Latest posts by Stephen J. Kontos
OneStream and StockX are two of the most recent unicorns to emerge out of Detroit’s thriving startup ecosystem. OneStream provides B2B corporate performance management (CPM) software, while StockX offers resellers a marketplace to sell shoes, electronics and other products. Despite differences in their products and target audiences, the two companies likely followed similar intellectual property protection strategies on their way to the valuations that gave them unicorn status. Software founders should take note of the intellectual property protection strategies used by startup unicorns like OneStream and StockX if they want to follow the same path.
A brief overview of the OneStream and StockX intellectual property strategies
In general, dissecting a company’s intellectual property strategy as an outsider can be difficult and speculative. The following overview is based on publicly available information and general knowledge of software startups.
OneStream and StockX likely rely heavily on trade secret protection. A trade secret includes business information that has value because it is a secret. Algorithms, recipes, formulas, manufacturing processes and customer lists are often held as trade secrets.
Trade secrets are often the most valuable form of intellectual property protection protected by software companies. Unlike other forms of intellectual property, which are protected through government registration, trade secrets are protected through internal policies and procedures that keep sensitive business information secure. The trade secret protection lasts indefinitely, so long as the sensitive business information remains a secret. With the right policies and procedures, software companies can stop former business partners and employees from misusing company secrets indefinitely.
One reason why trade secret protection is so common among software startups is because it’s difficult for competitors to reverse engineer sophisticated software products without the source code or some other inside information. Rather than protect software and other sensitive business information with a software patent, which requires publicly disclosing algorithms, many software startups find that trade secret offers a greater level of protection throughout the duration of the product lifecycle.
According to their public filings, OneStream and StockX both employ sophisticated trademark protection strategies. Trademarks protect brand names, logos and slogans. The advantage of trademark protection is that it safeguards the goodwill software startups build with customers. Without strong trademark protection, competitors can take advantage of your startup’s marketing efforts.
OneStream has trademark registrations and applications in the United States, the United Kingdom and the European Union. StockX has a much larger trademark portfolio with registrations and applications in many more countries and regions. StockX has pursued trademark protection throughout North America, South America, Asia, the Middle East and Europe. Trademark protection for both companies is critical because it prevents competitors from creating competing products in the countries where OneStream and StockX have customers and market their products.
Many people incorrectly think copyright protection only applies to creative content, such as books, movies, artwork or music. It can also apply to software, making copyright protection a valuable tool for software startups. In fact, trade secret protection and copyright protection can supplement one another. For instance, certain parts of source code can be registered for copyright protection while other parts of the same source code can be protected as trade secrets.
There are two primary ways to protect software with a copyright:
- The first is with formal copyright registration. That’s where a company files a sample of its code with the U.S. Copyright Office.
- The alternative, which is what OneStream and StockX appear to have done, is to skip formal copyright registration and instead rely on common law copyright protection of their source code.
That can be a good strategy for software startups when the risk of a competitor stealing or having access to the source code is low. The danger with that approach, however, is that foregoing formal copyright registration makes intellectual property enforcement more difficult.
Software patents can be used to protect innovative algorithms. Based on publicly available information, it appears that neither OneStream nor StockX has attempted to protect its products with software patents. That shouldn’t be too surprising, because patenting inventions is at odds with trade secret protection. Protecting an invention with a patent involves publicly disclosing the concept in exchange for a temporary, legal monopoly. Recall that trade secrets require that the sensitive business information remain a secret. Many software startups choose to protect their source code as a trade secret rather than publicly disclose it during the patent application process.
Patents can still be a strong way to protect software-based technology, however, because the life of a patent is typically longer than the lifecycle of most modern software. That being said, trade secret protections are much faster and less expensive to secure, making them a good alternative for software startups that need to protect their code prior to securing funding.
Want to learn from software startup unicorns? Strategically protect your intellectual property
Strategic intellectual property protection is just one factor in obtaining the much sought-after billion-dollar valuation as a software startup. Obviously, not every software startup will achieve that milestone regardless of how good its intellectual property strategy is. After all, if it were an easy milestone to achieve, startups that get billion-dollar valuations wouldn’t be called unicorns. But it seems nearly impossible for a software startup to get to that level without some form of sophisticated intellectual property protection strategy. For that reason, founders of software startups should take special note of the OneStream and StockX intellectual property protection strategies outlined above.
Here’s another important lesson: The founders of OneStream and StockX likely took their intellectual property protection seriously at the outset, thereby avoiding one of the biggest mistakes software founders make when it comes to intellectual property protection: too many software founders wait too long to start protecting their ideas.
Timing is critical when it comes to protecting intellectual property. Even short delays can cause software startups to lose intellectual property rights. Startup founders who delay intellectual property protection may learn the hard way that they waived their intellectual property rights or missed certain opportunities to secure valuable intellectual property assets, either of which can result in a sub-maximal exit valuation.