Protecting Your Intellectual Property: A Startup's Guide

Your intellectual property (IP) is often your startup's most valuable asset. Whether it's your code, your brand, your designs, or your trade secrets, protecting your IP is critical to your success and ability to raise funding.

What is Intellectual Property?

Intellectual property refers to creations of the mind that have commercial value. For startups, this typically includes patents that protect inventions and innovations, trademarks that protect brand names, logos, and slogans, copyrights that protect original works like software code, content, and designs, and trade secrets that protect confidential business information.

Why IP Protection Matters for Startups

Investors will conduct IP due diligence before funding your company. They need to verify that your company actually owns its core technology and assets, you haven't infringed on anyone else's IP, your IP is properly protected and defensible, and there are no disputes or unclear ownership issues. Without this, they won't invest.

Real example: A promising AI startup lost a $2M seed round because they couldn't prove they owned the core algorithm. The founder had developed it while employed at another company, creating a potential ownership dispute that made investors nervous about future legal challenges.

Step 1: Ensure Your Company Owns Its IP

This is the most critical step and where most startups make mistakes. First, secure Founder IP Assignment: Every founder must sign an IP assignment agreement that transfers all IP they create for the company to the company itself. This should happen on day one, before any work begins. It should include assignment of all past, present, and future IP related to the business, confirmation that the founder has the right to assign this IP, and disclosure of any prior IP that won't be assigned (like side projects).

Second, use Employee and Contractor Agreements: Every person who works on your product must sign an agreement that includes work-for-hire provisions (anything they create belongs to the company), IP assignment (explicit transfer of all IP rights), and confidentiality (protection of trade secrets and confidential information).

Critical mistake to avoid: Don't wait until later to get these signatures. If a contractor leaves before signing, you may not own the code they wrote. Getting them to sign after they leave is nearly impossible and can cost you millions.

Step 2: Protect Your Brand with Trademarks

Your company name, logo, and product names are valuable assets that should be protected with trademarks. File for a trademark as soon as you've decided on a name and verified its availability. File for your logo once you have a finalized design, and file for product names before public launch if the name is central to your brand. Taglines can also be trademarked if they are distinctive.

The trademark process involves a search to ensure your mark is available (around $300-500 with an attorney), filing your application with the USPTO (around $250-350 per class plus attorney fees), waiting for approval (8-12 months on average), responding to any office actions, and then registration. The entire process, including attorney fees, typically runs $750 and up.

Cost with Paralex: $750 for trademark search and filing (one class), including attorney review.

International Trademark Protection: US trademarks only protect you in the United States. If you plan to operate internationally, consider filing in key markets where you'll do business or using the Madrid Protocol for multi-country filing, prioritizing markets based on revenue potential and risk.

Step 3: Consider Patent Protection

Patents protect inventions and innovations. They're expensive and time-consuming, so you need to be strategic. Patents make sense if you've invented a truly novel technology or process that is central to your competitive advantage, you're in a patent-heavy industry, or you need patents to attract investors or partners. They don't make sense if your advantage comes from execution, your technology evolves too quickly, you're in software/SaaS where trade secrets are more effective, or you can't afford the $10,000-15,000+ cost per patent.

Provisional vs. Utility Patents: A provisional patent is a lower-cost ($2,000-5,000) placeholder that gives you "patent pending" status for 12 months. Use this to establish a filing date while you refine your invention and raise money for a full utility patent, which provides 20 years of protection and costs $10,000-15,000+ and takes 2-3 years to obtain.

Step 4: Protect Trade Secrets

Trade secrets are confidential information that gives you a competitive advantage, such as proprietary algorithms, customer lists, pricing strategies, manufacturing processes, and business plans. To protect them, identify what's confidential, limit access, use NDAs, mark confidential materials, implement security measures like password protection and encryption, and train employees on how to protect sensitive information.

Step 5: Respect Others' IP

Protecting your IP is only half the battle. You also need to avoid infringing on others' IP. Common infringement risks include using open source code improperly (some licenses require you to open source your own code), copying competitor features too closely, using images or content without permission, and hiring employees from competitors (they may bring confidential information). Before launching a product, consider conducting a freedom to operate (FTO) analysis to identify potential patent infringement risks.

IP Due Diligence Checklist for Fundraising

Investors will ask for these documents during due diligence: IP assignment agreements from all founders, employment agreements with IP assignment provisions, contractor agreements with work-for-hire provisions, a list of all trademarks (registered and pending), a list of all patents (issued and pending), a list of all copyrighted works, a list of all domain names owned, an open source software inventory and license compliance report, and details of any IP disputes or infringement claims.

Common IP Mistakes Startups Make

1. Not getting IP assignments from founders early: Do this on day one.
2. Using contractors without proper agreements: You may not own the work they create.
3. Disclosing inventions before filing patents: Public disclosure can prevent you from getting a patent.
4. Choosing a name without checking trademarks: You may have to rebrand later.
5. Not protecting trade secrets: Once disclosed, they lose protection.
6. Ignoring open source licenses: Some require you to open source your code.

Get Your IP Protection Right

At Paralex, we help startups protect their intellectual property with affordable, fixed-fee services. IP Assignment Agreements are $150 per person, Trademark Search & Filing is $750 (one class), Provisional Patent Applications start at $2,500, NDA templates are $100, and an IP Audit is $500. Don't wait until investors ask about your IP. Get it protected now.