Seasoned investors help startups with patent issues

When the entrepreneurs behind Aisle411 Inc. needed money to help cover their startup expenses for southwest Missouri, they turned to the Springfield Angel Network. The network, founded with guidance from the Springfield Area Chamber of Commerce, matches angel investors with private businesses and entrepreneurs in need of capital.

The founders of the St. Louis-based venture call Aisle411 a mobile marketing company, which uses consumers' mobile phones to enhance shoppers' experiences in big-box retailers.

Co-founders Nathan Pettyjohn and Matthew Kulig said the technology and the process their company needed was unique enough that it merited getting a patent, which they did last summer.

New products, concepts or ideas often require legal protection, which can be tricky when dealing with potential investors, because many would-be entrepreneurs aren't sure how much information to share or whether patents already should be in place.

Protecting ideas

Tom Singleton, executive in residence at Drury University's Edward Jones Center for Entrepreneurship and Innovation, and a founder of the Springfield Angel Network, said that while the network's members don't offer advice on patents - leaving that task to entrepreneurs' attorneys - a confidentiality agreement is offered to everyone who approaches the network.

"Some (businesses) are insistent upon (nondisclosure documents), and others don't worry about it much," he said. "If they don't sign, we still have a policy that we don't really share ideas unless someone needs to know from an investment standpoint."

When the angel investors need help determining what legal protection entrepreneurs need for the intellectual property associated with their ideas, they turn to attorneys such as Joseph Johnson with Lathrop & Gage LLP's Springfield office.

"What it boils down to is the same advice I give any inventor, no matter who they're about to talk to: Get educated on what you're doing before you make any disclosure about your invention," said Johnson, whose practice focuses on patent and intellectual property issues.

Johnson said his first suggestion is usually that businesspeople make no disclosures about their product or process until they have filed for some kind of patent protection, ensuring that no one can take their ideas and try to claim them as their own.

Because the Angel Network also helps existing companies in growth mode, patent issues are sometimes already addressed.

"It is typical for established companies seeking funds for expansion to have patents pending, or secured, prior to meeting with angels," Dawn Hiles, executive director of the Edward Jones Center for Entrepreneurship and Innovation, said via e-mail.

No patent?

While patents offer the best protection for new products, in some cases it's not always possible to secure them before needing to disclose information. When that's the case, Johnson said some protection is still available.

"The next preference is to have some kind of contract in place, such as a nondisclosure or confidentiality agreement," Johnson said. "And it's important to be very selective on what is disclosed and how it's disclosed."

Even if a company hasn't created its own forms or agreements to protect its products or processes, Singleton reiterated that those seeking Angel Network assistance are protected in these cases as well, even if patents have already been secured.

"We want to let them know that we're going to keep the information within our group," he said. "We're not going to steal their ideas or have one of the angels try to start it on their own. We want them to have the protection of knowing that we're not in the business of stealing ideas."

That's comforting to Springfield-based U.S. Photonics, which has received funding from two individuals through the Springfield Angel Network. Co-founder Ryan Zweerink said his company is very careful about making sure nondisclosure agreements are in place prior to sharing sensitive information about the business, which uses ultrafine lasers to create incredibly small machines for the biomedical and defense industries.

Zweerink said such agreements apply not only to potential investors but also to company employees.

He added that for his company, those agreements are crucial because applying for technology patents is not always preferable.

"Sometimes we don't want to file patents on an idea, because that requires some public disclosure that copycats can get hold of," he said. "On the other side, if something is very valuable we may want to go ahead and tie it up with the patent. That way when the patent is issued we have some protection there."

Be safe

Johnson said if all else fails, entrepreneurs should only disclose the bare minimum necessary to explain their idea.

Zweerink said his company follows that policy any time it makes a presentation.

"We keep the presentation on a really general level, and then if they want to know more specific information about us, we get it under (a nondisclosure agreement)," he said.

Johnson concurred with that idea.

"Limit your disclosure to only what's necessary to get the message across to the potential investor," Johnson said. "Don't make a detailed disclosure saying, 'Here's my invention, here's how it works and here's how it's put together.'"

Aisle411 co-founder Pettyjohn said that while he and Kulig don't discuss specifics of their business model without a nondisclosure agreement in place, eventually there has to be a level of trust.

"We have the thought that these are people we trust, they're people we've been introduced to, and they're in this for the best interests of everyone," he said. "You can't always be worried about someone trying to steal your intellectual property."