Employer-Employee Relationship Matters in Patent Ownership

When an employee creates an invention and later is issued a patent on that invention, does the employer get any rights to the patent? This might be a strange question to ask for some people, especially to those without expertise on patent law. They might take it for granted that an inventor owns all patent rights to his or her invention. However, this is not always the case.


Patent Law: Ownership is Different From Inventorship

A person must show that he or she contributed to the claims of a patentable invention in order to qualify as an inventor of the patent. By default, the inventor becomes the owner of the patent, but this ownership can be assigned away through a written document, or in some instances through an implied-in-fact understanding (discussed below).

It is the owner, not the inventor, who enjoys all property rights to the patent. With these property rights, the owner of a patent can license the patent to third-parties; sell the patent ownership; sue a potential infringer; and manufacture, offer to sell, sell, or use a product covered by the patent. If the inventor assigns his ownership to someone else, then he or she will not have any of these rights.


Ownership and Inventorship in Employer-Employee Relationship

The general rule is that the employee who creates an invention owns the patent rights to the invention. There are two exceptions to this general rule: (1) intellectual property (IP) was explicitly assigned to the employer or (2) the employee was specifically hired to create the invention at issue.

Explicit assignment of IP usually occurs in the form of signing an IP Assignment Agreement. The agreement would provide that all IP that the employee has created or may create in connection with the services provided to the company and/or derived from the company’s proprietary information shall be the property of the company. Different states have different laws regarding the scope of work that this assignment can cover. For example, California’s labor law stipulates that an employee owns the patent rights to his or her invention if the invention is made entirely on the employee’s own time, without using any of the company’s equipment or technology, as long as the invention (a) does not related to the company’s business, and (b) did not result from work performed by the employee “as an employee” of the company.

Even if an agreement was not signed between the employee and the employer, the employer might still have been assigned the patent rights if the employer explicitly hired an employee to invent the product that was patented. This arises from the implied-in-fact understanding that the employee was specifically hired and paid to create the invention and therefore, any fruition of patenting the invention should be the employer’s.


Where Assignment Has Not Been Made, Employer Might Still Have “Shop Right”

So is the employer completely without any remedy if the assignment scenarios above do not apply? Not if the employee used the employer’s resources, such as its computers or laboratories, to create the invention. A judge-made doctrine called a “shop right” allows employers to practice inventions created by employees that the employer helped to subsidize.

However, a shop right does not involve transfer of ownership. A shop right is basically a non-exclusive and royalty free license given to the employer. The employee still holds the ownership of the patent and is free to go to third parties and negotiate non-exclusive licenses. Also, the employer cannot sell or transfer this shop right to a third-party.

One important note: the shop right doctrine is not a substitute for an assignment. The doctrine is only a defense to patent infringement in court. In other words, it only arises in situations where the employer is sued by the employee for infringing the patent that the employee was issued by practicing the invention.


Implications for University Students and Faculty

Many startups are formed by the students and faculty of universities. Graduate students and faculty typically sign an IP assignment agreement with the university, which means that the employer-employee relationship discussed above is established. A good example of this relationship is Larry Page, one of the co-founders of Google, and Stanford University. As you can see from the excerpt of patent number US 6,285,999 below, the inventor of this patent that served as the foundation of Google was Larry Page. However, he was not the owner of the patent because he was a Ph. D. student at Stanford. As a result, the assignee of ownership was Stanford University, and the university received 1.8 million shares of Google stock in exchange for long-term license of this patent, which translated to $ 337 million.

Meanwhile, each university has its own policy regarding IP assignment of undergraduate students and other students who are not employees, but typically, universities do not seek to claim rights to patents issued as results of class participation. For example, the University of Michigan policy states that:

“The University will not generally claim ownership of Intellectual Property created by students. (A “student” is a person enrolled in University courses for credit except when that person is an Employee.) However, the University does claim ownership of Intellectual Property created by students in their capacity as Employees. Such students shall be considered to be Employees for the purposes of this Policy. Students and others may, if agreeable to the student and Tech Transfer, assign their Intellectual Property rights to the University in consideration for being treated as an Employee Inventor under this Policy.”


Advice for Startups

If you’re a startup, there are many other issues regarding IP that should concern you. Regarding the employee IP assignment issue, make sure that all employees sign IP assignment agreements. Litigation is expensive. You don’t want to go to a court to argue that you had an implied-in-fact assignment or that you have a shop right defense to infringement. IP assignment agreements are a lot easier.

Also, find out whether you are working with university faculty or grad students already in an employment relationship with a university. This pertains to your employees as well as independent contractors who will participate in creating inventions for the company. Your employee or independent contractor signing multiple IP assignment agreements could cause ownership problems further down the line.


The On-Sale Bar to Patentability: A Pitfall for the Startup

onsaleSales are generally a good thing. A startup company’s first sales of a new technology, “must-have” product, or innovative service are proof that the company has arrived. They can initiate a steady source of income and signal legitimacy to creditors, including friends and family who have kept the venture afloat through its early days. Most importantly, sales validate founders’ excitement for sharing their passion with the world.

But sales can also spell disaster. Due to a pitfall built into United States patent law, first sales of a product or service can prevent a startup from pursuing patent protection on its key technologies. Startup founders should be aware of the “on-sale bar” to patentability, which can kill an early-stage venture’s ability to attract investors and ground the company just as it about to take flight.


Getting to Know the On-Sale Bar

Patent protection is not usually the first thing on busy entrepreneurs’ minds. That is, until they begin seeking funds from investors. Venture capital firms, especially those investing in tech startups, often insist on robust patent protection before bankrolling a small company’s growth. This makes sense when one considers what a patent is: the right to exclude others from practicing the subject technology. Investing in startups is risky and expensive. Exclusivity reassures investors that they have a chance of recuperating their investments if the company ever gets up and running full tilt. That is why, for many, lack of patent protection is a deal killer.

As it turns out, those celebrated initial sales can doom the startup. Under American patent law, certain acts by an inventor can prevent him or her from ever patenting his or her invention. The Patent Act reads, in relevant part:

A person shall be entitled to a patent unless . . . the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.

35 U.S.C. § 102(a)(1) (2012). There is a one-year grace period built into this law. The upshot is that an inventor who places his invention “on sale” anywhere in the world one year or less before filing a patent application cannot obtain a patent on that invention. This means losing the exclusivity some investors demand.

Furthermore, the Supreme Court and the Federal Circuit have interpreted the law to mean that the on-sale bar applies where the claimed invention (1) is the subject of a commercial offer for sale and (2) is ready for patenting. With respect to the second prong, we can assume for our purposes that if a startup is selling its product or service, the technology at issue is mature and “ready for patenting.” But what about the first prong? When is a product or service “on sale” under the law? Startups should familiarize themselves with what constitutes an “offer for sale” and why our laws discourage patenting an invention that has been on sale for too long.


How Can Sales Be a Bad Thing?

Patent law reflects a quid pro quo between the inventor the public. In exchange for full public disclosure of new technology, the inventor gets a temporary exclusive right. The idea is that we can incentivize rapid technological innovation by granting a temporary “monopoly,” while the public receives technological knowledge and the certainty that comes with legal notice as to what it can and cannot do. The public also gets freedom to practice the technology after the patent term expires, when the invention becomes part of the public domain.

Once something is in the public domain, it is unfair to remove it. Imagine the uncertainty that would surround any new technology if it could be given to the public, then taken back. Anybody building upon known technologies to create the next big thing would be on shaky ground if an inventor could remove that technology from the public domain at any time, then threaten an infringement action. Such a policy would discourage the technological progress that the patent system was designed to promote.

Although we like the idea of incentivizing innovation, we are also fond of concepts like certainty and notice. This is where the on-sale bar comes in. Selling a patented widget to the public is, in effect, putting it out there for the public to see. And the business community wants to know what it can do with the widget. Can innovators invest huge sums of money around using the widget to make the next next big thing, or are their resources better spent on alternative approaches? The longer the widget is on sale, the more patenting it feels like taking it out of the public domain. Therefore, United States patent law does not allow inventors to commercially exploit their inventions for long before public policy demands they patent it or dedicate it to the public.


What the Startup Should Know

With the above discussed public policy in mind, below are some helpful guidelines entrepreneurs should remember to avoid falling prey to the on-sale bar:

  • Courts have signaled that they will look to the Uniform Commercial Code (UCC) when determining whether a communication rises to the level of a commercial offer for sale. A key feature of such an offer is that acceptance by the other party would create a contract transferring title of the goods. If the seller retains title to the goods themselves, a transaction might not constitute an offer for sale.
  • The invention itself must be the subject of the offer for sale. Offering to sell rights to the invention or promotional items related to the technology at issue won’t trigger the on-sale bar.
  • A finalized sale is not required. A mere offer for sale is enough to spell trouble. In fact, even a rejected offer has been held sufficient to bar a patent. Similarly, delivery is not required. For example, courts have held that a signed purchase agreement is enough to bar a patent, even when the subject goods or services are never delivered.
  • Conditional sales count too. The fact that a sale is conditioned upon the buyer’s satisfaction, for example, does not get around the on-sale bar.
  • The on-sale bar applies anywhere in the world. Under the old U.S. patent laws, which applied to patent applications filed before March 16, 2013, only offers to sell within the United States would trigger the on-sale bar. Today’s startups must proceed more cautiously. Under the America Invents Act (AIA), passed in 2011, the on-sale bar now has no geographic limitation. Offering to sell your widget in Nepal or on the internet can trip you up as easily as selling it from a booth down the street.
  • Secret sales may trigger the on-sale bar. Under the old patent laws, the “on sale” provision was interpreted as including secret or private commercial activity. It remains unclear whether the courts will interpret the “on-sale” provision in the same way following enactment of the AIA.
  • Even unauthorized third party sales may trigger the on-sale bar. This is important for a startup to keep in mind when entering into a manufacturing or distribution agreement.

Although these guidelines do not outline all the contours of the “on sale” provision, the take home point is clear. Startups with patentable technologies should not offer goods or services for sale to anyone, anywhere, before filing for patent protection. 


Startup companies considering patenting their products or processes should be cautious about offering to sell their products or services, in public or in secret. More precisely, if a startup’s founders envision fundraising through investors, they should make sure a patent application is on file before putting their company’s goods or services on the market, whether that be through a brick-and-mortar operation or, more likely, the internet. Taking precautions to secure patent protection now can help the tech startup avoid pitfalls, like the on-sale bar, that could keep it from realizing its long-term fundraising and development goals.


Keeping Public Disclosure Risks in Perspective

Publicly disclosing a patentable invention prior to filing your patent application has its risks, but startups need to keep these risks in perspective.

Publicly disclosing a patentable invention prior to filing your patent application has its risks, but startups need to keep these risks in perspective.

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.


Why Should You Consider Filing A Provisional Patent Application


Provisional patent applications can help entrepreneurs beat the clock by establishing important filing dates

Provisional patent applications can help entrepreneurs beat the clock by establishing important filing dates.                                             Image by opensourceway.

Since March 16, 2013, the United States switched from a first-to-inventor to a first-to-file patent system, which means the first inventor to file an application (but not necessarily the first to invent), gets the patent. As a result, it is important to file a patent application to claim priority over the invention soon after the invention is conceived (i.e. once the inventor has created a definite and permanent idea of the complete and operable invention) and capable of being described. Moreover, having an invention that is patent-pending adds value and credibility to a business, which helps the business seek additional financing.

However, filing a regular patent application (i.e. non-provisional) can be very expensive, ranging from several thousand dollars to over twenty thousand dollars, which is often outside a business’ budget, especially in its early stages. Additionally, a non-provisional patent application is examined by the Patent & Trademark Office and an applicant’s responses to the examiner’s rejections also incur significant legal fees. This is where a provisional patent application can come in handy. A provisional patent application allows you (the inventor) to claim priority to the invention (and claim that you have a “patent pending”) and push off some of the costs associated with a non-provisional application.

What is a provisional patent application?

A provisional patent application is a temporary patent application that includes the specification of the invention, including sufficiently detailed description and drawings to allow another to make and use the invention. The drawings can be hand-drawn or computer-created (though the latter may be better for business reasons). Moreover, the applicant does not need to draft any patent claims. Because there is no examination of the patentability of the provisional application at the USPTO, the filing fee is relatively low – $65 for micro entities, $130 for small businesses, and $260 for all others. Although ultimately you will need to file a non-provisional patent application in order to obtain a patent in the United States, the provisional application allows you to (1) have an effective filing date that a later non-provisional patent application, filed within 12 months, can claim priority to and (2) say that you have a “patent pending”, which can add more value to your business.

What are the benefits of applying for a provisional patent?

One of the key benefits of a provisional application is that it has few formal requirements, which can translate to a lower cost of obtaining early protection for your invention. As mentioned above, a provisional patent application does not require disclosing any patent claims. Because there is no examination process, an applicant will not have to incur legal fees in responding to “office actions” until after a non-provisional application is filed.

A related benefit of the provisional application is that it allows you to delay filing a non-provisional application for 12-months. A successful and valuable invention is often a work-in-progress, and this grace period can be very valuable for evaluating the merits of the invention and making improvements. While aspects of your invention may be sufficiently concrete and detailed for you to seek protection for, there are still parts that you may want to research and develop. One flexibility to a provisional application is that when you file a non-provisional application, you can claim the priority to multiple provisional applications so long as they are within the 12 months prior to your filing date. In other words, you can combine multiple iterations of your invention into a single document, which is beneficial if you’re still in the processing of developing and perfecting your invention.

In addition, this 12-month grace period can be especially helpful for small entrepreneurs or businesses that do not have the funds upfront to afford filing a non-provisional application. As mentioned earlier, the cost of filing a provisional application is relatively low, especially if you qualify as a micro-entity. Provisional applications allow you to immediately establish a filing date for your invention and to begin promoting and seeking additional funding for your invention without the worry that by disclosing your invention to others, you may lose your claim to your invention. Because the “novelty” of your invention is generally judged as of your filing date, this early filing date can have enormous benefits. By filing a provisional application (and within 12-months, the non-provisional application), if a patent is issued, you can claim priority to the date you filed the provisional application and exclude others from making, using or selling products that embody your invention.

What are the risks of filing a provisional patent application?

While a provisional patent application does not require many of the formalities (such as patent claims or formal drawings) of a non-provisional application, it still must be drafted with care. The provisional application must sufficiently enable and describe the invention that you will later claim in your non-provisional application. If the provisional application does not provide adequate description to enable the claims in non-provisional application, the claim will not be able to benefit from the provisional filing date. As a result, a public disclosure after the filing of the provisional application but before the filing of the non-provisional application could invalidate the claims. For more information about the risks of filing a provisional patent application, see our prior post on the risks of filing a “cover sheet provisional” application.

What are the next steps after filing a provisional patent application?

One important point to keep in mind is that filing a provisional patent application is just the first step towards obtaining protection for your invention. Ultimately, you still need to file a non-provisional patent application to obtain a patent, and to take advantage of the earlier filing date of the provisional application, you must file a non-provisional application within 12-months. Thus, if you’re planning on referencing multiple provisional applications, the critical date you want to file your non-provisional application by is 12-months from the filing date of the earliest provisional application to which you want to reference.

Lastly, so long as you do not run afoul of any of the statutory bars (e.g. offering to sell the invention or publicly disclosing the invention), even if you cannot file a non-provisional application within 12-months and claim priority to it, it will not cause you to lose what you have disclosed in your application because the provisional application is not published.


Avoiding Inequitable Conduct and Meeting the Duty of Candor and Good Faith

If entrepreneurs are not careful in their communications with the Patent Office, their valuable patents may later be found to be worthless.

If entrepreneurs are not careful in their communications with the Patent Office, their valuable patents may later be found to be worthless.

What is Inequitable Conduct?

As a fledgling startup, maximizing the value of the company is important when attempting to obtain early funding. For many startups the lion’s share of their value comes from their intellectual property. Obtaining and keeping that IP is critical. With that in mind it becomes crucial for entrepreneurs to consider issues of inequitable conduct and duties of disclosure when applying for patent protection for their intellectual property.

Inequitable conduct is a judge-made doctrine that allows the court to render a patent unenforceable if the patentee engaged in certain prohibited conduct during the application and prosecution of a patent. Inequitable conduct requires the patentee to intentionally misrepresent or omit material information from the patent office, as discussed here. This includes:

  • Failure to submit documents, including material prior art known by the applicant or explain/translate foreign language references
  • Misstating facts or affidavits of patentability
  • Incorrectly or incompletely identifying inventors

Further, the USPTO has enacted Rule 56, which holds that “each individual person “associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability.”

In the case of withheld prior art, under the Therasense standard, a defendant would need to show that a plaintiff patentee or their counsel:

  • Intentionally withheld or misrepresented information; and
  • The information was material.

To be material the defendant must show that the patent would not have been granted “but-for” the omitted prior art.

The penalty for inequitable conduct is invalidation of the entire patent. In addition, the lawsuit often becomes “exceptional” which can force the losing party to pay the other side’s attorney’s fees.

Defending against a charge of inequitable conduct can significantly increase the costs of litigation and patent ownership, even if one defeats the charges.

How Do I Avoid it?

First and most importantly, it is imperative that a startup ensure correct inventorship on any patent application. USPTO rules require all inventors to be listed on the patent application. An inventor is any person that participated in conception of the invention. That is, anyone who helped come up with the idea and form of the invention. Persons who simply helped build the prototype or who contributed ideas and knowledge that was not used in the version that is being patented need not be included.

Startups often have numerous founders or others who are involved in the conception of an invention. Be sure to keep track of these people and name them on the patent application. Further, do not intentionally omit a person who should be listed as an inventor in an attempt to avoid ownership issues (for example if a professor assisted in creating an invention and the startup is concerned about the University claiming title). While it may be the easier solution now, it risks the entire patent being unenforceable later.

Second, entrepreneurs must be diligent in preparing their application or in working with their counsel to prepare an application to ensure all prior art known is considered and disclosed if relevant. The USPTO does not require applicants to perform prior art searches, so applicants and their attorneys are only responsible for disclosure of prior art that is known to them. However, it is the responsibility of the applicants to ensure that no relevant information is being withheld.

If in doubt about the materiality of a reference, it is always better to err on the side of disclosure. Further, the duty of disclosure extends through grant of a patent, and if any prior art becomes known to an applicant it should be disclosed to the USPTO. Keep in mind that the duty of disclosure extends to the inventors, their counsel, and anyone involved in preparation of the application or anyone to whom there is an obligation to assign the patent. Entrepreneurs should be sure to check with every person meeting those criteria to ensure no prior art is being withheld. Keeping records of any prior art searches and of personnel having knowledge of an invention is extremely helpful when it comes time to apply for a patent.

Finally, the new patent reform act created a new administrative procedure called supplemental examination. This procedure can be used to cure inequitable conduct for a patent that has issued. A patentee may present new information to the USPTO and the examiner will consider whether the patent should have been issued in light of the information. If the patent is allowed in light of the new information, it cannot be later held to be unenforceable due to failure to disclose that information in the original application (but could still be held unenforceable for failing to disclose other information that was not included in the supplemental examination). Essentially it is a patent amnesty program. Entrepreneurs who have already obtained patents and are concerned about inequitable conduct should speak with counsel regarding supplemental examination.

By keeping records of the persons involved in conception of a new technology and their roles, as well as keeping track of what references were consulted or searched, it can save time and headaches when it comes time to apply for a patent and can make all the difference if the patent one days ends up disputed in court. For those entrepreneurs who already have a patent and are concerned about false or omitted disclosures, supplemental examination can be extremely useful.


Trade Secret vs. Patent Protection for Software Startups

In light of recent changes in the law concerning software patents, software startups should more heavily consider trade secret protection to protect their technological and operational advantages.

In light of recent changes in the law concerning software patents, software startups should more heavily consider trade secret protection to protect their technological and operational advantages.

So you’ve launched a software startup. You know that if you are to have any hope of becoming the next Google, Facebook, or Twitter success story, you need to take steps to protect your technology and your brand. Making the choice to invest some resources into obtaining intellectual property protection can be a great decision, but the specifics of how to carry out such a plan might be a little elusive. The question is what kind of protection do you actually need, and how do you go about getting it.

Two types of IP protection that most startups will want to consider are patents and trade secrets. What works best will vary from startup to startup depending on each ones own unique circumstances. However, there are several factors that all startups will want to consider when implanting an intellectual property protection strategy. First, let’s consider the basic types of IP protection that the patents and trade secrets provide, and then we can better understand factors that might encourage you to choose one or the other.


One type of IP protection that most people have heard of but few people fully understand is patent protection. There are several categories of patents, including utility patents, design patents, and plant patents. Plant patents and design patents give inventors rights in specific areas as defined by statute. However, the most common type of patent is the utility patent.

Utility patents grant the holder an exclusive monopoly on inventions of “new and useful process, machine, manufacture, or composition of matter, or a new and useful improvement thereof.” For example, someone could obtain a patent on a new and improved hair trimmer as long as it was different than and not obvious in light of previous hair trimmers. Last year, over 500,000 utility patent applications were filed at the U.S. Patent & Trademark Office.

Patents, utility patents in particular, enjoy popularity for several reasons. First, they grant the rights holders a very strong form of protection. This protection – the right to prevent others from making, using, selling, offering for sale, or importing the patent holder’s invention – is given in exchange for a publication that explains how to make and use the invention. After twenty years anyone is allowed to make and use the invention. When considering whether or not to apply for a patent, a software startup should evaluate whether or not the exclusive protection is worth having in exchange for giving up their invention after twenty years. In many instances, this will be a good tradeoff to make given the rapidly evolving world of software and technology.

Another benefit of utility patents is that the patent holders will not lose their rights due to the actions of third parties, assuming that they justly received the patent in the first place. This may not necessarily be true with trade secret protection. For example, a person who has trade secret protection in a manufacturing process can not prevent a third party from independently discovering and using such a manufacturing process. But if the original inventor of that manufacturing process acquired a patent, the third party could not use the process even if they independently discovered it (assuming that the patent holder had a valid patent that was not acquired through fraud).

While there are some significant upsides to obtaining a patent, there are costs as well. One downside that was already mentioned is the limited duration of patents. Another potential downside is the cost and difficulty of obtaining a patent. As discussed in our recent post, in recent years, it has become more and more difficult for inventors to obtain patents on software, and the scope of granted software patents may be more limited. Getting a patent can also be quite expensive. Depending on how many jurisdictions (i.e., countries) your startup is applying for patents in, the price tag can reach into the hundreds of thousands of dollars. See our prior post outlining the costs of obtaining patent protection.

Trade Secrets

Unlike patents, trade secrets are creatures of state law rather than federal law. This means that specific trade secret regimes will vary some from state to state; however, there are generally accepted principles regarding how trade secret law should work. One attempt to compile some of these generally accepted principles is the Uniform Trade Secrets Act. This document defines trade secrets as follows: “’Trade secret’ means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” In short, a trade secret is information that is valuable because it is kept secret. State laws prevent the “misappropriation” of trade secrets. This basically means that people aren’t allowed to steal your secret sauce. They can, however, independently create or reverse engineer it. This is one of the main disadvantages to trade secrets.

There are several benefits to weigh this disadvantage against when considering whether or not to rely upon trade secrets as your chosen form of IP protection. One benefit is that trade secrets can be relatively cheap compared to patents. There are no government filing fees for trade secrets, and the main costs result from taking measures to make sure your secret information remains secret. Trade secrets also can last forever assuming the information remains secret. This can be advantageous if you believe your invention will have commercial value for a long time to come.

Choosing Trade Secrets or Patents

One form of protection or the other will not be right for every startup. The following are some factors to consider when choosing between the two: (1) Will the invention be useful beyond 20 years? (2) Is it possible for companies to reverse engineer the invention? (3) Is the invention likely to be discovered independently in the near future? (4) Can you afford more expensive patent protection given your goals? (5) What is the risk that competitors design around a patent? (6) Are you interested in licensing/cross-licensing with competitors? (7) Would you be able to detect if someone was infringing your patent?

Let’s look at a couple of examples in order to understand how these factors can play out.

Example 1:

A software startup has developed a technology that has never been seen before, but as soon as you sell it, everyone will understand how to make it. They believe that this technology will be relevant for 5-10 years, but are not sure beyond that. Finally, the startup thinks there a lot of potential competitors who will likely be interested using this technology.

In this example, the startup would likely want to obtain a patent because all the factors lean in that direction. It will be easy for other competitors to develop similar products once they see the startup’s new technology; this will greatly reduce if not eliminate the value of any trade secret protection. The indefinite duration of trade secrets wouldn’t really be that valuable even if competitors couldn’t reverse engineer the product. The technology will only be relevant for 5-10 years, well less than the time frame protected by patents. Finally, because there are a lot of potential competitors that might be interested in using the technology, the startup could potentially operate on licensing business model to obtain revenue or cross-licenses.

Example 2:

A software startup has made a discovery that they believe is so foundational in nature that they believe it will revolutionize the industry for many years to come. They’re a little low on cash right now, but they expect that to turn around in the next year or two. Finally, the discovery should improve the ease with which current products are made, but the final products themselves won’t necessarily be changed.

In this example, the startup will likely choose to rely on trade secret protection. Given the foundational nature of the discovery (think F=MA2 rather than a bulldozer applying the principal of F=MA2), it is not even clear that the discovery would be patentable.  Further, the startup does not have a lot of money to try and convince the USPTO that the discovery is in fact patentable. Finally, it looks like the manufacturing processes for widgets will change, but this will not be detectable in the final widgets themselves. Thus, it might be very difficult to tell if a competitor was infringing a patent. Relying on trade secret protection will mitigate these concerns and allow the startup to profit for the discovery for many years to come.

It is important to note however, that deciding between a patent and trade secret does not necessarily have to be an either or proposition. It might be possible to go the trade secret route at first, and then obtain a patent further down the road. However, this is a one way street. Once you obtain a patent, you can never go back and rely on trade secret protection. Also, you can split up various aspects of your business. Certain aspects of the business might be appropriately covered by patents while other aspects would be great candidates for trade secret protection.


Startups creating an IP protection strategy should make decisions in light of their business model and technology. If it is not a clear decision to go one way or the other, the startup will need to make a calculated decision as to what factors are more important to them. Finally, when appropriate, startups should consider using patents and trade secrets in a hybrid form of protection.


Biotech Ventures Beware! The Industry May Need a Different Kind of Cure.

Last year's Supreme Court decision in Myriad and the USPTO's subsequent change to its examination guidelines make it more difficult to protect certain biotech innovations

Last year’s Supreme Court decision in Myriad and the USPTO’s subsequent change to its examination guidelines make it more difficult to protect certain biotech innovations


On June 13, 2013 the Supreme Court handed down its decision in Association for Molecular Pathology v. Myriad Genetics, Inc.. In this landmark decision for life science patents, the court held that a “naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated.” In so holding, the court weaved a fine line between unpatentable subject matter – the long-standing rule that “laws of nature, natural phenomenon, and abstract ideas are not patentable,” as they are not any single inventor’s creation, but rather are the “tools of scientific and technological work,” – and patentable subject matter. The court indicated that “the rule against patents on naturally occurring things is not without limits, for all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomenon, or abstract ideas, and too broad an interpretation of this exclusionary principle could eviscerate patent law.”  After Myriad, practitioners were uncertain as to whether Myriad specifically made genomic DNA unpatentable or whether other “naturally occurring” entities were also unpatentable.

On March 4, 2014 the United States Patent and Trademark Office (U.S.P.T.O), the regulator of U.S. patent grants, issued guidelines determined to shed clarity on this Myriad ambiguity. In these guidelines, the Deputy Commissioner for Patent Examination Policy identifies 12 factors that must be considered by a patent examiner in determining whether the invention is “naturally occurring.” Some of the factors that weigh in favor of eligibility are:

a)  Claim is a product claim reciting something that initially appears to be a natural product, but after analysis is determined to be non-naturally occurring and markedly different in structure from naturally occurring products.

b)  Claim recites elements/steps in addition to the judicial exception(s) that impose meaningful limits on claim scope, i.e., the elements/steps narrow the scope of the claim so that others are not substantially foreclosed from using the judicial exception(s).

c)  Claim recites elements/steps in addition to the judicial exception(s) that relate to the judicial exception in a significant way, i.e., the elements/steps are more than nominally, insignificantly, or tangentially related to the judicial exception(s).[7]

Some of the factors weighing against patentability are:

g)  Claim is a product claim reciting something that appears to be a natural product that is not markedly different in structure from naturally occurring products.

h)  Claim recites elements/steps in addition to the judicial exception(s) at a high level of generality such that substantially all practical applications of the judicial exception(s) are covered.

i)  Claim recites elements/steps in addition to the judicial exception(s) that must be used/taken by others to apply the judicial exception(s).[8]

The large number of factors and their inherent ambiguity have resulted in unpredictable examinations. Practitioners have been surprised to receive 35 U.S.C. § 101 rejections, when they were expecting patent issuance notices for molecular biology and non-molecular biology based inventions alike. Patent examiners have thus been effectively reading Myriad’s prohibition on “naturally occurring” as not limited solely to DNA-based inventions. As pointed out in a recent article, what’s more is that products that are derived from a naturally occurring product might be considered to be naturally occurring as well, further stifling patent protection for life science inventions.

The result has been a siege of the biotech and pharmaceutical industries. For an industry so reliant on patent protection, that is fixed with high upfront research and development costs, patent ineligibility is a real scare. If these guidelines stand, the industry can no longer be assured that their R&D expenses will pay off down the road.

However, the Myriad-Mayo Guidelines have themselves also been under threat from those companies and practitioners most affected by them. July of this year marked the end of the public commenting period, in which biotech and pharmaceutical companies as well as universities voiced their consternations with the Myriad-Mayo Guidelines. The vast majority of the comments were extremely critical of the guidelines, incentivizing the USPTO to revise the Myriad-Mayo Guidelines. The revision is currently underway and it will be important for life science based startup companies to watch for what occurs at the USPTO in the immediate future. Will the USPTO cure the patent illness it began? Patent protection for your start-up may be at stake




Fallout of the Supreme Court’s Recent Alice Decision: Is Software Still Eligible for Patent Protection? (Part 2 of 2)

In Part 1 of this series, we examined the Supreme Court’s recent decision in Alice Corp. v. CLS Bank and how courts and the Patent Office have started to limit the scope of software patents as a result. In this second and final post, we’ll look at how an entrepreneur in the software space might be able to protect her intellectual property in light of this new guidance.

Software Implemented Inventions Can Still be Patented

Despite what some anti-patent advocates may have hoped, Alice did not invalidate all software patents, and software inventions can still be patented. In fact, the Alice decision, at most, delineated a boundary beyond which a computer-implemented idea becomes too abstract to be patented, without something more. Nor did the court hold that software inventions necessarily constitute abstract ideas and are therefore ineligible for patenting. In fact, nowhere in the court’s opinion is the word “software” even used. Without a doubt, many inventions that embody systems and methods implemented in software will continue to be awarded by the Patent Office and upheld by the court system.

The Scope of Patentable Software is More Limited

With the good news comes the bad for software inventors hoping for a new patent. The scope of patentable software inventions is now decidedly more limited than it was before Alice. Gone are the days where an inventor could program a generic implementation of Bingo and receive a patent for it. While the Supreme Court has not set any hard-and-fast rule on what, exactly, is considered “abstract,” we have an idea of the general shape of the boundaries: any program that simply takes a long-existing idea and generically implements it in code is too abstract to pass the Alice patent eligibility test. If you take your computer Bingo program, and mentally strip it down to its essential functionality, is it really just a Bingo game on a computer, or is it something more? Perhaps there is additional functionality that make it more than just Bingo. Maybe you’ve programmed some unique features within the code that take advantage of the hardware on a specific platform and make the program run more smoothly. If you have these sorts of features built-in to your program, even computer Bingo may be patentable under the second step of the Alice test.

 Carefully Consider Your Options Before Filing a Software Patent Application

Finally, as an entrepreneur, you should think very carefully about identifying the particular and novel aspects of your software before filing a patent application. Your attorney can help you narrow and identify these features, but in general, the following considerations are prudent:

  • Think about what, specifically, makes your software unique. Does it leverage a unique algorithm to create performance improvements? Is there a function that has never been accomplished before? Does the user interface create a new experience? If the novel aspects of your software currently exist, especially if they exist in a non-digital format (like the game of Bingo), is there something “extra” that makes the invention more than just converting it into a digital format? For instance, implementing Bingo on a generic computer is not patentable, but is there something really unique about the user interface that makes the Bingo card easier to interact with? Does the program take advantage of the memory architecture in a unique way to more efficiently store and retrieve data? Try to identify these features in as much particularity as
    possible, even before you sit down to develop the patent application language.
Under the new patent eligibility guidelines for software implemented inventions, patents must claim something more specific than functionality carried out by well-known programming techniques on general purpose computers.

Under the new patent eligibility guidelines for software implemented inventions, patents must claim something more specific than functionality carried out by well-known programming techniques on general purpose computers.

  • When you and your attorney do begin drafting the patent application, consider identifying the novel algorithmic aspects of the software and including flow charts or even representative source code or pseudo-code in the filing. This will help to demonstrate to the examiner that your code is more than just implementing an idea on a generic computer, which can be accomplished in a near-infinite number of ways. Including specifics about the algorithm (or several examples of a possible algorithm) in the application will give you the flexibility during the Patent Office review to narrow the scope of your claims and could potentially save the application from dismissal under an Alice rationale. Since the legal ramifications of Alice have yet to fully play out, this is an attractive way to preserve some (albeit narrow) patentable ground if the courts or the Patent Office further restrict software-enabled inventions.
  • Consider your overall business goals and, perhaps, reconsider the need to pursue a strategy of patenting. You may not need a patent to protect your competitive advantage. Implementing a strategy of keeping software a trade secret may be a viable alternative in some situations, and copyright generally protects unauthorized copying of software. The expense and hassle of obtaining a patent may not be worth the ultimate reward.


Fallout of the Supreme Court’s Recent Alice Decision: Is Software Still Eligible for Patent Protection? (Part 1 of 2)

In June 2014, the Supreme Court struck down a patent on a software implemented invention, perhaps narrowing the scope of software patents we will see in the future.

In June 2014, the Supreme Court struck down a patent on a software implemented invention, perhaps narrowing the scope of software patents we will see in the future.

The Supreme Court, Patent Eligibility, and “Abstract Ideas”

In June 2014, the Supreme Court issued a much-anticipated patent decision in Alice Corp. v. CLS Bank. The question was whether the claims at issue, involving a method for mitigating “settlement risk” between two parties in a financial exchange by using a computer system as an intermediary, are patent-eligible under 35 U.S.C. § 101. Justice Thomas, writing for a unanimous court, answered that question with a definitive “no.” But even though this particular computer-implemented method was struck down, are other software programs still eligible for patent protection? That’s a trickier question.

35 U.S.C. § 101 limits patentable subject matter to “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” Laws & products of nature, physical phenomena, and abstract ideas are generally considered unpatentable subject matter. With the rise of software and software-based inventions, the line between abstract ideas and new and useful processes became somewhat unclear. Note that §101 addresses whether a particle technology is eligible for patent protection. Section 101 does not address whether an invention is new, nonobvious, useful, or sufficiently described. Those requirements are addressed in separate sections of the Patent Act and represent their own unique hurdles to patentability. Therefore, the question presented by §101 (and addressed in the Alice case) is, even assuming a particular invention is new, nonobvious, useful, and sufficiently described, is this the type of creation that should be considered for the powerful protection of a patent.

For a time, courts generally refused to invalidate software patent claims under the statutory language of § 101. In 2010, however, the Supreme Court unanimously held, in Bilski v. Kappos, that a patent claiming a software method for financial hedging against price fluctuations was invalid under § 101. Alice continued this line of decisions for the Court, confirming the Supreme Court’s position that “basic tools of scientific and technological work” should not be monopolized by a patent-holder. Alice communicated to lower courts that § 101 should be used to invalidate software and business methods that are so abstract that the award of a patent would “tend to impede innovation more than it would tend to promote it.”

In order to accomplish this goal, Alice puts forth a two-part framework, based on its previous decisions in Bilski and Mayo v. Prometheus, to determine whether a patent application describes an “abstract idea,” and if so, whether it still contains enough inventive material to meet the § 101 standard.

First, the court considers whether the patent claim is “directed to an abstract idea.” While on some level, every invention embodies at least one abstract idea, if the claimed idea is so broad such that awarding a patent would impede more innovation than promote it, it is likely to meet this first step. Examples of abstract ideas include fundamental economic practices like the ones at issue in Alice and Bilski, certain methods of organizing human activities, an idea of itself, and mathematical relationships/formulas.

Second, if the patent claim is directed to an abstract idea, the court examines whether anything in the patent “transform(s) that abstract idea into a patent-eligible invention. In other words, if there are features of the invention that go above and beyond simply implementing an abstract idea in software, it may still be patent-eligible. Improvements to the technology, improvements to the functioning of the computer elements and other “meaningful limitations” that go beyond simply implementing an idea on a computer are likely to qualify an invention in this way.

 The End of Patents for Generic Ideas Implemented on a Computer

The U.S. Patent and Trademark Office (PTO) took little time in heeding the new guidance from the Supreme Court. Less than a week after the Alice decision, the PTO issued new guidance to its examiners in applying the Alice decision. PTO examiners now employ the two-part test set forth in Alice to evaluate potentially abstract ideas, and if there are no “meaningful limitations” on an otherwise abstract idea, the PTO examiner is very likely to reject the application as non-patentable subject matter under § 101.

Similarly, courts have wasted no time in implementing the Supreme Court’s guidance. The U.S. Court of Appeals for the Federal Circuit, which receives all appeals on patent matters, has invoked Alice in a number of recent cases to invalidate software and business method patents. District Courts hearing patent disputes, too, have seized the opportunity to invalidate claims that are too “abstract” to be patented. Some recent examples of inventions too “abstract” to be protected by a patent under the Alice rationale include:

  • “[A] process of organizing information through mathematical correlations and is not tied to a specific structure or machine . . . taking two data sets and combining them into a single data set” Digitech Image Techs., LLC v. Elecs. for Imaging, Inc., 758 F.3d 1344 (Fed. Cir. 2014)
  • “[C]reating a contractual relationship—a ‘transaction performance guaranty’—that is beyond question of ancient lineage,” implemented by a generic computer. buySAFE, Inc. v. Google, Inc., 2014 U.S. App. LEXIS 16987 (Fed. Cir. Sept. 3, 2014)
  • “[M]ethods and systems for ‘managing a game of Bingo,’ . . . ‘solv[ing a] tampering problem and also minimiz[ing] other security risks’ during bingo ticket purchases” using a computer. Planet Bingo, LLC v. VKGS LLC, 2014 U.S. App. LEXIS 16412 (Fed. Cir. Aug. 26, 2014)
  • “[A] computer program that allows the user to create meals from a database of food objects according to his or her preferences and dietary goals, to change those meals by adding or subtracting food objects, and to view the dietary impact of changes to those meals on a visual display” DietGoal Innovations LLC v. Bravo Media LLC (Div. of NBC Universal Media, LLC), 2014 U.S. Dist. LEXIS 92484 (S.D.N.Y. July 8, 2014)
  • “[A]sking someone whether they want to perform a task, and if they do, waiting for them to complete it, and if they do not, asking someone else. . . . performed ‘in connection with a computer system.’” Eclipse IP LLC v. McKinley Equip. Corp., 2014 U.S. Dist. LEXIS 125529 (C.D. Cal. Sept. 4, 2014).

So what does all of this mean for an entrepreneur with a potential software invention? Check out Part 2 of this series.


Patent Trolls – The White House Makes a Move in the Right Direction

The White House launched a toolkit in February to help startups search government databases on patent trolls and patents.

The White House launched a toolkit in February to help startups search government databases on patent trolls and patents.

Patent Trolls – The White House Makes a Move in the Right Direction.

One of the worst issues that could befall an early startup is litigation. Litigation can distract a startup from its main priority – innovating and executing its business model.  Furthermore, litigation, or even threatened litigation, can scare away potential investors. For many tech and even non-tech driven startups, some of their litigation may be initiated by “patent trolls.” Rather than seeking to place their technology in the hands of the public, patent trolls’ primary business model is to collect licensing and settlement fees through the power of a potential patent infringement suit or even initiate suit in some cases. A patent troll will typically stockpile patents only for potential litigation purposes. As patent trolls have continued to frustrate the business objectives of startups and their investors, the United States Patent and Trademark Office (USPTO) and White House have recently taken steps to make it easier to fight patent trolls.

In February, the White House launched a toolkit to help startups search government databases on patent trolls and patents. Many of the costs associated with fighting a troll come even before you gear up for litigation. First, time and money is spent attempting to learn the identity and nature of the entity that just sent your startup a cease and desist or demand letter.  Second, ascertaining whether a patent infringement threat has merit is difficult without the assistance of a patent attorney.

This refocus of resources and time is more costly to a startup then it would be to a larger company. Whereas a large company may decide to just close a certain business line to avoid suit, a startup’s future may rely on a single business line in the early stages. Also, unlike a large company, startups don’t have the luxury of spending company dollars to battle litigation. Typically, a startup budgets all of its early capital to fuel it until the next round of funding; hiring new employees, research and development, rent, and marketing are among the few costs that startups can afford with investors dollars.

Handling a Potential Patent Troll’s Cease and Desist Letter.

One issue with receiving a cease and desist letter is the difficulty in determining whether a patent troll or a more “reputable” entity is attempting to enforce its rights in a patent. The hope of the White House is that the new toolkit will streamline this process of “discovery” for cash-strapped businesses.

Prior to even analyzing an asserted patent (and therefore possibly engaging a patent attorney), a startup can learn much about the nature of a patent assertion. The following are steps you could take prior to bringing on a patent attorney to learn more about the threatening entity, its motivations, strategies, and capabilities:

1.   One of the first steps you should take in dealing with a potential patent troll’s cease and desist letter is to determine who the driving force behind the letter is. Many letters are sent by lawyers and do not identify the actual entity that owns the asserted patent(s). Learn as much about the entity as possible;

  • Review and utilize the new patent toolkit and search issued by the White House, which can tie asserted patents to the underlying entity.
  • Perform a Google search to learn additional information about the entity’s past activity.
    • Look for any blogs or stories; long standing patent trolls will typically have a lot of voiced opinions of them on the web. Many trolls are painted in a negative light and will be blasted by blogs across the web.
  • Have they been involved in past suits? What was the outcome of those suits?
    • If you find out that the troll sends hundreds of cease and desist letters but has never engaged in suit, you may be in luck. Some trolls issue letters with only the hope that some respond with potential settlements. They understand that they probably won’t win an infringement suit and hope to collect on any potential settlement.
  • Is the letter boilerplate? This can often be a telltale sign of a troll engaging in wide-ranging assertions, but perhaps not following through on any.

2.   Next, a recipient of a cease and desist letter should analyze the merits of the patent infringement claim. This will help you determine whether your startup may indeed be infringing. Determining whether a product or service is indeed infringing may not be as straightforward as it sounds. You should focus on what the claims define in the patent. The test is whether your product or service satisfies each and every limitation of a single claim of the patent. This process often requires someone experienced in construing patents to determine the specific meaning of the words used in the patent. You can search for patents through the USPTO’s website or through Google’s patent search.

Finding Help                                                                                            

Several law schools, law students, and lawyers have worked together to form the Law School Patent Troll Defense Network. App Developers AllianceThe network provides free legal services to app developers and other small business entrepreneurs that are threatened by patent trolls. Another form of help might come from others in your position. Sometimes multiple recipients of a common cease and desist letter can pool resources, as a cost and time saving mechanism, to analyze a patent. Also, shop around, some patent attorneys will have initial meetings for free and offer some initial impressions on a patent.


With President Obama emphasizing tackling patent trolls, hopefully they will become an issue of the past. Until then, your startup should initially take any cease and desist letter it receives seriously. Entirely ignoring a cease and desist letter is typically not the best option.  A startup will typically need to disclose any threatened litigation to investors.  If a startup has received a cease and desist letter, it will want to be able to explain to investors that nature of the letter, what the startup has done about it, and why the letter is without merit.  Investors want the cash they put in to spur growth and innovation, not cover hefty legal bills. Accordingly, investors will be weary of funding a startup that may have to battle a troll in litigation or that can’t credibly explain why such a battle is highly unlikely.