As discussed in our previous posts, startups are about capitalizing on ideas, contacts and experience. In the early stages of a startup or pre-startup, founders often socialize their business plan and details about their idea to receive feedback, recruit talent, and obtain funding. However, founders may naturally feel uncomfortable disclosing their plans and ideas to others. Will others protect the startup’s confidential information, or will they use the idea for their own benefit? Could disclosing the idea impact the startup’s own IP rights?
In this post, we will discuss some risks due to disclosing your idea, common scenarios that founders face, and practical ways to minimize the risks due to publicly disclosing the startup’s solution while preserving the startup’s IP rights.
What Are The Risks Due To Disclosing Your Idea?
The obvious risks associated with disclosing your idea to others are that they may steal your idea, share it, further publicly disclose it or even implement it themselves. However, less obvious is that the manner in which the founder discloses their idea may actually impact the startup’s future ability to obtain IP protection for the idea. For example, launching a product where your solution is entirely in the back-end, or simply making an offer to sell or license the product may result in a loss of patent rights. So, in addition to someone stealing your idea or further sharing it, the risk is that the startup may unknowingly forfeit their right to obtain IP protection or a patent for their idea.
Scenarios That May Cause You to Disclose
Founders may encounter several scenarios in which they have or want to publicly disclose their idea. These scenarios may include a) raising capital, b) recruiting employees, c) entering a startup competition, d) a beta test or experimenting with a prototype, or e) publishing a white paper or thesis.
One of the most common scenarios founders face is raising capital. The challenge is that in order to attract an investor, the founder may need to explain how their idea or startup distinguishes from the competition. In doing so, the founder may publicly disclose their key solution. While a Non-Disclosure Agreement between the investor and the startup may help keep the idea confidential, investors are rarely willing to sign such documents.
Another common scenario is recruiting partners, employees, or contractors. To find a talented and experienced candidate that is passionate about the startup, founders inevitably have to disclose at least some of their idea. Typically, candidates may not be willing to enter into a confidentiality agreement before deciding to join the startup. Furthermore, it may be more challenging to enforce any such agreement against candidates located in jurisdictions with a weaker legal system.
Additionally, given the exploding popularity of technology incubators, shared offices and other co-working arrangements, founders may bounce their ideas off of fellow founders in a collaborative environment, who are not legally bound to keep it confidential. In order to create dynamic environments and maximize the potential for innovation, some technology incubators even require applicants for rental space to share their concept with other tenants for peer rating and review.
In summary, there may be many scenarios where it may not be possible or desirable to secure an agreement to keep information confidential, or where such an agreement may be difficult to enforce. For these and other scenarios, it may be worthwhile to pursue IP protection in the form of a patent, copyright, or trademark in order to preserve the startups rights.
IP Tools at Your Disposal
This section lists some tools at the founder’s disposal that can help preserve the startup’s IP rights. The founder can work with an IP attorney to devise a strategy that minimizes risks due to public disclosure, while providing the founder with the freedom and flexibility to confidently attract investors, recruit team members, receive feedback, and test their product.
- Execute Confidentiality Agreements that cover the nature of the disclosure and include jurisdictionally relevant provisions.
- File a patent application to mitigate the consequences of any unintended prior disclosure, or future public disclosure. Filing a patent application also allows the founder to notify others that their solution is “patent pending”, which may be a barrier to entry for potential competitors.
- File a patent application on any recent, important improvements to the product, thereby providing the startup with some IP protection even if the original product was publicly disclosed more than a year ago.
- Register trademarks and copyrights to add value to the startup before pitching to prospective investors, and prevent others from stealing commercially valuable marks.
- Ensure that all documents are marked as confidential and physically locked, electronic systems are secured with adequate encryption and authentication, and confidential information is always discussed in private.
By affirmatively taking the appropriate steps to keep your idea secure and maintain your startup’s IP rights, the founder can focus on growing the startup and bringing their solution to market.
Future posts in this series will delve deeper into identifying and protecting competitive differentiators, analyzing patentability, and developing an IP strategy.