Month: January 2010

Keep Your Startup’s Data Secret

Recently I have talked with some scared startups.

Scenario #1: Startup has its data on a flash drive and loses the flash drive.

Scenario #2: Person has startup’s data on a laptop and the laptop is stolen.

The common theme to both scenarios is that they had unencrypted intellectual property on the drives, thus the intellectual property (possibly customer lists, market research, detailed business plans, product details, etc.) was accessible to anyone with access to the drives. Will someone who finds the flash drive discover and use the data? Was the laptop thief looking for source code or a laptop to sell? Who knows but each business’ intellectual property is at risk.

By encrypting the data, the startups could have essentially removed the possibility that a third party could access their data. There are umpteen encryption programs available, but I’ll mention True Crypt (http://www.truecrypt.org) as one of them. True Crypt supports full disk encryption, partial disk encryption, and portable drive use. There are multiple encryption algorithms from which the user may select. After the data is encrypted, passwords are required to access the data. It provides strong encryption and is simple to use.

The bottom line: Don’t let an easily avoidable scenario place your business’ intellectual property at risk. Protect your data!

Intellectual Property Agreements – Write Them Down!

I know that you have heard it a million times, but I have to say it once more: Write it down! Entity agreements (of which a portion may include intellectual property issues) for the startup should be written down.  By now, you’ve read about the Crunchpad lawsuit, where its looks like the Crunchpad is no more and one of the founders is seeking to create a similar product (the JooJoo) in a new startup. The lawsuit did not mention a signed agreement and it is unclear what each party’s rights are in the involved intellectual property. Some background information can be found in the below links:

http://www.techcrunch.com/2009/11/30/crunchpad-end/

http://mixergy.com/joojoo-crunchpad-chandrasekar-rathakrishnan/

Unfortunately, startups come and go all the time. Fortunately, new potentially successful startups can rise from the pieces of a failed startup. Some of the desirable leftover assets include the  people and the intellectual property.  However, there will be questions on both. What happens with the people and the IP on failure? Are the departing people immediately free to work in the same space as the failed startup? Who has what  rights in the IP?

These issues should be addressed at formation of the startup, not when a failure or dispute occurs. Having the deal documented makes it easier to start making products and minimizes litigation potential and scope in the case of a failed business. Some issues relevant to this dispute often addressed in an intellectual property agreement include:

  • What intellectual property is being contributed to the startup? This should be a detailed description, not just a general intellectual property transfer. It appears that the Crunchpad included hardware, operating system, and application components. Did all of those exist and were they transferred to the startup?
  • What happens to rights on IP derived from the contributed IP? There were some reports that a Crunchpad prototype was the contribution to the startup? Assuming those reports are accurate, who has rights in the IP derived from the prototype. It is possible that the hardware, operating, system, and/or application components were further developed during the operation of the startup. Who has rights in those improvements?
  • What happens to the IP upon the failure of the new formed business or departure of its contributor? Does the IP remain with the startup? Do all rights revert to the contributor? Does the startup retain any rights?

Answering those and other questions at formation can minimize later problems with the intellectual property of a failed business. Failure to address the questions could lead to questions of ownership, unwilling investors,  and product (read: income) delays.

Advantages of Trademark Registration for Startups

Recently I had a discussion with a business who had been using a trademark since about 2004. Unfortunately, it had not registered the trademark. In the meantime, another business had started using a similar version of the mark and also had substantially completed the registration process. Thus the business was in a difficult situation. Sure, the business probably had superior rights. But asserting those rights could be costly and time-consuming. If negotiations with the other company aren’t successful, some sort of proceedings may be necessary to assert rights in the trademark. GULP!

This situation leads to some lessons on the advantage of registering a trademark for a new business.

  • The trademark registration is used by the trademark office against other applicants for registration – This advantage is often overlooked because the trademark owner usually doesn’t know when this happens. In some cases, a different startup performs a search before it use the trademark and sees the existing similar trademark registration. It then uses a different mark. In the case where no search is performed, the existence of a registered trademark will serve as a barrier to a second comer’s trademark application when the trademark office performs its search. In both cases, the advantage was achieved at no more cost than the registration itself. Going back to our first business, had the business registered its mark in 2004, the possibility of a proceeding to assert its ownership may not be lingering.
  • Presumption of validity – Upon successful completion of the registration process, the registrant has the presumption of validity of the trademark in proceedings. Effectively, that means that the burden is placed on a challenger to show that the trademark is invalid. Thus, if the first business can’t find records and/or other evidence to show that its used the mark in 2004 (before the other party), it loses.
  • Public access – A registered trademark (and its owner) is published by the trademark office for the world to see. Because of this, the “he said, she said” scenarios are minimized. Thus instead of a proceeding, a trademark owner may choose to send a takedown notice directly to the host requesting removal of the infringing material. The host is in a difficult situation when two strangers each claim ownership of the mark. The published trademark registration showing the owner makes it easier for a host to decide remove infringing material.

Each of the above advantages enhances the ability of a startup to protect its brand.