The Guide to IP and Patent Strategy for Startups

Beyond creating incredible innovations that will change the world, first-time founders also have to navigate the complex world of start-up law. We sat down with our long-time partners and start-up law experts, Fasken, to chat about 3 aspects of start-up law that are crucial for every founder to know about:

• The Guide to Intellectual Property and Patent Strategy for Startups [You’re here!]
• The Guide to Privacy & Cybersecurity Law for Startups
• The Guide to Corporate & Commercial Law for Startups (Part 1 | Part 2)

In this installation of Start-Up Law 101, we’re joined by Jean-Nicolas Delage, co-leader of the Technology, Media, and Telecommunications group in Fasken, to talk about Intellectual Property and Patent Strategy for first-time founders.

Reach out to Fasken’s emerging tech team or Jean-Nicolas directly to learn more about why we believe Fasken is the best legal partner for first-time founders.

FRV: Hello Jean-Nicolas! Thanks for taking the time to chat with us about IP Strategy today. To kick us off, could you please introduce yourself?

Jean-Nicolas: With pleasure. I am Jean-Nicolas, and I’m a National Co-Chair of the Technology, Media, and Telecom Group at Fasken. Within that big umbrella, there are over 120 lawyers. I dedicate my practice to the Emerging tech team, which is the sub-umbrella group where we work with high-growth, emerging technology companies from startup to scale-up all the way to exit. I handle all IP (intellectual property) issues for these types of companies.

FRV: Amazing — can you tell us what IP Strategy concretely means for startup founders?

Jean-Nicolas: That’s a great question. The thing I always tell founders is you need to understand that the underlying value of your technology is always intellectual property, because it’s the different intellectual property laws that give you all sorts of little monopolies on the technology that you are developing. For example, if you’re developing software, because of the Copyright Act, you are the only one that has the right to reproduce your software. That’s the sort of little monopolies that go with the Copyright Act.

If you’ve developed an invention and you patent it, then you’re the only one that has the right to use, sell or make the invention. So as you’re developing technology, IP strategy means a few things.

First of all, it means you own what you say you own. When you have individuals working on technology, be it hardware, deep-tech, or software, you need to make sure you’re jumping through the appropriate hoops so that you actually own the associated IP produced by them. This means you’ll need to have intellectual property assignment forms executed by anyone that works on your technology, and so part of IP strategy is keeping that house in order, having the right individuals sign intellectual property assignment forms, and protecting your trademark. All of that is part of what I consider keeping your house in order.

Then, as you grow your business, you’re going to need to decide if you need patents depending on whether or not you can derive value from doing so. So how do you adopt a patent strategy that can both bring value to the stakeholders in your company and can be pitched to investors? Well, that comprises a lot of different things. We would look at who is patenting, what the patents are for, whether you can be sued for patent infringement, and whether or not the patents are going to bring value to your proposition. We’ll then roll out the strategy around your unique circumstances, while keeping trade secrets appropriately undisclosed. Long story short, it’s about making sure that the house is in order.

FRV: To follow up, from the perspective of first-time founders, why is IP strategy an important area for them to keep in mind, even from the get-go? How soon should founders be thinking of this?

Jean-Nicolas: Day minus one, prior to incorporation. This is something that needs to be top of mind all the time. As I said before, the underlying value of technology is intellectual property. Intellectual property can make or break your business proposition. When you go to market and pitch your technology to investors, they would have lawyers like me representing them asking for the intellectual property assignment forms.

It’s amazing the things that can go wrong, even just on that aspect. Founders may have worked on the technology six months prior to incorporation while they were actually employed by someone else. The IP they developed six months ago could very well be captured by the employment agreement with the former employer, and so they actually don’t own their technology.

For software, it’s also important to document every open source component involved in building the technology since day one. You need to understand the different open source licenses and what they actually mean. You need to have that list on hand to send to investors within seconds. You need to be able to answer questions on the different conditions of those licenses. So there you go, day minus one is incredibly important — it’ll make or break you.

FRV: What are the most common mistakes you see founders make when it comes to IP?

Jean-Nicolas: Mistake number one is not considering the work that was done pre-incorporation. There are a few issues that can arise here. One of them is the one that I previously mentioned, where you were actually working for someone else while working on your company on the side. As an example within the University environment, you may be a postgrad working in a lab within the University. You’re captured by the University’s policies, and so when you decided at four P.M. that you would work on your personal project with University equipment, you’re in trouble.

Common mistake number two is around branding. As a startup, you may still be in the product development phase when you’ve named your project. The project always has a name and the distinctive element of the name, which becomes sort of your web presence, your logo on your website, and all your PR materials. The mistake is that the element may already be registered by someone else as a trademark, and it’s the person that owns that registration that actually has the sole right to use that trademark in the country where it is registered. With this, we normally do a few things. We ask our clients to conduct their own searches through USPTO.gov, which is an American database of registered trademarks. All they need to do is just look for similar entries, and talk to us, as lawyers who understand the space, to determine whether or not it’s too close to use. This shouldn’t cost you anything as a founder, but the truth is we have worked with startups that launch their web presence and receive letters from lawyers in Berlin or Chicago. These are all true stories, and it’s just a common pitfall that we try to avoid.

Once you’ve onboarded the IP by having the appropriate people sign the proper intellectual property assignment form and once you’ve vetted your brand, the rest we can work on as we go.

FRV: You mentioned University Research as one of the common mistakes. At FRV, we work with a lot of University-based founders that come from either labs or from academia that have IP to register or transfer. What are important considerations for these founders to keep in mind when it comes to IP and patents?

Jean-Nicolas: First of all, make sure you understand the University's intellectual property policy and work hand-in-hand with the Office of Technology Transfer. In certain universities, they’ll gladly assign the intellectual property to you, but you end up having to pay all the patenting costs. In other circumstances, you’re better off signing the intellectual property to the University, and then the University will gladly cover the patenting costs and license the intellectual property back to the startup that you’re creating.

The latter case means you’re not starting with a company that actually owns the foundational intellectual property. What it means is that you have a license with the University, which is a permission license, giving you permission to do something that otherwise you would not have the right to do so. You’re not the owner, but you have the right to use it. Typically, it’s exclusive, which normally is fine as long as it’s drafted properly. So just be mindful of this especially if you’re a post-grad student or professor. Be mindful of the IP policy, work with the Office of Technology Transfer, and be transparent about what you’re trying to accomplish — with that, you should be fine. I do approximately 15 University spin-offs a year, and I’ve never had an issue.

FRV: Staying within the University context, we often see founders who are in their undergraduate studies, not associated with any labs, but are still working on technology that they’re going to put into a startup. Oftentimes it’s completely unrelated to their work in their academic fields. Are there any IP considerations for those types of founders to be aware of?

Jean-Nicolas: No, the only thing I would add to that though, is that typically an undergrad student will own what they develop, even within a university setting, as the University IP policy usually only kicks in at the Masters level and then Ph.D. As far as I’m concerned, just continue to work transparently with the Office of Technology Transfer, and if there ever is an ambiguous situation, you could get a letter from the university saying that they are fully aware that the student is working on a company using technology partly developed at the University, and that they aren’t claiming any rights to that intellectual property. I have on file letters like that from at least two universities in Montreal.

Overall, for a student, the first discussion should always be with people at the Office of Technology Transfer. The reason for that is they’ll tell you the roadmap. They are in charge of commercializing IP or building the sponsored/ collaborative research, meaning if a corporate entity wants to collaborate with the University, they will be in charge of putting those projects and agreements together and also commercializing the intellectual property.

FRV: We’ve now talked about universities, the tech transfer offices, and how the founders should work with them and their lawyers. Who are the key stakeholders when it comes to IP relationships? What nuances should founders take on working with each of these different stakeholders?

Jean-Nicolas: Stakeholders to me are the shareholders, including the founders, the venture capital firms, the acquirer, and the IP professional that you work with.

Your intellectual property professional is an important stakeholder. They may not always be a shareholder per se, but they’re an important cog in the system. You need to interact with the right intellectual property professional. By that, I mean, someone that understands that the main difference between a startup and an SME is that the SME will not raise capital while the startup will, in order to accelerate growth.

This is crucial as when you’re raising capital, there’s always another group of stakeholders, the VCs, that are going to pop the hood of your car, the car being your underlying technology, every 12 to 18 months and check that everything is in order. They want to make sure that you actually own your IP, and that you’re adopting proper measures to ensure that no one owns patents that can throw rocks at you. The SME never has to experience that until they sell the company, say 20 years down the line. The startup can’t afford to let what’s under the hood ever get ugly, and so you need to find an IP professional that actually understands that.

The founders are also obviously stakeholders because again, IP can either make or break you. You want your company to grow. You do not want IP issues to hinder that growth.

Lastly, the acquirers are an important group of stakeholders to understand. They will take a strong look at your intellectual property, especially if you’re in a space where a lot of value at the time of exit will be derived from your patents, such as medical technologies.

FRV: Speaking of IP professionals, what is Fasken’s approach to working with founders on IP strategy?

Jean-Nicolas: For us, it’s always the same and streamlined along with every topic we’ve discussed so far. The first thing I do with founders is give them access to our intellectual property assignment forms, and we make sure that they use them so that the founders actually assign their rights into the company. We do that within our startup package, which normally costs nothing as we have deals with various accelerators to provide these services. If it does cost something, it’s going to be part of our startup package, which is ~200 dollars per month, which is basically next to nothing in the world of legal fees. We then give them the framework to correctly document out their open source components, walk them carefully through a branding exercise (what we talked about earlier), and make sure that everything they’re doing is fine. On the patent side, I always ask them for a list of their top 5 competitors and top 3 potential acquirers. We put that info into our patent analytics tool where we can pump a bunch of data, and I return them an excel spreadsheet that shows the patents of all their competitors and potential acquirers, along with all litigations that have happened in their space. This lets them see when they may be a target of patent infringement lawsuits, and exactly who’s suing who.

I always tell my clients that you live in the Matrix. If you were Neo at the end of the first Matrix, you would see the world around you exactly the way it is. Similarly, in the world of patents, if you had the proper set of lenses, you would see in your vertical who has patented what and where your innovations fit within that landscape, and so, you instantly know what kinds of patents are going to bring value to your stakeholders. Now, because we don’t live in the Matrix and because you don’t have those proper lenses, you need data instead. You need data to make those determinations — data about competitor patents and potential acquirer patents in your vertical. You need to start making these informed decisions and end up like Neo at the end of the first Matrix. For those of you reading this who have not seen the Matrix, that is the first thing you’re doing tonight.

FRV: Amazing to hear exactly how you work with your founders — what’s the best way for founders to get in touch or ask any questions they might have for you and your team?

Jean-Nicolas: Send me an email at jndelage@fasken.com or text me at +1 514 397 5234. Both are also on the Fasken website.

FRV: Thank you for taking the time to chat about IP Strategy with us Jean-Nicolas!

Jean-Nicolas: My pleasure.

Interviewed by Matthew He and Nicolas Bouvier, the FRV team would like to sincerely thank Jean-Nicolas Delage for sharing his time and insights with us, as well as Fasken for being a firm supporter of FRV and our mission to back and support the very best student founders in Canada.

If you are working on an idea that will disrupt an industry and think it will be part of the next wave of innovations, visit our website or contact us at hello@frontrow.vc. We’d love to chat!

Disclaimer: This interview has been edited for conciseness and clarity. The contents in this article does not constitute legal advice provided by Fasken and Fasken does not have a lawyer-client relationship with you, unless specifically and separately agreed upon through a legal retainer agreement executed by Fasken and you. If you or your organization are a client of Fasken’s, please contact them directly if you would like more information about this article.