startups — so if you have additional questions, please get in touch!
Michael K. Henry, Ph.D.
Michael K. Henry, Ph.D., is a principal and the firm’s founding member. He specializes in creating comprehensive, growth-oriented IP strategies for early-stage tech companies.