How Entrepreneurs and Start-ups Can Avoid This Common IP Pitfall

Fledgling entrepreneurs and young start-up companies are often daunted by how to approach the initial steps of protecting their IP, particularly when it comes to their potentially patentable inventions.  Oftentimes, in their excitement to gain support for their ideas, these entrepreneurs and start-ups willingly share their ideas without realizing how they are harming themselves: the laws that protect inventions do not favor public disclosure prior to the filing of a patent application.  Many IP rights are unwittingly lost by such disclosures, which leads to lack of interest from investors, loss of company momentum,  and/or complete failure of the start-up to get off the ground.

Let’s face it: protecting an invention costs money, sometimes lots of money. Yet, it is also true that investors want to know their investment is protected by IP.  So, if an entrepreneur needs to raise capital, what are they to do?  Clearly, the entrepreneurs and start-ups are running into a catch-22: they would like to disclose their invention to potential investors in order to raise money, but by doing so they may also potentially devalue their invention such that investors would not want to invest in it.

One of the most common mistakes is disclosing an invention without a confidentiality agreement in place. Such a disclosure may place the invention in the public domain, thereby resulting in loss of rights in most countries in the world.  This loss of rights generally encompasses anything and everything that was disclosed prior to the filing of a patent application. The U.S. is an exception to this general rule, because U.S. patent law provides a grace period of one (1) year from the first public disclosure to file a patent application. Raising money on an idea inherently requires disclosure of the idea, but such a disclosure should only be done under a properly written and executed confidentiality agreement. In this way, an idea will generally not be considered in the public domain, and IP rights will be preserved (thereby allowing a patent application to be filed in order to protect the inventive idea).

Another common mistake is that the confidentiality agreement is insufficient for purposes of protecting the invention.  Not all confidentiality agreements contain the appropriate or correct language to properly preserve an inventor’s IP rights.

Investors today view the world market as the arena for their potential return on investment (ROI). Even though the major market may be the U.S., investors may also be looking to capitalize elsewhere. Avoiding loss of foreign IP rights is often a negative driver for investment, and preserving world-wide IP rights conversely is often a positive driver.

In short, when looking to involve others in an invention or start-up, the entrepreneur and start-up would be wise to enter into proper confidentiality agreements that effectively preserve world-wide IP rights. In this way, the catch-22 may be successfully avoided, and potential investors will have the opportunity to evaluate an idea or invention without fear of simultaneously devaluing that idea or invention.  Therefore, the opportunity to raise investment funds in order to assist with the drafting, filing, and prosecuting of a patent application to protect the invention would be preserved. In the end, this is a simple – but highly critical – step that is often overlooked.

Hoffmann & Baron, LLP is a full-service law firm specializing in all areas of intellectual property, both domestically and internationally, since 1984. We safeguard intellectual property assets through procurement, litigation, counseling, opinions and licensing. What sets us apart is our personalized attention and ability to customize our services to fit the requirements of each client. Hoffmann & Baron, LLP has offices in New York, New Jersey and Washington D.C.