Start-ups must at once protect their valuable intellectual property and promote their product to customers and investors. These two functions—protection and promotion—are often in conflict, especially for a start-up in its early stages. At large, publically traded corporations, intellectual property protection is usually automatic. While large corporations generally have several bureaucratic levels of decision-making related to patent protection, they also have the resources to promptly file patent applications when necessary. Many start-ups have neither the institutional knowledge nor the capital to file a patent so quickly.
But more often than not, start-ups also do not have the luxury of suspending business activities until they have enough capital to seek intellectual property protection on their products. In today’s booming tech economy, delaying critical business even a few weeks might position a start-up perilously behind its competitors. So start-ups are forced to disclose their products and technology to potential customers and investors without the critical safety net of a filed patent application. A start-up may have to disclose certain aspects of its technology at pitch competitions or to venture capitalists, and it certainly must test iterations of its product with small groups of consumers prior to a larger product launch. Each of these activities may constitute a “public disclosure” under 35 U.S.C. § 102 and affect the future patent rights of both the start-up and other parties. And even apart from the legal consequences, start-ups may have an incentive to keep their secret to success hidden from the prying eyes of potential competitors.
What is a public disclosure?
A public disclosure is any (1) non-confidential communication, (2) which an inventor makes to one or more members of the public revealing the existence of his invention, and (3) enabling a person having ordinary skill in the art to reproduce the invention.
(1) Non-confidential: generally, a communication is non-confidential if it does not require secrecy by the person receiving the communication. If the person receiving the communication has, for example, signed a non-disclosure agreement (NDA) covering the subject matter of the invention, then that communication is likely confidential and would not be considered a public disclosure.
(2) To the public: a communication need not be made to a large group of people to be “public.” A communication about your invention to a single person, without the expectation of secrecy, could be considered public.
(3) Enabling: a communication regarding one’s invention is “enabling” if it is detailed enough to allow someone with expertise in the subject matter to create the invention. For example, a communication listing the components in an invention and describing how those components are put together would likely be enabling. In contrast, simply naming one’s invention would likely not constitute enablement.
Examples of public disclosures include articles in scientific journals about the invention; abstracts, posters, and presentations; and even the public use or sale of the invention.
What are the consequences of a public disclosure?
Publically disclosing an invention has a number of business and legal consequences. First, after making a public disclosure, an inventor has a one year “grace period” during which to file a U.S. patent application. After that grace period has expired, the inventor can no longer obtain a patent on the disclosed invention. Fortunately, third-parties do not have this same grace period. Once an inventor publically discloses his invention, that disclosure serves as prior art against all other parties seeking to patent the same invention.
What, then, is the risk of publically disclosing an invention? On its face, a public disclosure seems like a win-win scenario—the inventor is allowed a grace period to file a patent on his invention, and all other parties are hypothetically barred from obtaining one. That thinking isn’t totally incorrect. Publically disclosing an invention does provide an inventor some protection. But consider these scenarios:
(1) A third-party uses an inventors’ disclosure to create a similar but not identical invention that does not infringe but performs substantially the same function.
(2) The inventors’ disclosure is not specific enough to meet the enablement requirement but nonetheless incites a third-party to innovate in the same area and enter the market.
In both of these circumstances, the inventor has given potentially valuable information to a competitor who could beat the inventor to market. But in the context of an early stage start-up, sometimes it is necessary to take this risk. For example, when a venture capital (VC) firm is vetting a start-up in preparation for a potential round of financing, it will certainly want to learn as much as possible about the technology or product that forms the foundation of the start-ups’ business. This may require a non-confidential disclosure to the VC firm, especially since VC firms tend to be averse to signing NDAs. If the start-up wants to secure financing, this disclosure is necessary and usually an acceptable business risk. Similarly, most start-ups will at some point in time need to test their product with a group of consumers before taking the product to market. This testing likely constitutes a public disclosure, and it may be cumbersome to have each and every consumer who tests the product sign an NDA. Again, this may be a tolerable business risk for a start-up.
How can a start-up mitigate the risks of a public disclosure?
There are several steps that a start-up can take to mitigate the risks of a public disclosure:
- File a provisional patent application prior to the disclosure. Provisional patent applications are substantially cheaper than standard utility patent applications and can be prepared by the inventor or an attorney. A non-provisional application must be filed within 12 months of the provisional application, or the provisional application is abandoned.
- If practical, ask the receiving party to agree to an NDA.
- If a public disclosure is a necessary business risk and a patent application has not yet been filed, make sure the disclosure is as broad and non-specific as possible. A broad disclosure will likely not enable another party to copy your invention. In many cases, the specifics of the technology do not need to be disclosed. One can rather talk about the problem, the market opportunity, and other aspects of the business.
Generally, taking these steps will be sufficient to protect a start-ups’ patent rights in the U.S. While filing a patent application offers the best protection, disclosures without one are sometimes a necessary business risk. But the content of a disclosure can be limited in a way that does not affect the patent rights of the start-up and will not allow potential competitors to benefit from it. Even in cases where a competitor is able to glean some useful information from a disclosure, the start-up likely has a major head start in getting to market with a viable product.
Moreover, even if a startup loses foreign rights in a patent, a U.S. patent is often a good starting point, allowing the start-up to later pursue international patent protection on new creations and improvements.