The assets of a modern startup business are tied to its intellectual property holdings. This is because the modern startup typically initiates its presence in the internet space where intellectual property is the main, if not the only brick, in the startup’s foundation.
The internet has made it easier than ever for the startup business to find customers, sell products, and market its presence all without the overhead costs of physical office space, inventory, and the payroll/staffing costs that come with managing that sort of operation.
As argued by Chris Anderson in his bestseller The Long Tail: Why the Future of Business is Selling Less of More, the internet has opened a marketplace where micro businesses can open stores that sell a much smaller variety of products and services to a much larger base of potential consumers.
As any successful business owner knows, it is much cheaper to carry and market a single product than an entire variety. But at the same time, doing so is akin to putting all of one’s eggs in a single basket, and that basket then needs to be fiercely protected — on the internet this is done with a robust intellectual property portfolio.
All of the marketing and R&D dollars invested by a startup business into developing its premiere product or service can be protected via two important intellectual property variants: trademark and trade secret protection.
The trademark asset allows a startup business to protect its marketing dollars by ensuring that all the time, effort and money spent on building its product’s reputation among consumers cannot be exploited by competitors. Where most services provided by internet startup businesses do not reach the level of “novelty” and “non-obviousness” required for patent protection, a startup business can only get ahead of its competitors by hitting the market hard and capturing as much of it as possible before the competitors move in.
To this end, once a chunk of the market is captured, a trademark allows the business to plant its name, like a flag, onto its new digital territory. Consumers who have grown to like the quality of the widgets that they purchase from BusinessStartupCo will know that any widgets not marketed with the BusinessStartupCo trademark are not the same quality.
Likewise, while competitors will have every incentive to make their products seem like they come from BusinessStartupCo., trademark registration allows BusinessStartupCo to scare away such opportunism with the threat of lawsuit and heavy civil penalties.
Protecting the marketing investment is one side of the coin, the other is protecting the R&D money. It is one thing to develop a widget with a reputation for quality, it is another to prevent your competitors from knowing how to develop a similarly good widget.
For decades the Coca-Cola Company has protected an otherwise unprotectable recipe by doing just one thing: keeping it secret. While web-based services are not exactly the same as a soft drink, the concept is the same: the less people know how you run your services so efficiently, the less your competitors will be able to mimic your success.
But of course some people will need to be in the know: your staff, your web developers, any third party vendors that you use to build, sell and advertise your product.
To this end, trade secret protection is a valuable intellectual property protective mechanism for maintain the market edge of a startup business. The bulk of this protection is effectuated via simple non-disclosure agreements to be signed by your staff and vendors, as well as relevant intellectual property ownership clauses that need to be present in all independent contractor and employment agreements.
It is one thing to keep a secret, it is quite another to contract with others to maintain your secrets for you. The latter represents a truly valuable asset to the modern business startup.
If you have questions about trademarks, trade secrets, or otherwise protecting your intellectual property, please contact Tim Bukher or any member of the Thompson Bukher Intellectual Property Practice at (212) 920-6050.
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