5 dangerous intellectual property mistakes that might kill your startup
26 February, 2016
The last few years saw a proliferation of startups in Malaysia. You can eat your Dah Makan lunchbox, then GrabCar to your KFit class decked in your Ash Be Nimble active wear. If you are an aspiring entrepreneur or the founder of a fresh startup, you must be extremely careful when navigating the intellectual property minefield, and not overlook the importance of securing the intellectual property rights of your business.
Unless you’re someone like Jeffri Cheong of Kaodim (who was an intellectual property lawyer prior to co-founding the services platform which recently raised USD 4 million in its Series A round) and already have a solid understanding and knowledge of intellectual property, please read on.
Here are five common intellectual property mistakes that startup founders make.
(1) Wanting to ‘patent the design of the copyright in your trade mark’.
No, you cannot ‘patent the design of the copyright in your trade mark’ because patents, industrial designs, copyrights, and trade marks are different forms of intellectual property rights. While these terms are often used interchangeably by the media, and ‘intellectual property’ reminds different people of different things, entrepreneurs should know the basic yet significant differences between the most common forms of intellectual property rights.
A patent is a monopoly over a novel invention granted by the State for a specific time period.
An industrial design registration is the protection conferred upon the aesthetical feature of an article.
Copyright, on the other hand, is an automatic legal right that arises from recorded forms of literary, musical, artistic works, and other forms of creative works, irrespective of quality.
A trade mark is a sign, whether in the form of a word or a combination of words, numbers, logos, a colour, shapes, or in some countries, even sounds, that is used to differentiate one business from another.
The first thing that comes to the minds of a singer-songwriter or a spoken word poet when confronted with the term ‘intellectual property’ would probably be copyright. For a food truck parked along the streets of Kuala Lumpur, intellectual property would usually mean trade marks and trade secrets. To the group of scientists behind the invention of a magical slimming pill, intellectual property is likely to mean patents.
But identifying the most obvious patch of fabric in this beautiful tapestry of rights is not enough — you need to know how to weave them together.
When explaining the different types of intellectual property rights, I love to use the example of the Apple iPad. The sleek design of the iPad, which an English judge famously remarked as being cooler than the Samsung Galaxy tablet (which does not “have the same understated and extreme simplicity” as the Apple iPad), is an industrial design. The slide-to-unlock function is (in Germany, was) a patent. The source codes that make up the applications you download from the App Store are copyrights. The word iPad and the bitten apple logo on its back are trade marks.
It is patently important (pun intended) to understand the different forms of intellectual property rights, and to identify the types of intellectual property that are most relevant to your startup. The scope of intellectual property protection sought should reflect the nature of your startup and complement your long term plans. Ask yourself — do you really need a patent, or are you better off keeping your invention as a trade secret?
(2) Not obtaining clearance for your chosen name prior to the launch of your startup.
I cannot stress enough the importance of conducting availability searches before committing to a brand name.
It would be a financial and emotional disaster to spend money registering your company name, domain name or trade mark, investing in marketing collaterals, and splurging on advertisements, only to receive a cease and desist letter from an existing user of the name that you have proudly chosen.
Apart from conducting a company name search at the Companies Commission of Malaysia and a trade mark availability search at the Intellectual Property Corporation of Malaysia (MyIPO), you should also run Internet searches and market surveys to ascertain whether your chosen name has already been used by another company in the market.
While using a prefix like ‘i-‘ or ‘Mc-‘ may be equivalent to sending an open invitation to lawsuits, it does not mean that you are immediately precluded from using a particular word as a brand name just because another company is already using it. That would make the law an ass.
Tiger is the brand name of my favourite milk biscuit. To an eighteen year old on his first day of college, it is his new pair of Japanese-branded shoes. But to my grandmother, it is the name of her preferred herbal heat rub. Tiger is also Singapore’s first locally-brewed beer, and the name of a Singaporean budget airline company. Zico is the name of a law firm. It is also premier coconut water. Magnum can refer to chocolate coated ice-cream, or the lottery I have yet to win. You get the idea.
(3) Thinking that you are free to use any content not marked with a © symbol.
Just because something is not marked with a copyright or trade mark notice does not mean that you are free to use it. Always ensure that you have obtained the permission to use content owned by third parties, even if you have stumbled upon it for free on the Internet.
It is also important to familiarise yourselves with the common symbols used. Understand that the © and ™ symbols bear no legal significance at all. While they do provide notice of your rights and can be useful in deterring infringement by unauthorised third parties, there is absolutely no requirement for you to use these symbols or even phrases like ‘all rights reserved‘ in the course of your business.
Do note, however, that the ® symbol can only be used on registered trade marks. Under Malaysian trade mark laws, using the ® symbol on an unregistered trade mark is an offence which can subject you to a maximum fine of RM500, a jail term of two months, or both.
Tread carefully when utilising open-source software in developing your product. They usually come with obligations such as requiring you to share your modifications made to the source code with anyone and everyone. This inevitably affects your revenue-making prospects through the waiver of licence fees of what would potentially be a valuable copyrighted material.
So remember, entrepreneurs, nothing really comes free.
(4) Assuming that intellectual property protection is expensive and irrelevant to startups, and that it should wait.
Understandably, survival is the main focus of most startups. The costs involved in securing intellectual property rights are often seen as a mere diversion of the company’s scarce resources, and it is commonly thought that only big established companies can afford to protect their intangible assets.
However, it is a huge misconception that intellectual property rights are all expensive to obtain and maintain.
As mentioned above, copyright arises automatically and costs nothing to obtain (except of course, the effort exerted in reducing an idea to its material form), although in Malaysia you can file a voluntary notification of your copyright with MyIPO for a nominal fee. While patents are the most expensive to obtain and maintain, a granted patent does give you a monopoly to exploit the invention for twenty years in Malaysia. Trade marks are renewable every ten years at only RM600 per trade mark as of the date of writing of this article. Plus, a trade mark registration is perpetual as long as it remains in use and its renewal fees are paid.
Looking at the bigger picture, these maintenance fees are but a small price to pay.
It is a grave mistake to assume that intellectual property protection can wait. If you have come up with a revolutionary invention, consult a patent attorney and make your way to the patent office before tweeting about it. Your social media updates can wait; your patent filings cannot. Like romantic relationships, it is very important to secure your priority date as early as you can. Anything that is disclosed to the public in any part of the world prior to the priority date constitutes prior art, which can defeat the novelty of your invention, thereby jeopardising your patent application.
This means that you should not talk about your invention at trade shows or exhibitions, or write any articles or academic papers about it. Be especially cautious if you intend to use crowdfunding platforms like Kickstarter or participate in a TED talk — ensure that you have taken the necessary steps in protecting your intellectual property rights before revealing your mind-blowing creation to the world.
The protection of the intellectual property assets of a startup cannot be undermined. They are often a crucial component to inspire confidence among potential investors when fundraising. Secured intellectual property rights also provide the basis of generating a revenue stream through licensing arrangements.
The maintenance of some intellectual property rights can be costly, but the hazards resulting from non-protection can be even costlier, and in some cases, irreversible.
(5) Skipping the contracts because gentlemen shake hands and brothers bump fists.
It is common for startups to adopt a casual and informal attitude in their operations. While this culture may be fantastic in facilitating workplace efficiency and in promoting a collaborative and innovative ecosystem, it is potentially disastrous if there are no proper agreements in place to govern the rules and boundaries of relationships.
Many startups began as side projects among friends. Be sure that all relevant rights are assigned prior to kick-off, preferably to the incorporated entity. If your graphic designer friend has graciously helped you to design the logo of your startup because you are completely hopeless with design software, ensure that you truly have the rights to her artistic work.
Besides assignments, employment contracts are also very important. While employers typically own the intellectual property generated by employees, this is not the case if an invention goes beyond the scope of employment of an employee, unless such invention was made using data or means placed at his disposal by the employer. Under Malaysian patent laws, where an employee invention acquires an economic value much greater than both parties could reasonably have foreseen at the time of concluding the employment contract, the employee inventor is entitled to equitable remuneration which can be decided by the courts unless agreed to between parties.
Non-disclosure agreements and confidentiality agreements are also critical to preserve the novelty of an invention. It would be a horror story to have your patent deemed unpatentable because one of your developers has decided to record his first coding experience on his blog.
Never skip the contracts. Don’t let fist bumps end in fist fights.
Do not neglect the importance of formulating a sound intellectual property strategy for your startup from an early stage. Seek professional advice. Trade mark forms may look fairly straightforward to you, but failing to appreciate the consequences of accepting certain conditions or disclaimers imposed by the trade mark registry can be a costly mistake to fix. And while there may be thousands of free agreement templates available online, no two businesses are ever completely the same. Your startup is unique. So why settle for a cookie cutter contract?
Sher Hann specialises in intellectual property laws and enjoys helping businesses manage and commercialise their intellectual property. She loves puns, logic puzzles, and monkey bars. You can drop her an email or connect with her on LinkedIn.