By Gabor Garai
When it comes to protecting intellectual property (IP), many entrepreneurs say to themselves, "How can I personally afford the huge legal fees? That's what venture-capital funds are for." Yet by the time they're ready for that Series A venture round, it's often too late: Much of the intellectual property they've created may no longer be protectable. In fact, the Series A round itself may be halted due to concerns about the ownership of the business's fundamental technology.
Given their limited resources, how do entrepreneurs solve this predicament? The answer lies in value engineering. Rather than seek to obtain 100% protection at a very high cost, entrepreneurs should explore an IP strategy that secures 80% to 90% protection for much less money. Like most other things in this world, the key is to create priorities, make choices -- and take full advantage of the law of diminishing returns. It might be nice to drive around in a spanking new Mercedes, but you can still get where you're going in an old, battered Chevy.
The key asset in most of today's young growth-oriented companies is either an innovative marketing concept or a new technology. Examples of the latter can range from a modest improvement on an existing platform (such as selling add-ons to the Apple iPod) to a technology that creates major changes in its industry, such as VoIP (voice over Internet protocol phone service). The proper value-engineered IP strategy will match the type of your intangible assets within the correct framework of legal protection -- getting you a reasonable level of protection at a commensurate level of cost.
In formulating an IP strategy, you must answer the following questions:
• What's the core intellectual idea or invention?
• How easily can it be duplicated?
• How did the idea/invention come about? Was the inventor working at another company? Was she a university researcher?
• How might you protect against duplication? Via a patent, trademark, copyright, or some other vehicle?
• How visible will the invention be within your product or service?
Because entrepreneurs tend to assume that a consultation with a multidisciplinary law firm will be extremely costly, they often forego seeking out expert answers to these and other such questions, or else seek out help from a neighbor or relative who is a general-practice lawyer and doesn't fully understand intellectual-property protection.
The reality is that consultation with an expert can be accomplished at a much lower cost than entrepreneurs might imagine -- $2,000 or less. Numerous strategies will let you delay the bulk of IP costs for months and even years.
The key to keeping IP protection costs down is to appreciate that protection isn't an all-or-nothing proposition. It's often possible to obtain 90% protection for a few thousand dollars, whereas obtaining something closer to complete protection may cost tens of thousands more. An IP attorney with significant experience working with early-stage technology companies should be able to design an effective strategy that will protect essential IP, while minimizing the initial costs associated with building an IP portfolio.
For example, the process of obtaining a full patent can be quite expensive. But for just a few thousand dollars, it may be possible to submit a provisional application and gain some temporary protection pending completion of the entire process. This action may make the difference between retaining rights to your invention until you grow large enough to fully protect it and losing your invention entirely to another entity.
The same approach can be applied to trademark protection. It's possible to do a preliminary search of existing trademarks and file an application, often for $1,000 or less. This approach may not ensure full protection, but it can often provide the 90% essential for most ventures until they determine they want to go after a more complete approach.
Finally, establishing basic corporate policies and documentation, such as employee and consultant nondisclosure agreements, may require minimal legal expenses -- especially if the entrepreneur uses a law firm whose extensive experience in creating and litigating these types of provisions is embedded in their standard form documents.
Such a "90% approach" not only provides real business benefits but it also goes a long way toward impressing professional investors. Having basic corporate and IP strategies in place and supported by a solid system of legal defenses will give entrepreneurs an enormous edge in raising capital.
Garai (email@example.com) is a partner in the Boston office of national law firm Epstein Becker & Green, specializing in the financing and growth requirements of small and midsize companies
Edited by Rod Kurtz