Protecting Your Startup from IP Theft
Written By Adam Yohanan and Haley Kopp
In the startup world, intellectual property (IP) theft is one of the biggest threats to your business.
Imagine you’ve spent months or years developing something unique, only to have it taken by a competitor or big player with deeper pockets and a bigger legal team.
When IP theft occurs, a startup often loses its competitive advantage and struggles to attract investors. In an ecosystem where differentiation is key, the loss of IP can easily lead to lost revenue, a tarnished reputation, and ultimately, failure.
How IP Theft Happens
Idea Appropriation: The big players are watching. They see promising startups as sources of inspiration or, in some cases, low-risk “testing grounds” for features and designs they can absorb and launch at scale.
Employee and Partner Leaks: Unfortunately, it’s not always an outsider who steals your IP. Former employees or partners may have insights into your product that can help competitors replicate it quickly.
Weak Protection Measures: Some startups skip IP protections early on, thinking they’re unnecessary. This leaves them exposed if they do strike it big, often when it’s too late to implement solid defenses.
Practical Strategies for Preventing IP Theft
NDAs and IP Agreements. Before anyone sets foot in your operation – whether they’re an employee, contractor, or collaborator – have them sign non-disclosure agreements (NDAs) and IP assignment agreements. Make it explicit: all IP generated by your team belongs to the company.
Patents. Patents protect innovations, but not everything can be patented. Prioritize patents for core technology or processes that make your startup unique and that competitors can’t easily work around. Patents may help attract investors who want assurance that your tech is safe from imitators.
Trade Secrets. Some startups avoid patents altogether in favor of trade secrets, which involve keeping critical methods or formulas hidden. Unlike patents, trade secrets don’t expire but can be tricky to protect without airtight confidentiality practices. Trade secrets are best for proprietary methods, algorithms, or other innovations that you’re confident you can keep secure without public disclosure.
Limit Access to Information. Being secretive is smart. If you have sensitive information, restrict access to it and avoid over-sharing with employees and vendors unless it’s absolutely necessary. If you’re working on highly sensitive tech, you don’t need the entire team – or your whole supply chain – knowing every detail. Keep sensitive information compartmentalized, and enforce strict access levels within your organization.
Data Security. If you’re developing software, secure it. Encryption, secure coding practices, and regular security audits help protect your tech from reverse engineering or hacking attempts that expose valuable IP.
Monitor Infringements. Keep tabs on the market for any signs of infringement – it’s easier than ever to monitor competitors. If someone is infringing on your IP, act fast with cease-and-desist letters or even legal action if necessary. The longer you wait, the harder it becomes to stop imitators from eroding your brand. IP monitoring services or software can help you keep an eye on your patents, trademarks, and copyrights globally.
Insurance Against IP Risks. IP insurance can cover the legal costs of defending your IP or countering infringement accusations. It’s not cheap, but for startups in IP-heavy fields, this can be a lifesaver if you end up in a legal battle with a bigger player. Look for policies specific to your IP type – like patent insurance – and discuss coverage options that align with your risk level.
Adam Yohanan is a transactional business lawyer with extensive experience representing companies, investors, and entrepreneurs in a wide range of high stakes business transactions.
Adam handles the small and large transactions in the life of a businesses, including mergers & acquisitions, entity formations, partnerships and joint ventures, investing and fundraising, commercial contracts, and dissolutions. His office can be reached at 212-859-5041.
Haley Kopp is a corporate lawyer focused on representing start-ups and small companies in formations, venture capital, angel investor financings, mergers and acquisitions, and general corporate matters.
Haley's diverse experience gives her a practical approach to solving complex business issues, whether guiding companies through financing rounds or corporate transactions. Her office can be reached at (619) 512-3652.
This guide is meant for educational and informational purposes only and should not be considered legal advice. It is essential to consult with an attorney or other advisors regarding all legal and other important matters.
