The Intellectual Property Balance

Startups struggle to manage IP protection and R&D priorities.

By Vincent Baglivo, Contributing Writer  On May 27, 2015

Start-up companies face significant challenges and difficult choices on the road to commercial success and profitability. When innovation is the foundation of your business, decisions made regarding where to allocate precious cash available between research and development and intellectual property (IP) can be particularly problematic.

Putting dollars behind the development of new ideas into viable, money-making products, processes and services is the essence of entrepreneurial spirit in action. However, in today’s global, technologically driven economy, continually evolving laws regarding IP protections like patents, copyrights and trademarks and the double-edged sword of opportunity and vulnerability afforded by worldwide communication and connectivity confront both established corporations and enterprises alike.

Concerns over intellectual property rights continue to increase as the global web of commerce becomes ever more complex. The issues run the gamut from IP security and protection of IP, to expediting the patent process and making it less costly.

A 2008 white paper by SEMI, a professional association of semiconductor equipment and materials industry companies from Asia, Europe and North America, found that close to 90 percent of member businesses responding to a survey had experienced some form of IP violation including trademark infringement, counterfeiting and theft of trade secrets and core technologies.

In a 2013 letter urging members of Congress to pass legislation to improve the nation’s patent system and spur innovation, more than 60 professors of intellectual property law and policy representing colleges and universities from 26 states and the District of Columbia pointed to findings by the American Intellectual Property Law Association estimating median costs associated with the litigation of a moderately-sized patent suit at $2.6 million, up more than 70 percent since 2001. The study went further, noting that more than half of the companies surveyed had taken legal actions against IP violations, yet fewer than half were satisfied with the outcomes. Issues of transparency and abuse of the patent system were also noted as concerns.

“The America Invents Act (AIA) has drastically changed the landscape for the US patent system, and some of these changes present challenges for small start-up companies with respect to intellectual property protection and strategy,” notes Liza M. Walsh, chair of Roseland-based Connell Foley’s litigation and intellectual property groups. “Specifically, under the AIA, the US is now a first inventor to file system, which changes the old law – where priority was given to the first to invent. Under the first to file system, start-up companies often have to make the decision to apply for a patent before they’ve had the opportunity to fully develop and assess the commercial potential or success of a new technology because they cannot afford to delay and have someone else beat them to the Patent Office. As a result, small businesses have to invest in patents before they know if their inventions have any commercial success.”

William “Bill” Mentlik’s background as a former Patent Examiner in the United States Patent and Trademark Office and as a trial attorney with the United States Department of Justice, Antitrust Division, Patent Section, gives him a unique perspective.

“The basis for the patent system was to promote science as a useful art,” Mentlik states, who has served as managing partner of Westfield and Guangzhou, China-based Lerner, David, Littenberg, Krumholz & Mentlik, LLP for more than two decades. In addition to his role as managing partner, Mentlik maintains a full-time intellectual property practice at Lerner, David. The firm has specialized solely in providing intellectual property counsel since its founding in 1969.

“For any start up, whether they are in high-tech fields like electronics, bio-medical, pharmaceutical or not, it’s about managing risk. Due diligence is important, and that can be as simple as doing a search of existing patents and trademarks, or very complicated depending on what a firm is trying to patent. Aspects of new patent laws are favorable to small businesses, but others are a mixed bag, so it is never too early to seek experienced IP counsel,” Mentlik says.

The actual patent process starts with an application to the US Patent and Trademark Office. The application can be submitted on paper or electronically and has very specific legal requirements. Depending on the nature of the patent being sought, technical drawings of various levels of detail are often needed, and must meet very specific legal requirements, as well. The quality of all components of the application are important if the patent is to stand the test of time and head off threats from competitive interests, the demands of potential investors or the need to seek further patent protections through additional filings to support overseas expansion. The patent filing process can take months or years, with costs also ranging from thousands to tens of thousands of dollars and more, depending on the type of patent being sought. A wealth of information is available online at uspto.gov; companies can also access the site to e-file and check on application status.

Greg Winsky of the law firm Archer Greiner says companies face a double barreled challenge when it comes to patents. “Many are focused on protecting their own intellectual property, but neglect the importance of not violating someone else’s existing patents, copyrights and trademarks. In certain instances, it may be more valuable and cost efficient to keep new ideas, processes or designs confidential. Disclosing vital information as part of the patent process can provide a window to the competition as you push to go to market,” he concludes.

Coca Cola, for example, has never patented its formula, preferring to keep it a trade secret locked away in a vault, generating millions of dollars in value for the global beverage leader at little to no cost. Winsky, with Archer Greiner’s offices in Haddonfield and Princeton, says that non-disclosure agreements covering employees, business agents, consultants, even visitors to business offices or manufacturing facilities, are critically important, and that newly enacted legislation helps support the value of trade secrets.

The New Jersey Trade Secrets Act, signed into law by Governor Christie in 2012 and modeled on the “Uniform Trade Secrets Act” adopted with modifications by 46 states and the District of Columbia, sets forth legal remedies to the holder of a trade secret which has been misappropriated. The law defines that as: “acquired by improper means or improperly disclosed.” Damages can be awarded for actual loss by the plaintiff or for unjust enrichment of the defendant caused by the misappropriation.

Lynda L. Calderone of Flaster/Greenberg in Cherry Hill, says all start- up businesses face significant challenges with patenting. In many instances, simply getting funding or an investor requires some indication that IP rights have been secured, which means, at a bare minimum, the start-up has applied for a patent application. “For businesses with a longer time-line for development of an invention past the experimental/Beta stage, that process becomes more acute because the timing of patent filing can be a time and resource conflict with the efforts needed to start the business, secure key personnel, raise revenue and, most importantly, complete development. Chemical, biotech and computer/software startups require a lot of research and development costs, but securing patents can be critical to success.

“With respect to software and high-tech startups, there are now also new challenges in terms of the best way to present invention claims in view of the Supreme Court’s latest cases on what is patentable,” Calderone continues. “Biotech startups face similar challenges with certain biomedical-type inventions and genetic test inventions, should they fall into the category of things existing in nature in the court’s view. It is difficult to invest in such inventions and feel secure in the patent rights when the law has been so fluid and the concern for scope and entitled rights tenuous.”

Jonathan D. Bick of Brach Eichler in Roseland summed up the dilemma faced by businesses in New Jersey and around the world: “Patent application and enforcement are overhead costs, and overhead hurts small businesses. While patent protection can be implemented using legal (notice and litigation), technological (using technology to prevent uncontested use of invention) and business options (having infringing goods seized), the greatest global challenge concerning patent protection is simply when to use the appropriate action.”