Early Advice 5: Protect Your IP

Last post, I discussed how ideas are cheap, and the need to share what you’re working on more openly than most entrepreneurs expect.

This post, I’d like to balance that advice with an understanding of how you might want to defend your IP secrets. There are a variety of approaches available, each with tradeoffs between the risk, reward, and complexity, which makes finding the right strategy for your own startup something you’ll have to do for yourself – I certainly can’t offer much global advice on the right approach to take.

The one thing I can suggest, though, is that you think about IP protection as protecting an investment. As I’ve already mentioned, ideas themselves, while they might feel unique or crucial, tend not to have an enormous amount of investment behind them. What this means is that even if you could defend a burst of inspiration as true IP, it might not be especially worth it – someone else getting your idea only saves them on that single burst of inspiration. On the other hand, a finalized technology, algorithm, asset, etc often requires far more time and money. In order to maintain your lead in an industry, you need to ensure nobody that comes after you can reach your level without a similar amount of resources spent – which means this is the IP I’d argue is most crucial to defend.

With that out of the way, let’s look at 5 different strategies for IP protection.

Utter Silence

Strategy: Don’t tell anyone else anything about what you’re working on – or if you must share, certainly don’t tell them how or why it works!

Pros: People can’t read minds, so this probably does at least avoid them learning exactly what you’re up to.

Cons: As we’ve discussed, keeping too silent prevents you from gaining crucial help and feedback from advisors, potential customers, and other supports.

Example use cases: Most companies employ this strategy to some degree. For instance, while some companies use open-source codebases, almost all have at least some private code which they never share with those outside the company. Exactly how much of your code you can keep silent, though, depends on your business model.

Technical Obfuscation

Strategy: Before sharing something with the outside world, modify or distort it in a way that either makes it more difficult to reproduce, or prevents someone from reselling it without your consent.

Pros: These kinds of restrictions, while often beatable, can often make stealing your IP painful enough that your potential adversaries will simply target someone else.

Cons: Obfuscating your product almost always has the consequence of making the product less usable, efficient, or elegant for your customer.

Example use cases: DRM, as employed by iTunes, is a great example of a technique to avoid digital music being resold – but it’s also widely disliked for the pain it causes users who are trying to manage their own libraries. Another example is shipping compiled binaries instead of raw source code, which makes it more difficult for other developers to understand how your code works and replicate or modify it.

Contract Design

Strategy: Organize your business so that you never have to share IP with anyone who you can’t legally bind from misusing it.

Pros: Assuming you get these agreements in place, you’ll have some chance of being compensated if something does happen – which also incentivizes your partners to want to help protect your IP on your behalf.

Cons: Firstly, businesses don’t want to be handicapped this way – and even if you could convince individual consumers to agree to something like this, there’d be no way to enforce these rules at scale. Even for businesses, the cost of a lawsuit if they do leak or misuse your IP might be prohibitive for a young business.

Example use cases: Including confidentiality clauses in your contracts, or requiring NDAs to be signed before you’ll discuss your work.

Business Model Design

Strategy: Organize your business so that everyone who gains access to your IP would lose more from sharing/misusing it than they’d gain.

Pros: If you do this well, your partners will all be aligned with you, giving you more resources to spend on developing differentiating IP and continuing to grow your business.

Cons: This is really, really hard! Usually the goals of different companies don’t align, so even if you can do this with a small number of partners, it will be enormously tough to do at scale – and you’ll have to keep an eye on whether circumstances change from underneath you that alter their priorities.

Example use cases: If you’re selling something that helps Company A outperform Company B, then Company A is incentivized to keep it quiet so they can keep benefiting from their advantage. Keep in mind, though, that they might also find it to their benefit to do their own R&D to replicate your product out of fear that you’ll start selling to Company B later – so you’ll either need to be doing something too costly for them to replicate, or carefully demonstrate to them why they shouldn’t fear you doing this.

Patents

Strategy: File for patents on your core IP. Once the patent is issued, you should be safe – even if others discover your IP, they can’t use it! Right?

Pros: Not only are patents important tools for defending your IP, they can also be great for selling and recruiting, as they enable you to publicly show off the deepest parts of your expertise. For startups, strong patents are also a major boon during acquisition or fundraising discussions.

Cons: Unless your company is enormous, you don’t have the resources to sue a major corporation for infringing your patent. In addition, patents need to be crafted carefully – you won’t have inside information regarding your competitors, so you need to patent something which you’ll be able to easily detect your competitor is infringing upon. Simply filing a patent doesn’t mean it will actually protect you! And, on top of all of this, patents have a high up-front legal cost, which makes them difficult for startups to invest in.

Example use case: You’ve developed a genuinely novel product which you’d like to sell in stores, but you worry about another company with more resources replicating your product and undercutting you on price. If you have the resources, a patent can be the perfect solution here.


All told, you’ll likely want a combination of all of the above. But perhaps the most important lesson of all of this is that there’s no silver bullet – just as with typical security, there is no point at which you can call your IP “perfectly secure”. Rather, there’s tradeoffs of increased security against other resources and flexibility – and only you can decide where your company belongs on that spectrum.

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