From Idea to Success: Intellectual Property in Startups

Consider this tale of two online startups:

1. One entrepreneur devised a clever software app; raised funds from family, friends, and outside investors; and launched his internet-based venture. But it took a lot longer to get the market acceptance he’d hoped for, and the business folded.
2. By contrast, a young woman with a solid savings cushion bought an established customer base and took her new business online. Thanks to her low overhead, high profit margins, and innate sales skills, she became successful.

Mary Anne O’Connell, partner at Husch Blackwell, advised both clients. “The cyber-businesses I’ve seen fail — typically, money is at the root of that,” she says. “[People] tend to underestimate what it’s going to take to make a go of it.”

The Importance of Intellectual Property Rights to Startup Success

Business attorneys like O’Connell advise clients on standard issues such as registration, taxes, and legal agreements with partners, investors, and suppliers. But they can also address intellectual property (IP) questions and other challenges specific to online startup success.

IP is a type of intangible asset that gives you exclusive rights to a creative work or invention. Though intangible, IP assets are often among the most valuable assets your company owns. The main types of intellectual property include:

• Copyrights to artistic works or original works of authorship;
• Patent protections for inventions or designs;
• Trademarks for brand names and logos;
• Trade secrets for inventions or formulae.

“You’re in the world of protecting yourself and your images, so you’ve got trademarks and copyright issues. In some cases, people may even need patents,” says Garrett C. Reuter Jr., with Greensfelder, Hemker & Gale. “You can see some wide-eyed clients sitting there, like, ‘Whoa, I didn’t realize all of this.’”

Getting Ahead of the Curve With Legal Advice

Hiring the right attorney — one with experience representing internet companies — is critical, says Anthony G. Simon, a patent and trademark litigator at The Simon Law Firm.

“I usually get called in after the fact,” he says, noting that lawsuits often stem from common mistakes like inadvertently using a business name that belongs to another company. Simon recommends making sure your business insurance policy offers the proper liability protection. “Innocent infringement is not a defense,” he says.

Competitive Edge and Legal Protection Against Hackers

When it comes to competitive advantage, cyber-entrepreneurs should be on red alert and have an IP strategy in place.

“It’s so easy to start a website and just start selling stuff. In many cases, you’ve got people out there stealing your ideas,” says Reuter, whose online clients include a clothing shop targeted to college students and the developer of a gaming app.

It’s also important to shield your online business from cyber hacking. “You need to protect yourself,” Reuter notes, “because that could sink your business pretty quick.”

The Unique Challenges Facing an Online Startup

In many ways, starting an online small business is similar to building a brick-and-mortar storefront. Both require business plans and decisions about incorporating, setting up by-laws, and drawing up shareholder agreements.

Early-stage cyber companies, however, may have a tougher time establishing credibility, especially with older customers. “It’s easier to pretend to be a business online than it is to pretend to be a business with a physical location,” O’Connell says. And waiting on government entities to review your paperwork can take much longer than you think, so be prepared for delays.

Must-haves include:

• Good internet connection speeds;
• A startup team that can focus on social media;
• Search engine optimizations; and
• Frequent website updates.

Most importantly, get legal and financial advice upfront — before you dive headfirst into that big online money-maker. “It’s much easier and cheaper to prevent a mistake,” O’Connell points out, “than to fix one.”

Find an Experienced Attorney to Bolster Your Business’s Intellectual Property Protections

If you’re a new online business owner or entrepreneur, consider speaking with an attorney in your area who has experience navigating the legal aspects of startups, including securing your startup’s IP. Getting the legalities taken care of upfront can avoid the need for legal action in the future.

For more information on the forms of IP, see our IP law overview and related content.