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The importance of IP protection for startup companies

On Behalf of | Aug 14, 2015 | Intellectual Property

California is home to some of the nation’s most innovative companies, and their success is often based largely on their intellectual property. Studies have found that intangible assets account for most of a company’s value, and for businesses just starting out, such assets are often the difference between success and failure. Startup businesses often find it difficult to qualify for conventional financing, and they may also have a difficult time getting venture capitalists to back them if they have not taken adequate steps to protect their intellectual property.

When much of a fledgling company’s value is based on its intellectual property, venture capitalists or angel investors will closely scrutinize patents, copyrights and trademarks for signs of legal vulnerability. One common mistake made by entrepreneurs is not including invention and proprietary information clauses in employee contracts. Investors may back out of even the most promising deals if ownership of vital intellectual property is dubious or subject to challenge.

Potential investors may also be put off if important business assets such as intellectual property are owned by the company’s founders rather than the startup. Such a situation would leave the business vulnerable should a dispute erupt and a disgruntled founder decides to pack up and leave. Startup companies should also make sure that they have the resources required to follow up on provisional patents and make sure that they are adequately protected.

The protection of intellectual property is vital for businesses in the information age, but the law in this area is complex, and missteps are not uncommon. An attorney with experience in this area could scrutinize patents and trademarks as well as filing IP protection paperwork in foreign countries. An attorney could also scrutinize employment contracts to ensure that noncompete, invention and proprietary information clauses are able to withstand legal challenges.