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A Strong Intellectual Property Protection Strategy Gives Fintech Startups a Market Advantage

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Originally published by Crowdfund Insider –

For Fintech startups and their investors, getting a foothold in today’s marketplace is especially daunting. For every fintech startup, there are three that don’t succeed. At both the state and federal levels, there is increasing government scrutiny of fintech platforms, products, and services. Differences in regulations globally may inhibit product distribution and growth. Data security and privacy concerns increase costs and slow adoption by potential users. The demand for portability has created a market for seamless mobile transactions whenever and wherever users desire. Alternative lending, paymen,t and investing opportunities are driven by rapidly advancing machine learning and artificial intelligence technologies. An often-overlooked element to ensuring long-term success is a strong, proactive intellectual property (IP) strategy that protects and leverages innovations for optimal growth.

An often-overlooked element to ensuring long-term success is a strong, proactive intellectual property (IP) strategy that protects and leverages innovations for optimal growthClick to Share

The Necessity of IP Protection

Many entrepreneurs and investors overlook IP as they often feel their products or services are generally available or indistinguishable in the market. Whether it’s software, marketing, or manufacturing, a comprehensive review of your assets is essential. IP is valuable property that must be protected. For startups, securing what makes you unique can stop others from copying your idea, keeping potential competitors from entering your market. Strong IP protection creates assets you can leverage to grow your business and is essential for future rounds of investment capital.

How to Ensure Your Ideas Remain Yours

Protecting intangible ideas and the innovations that come from them is at the core of U.S. IP law. The following is a look at the most common forms of IP protection, how they apply to Fintech, and key considerations.

Patents

A patent is a legal document issued by the government that grants exclusive rights to the patent holder, preventing others from making/using, offering for sale/selling, or importing the invention in the U.S. for a designated period. In exchange, the patent holder is required to disclose the invention. While inventors typically own patent rights, they may be assigned to entities, such as startups, through contracts before the application is filed. A patent grants the right to exclude others from using the invention, not the right to use or sell it.

What can be patented? For Fintech firms, unique processes and methods tying money to currencies are one example. Hardware that functions in a very specific way can also be protected. New kinds of user interfaces should be considered.

Patents are among the most challenging protections to obtain for several reasonsClick to Share

Key considerations: Patents are among the most challenging protections to obtain for several reasons. Not every idea is demonstrably novel or nonobvious. The complexity of technological inventions and the amount of detail required to describe them in a patent application may discourage developers from pursuing protection. However, the value of patent protection often outweighs such difficulties.

The two main types of patents are utility and design patents.

  • Utility patents protect inventions with practical functions.
  • Design patents safeguard the unique appearance of an article, including its shape, pattern or color.

Additionally, a key advantage is that utility patent applications are published 18 months after filing, while design patents are only published after issuance, thereby allowing startups to go to market sooner.

Patents generally expire 20 years after their application filing date, but often take several years to obtain. A heads-up to inventors: the United States Patent and Trademark Office is taking about three years to begin examining new applications.

Trademarks

A trademark is any word, phrase, symbol, design, or other distinctive mark that identifies and distinguishes your goods or services.

What can be trademarked? Protection via trademark applies to the marks that identify your product or service. Unique logos, taglines, design elements, graphic patterns and even specific names or terms used to identify and distinguish services and solutions offered by a business.

Key considerations: Trademarks are owned by the applicant. They are typically less expensive than patents to obtain, and the right to use trademarked material can be passed to others by license. They help identify your company and its innovations as yours and are valid as long as they are in use.

Copyright

A copyright is the exclusive legal right given to its owner for a designated period to print, publish, perform, film, or record literary, artistic, or musical material and to authorize others to do the same.

What can be copyrighted? Original source code should be copyrighted, as should on-screen interfaces, websites, and print content.

Key considerations: For a Fintech startup, source code is probably the most important property to copyright. As your company grows, the pieces of code that power your platform will become more and more valuable, forming the core of your business model. Owning that code and protecting it gives a startup greater flexibility in monetizing its IP. This is especially true for code that becomes open source. Special effort should be made to ensure that consultants and contractors assign all rights of their output to the startup.

Trade Secret

A trade secret complements a patent. A trade secret must: (1) be information that has either actual or potential independent economic value by virtue of not being generally known to and readily ascertainable by the public; and (2) be subject to reasonable efforts to maintain its secrecy.

What are examples of trade secrets? Any knowledge about the company or its products that the company deems confidential can be a trade secret. This includes algorithms, formulas, sales tactics, client lists, manufacturing processes, and other relevant information.

Key considerations: It is incumbent on the startup’s management to identify those elements it considers secret. Employee nondisclosure agreements are a good start. Additionally, an aggressive litigation posture can serve notice both internally and externally that a company is serious about protecting its “secret sauce.”

A vigilant IP posture provides a fundamental advantage for Fintech startupsClick to Share

Leveraging IP for Success

A vigilant IP posture provides a fundamental advantage for Fintech startups, providing a competitive edge as they grow. Clearly defining and documenting ownership of your innovations allows for revenue generation through licensing, sales, and more. This proactive approach not only protects key business assets but also deters potential copycats. By their very nature, startups face risk. Partnering with reputable IP counsel to protect the core of your business gives Fintech businesses long-term security and market advantage.

 

Click here to read the article at Crowdfund Insider.