Startup IP Myths That Can Cost You Millions (or Kill Your Exit)
Intellectual property (IP) is often the most valuable—but also the most misunderstood—asset in a startup’s portfolio. Early missteps can jeopardize funding, derail acquisitions or expose founders to costly legal disputes. In this article, we expose the most common IP myths and misconceptions plaguing tech startups, and offer practical insights to help you protect your innovation and maximize your valuation.
Final Thoughts
Don’t let avoidable IP missteps compromise your startup’s future. By proactively navigating these legal landmines, you can protect what makes your company unique, strengthen your negotiating position, and ensure you’re ready for growth, funding or a high-value exit.
Myth #1: “Software patents aren’t worth it—I’ll just rely on copyright or trade secrets.”
Reality: While abstract ideas aren’t patentable, software that delivers a novel, technological innovation or improvement to technology often is. A patent can be a game-changer, preventing competitors from copying your innovation and significantly boosting your valuation. Unlike copyrights, which are valuable but protect only the literal expression of code, patents can protect the broader functional innovation—making it much harder for competitors to design around or replicate your advantage. Trade secrets require strict confidentiality measures and can be difficult to enforce in a competitive, fast-moving market. While copyrights and trade secrets are important assets, they typically should not be considered a replacement for patent protection.
Myth #2: “I paid the developer, so I own the code.”
Reality: Just because you paid for the work doesn’t mean you own it. Without a clear written agreement assigning IP rights, the developer (or their employer) may retain ownership. Ensure your contracts include work-for-hire and IP assignment clauses to keep full control over your code and avoid costly disputes down the line.
Myth #3: “I need to pitch my idea fast—it’s okay to wait and patent it later.”
Reality: Publicly disclosing or offering for sale (even privately) your invention before filing a patent application can destroy your ability to obtain a patent in the future. The U.S. offers a one-year grace period for disclosures and offers for sale made by the inventor, but many other countries follow an absolute novelty rule; one misstep can permanently destroy global patent rights. Before pitching investors, have a solid NDA strategy and consult a patent attorney regarding quickly protecting your innovation.
Myth #4: “There’s no harm in waiting to register my trademark until after my business takes off.”
Reality: While registration is not strictly required to obtain protectable trademark rights in the U.S., it does provide important benefits and safeguards for protecting your brand. Waiting to register the trademarks for your brand name and logo is risky—someone else could claim similar marks first, leading to legal disputes, additional costs and delays in obtaining registration, narrower rights, restrictions on the ability to expand, or even forced rebranding. Registering your trademarks early establishes a legal presumption of ownership and validity; provides nationwide priority over others; allows for more flexibility to expand the business to new geographic and product/service areas later; and can reduce the risks of costly conflicts when you’re scaling up, not to mention often being required or expected by potential investors or acquirers. A trademark attorney can help you identify potentially problematic issues before you invest heavily in branding and marketing. Without a registered trademark, enforcing your rights against infringers can be difficult, burdensome and expensive. Additionally, delaying registration could result in lost opportunities for brand expansion and licensing, particularly when looking to grow and expand internationally to new markets where registration is required to secure rights.
Myth #5: “My team signed NDAs and are subject to noncompete agreements, so our trade secrets are safe.”
Reality: NDAs are often essential but not bulletproof. True protection demands a comprehensive strategy including confidentiality agreements, restricted access, encryption, continuous monitoring, and internal security protocols and policies. Noncompete agreements are becoming increasingly difficult to enforce in many jurisdictions and have recently faced regulatory scrutiny. This indicates that noncompete agreements may become unenforceable even where they were once standard, and makes having a robust trade secret policy more important than ever.
Myth #6: “I only need to trademark what we sell right now.”
Reality: Generally speaking, when applying to register a mark in the U.S., the mark must be in bona fide use in U.S. commerce in connection with the sale, transportation or offering of each applied-for product/service before the mark can be registered for such products/services, subject to certain exceptions for foreign applicants. That said, trademark applications can be filed on an “intent to use” basis to claim products/services that are not yet being sold, transported or offered in commerce if the applicant has a bona fide intent to use the mark in connection with such products/services in the future, such as if a product is still under research or development or if the applicant is considering a new product or service for future expansion. Filing strategically and proactively from the start ensures comprehensive brand security, clears paths for product expansion, and can prevent competitors from exploiting gaps in your coverage or using legal challenges to dismantle your trademark rights. An intent-to-use application can secure an early priority date over others before launch and preempt obstacles from arising down the road.
Myth #7: “We won’t need to deal with IP until after we get acquired.”
Reality: Investors and acquirers expect startups to have strong IP portfolios before a deal. A weak or missing patent strategy can lower your valuation or even kill an acquisition. Missing assignments and other transfers of IP to the company (e.g., by founders and employees), and other clear indications that the company has not protected its IP, make investors question a company’s leadership and valuation. Demonstrating proactive IP management not only increases valuation but also reduces risks for investors, making your startup a more compelling acquisition target. Building your IP portfolio early, while being strategic about what to protect and how to protect it, ensures your startup remains an attractive, investable business.
Myth #8: “Open source means free and safe to use.”
Reality: Many startups use open-source code assuming there are no legal strings attached. But open-source licenses come with obligations—some can force you to share your proprietary code. Missteps here can lead to compliance risks and scare off acquirers during due diligence.
Myth #9: “Provisional patents give me full protection.”
Reality: While provisional patent applications can be a useful tool when implemented correctly, these applications are placeholders and do not grant enforceable rights. They must be prepared correctly and fully disclose the invention. Poorly drafted provisionals risk losing your priority date and enforceability over competitors. A competent patent attorney can help you leverage this tool to save time and costs, while preserving your ability to attain the IP coverage your company needs.
Myth #10: “All IP issues can be handled by our general counsel.”
Reality: IP law is specialized and granular. General counsel may miss crucial issues unless they have deep IP expertise. Consulting with an IP attorney ensures that your protection strategy aligns with both legal and business needs.
Reality: While abstract ideas aren’t patentable, software that delivers a novel, technological innovation or improvement to technology often is. A patent can be a game-changer, preventing competitors from copying your innovation and significantly boosting your valuation. Unlike copyrights, which are valuable but protect only the literal expression of code, patents can protect the broader functional innovation—making it much harder for competitors to design around or replicate your advantage. Trade secrets require strict confidentiality measures and can be difficult to enforce in a competitive, fast-moving market. While copyrights and trade secrets are important assets, they typically should not be considered a replacement for patent protection.
Myth #2: “I paid the developer, so I own the code.”
Reality: Just because you paid for the work doesn’t mean you own it. Without a clear written agreement assigning IP rights, the developer (or their employer) may retain ownership. Ensure your contracts include work-for-hire and IP assignment clauses to keep full control over your code and avoid costly disputes down the line.
Myth #3: “I need to pitch my idea fast—it’s okay to wait and patent it later.”
Reality: Publicly disclosing or offering for sale (even privately) your invention before filing a patent application can destroy your ability to obtain a patent in the future. The U.S. offers a one-year grace period for disclosures and offers for sale made by the inventor, but many other countries follow an absolute novelty rule; one misstep can permanently destroy global patent rights. Before pitching investors, have a solid NDA strategy and consult a patent attorney regarding quickly protecting your innovation.
Myth #4: “There’s no harm in waiting to register my trademark until after my business takes off.”
Reality: While registration is not strictly required to obtain protectable trademark rights in the U.S., it does provide important benefits and safeguards for protecting your brand. Waiting to register the trademarks for your brand name and logo is risky—someone else could claim similar marks first, leading to legal disputes, additional costs and delays in obtaining registration, narrower rights, restrictions on the ability to expand, or even forced rebranding. Registering your trademarks early establishes a legal presumption of ownership and validity; provides nationwide priority over others; allows for more flexibility to expand the business to new geographic and product/service areas later; and can reduce the risks of costly conflicts when you’re scaling up, not to mention often being required or expected by potential investors or acquirers. A trademark attorney can help you identify potentially problematic issues before you invest heavily in branding and marketing. Without a registered trademark, enforcing your rights against infringers can be difficult, burdensome and expensive. Additionally, delaying registration could result in lost opportunities for brand expansion and licensing, particularly when looking to grow and expand internationally to new markets where registration is required to secure rights.
Myth #5: “My team signed NDAs and are subject to noncompete agreements, so our trade secrets are safe.”
Reality: NDAs are often essential but not bulletproof. True protection demands a comprehensive strategy including confidentiality agreements, restricted access, encryption, continuous monitoring, and internal security protocols and policies. Noncompete agreements are becoming increasingly difficult to enforce in many jurisdictions and have recently faced regulatory scrutiny. This indicates that noncompete agreements may become unenforceable even where they were once standard, and makes having a robust trade secret policy more important than ever.
Myth #6: “I only need to trademark what we sell right now.”
Reality: Generally speaking, when applying to register a mark in the U.S., the mark must be in bona fide use in U.S. commerce in connection with the sale, transportation or offering of each applied-for product/service before the mark can be registered for such products/services, subject to certain exceptions for foreign applicants. That said, trademark applications can be filed on an “intent to use” basis to claim products/services that are not yet being sold, transported or offered in commerce if the applicant has a bona fide intent to use the mark in connection with such products/services in the future, such as if a product is still under research or development or if the applicant is considering a new product or service for future expansion. Filing strategically and proactively from the start ensures comprehensive brand security, clears paths for product expansion, and can prevent competitors from exploiting gaps in your coverage or using legal challenges to dismantle your trademark rights. An intent-to-use application can secure an early priority date over others before launch and preempt obstacles from arising down the road.
Myth #7: “We won’t need to deal with IP until after we get acquired.”
Reality: Investors and acquirers expect startups to have strong IP portfolios before a deal. A weak or missing patent strategy can lower your valuation or even kill an acquisition. Missing assignments and other transfers of IP to the company (e.g., by founders and employees), and other clear indications that the company has not protected its IP, make investors question a company’s leadership and valuation. Demonstrating proactive IP management not only increases valuation but also reduces risks for investors, making your startup a more compelling acquisition target. Building your IP portfolio early, while being strategic about what to protect and how to protect it, ensures your startup remains an attractive, investable business.
Myth #8: “Open source means free and safe to use.”
Reality: Many startups use open-source code assuming there are no legal strings attached. But open-source licenses come with obligations—some can force you to share your proprietary code. Missteps here can lead to compliance risks and scare off acquirers during due diligence.
Myth #9: “Provisional patents give me full protection.”
Reality: While provisional patent applications can be a useful tool when implemented correctly, these applications are placeholders and do not grant enforceable rights. They must be prepared correctly and fully disclose the invention. Poorly drafted provisionals risk losing your priority date and enforceability over competitors. A competent patent attorney can help you leverage this tool to save time and costs, while preserving your ability to attain the IP coverage your company needs.
Myth #10: “All IP issues can be handled by our general counsel.”
Reality: IP law is specialized and granular. General counsel may miss crucial issues unless they have deep IP expertise. Consulting with an IP attorney ensures that your protection strategy aligns with both legal and business needs.
Final Thoughts
Don’t let avoidable IP missteps compromise your startup’s future. By proactively navigating these legal landmines, you can protect what makes your company unique, strengthen your negotiating position, and ensure you’re ready for growth, funding or a high-value exit.