Intellectual property a balancing act for startups


Startup business owners may find it vital to protect their company’s intellectual property, although some experts warn that it is costly and may take time away from actually developing the initial idea into a successful business.

So how protective do entrepreneurs need to be while developing their business, especially in a co-working space? Not very, says Pikes Peak Small Business Development Center consultant Steve Imke, who has founded several companies.

“The vast majority of businesses are not hardware or software product companies, but are service companies where IP is not of particular relevance,” he said in an email. “Moreover, in my opinion, most clients in a co-working space are not developing products, but are freelancers delivering a service.”

But losing innovations to patent issues is something intellectual property attorney Michael Martensen warns about.

Martensen, who also has a master’s degree in business administration, said patents cost many thousands of dollars.

“For startups, I think IP is really challenging. … How do you protect it on a budget?” he said. “It’s really about the business strategy, and where am I going in five to 10 years. Am I going to flip this company in three and sell it? Am I going to be here for organic growth in five? Am I founding it with angels and investors or family money? All of those things play into how IP plays a role, because I may want to file a cheap provisional patent to protect an idea I haven’t fully vetted.”

He said that costs between $500 and $2,000.

“I can put 20 ideas into one of those provisional patent applications,” Martensen said. “It allows me to say I’m patent pending, which can help get investors involved. Patents are rolling the dice, saying you’ve got something that in five to 10 years is probably going to be worth money.”

Meanwhile, he said, it’s vital to figure out how to protect that information.

“They call it property for a reason,” Martensen said. “A lot of IP is how much protection do you want? When I give lectures, I say consider IP as a fence around your yard. The yard is what you want to protect and the tree in the center of the yard is your crown jewel.

“You have to decide as the business owner which type of fence you want to put out there. I could leave it open and let people walk across my grass and I don’t think they’ll pick the apples off the tree, so why spend money on IP; I don’t need it. I could be the person who wants a picket fence to keep the law-abiding people away and I could have a 12-foot barbed-wire fence that costs more but it will protect what I’ve got.”

And, he said, perhaps the business owner is protecting that property for a future sale.

“Part of the reason I may have to keep folks off my lawn is to make it look better, because I want to put it on the market and sell it,” Martensen said. “IP is an investment in the future, but it may be someone else’s future and that someone may be willing to pay for that green grass.”

Co-working protection

Lisa Tessarowicz, founder of Epicentral Coworking, has tried to protect her members from intellectual property theft. She has it in the members’ contracts that they cannot pilfer ideas from other entrepreneurs while working at Epicentral.

“There’s always a risk when working around others,” she noted in an email. “While we encourage members to take precautions when working with confidential or intellectually unique property (for instance, using privacy screens, booking a meeting room for discussions, etc.), ultimately, we’re pushed to be better businesses and make better products by being around others.”

Co-working spaces provide a cost-effective way to work on a startup business, along with the advantage of brainstorming and collaborating with other entrepreneurs. And that can be more useful than protecting IP, Imke said.

“Spending too much on protecting the idea too often gets in the way of execution,” he said. “Rather than getting important feedback from people that have domain knowledge that could help to reshape the idea or help with execution, the founder guards the idea so closely they never share it with the right people in fear that the idea will be stolen.”

Still, there can be a fine line that shouldn’t be crossed when it comes to sharing intellectual property.

“If you are pioneering a new field or product, then we suggest you work from an office, book a meeting room with a private whiteboard, and choose intentional verbiage when sharing ‘around the water cooler,’” Tessarowicz said. “But don’t let the fear of stolen goods cause you to sacrifice a potential breakthrough by siloing yourself into a home office or private office elsewhere. Be smart, be intentional, and stay plugged in.”

Southern Colorado Small Business Development Center Executive Director Aikta Marcoulier said the “fine line” can be different for everyone.

“It’s important that handshake deals are documented and that the proper legal paperwork is in place when collaborating and working on a project,” she said. “At the SBDC, we see too many times when partners split up and the wrong documentation was in place in the first place.”

Even when a company takes precautions to protect its IP, Imke said, it’s not always good enough.

“Encarta was an encyclopedia that was covered by IP, yet Wikipedia, an open source product, has rendered Encarta to [the] scrap heap of encyclopedias,” he said. “Also consider the success of the Firefox browser and WordPress that are both open source products. Sony, who protected its videotape technology, lost the videotape war to JVC that licensed its IP to third-party developers.

“In fact, Dish Network openly stole the DVR IP technology from TiVo and although TiVo filed a costly lawsuit claiming that Dish violated its IP and eventually won a settlement, Dish was still able to incorporate the DVR IP in its product which helped propel Dish way past TiVo. So, unless you have sufficient access to capital to cover the cost to protect your IP, you are often better off just making it open source or licensing the IP to others.”