Liene: What is your professional background and how did you become involved with Startup IP?
Robert: I am a lawyer who runs an intellectual property law firm in Washington, DC. My practice focuses on representing innovators, entrepreneurs, and startups with respect to intellectual property issues. I help clients create plans to harness their intellectual property and to avoid being sued for infringing rights held by third parties. I graduated from Harvard Law School, have worked at prestigious law firms and founded my own firm – Klinck LLC – just about two years ago.
I have worked with small businesses, innovators, and entrepreneurs for most of the last six years of my career. I chose to really focus on helping these clients deal with intellectual property issues because it gives me the chance to play a role in helping these clients drive innovation forward. Playing even a small role in the process is an amazing opportunity.
Working with these early stage startups is great because it gives me the opportunity to help them establish good practices from the beginning. It’s always easier to start with good practices than to fix problems down the line.
Liene: Our blog focuses on early stage entrepreneurs, what legal issues do you see facing many aspiring entrepreneurs today?
Robert: This is a hard question to answer because there are so many legal issues – especially intellectual property issues – facing entrepreneurs in the early stage of a startup. The issues will vary based on the company’s focus, how many people are involved, and myriad other factors. Here are some legal issues that entrepreneurs need to address right away in their business.
Picking a corporate structure. This is not an area that I advise clients on, but entrepreneurs will have to decide how they want to structure their business. There are various options, including partnerships, C Corps, S Corps, LLCs, and various others. The choice of how you structure your business will have tax consequences and could place some limits on who may own shares in the company. As soon as it is clear that a startup is going beyond the initial idea stage, the founders should work with a corporate attorney to make sure the structure they have chosen is the best for them.
Getting agreements in writing. One of the biggest mistakes I see entrepreneurs make is to work based on “handshake” deals. Relying on handshake deals can create serious headaches down the road. Unfortunately, the parties to handshake deals often have a different interpretation or understanding of what the agreement was. Without a written document, these disagreements can turn into nasty legal disputes.
In the context of startups, these disputes often arise based on a disagreement about how much each founder owns and whether someone working for the company is entitled to an equity stake. You should have a written agreement about the ownership structure of the company and written employment agreements with all employees. The employment agreements should address whether the employees are entitled to any equity stake and should also include provisions that assign all intellectual property rights to the company. I’ve actually written an entire blog post about this topic, which your readers can find here.
Conducting a trademark search. Considering how much time companies will spend coming up with the perfect name for their business, it is amazing to me how frequently the entrepreneurs fail to take steps to make sure they can actually use that name legally. Conducting a trademark clearance should be an integral part of choosing a name for your company. I address how to go about conducting this clearance below.
Intellectual property issues more generally. In today’s knowledge economy, entrepreneurs are regularly facing IP challenges that were really unknown in prior generations. The Internet is the great equalizer that allows entrepreneurs and innovators to scale quickly and to reach untold masses of people. At the same time, this democratizing effect of the Internet leads to new challenges.
To pick one example, there was an infamous (among patent lawyers at least) series of cases in which a company claimed that its patent gave it the exclusive right to use an online shopping cart. Of course, nearly every online entrepreneur uses an online shopping cart of some form or another.
In another instance, a company claimed to own the right to using scanners that sent the images via email. The company and then its law firm sent letters to over ten thousand small businesses that had purchased off-the-shelf scanners with this function. These letters demanded payments of thousands of dollars to license the technology.
These types of patent infringement claims were nearly unheard of a generation ago. Today, they are becoming commonplace. And entrepreneurs are also facing a growing threat that their materials will be copied and sold by someone else – likely in violation of trademark and/or copyright laws.
Although this may sound self-serving considering what I do for a living, I believe that every startup should start to build a relationship with an IP lawyer at the very earliest stages of its existence. Although having a lawyer won’t necessarily mean the company can avoid all these issues, it will mean that the company has a trusted advisor when an issue comes up.
Liene: I’ve heard the term “IP Plan”, but what does that actually entail and how and when should an entrepreneur go about implementing one, given that startups have limited resources.
Robert: An IP Plan is exactly what it sounds like – it is a plan for handling intellectual property issues in your business. Think of it as the equivalent of a business plan or marketing plan, but focused on intellectual property issues. I am an evangelist for IP Plans, and I hope that I can convince your readers that they should take the time to develop these plans.
Most entrepreneurs don’t realize that IP assets represent one of the largest (if not the largest) asset class their businesses own. Some valuation experts have suggested that IP assets represent 40% of the value held by U.S. companies. Among the most successful companies, IP assets tend to represent an even greater portion of their assets – in the range of 80% for the companies in the S&P 500. Considering how important (and valuable) IP assets are to companies, how can an entrepreneur justify not having a plan for these assets? I’ve written multiple times about the value of an IP Plan, and your readers can find some relevant posts here and here.
Your readers probably want to know what’s in an IP Plan and how to create one. This is a topic that is a bit too much to address in a single interview (or even a single blog post), but, broadly speaking, an IP Plan will identify who is responsible for IP issues in your company, how you will harness your assets into protected assets, and what steps you will take to minimize your exposure to being sued for infringing rights held by others. The planning process is really about thinking through the issues and making sure that you have systems and processes set up to address these issues.
Creating an IP Plan isn’t a simple project that I can explain in a page or two. At the same time, I understand that many entrepreneurs can’t afford to hire me or another lawyer to create a plan from scratch for them.
To help this group of entrepreneurs (and I’m guessing many of your readers fall into this group), I am in the process of writing a series of books to help through the process. The first ebook will walk entrepreneurs through the process of creating an IP Plan for their business. The book will be titled “The Entrepreneur’s IP Planning Playbook,” is in the final editing process. It will be released on April 12 and is already available for pre-order on Amazon.com.
Liene: What are some steps entrepreneurs should first take when they have an idea and want to trademark a specific name? Is searching the Secretary of State website enough?
Robert: It’s great that you are asking this question because addressing trademark issues at the outset is a really important task. In addressing the trademark issues, there are two concerns.
First, entrepreneurs should take the time to figure out whether they can actually use the name they have come up with. This is not a question of obtaining a trademark for the name; it’s a matter of figuring out whether someone else is already using the name. If another company in the same line of business (or a related line of business) is already using the name, you may run into trademark issues. It’s much better to discover this issue before you have built goodwill and other intangible value in your name, so running a trademark clearance at the outset is a very important task.
Entrepreneurs have a number of options to search for trademark issues. If you have the money, you can hire a company to conduct a search for around $500. Realistically, there is not much point for a small business to spend this money. Instead, an entrepreneur should run a search through the database of federally registered trademarks (you can find a search tool at www.uspto.gov). Beyond these registered marks, run a Google search for the name. If these two searches don’t turn up any competing businesses, chances are very good that you can use the name. If the search turns up some companies, you will likely need to either talk to a lawyer or find another name.
Second, entrepreneurs should consider registering their marks. This is not a requirement because trademark rights are created automatically through the use of the name in commerce. But filing the mark will create legal benefits down the line (including making it uncontestable at a certain point). There are plenty of lawyers who can handle simple trademark registration filings for less than $500.
Liene: What types of things can entrepreneurs do early on to sufficiently prepare the company to be pitched to venture capitalists?
Response: I assume you mean other than have a great idea, a great leadership team, and a great business plan? I’m going to sound like a broken record here, but my answer is simple: have your intellectual property in order. We’ve all watch Shark Tank enough to know that one of the questions that investors are going to as is: “What do you have that is proprietary?”
Can you convince an investor that your company is worth investing in even if it is just one of many competitors in an emerging market? Of course. But if you can make a pitch to show that you have something that makes your company unique and that your competitors can’t simply knock off your product or service, it will give you a huge leg up. This might involve having a patent for your product or service or it might be as simple as having a killer name that will give you a significant advantage.
Having a well thought-out IP plan will also be an advantage. Investors are likely to view companies with these plans as relatively advanced on the IP front – a significant advantage over competitors.