Key Strategies for Protecting Intellectual Property: Essential Insights for Medical Startups

This article was supported by the company (a financial litigation firm specializing in providing litigation or arbitration services to enterprises).

Protecting intellectual property is a long and arduous task for any company, and startups are certainly no exception.

Dr. F. Nicholas Franano, a radiologist and the CEO of two cardiovascular medical device companies, saw one of his biopharmaceutical ventures, Proteon Therapeutics Inc., go public last year. Dr. Franano views the protection of intellectual property (IP) as a protracted battle and has personally outlined several key points to help startups safeguard their IP effectively. VCBeat has compiled an interview with him for the reference of entrepreneurs in China.

Q: Since entrepreneurs are often preoccupied with product innovation or pursuing business concepts, their ideas may not yet be fully mature. Can considerations regarding intellectual property protection be deferred until the ideas have taken shape, or should they be prioritized from the outset?
A: It is essential to establish an intellectual property (IP) enforcement strategy from the inception of a company to avoid significant losses. I once planned to license a certain product. During the IP due diligence, we discovered that the inventor had delivered a live presentation using slides at a dinner event, disclosing core technologies, before filing any patent applications. As expected, the outcome was disastrous, and all opportunities were lost.

Q: Given limited funding, startups cannot invest heavily in intellectual property protection. Are there any cost-effective methods for safeguarding IP rights?
A: Yes. If you have several inventions that are interrelated, they can be consolidated into a single comprehensive patent application, rather than filing separate applications for each.
Furthermore, if your intellectual property lawyer has strong confidence in the company’s technology and is particularly optimistic about its growth prospects, they may offer flexibility regarding patent fees, allowing for deferred payments or delayed renewals. After all, a startup’s financial situation can be volatile in its early stages, but the lawyer remains confident that the company will ultimately settle all outstanding fees.

Q: As is well known, the Coca-Cola formula was never patented and has been kept permanently confidential as a trade secret. Can other companies emulate this approach?
A: I have seen such successful cases, particularly when a product’s core technology or production know-how is highly distinctive and difficult for others to replicate, making it impossible to obtain an identical counterpart. In such scenarios, it may not be necessary to file for a patent to secure market leadership; instead, the information can be protected as a trade secret. This approach allows the confidential information to remain indefinitely protected, avoiding public disclosure that would result from patenting. Once a decision is made to treat the information as a trade secret, it must be managed with great diligence to ensure that all individuals with access—including consultants, suppliers, and early employees—maintain strict confidentiality.

Q: We know that startups, constrained by funding shortages, are constantly seeking venture capitalists or other investors. However, this also means that companies must frequently present their intellectual property or business concepts to complete strangers. Do you believe that confidentiality agreements should also be established with investors?
A: Initially, I will disclose non-confidential information and will not request investors to sign a non-disclosure agreement (NDA) at the outset. An NDA will be executed only if both parties express mutual interest.
Moreover, I have found that you often gain a great deal from the process of sharing. Investors can clearly distinguish between what is useful and what is not, conducting analyses with efficiency and objectivity. Although disclosing information may feel uncomfortable, engaging in discussions with experienced and highly insightful individuals can yield truly valuable advice and perspectives—such as key issues to address, factors to consider, potential partners, and future risks.

At times, I will not disclose information to investors who serve on the boards of portfolio companies or competitors; you must be extremely cautious about this.

Q: Overall, what role do non-disclosure agreements play in intellectual property protection?
A: Although it is commonly said that investors do not sign non-disclosure agreements (NDAs), they will, in most cases, sign one if they are seriously considering investing in your venture.
For instance, when they are fully engaged and seriously considering whether to invest, you can say, “I currently have some additional information to share with you, which I believe will bolster your confidence in my company; however, I need us to sign a non-disclosure agreement first.” In such cases, they will typically comply. Once the agreement is signed, they will naturally exercise greater caution in their speech and be more circumspect when discussing your company’s information with outsiders. However, it is important to recognize that this does not guarantee absolute confidentiality.

Q: Should both employees and independent contractors sign non-disclosure agreements to ensure that intellectual property rights belong to the company rather than the agents?
A: Young companies should draft a standard non-disclosure agreement and use it regularly.
If you work for a company founded on joint invention and co-creation, you must own and control the intellectual property (IP). All contracts related to research, engineering, consulting, production, and other activities must explicitly state that the IP belongs to your company. This clause must be clearly articulated in agreements regularly presented to and warranted by investors. New investors or partners have the right to know that, although products are co-developed with others, the IP is owned by your company; failure to clarify this can make it difficult to attract investment and may result in significant costs.
It is also important to treat former employees well, as you may need their assistance in the future—for instance, to provide sworn statements or testimony, or to support your position in disputes with government agencies. Maintaining good relationships with former inventors is crucial; you certainly do not want a former inventor to testify in court during an intellectual property dispute with another party by saying, “I hated working there; they were all fools, and I don’t remember anything.” That would be disastrous!

Q: Do you have any other suggestions for cost-effective intellectual property protection?
A: You are striving to secure knowledge-based privileges and create barriers for competitors. To do this, you must first provide products that meet market needs, particularly in the medical sector, which requires fundraising. To attract investment, you must demonstrate your company’s long-term viability by holding valuable intellectual property rights. Another critical issue I have observed is that companies often neglect details, such as inadvertently disclosing confidential information in academic papers or public speeches. I have seen individuals publicly state, “This is what my lawyer advised me regarding the product’s ownership.” You should never do this! Such statements implicitly waive the attorney-client privilege. By disclosing confidential information in a public setting, it becomes difficult to determine whether the breach originated from you or your lawyer in the event of future disputes.
Finally, Franano concluded that intellectual property serves three purposes: it is a shield, a sword, and a badge.
As a shield, it protects against competitors copying a company’s inventions and enables you to provide products to patients and establish business relationships. As a sword, it can disrupt and defeat competitors. As a badge, intellectual property also boosts investors’ and partners’ confidence in your products.