IP Concerns for Software Startups to Consider

November 2015

Capturing IP in the early stages of a software startup is critical, and mistakes can often impact a company’s IP position, valuation, and overall success.  Below are ten points that early-stage software companies should consider:

File early, file often

Most mistakes in a startup company relate to missing important dates that are critical to preserving IP, such as patents. For instance, prior public disclosures and/or software releases may affect foreign patent applications and may preclude U.S. applications more than one year later. You should evaluate key patentable ideas prior to disclosure/release and consider patent filings at an early stage.

Watch your disclosures, get nondisclosure agreements (NDAs)

Many mistakes relate to disclosing early-stage ideas without having the benefit of confidentiality. For instance, disclosing a pitch to investors or an outside contractor without an NDA may affect your IP position and/or your ability to file a patent application or preserve valuable trade secrets.

Do you own what you think you own?

Always make sure that ownership rights are clearly defined for any software being developed. For example, make sure software contractors agree to an assignment before they begin work. Also, make sure your company has the proper licenses for the data it is using.  There are many other ownership rights that relate to software to consider. Also, valuable IP can be affected greatly by inbound and outbound licensing agreements, supplier agreements, and end-user licenses, among other types of agreements, so it is recommended that these agreements be drafted and reviewed with care.

Employee/key person agreements

Many times, a small software company may not have employee agreements in place prior to employees or key persons creating IP. Sometimes, these people may leave the company prior to securing ownership of the IP by the company, creating ownership issues. Companies should have the proper agreements and procedures in place that obligate employees and key persons to assign their IP to the company.

Evaluate all types of IP

Although patents and trademarks are the two most common forms of IP relating to software companies, many companies overlook others, such as copyrights, domain name issues, trade secrets, and design patents. These niche forms of IP can provide invaluable protection when you least expect it.

What about Alice?

The Supreme Court’s recent Alice decision does not categorically preclude future patents directed to software solutions. Although certain subject matter is now more challenging to obtain, the PTO still grants patents related to technically-based ideas, even those relating to software. International protection is also still available. You should contact your patent attorney to determine an effective strategy for preserving technically-based ideas.

Open source, code reuse issues

Many companies use existing code to build their software systems. However, such uses may affect the companies’ ability to create commercial versions of the software, license data or license the code, among other things.  You should carefully evaluate all sources of code within your product, along with their license terms to avoid these issues.

Consider provisional patent applications

A provisional patent is a less-expensive, preliminary application that preserves the right of priority for a future utility patent. Provisional patent applications can be used as a cost-effective tool for preserving ideas  as software development progresses and should be considered when time and/or money is not available for pursuing a regular patent application.

Choose good trademarks

Many times, companies choose and commit to trademarks that may cause issues down the road. For instance, there may be other companies that use a similar mark that could cause the company to expend money in a trademark or domain name or result in costly re-branding. By performing trademark searches early and carefully selecting marks, many later-stage issues (and expenses) may be avoided.

Agreements, agreements, agreements

There are many and different types of agreements relating to software, many of which affect IP.  For instance, software development agreements, end-user agreements, in-bound and out-bound software licenses, service level agreements, open source licenses, among others can greatly affect a company’s IP position. You should carefully evaluate the IP provisions in these agreements.