Starting a Startup: Where to Start - Part 5: Protecting Ideas: Intellectual Property

24.03.2019
Shira Teger, Associate at Yigal Arnon & Co.
This series was written for you: the entrepreneur with a dream. We want to help you turn your dream into a thriving reality by sharing our expertise with you.

What follows is a series of articles outlining the basics you need in order to start a startup in Israel; it contains terms you need to know, steps you will have to take, and considerations to ponder when making choices about how to run and grow your company. We'll add a new chapter each week – so keep coming back for more! As always, we welcome your comments below.

If you missed Part 1 (Making it Official: Incorporation)Part 2 (Who's Who and Who to Hire)Part 3 (Division of Labor), or Part 4 (Picking a Supporting Team) - be sure to check them out. Otherwise, its time to dive into Part 5 of this series: Protecting Ideas: Intellectual Property.

For most startups, their most valuable asset is their idea. This idea is then translated into some sort of implementation, whether via app, website, machine, marketable code or some other form. The law recognizes this, and provides a way for your company to protect your idea and the product it yielded. We call the idea, the knowhow behind it, and its materialization into a product, "intellectual property" or "IP".

IP can fall into a number of categories. The main ones are: patents, copyrights, trademarks, and trade secrets. Sometimes, to protect intellectual property, registration with a local or international body is required. But other times, there's no need. Here is a quick look at the four main categories, and a critical tip to ensure the IP is yours. Keep in mind that IP can be a very complex topic, and it is often worth discussing with a professional in order to make sure you are maintaining your most valuable asset as your own, and to make sure you're using the IP of others in the best way, typically through specific licensing agreements.

Patents.

In order for a patent to exist, it must be registered. The holder of a patent has an exclusive right to use and market the invention it covers, which can then be utilized or licensed in any number of ways. Patents do expire after a certain number of years, depending on where they are registered. In order to obtain a patent, an applicant must provide all information about the proposed patent, prove that the idea is novel and non-obvious, and that there's a use for it. The actual criteria and how to meet them vary from jurisdiction to jurisdiction. There are lawyers that specialize in patent law – look for assistance from lawyers with a scientific background of their own, as they tend to better understand the product you want to patent.

Copyrights.

A copyright is an exclusive right to use and distribute an original work in a specific territory. Copyrights can apply to written works, artwork, musical compositions, film, broadcasts and software, among other things. Like a patent, a copyright can only exist for a certain length of time – typically the length of an author's lifetime, plus an additional number of years. Unlike a patent, a copyright does not always need to be registered. In many places, the protection is automatic; even in these places, it is often possible to register a copyright anyway, which makes enforcement easier.  

Trademarks.

A trademark is a symbol or words used to represent your company, service or product. A logo is a common example of a trademark. It is used to differentiate you from others and helps to create your "brand"; if someone else uses your trademark or another symbol that is similar to yours, it would cause confusion and could potentially hurt your business. Consider the knockoffs you've seen floating around, which are often of lesser quality than the brands they imitate. A trademark can be registered, or can be established through use in the market. The trademark expires if it stops being used for a certain amount of time. Like with copyright, even if you can establish a trademark without registering it, a registered trademark is easier to enforce if someone tries to copy you.

Trade Secrets.

A trade secret is just what it sounds like: It is a bit of information that gives your product its value by virtue of no one else possessing that information. The most famously known example of a trade secret is the recipe for Coca Cola. If any other company had that recipe, it could copy Coke and there would be no difference between the brands. A trade secret cannot be registered; rather, it should be closely kept and only divulged to those who need to know it. Typically, companies protect their trade secrets by requesting that anyone with access to such confidential information, or who might have access, sign a non-disclosure agreement (more on these and other agreements further on in the series). As long as you can manage to protect your trade secret, it remains in force and retains its value; there is no expiration date to a trade secret.

IP Assignments.

Ok, so you know what type of IP you have and how to protect it, legally. But are you sure it actually belongs to your company? Start with any of these questions: Who came up with the idea for your patent? Who wrote your source code? Who designed your logo? Who fixed your algorithm when it was bugging out? Assuming the answer to any of those questions is a specific human being, or any number of specific human beings, then why would you think that the IP they helped develop belongs to your company, and not to the person or persons whose brain is responsible (your own brain included)? If you said, "Because we all assigned it to the company", you'd be right. An IP assignment is essentially a covenant (embodied in a document) whereby an employee, advisor, consultant, subcontractor or even graphic designer confirms that any IP they develop or help develop while working for your company belongs to the company. Ideally, the assignment will be signed before the person starts to work for your startup, and is often incorporated into an NDA (read more about that in our installment on agreements). However, even if they didn't sign up front, you can get them to confirm it after the fact, and it will still work.

Note that some IP assignments are much broader than others. For example, employees who work at government institutions like a university, hospital or even the army often sign documents that essentially say anything those employees dream up belongs to that institution. For this reason, your company needs to be very careful when hiring people who are affiliated with such institutions. Because if they've already promised their creative works to someone else, that someone else will have a claim to what you thought was yours. Thus, before you bring in that brilliant professor for some moonlighting project or side job with your team, ask her to clear the IP assignment matter with her institution. Many times, institutions will be willing to carve out certain types of IP that the employee can assign elsewhere – provided it doesn't overlap with the work they do for that institution, and sometimes at a cost (like royalties). Believe it or not, sometimes this will be a no-go, and you would be better off finding a different team member without a complex affiliation. In the case of institutional workers – get the IP assignment before any ideas happen. Slip-ups in this area can be complete deal breakers for potential investors (really, one of the "legal" items that can botch a deal), because if your company isn't the sole owner of its IP, and thus doesn't have the rights to market and make money off that IP, the value of the company can drop all the way down to nothing in the eyes of a high risk investor (and that's ignoring any potential lawsuits from institutions that think they own your IP).

The content of this article does not constitute legal advice.

Shira Teger is an associate in Yigal Arnon & Co.’s high-tech practice. In her previous incarnation (before choosing a life of law), Shira was a journalist.