Why This Is a Day-One Problem
Chicago produces startups whose core value is intangible: the software they write, the brands they build, and the know-how they accumulate. Yet many founders treat IP protection as a later problem, something to handle after the Series A or after revenue.
That instinct is backwards, and here is the litigator's reason why. Nearly every IP dispute we see involving an early-stage company traces back to something that was cheap to fix at formation and expensive to fix in court: a cofounder who never assigned their code, a brand nobody cleared, a "trade secret" the company never actually protected. By the time the problem surfaces, it surfaces as a lawsuit, a blown financing, or a busted acquisition.
This article covers the three pillars of startup IP, patents, trademarks, and trade secrets, plus the cofounder issue that quietly outranks all of them. It is general information, not legal advice.
Patents: When They Are Worth It
Not every startup needs a patent, and for many software companies the honest answer is that patents are not where the money should go first. Patents earn their cost when:
- Your innovation can be reverse-engineered from the product itself
- Competitors in your space file patents, creating freedom-to-operate risk for you
- Investors or acquirers in your sector expect a patent position
- Your advantage rests on a specific technical approach rather than execution speed
If your advantage lives in processes competitors cannot see or reproduce from the outside, trade secret protection is often stronger and far cheaper. Unlike a patent, a trade secret is never published and never expires, so long as you actually keep it secret.
Provisional applications. For startups that do need patent protection on a budget, a provisional application secures a filing date for 12 months at relatively low cost, permits "patent pending" marking, and does not start the 20-year term clock. The catch: a provisional only works if it genuinely describes the invention. A thin, rushed provisional gives you a priority date that does not cover what you later claim, which is a false sense of security. Patent drafting and prosecution is specialized work; have it done by experienced patent prosecution counsel, and make sure your business and litigation counsel are aligned with them on what the patent is supposed to protect.
If enforcement ever comes. For Chicago companies, patent disputes typically land in the Northern District of Illinois, a district with a heavy IP docket. Claims drafted with enforcement in mind are what make a patent useful when it matters, which is a reason to involve counsel who think about how patents perform in litigation, not just whether they issue.
Trademarks: The First IP Asset You Create
Your company name, product names, and logo are trademarks the moment you use them in commerce, and they are the most commonly neglected startup IP asset.
Before investing in marketing and brand-building:
- Clear the mark. A real clearance search, not just a Google check, tells you whether someone already has rights that could force you to rebrand after you have spent money making the name known.
- File federally with the USPTO. Federal registration gives nationwide rights and real enforcement leverage. Common law and state-level rights are geographically limited.
- Watch for infringers. Rights erode when confusingly similar marks go unchallenged.
The mistakes repeat across companies: choosing a descriptive name that cannot be registered ("Fast Delivery App"), discovering a prior user only after launch, and assuming that owning the domain name means owning the trademark. It does not. Domain registration confers no trademark rights at all.
A well-chosen mark is both legally strong (distinctive, clearable, registrable) and commercially effective. Getting both at once is the goal, and it is much easier before launch than after.
Trade Secrets: Strong Protection, If You Do Your Part
Trade secrets are protected by two overlapping statutes: the federal Defend Trade Secrets Act and the Illinois Trade Secrets Act (765 ILCS 1065). Under Illinois law, information qualifies as a trade secret if it derives economic value from not being generally known, and it is subject to reasonable efforts to keep it secret.
That second requirement is where startups fail. Having valuable confidential information is not enough. When a dispute arises, the first question a court asks is what you actually did to protect the material, and companies that cannot point to specific, documented measures lose trade secret cases even when the theft was real.
A credible program for an early-stage company is not elaborate:
- Confidentiality agreements for every employee, contractor, and business partner
- Access controls that limit sensitive information to people who need it
- Onboarding and offboarding procedures that address confidential information, including credential revocation and return of data at exit
- IP assignment agreements so the company owns what its people create
The payoff for doing this right is significant. Both statutes support emergency injunctions, damages, exemplary damages up to twice the award for willful and malicious misappropriation, and attorney fees. We wrote a full guide to what happens when this goes wrong, and what the first 72 hours should look like, in A Departing Employee Took Your Source Code.
The Cofounder IP Assignment: The Mistake That Kills Deals
The most damaging startup IP failure is also the most mundane: cofounders who never signed IP assignments. Without a written assignment, the default rule is generally that each person owns what they personally created. The consequences arrive at the worst moments:
- A departing cofounder claims ownership of code or designs they wrote, and now your product has a hostage
- Investors walk away from a financing because the company cannot show clean title to its own technology
- An acquirer's diligence team finds the gap and the deal reprices or dies
Every startup should have written assignments, at formation, transferring all founder-created IP to the company. The same goes for every employee and contractor going forward. This costs little when everyone is aligned. After a falling-out, it costs whatever the leverage is worth.
One Illinois-specific note: do not rely on non-competes to fill these gaps. The Illinois Freedom to Work Act (820 ILCS 90) makes non-competes unenforceable against employees earning $75,000 a year or less, with strict requirements even above that threshold. Ownership agreements and trade secret protection do the real work.
A Practical First-Year Checklist
- Formation documents with IP assignment provisions for every founder
- Trademark clearance and a federal application for your primary brand
- Confidentiality agreements for all employees, contractors, and advisors
- An honest assessment of what, if anything, is worth patenting, with provisionals filed where it is
- Identification of your actual trade secrets and the basic measures that protect them
- A freedom-to-operate look at your core technology area if competitors are patent-active
None of this needs to happen in one week, but all of it should happen in year one. The cost of the foundation is a small fraction of the cost of any single dispute it prevents.
Talk to Us
Our practice sits at the intersection of IP litigation and software and technology disputes. We advise startups on IP strategy with a litigator's eye for how protections hold up when tested, and we handle the disputes when they cannot be avoided. Contact The Law Office of Krista Krepp at contact@krepplaw.com or schedule a consultation online.
Frequently Asked Questions
Does my software startup need a patent? Maybe, but interrogate the assumption. Patents are most valuable when your innovation is visible in the product, when competitors are filing, or when your fundraising path expects them. If your advantage is in back-end processes competitors cannot observe, trade secret protection is often stronger, cheaper, and immediate.
What is the difference between a trade secret and a patent? A patent is a public disclosure in exchange for a time-limited monopoly, roughly 20 years. A trade secret is never disclosed and lasts as long as secrecy does, but it protects nothing if the information leaks or is independently developed. The right choice depends on whether the innovation can be reverse-engineered and how long the advantage needs to last.
We registered our domain and LLC name. Is our brand protected? No. Domain registration and corporate name registration confer no trademark rights. Trademark rights come from use in commerce and are strengthened enormously by federal registration. Clearance before launch is what prevents the forced rebrand.
My cofounder wrote most of the code before we incorporated. Who owns it? Absent a written assignment, likely the cofounder personally. This is the single most common IP defect investors find in diligence. It is fixable with an assignment while relations are good, and very expensive to fix after they are not.
Do NDAs actually work? Yes, when they exist and are used consistently. They serve two roles: they create a contractual duty of confidence, and they are core evidence of the "reasonable measures" that trade secret law requires. An NDA signed after the sensitive information was already shared does much less.
What should we do if a departing employee took company code or data? Move fast and preserve evidence before confronting anyone: access logs, repository history, and devices. Both federal and Illinois law support emergency injunctions and significant damages, but the remedies favor companies that act within days, not months. Our departing employee trade secrets guide walks through the first 72 hours.