Can you obtain exclusive rights in your technology?
One of the most common mistakes made when investing in a technology startup is to ignore potential intellectual property contingencies. This mistake can prove to be particularly serious when the value of the startup lies precisely in its intangible assets. Think of things like Google’s search algorithm, Amazon’s patented 1-Click ordering – the list is endless.
We start this post with the first question you need to ask yourself when investing in a technology startup or trying to convince others to invest in yours: Can you obtain exclusive rights in the technology or business model you are interested in? You need to do everything you can to make that happen. Obtaining exclusive rights in a startup’s competitive edge is precisely what makes it valuable. Otherwise, if it is easy for competitors to reproduce the idea in question, you need to think twice about whether it’s worth investing in. Exclusive rights can be obtained in various ways. Here are some of them:
Patents vs know how: the eternal dilemma
The first way to obtain exclusive rights is to apply for a patent to protect the product or process, which must meet certain requirements: it must be new, involve an inventive step (i.e., one that is not obvious) and be used for a specific industrial purpose. In short, it must be something new that solves a particular problem for the first time or in a totally new way. A good example is Amazon 1-Click.
With patents, you need to be particularly careful with how the “novelty” of the technology in question is managed. Disclosing details of the technology before the filing date can have a negative impact on the novelty requirement and prevent protection of the patent. If you manage to patent an invention, you will hold exclusive rights in that invention for 20 years – an eternity in terms of technological startups. However, you will need to have an international protection strategy in place and enough funds to implement it, because, for now, rights in a patent are still limited to the countries in which the patent has been filed and granted.
Another option is to protect the technology as a trade secret. With this method, make sure you don’t disclose the know-how to anybody that hasn’t signed a non-disclosure agreement (NDA). The golden rule is simple: the fewer people with your know-how, the better. Many startups choose this method since it saves them the substantial cost of securing protection through a patent. But remember, there’s no such thing as a free lunch. Sufficient measures should be implemented to ensure that your startup’s valuable information is kept secret; if it is made public, even by mistake, you could lose your most valuable asset (so, roll out those confidentiality policies, NDAs and IT security measures). Another big advantage of this method of protection is that it doesn’t have a time limit. The information in question will always be protected as a trade secret, provided that it is kept confidential. Google’s search algorithm is a good example of how valuable trade secrets can be.
If you are not sure whether to secure protection under a patent registration or as a trade secret, the question you need to ask yourself is whether the invention can be easily discovered. If it can, then a patent is your best—and, really, your only—option, since trade secrets do not provide protection against independent developments through things such as reverse engineering.
Software as a binary literary work
If the startup’s value lies in a specific software, the protection strategy may differ, because it is more difficult to patent computer programs in the EU than in the US. However, just because you can’t patent certain programs doesn’t mean that you’re completely out of luck. The original software can always be protected through copyright, which affords exclusive rights over a 70-year period as from the death of the author (or from January 1 of the year after the program was disclosed, if the author is a business). And provided that your computer program is patentable, nothing is stopping you from protecting your application both by patent and copyright, simultaneously. Registering the software with the Intellectual Property Registry or the notarial deposit of software can help to put investors’ minds at ease when backing a particular startup.
However, be aware that copyright does not protect the functions performed by a computer program, only the way in which those functions are expressed. A specific development is protected, but not the intended functionality. The Court of Justice of the European Union (CJEU) has already ruled on this issue in case C-406/10 (Sas Institute v World Programming). In Spain, Judgment 3285/2016 rendered by Madrid Commercial Court no. 9 of December 12, 2016 confirms the CJEU’s view. We are still waiting to see what the Madrid Provincial Appellate Court has to say on the matter.
Sui generis rights in data bases: the big ally of big data
Protection can also be obtained where the use of big data is key to your business model. This is done by protecting the effort made to compile the data in question through sui generis rights in data bases. Just this year, the Supreme Court issued a final judgment ordering the multinational IMS Health to pay over five million euros to the Spanish company INFONIS for infringing its sui generis right in the pharmaceutical database ZBSales. The key evidence of the breach was the thorough system that proved that third parties had accessed the information and that errors had been repeatedly made in the copied data base.
Finally, an industrial design can become a valuable ally in those cases in which the product’s appearance is crucial, because in the EU it provides exclusive rights for up to 25 years (14 years in the United States). Steve Jobs made particular use of industrial designs (design patents in the US) to obtain exclusive rights in the appearance of his products and stores. This notably includes protection of the iconic Apple III or the even more iconic iPhone through two design patents secured in 1980 and 2005, respectively:
Interestingly, the US Patents and Trademarks Office is still granting design patents filed by Steve Jobs before his death: a perfect example of the importance the founder of Apple attached to intellectual property rights.
To sum up…
In view of all we have seen until now, a good way of checking the reliability and business vision of a startup is to take a close look at its intellectual property policy. The following table sums up the best ways of obtaining exclusive rights in technology:
Cristina Mesa (principal associate at Starups & Open Innovation area)