What Hi-Tech Startups Can Learn from the Smartphone Battles

Authored by Jeffrey A. Berkowitz

Apple’s well-publicized court battles with rival Samsung involve allegations of patent infringement and copying of Apple's design patents, trademarks, and trade dress. Not only has Apple brought its complaints to U.S. district courts, but it also has charged Samsung with unfair trade practices before the U.S. International Trade Commission—a government agency that can order U.S. Customs and Border Protection to block goods found infringing from entering the United States. As the smartphone wars continue, what lessons can startups learn from this global battle over ideas, markets and intellectual property?

Invest Early and Strategically in IP

At the most basic level, patents provide a property right—the right to prevent others from making, using or selling your invention. In today's business world, patents are a critical asset to both startups and established companies alike. For the startup, with little cash and lots of ideas, it must acquire patents the old-fashioned way. Because a startup cannot afford to build a huge patent portfolio overnight, it must take deliberate and strategic steps to identify patentable ideas that provide value to the company and its investors.

Take, for example, Google's acquisition of Motorola Mobility for $12.5 billion in 2012. Experts say that Google bought Motorola Mobility to make up for Google’s lack of IP related to smartphones despite acquiring and then championing the Android smartphone operating system as far back as 2005. In this example, patents provided a valuable, transferable asset to protect Motorola's investments in research and development. For many startups, it is this portfolio of patents that investors can get behind. The Google/Motorola Mobility example also illustrates how important it is to protect your ideas from the beginning.

Few startups have the ability to acquire a huge amount of IP as Google did. The lesson is that a systematic approach to capturing and patenting inventions will lead to a portfolio of reliable assets. It is also important to recognize that not all patents carry the same value.

One Patent May Cover a Small Improvement While Another May Cover an Entirely New Idea

The court battles in the smartphone wars illustrate this point as well. There, rivals assert only certain claims from a few patents rather than most or all of the patents in their vast portfolios.

An example involving a startup hi-tech company is the lawsuit Honeywell filed in 2012 accusing smart thermostat maker Nest Labs of infringing some of its patents. Honeywell alleges that the thermostats made by Nest Labs infringe seven of its patents. Some may find it outrageous that Honeywell has seven, and possibly more, patents on smart thermostats while others may find it equally shocking a large company such as Honeywell has just seven patents in this area to assert.

Regardless of the size of your hi-tech company, the lesson is to develop early, and refine regularly, a strategic plan to obtain quality patents that provide security to investors and the company, as well as put competitors on notice.

Diversify to Protect Your IP Investments

The smartphone wars illustrate another valuable lesson for startups; namely, that IP rights include more than just patents. For example, Apple asserted that Samsung infringed not only its utility patents—a new, useful and nonobvious process, machine, article of manufacture, or composition of matter—but also that Samsung infringed its design patents, trademarks, and trade dress. Apple used these other forms of IP to protect the visual appearance and characteristics of its consumer products.

The principle that IP is more than utility patents is a valuable lesson and should be part of any company's strategic plan. Take trade secrets, for example. Most businesses have processes, practices, formulas, programs and other confidential information not known to, or easily ascertained by, the public. The secret formula for Coca-Cola, for example, easily comes to mind.

In today's global economy with component parts and entire products manufactured outside the United States and a global and mobile workforce, protecting your trade secrets from theft takes on a greater significance. Startups must plan, coordinate and control all aspects of their IP. This includes developing strategies to protect their ideas, processes and practices not only through patents but also through trade secrets and other forms of IP. In addition, startups actively must protect their trade secrets through physical and electronic means as well as use non-disclosure agreements and restrictive covenants, among other measures.

Looking Ahead

Further examination of the smartphone wars will reveal additional lessons for startups. What is apparent so far, however, is that strategically investing in patents and other forms of IP can provide startups with vital tools to grow, protect, and champion their technology knowhow.

Originally printed in IsraelTech on July 3, 2013. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.