How Start-ups Should Protect Their Intellectual Property STAFF PICK

Dana Howard Shultz

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Business Attorney

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Posted about 5 years ago. 6 helpful votes

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1

Be aware of four types of intellectual property (IP)

The owner of a patent has a right to exclude others from making, using, selling, offering for sale or importing the claimed invention, generally for a period of 20 years. Copyrights protect original works of authorship. The owner of a copyright has the exclusive rights to reproduce the copyrighted work, prepare derivative works, distribute copies or phonorecords of the work, and perform or display the work publicly. A trademark or servicemark is a word, phrase, symbol or design, or a combination of words, phrases, symbols or designs, that identifies and distinguishes the source of goods (trademark) or services (servicemark). The owner has the right to prevent others from using a confusingly similar mark. A trade secret is information that that derives value from not being generally known and is subject to reasonable efforts to maintain secrecy. By protecting a trade secret, its owner can maintain a competitive advantage over other companies in its industry.

2

Understand your rights to the IP that employees create

Your rights depend on which types of IP your employees are creating: - Patents -- Generally, but subject to certain exceptions, companies do not own patentable inventions that employees develop on the job unless there is an agreement by which the employee assigns the invention to the company. - Copyrights -- In the case of a work prepared by an employee within the scope of his or her employment, the employer is considered the author and, thus, owns the copyright. - Trademarks -- Because ownership of a mark flows from use of the mark, and the mark is used by the employer, the mark will be owned by the employer. - Trade secrets -- The employer generally owns trade secrets. A prudent employer will have each employee sign a proprietary information and invention assignment agreement requiring that the employee: - Document inventions, assign all rights to the employer, and assist the employer in perfecting those rights. - Maintain employer information in confidence.

3

Understand your rights to IP created by independent contractors

In an effort to control costs, start-ups typically minimize the number of employees and engage independent contractors for product development and other tasks. However, unless it has a properly-drafted agreement in place with the contractor, the company likely will find that it has even fewer rights to the contractor's work product than it has in the employee situation described above! Particularly as regards patents and copyrights, absent an agreement to the contrary, the independent contractor typically will own the work product, and the company will merely have a license to use it. A prudent company, thus, will make sure that there is a written agreement with each contractor that gives the company all rights to work product; requires the contractor to help perfect those rights; specifies confidentiality obligations; and requires that the contractor indemnify the company against third-party IP infringement claims.

4

Beware of special considerations if the contractor is located overseas

As described above, start-ups are major consumers of independent-contractor services, and in some cases those services are provided by overseas companies. There are significant risks in putting IP in the hands of overseas suppliers. For example, China is notorious for stealing IP and for having weak laws to protect IP owners. And while India's IP laws are well within the mainstream, a lawsuit to enforce IP rights might last five or ten years before any remedy is available. As a result, the most prudent approach is to send overseas only IP that your company can afford to have stolen. If you need an independent contractor that will create or use your most critical IP, choose a domestic company.

5

Take the right steps to protect trade secrets

One of the best examples of a trade secret is the formula for Coca Cola. By revealing that formula to only a small number of people and requiring that they keep that formula in confidence, the company has maintained a legally-enforceable competitive advantage since 1886. All companies (not just start-ups) need to: - Identify company information that constitutes trade secrets. - Ensure that the information is recorded, filed away and secured against unauthorized access. - Enter into appropriate confidentiality agreements with all employees and third parties who will have access to those trade secrets.

6

Be careful if you register your own copyright online

To save money, entrepreneurs sometimes file their own copyright registrations but make a mistake in identifying the owner of the copyright. Here are some simple rules that will help you get pointed in the right direction (assuming that you actually own the copyright -- please see discussion above): - If you are a sole proprietor using a fictitious business name, use your name rather than the fictitious name. - If you have established a separate legal entity (typically a corporation or a limited liability company), use its correct name. - If you are not sure about the correct name of your legal entity, ask your lawyer, or go to the appropriate Secretary of State website. (A Google search for name of the state and the words "search" and "business" usually will point to the right website.)

7

Be careful if you register your own trademark online

Aside from identifying the owner of the trademark properly (see discussion above), you need to: - Select the proper class or classes of goods (trademarks) and/or services (servicemarks) to which the mark will apply - Decide whether to register a standard character format mark or a styled (design) format mark - Know whether the mark is already being used in interstate or international commerce (if not, an "intent to use" application must be filed) You can find more information about these issues at www.uspto.gov/web/trademarks/workflow/start.htm.

8

Be careful if you file a provisional patent application

Start-up companies tend to like provisional patent applications because they are inexpensive and they allow the company to hold a filing date for a year -- and delay paying for a non-provisional application -- while raising funds and confirming that the invention is commercially viable. However, the provisional filing date is valuable only to the extent that claims in the issued patent are supported by disclosure in the provisional patent application. If you file the provisional application before the scope of your invention is clear, you may find that the provisional was a waste of time and money because it did not disclose the correct claims.

Additional Resources

Blog Posts - Intellectual Property

U.S. Patent and Trademark Office

U.S. Copyright Office

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