Historically, entrepreneurial businesses have been the catalyst for our economy’s growth. Too many times, however, the dreams of upstart business owners are crushed due to a lack of attention to intellectual property and related issues. This article will address avoidable legal problems to help ensure that your business has the best chances of becoming the next industry leader.
A company’s overall valuation is directly related to its intellectual property portfolio. In fact, for technology and e‐ commerce businesses, IP can represent in excess of 80% of a company’s value. Types of IP include copyrights (e.g., original works of authorship such as advertising materials, software code and music); trademarks (e.g., brand names, logos and internet domain names, and in some cases shapes); patents (e.g., any new and useful process, machine, manufacture, or composition of matter, and in some cases, designs); and trade secrets (competitively valuable business information, such as confidential customer lists).
For any early‐stage business, it is critical to protect intellectual property from theft and infringement—both in the United States and in other countries where the company does or expects to do business. Companies should inventory their IP to examine what might be eligible for patent, trademark, copyright or trade secret status. Once it is known what IP a company possesses, it can then review its options for protecting that property, and do a cost/benefit analysis to determine which IP protection measures make the most sense. A U.S. utility patent is generally granted for 20 years from the date the patent application is filed. U.S. trademarks can last forever, as long as the trademark is used in commerce and defended against infringement. For copyrightable works (created after January 1, 1978), protection extends for 70 years after the death of the owner. For “works made for hire” (covering the usual type of work owned by a business, such as website designs obtained through an independent contractor), the copyright lasts for a term of 95 years from the year of its first publication or a term of 120 years from the year of its creation, whichever expires first. Licensing agreements are also an important element of successfully commercializing IP rights.
Key considerations for business owners include:
- Document the creation of your intellectual property. The ideal documentation is federal registration through the U.S. Patent and Trademark Office (www.uspto.gov) or the U.S. Copyright Office (www.copyright.gov). In the event of infringement, registration can be an important part of your case and may be required if you plan to sue the infringer.
- Do not overlook the importance of trademark “clearance,” which allows a qualified trademark attorney to review and analyze current uses of your particular mark as well as those that may create a likelihood of confusion and risk of infringement. Should a third party discover your use of an infringing mark, they may demand that you discontinue use of the mark (replacement signage, packaging, etc., can be costly), stop using a domain name, sue you in an effort to collect damages or enjoin your business from continued operation using that trademark. While a trademark clearance reveals potential problems, it may also reveal that you are indeed the first to use a particular trademark, and therefore, may be entitled to seek federal registration.
- Take caution when including literary, music and artistic works in connection with your advertisements and website. Unless placed in the public domain, using a third party’s materials (e.g., a photo or even a few notes of a song) may constitute copyright infringement and expose your company to substantial legal liability. As a rule of thumb, prior written authorization should be obtained.
- Always utilize written agreements with freelance web developers, graphic designers, writers, and the like, specifically providing that your business will own any developed materials as a “work for hire.” And, carefully review the provisions of any contract involving limitations of liability, warranties and indemnification/hold harmless obligations.
- Employees should be restricted from divulging to their new employers their former employer’s trade secrets or using them to the former employer’s disadvantage. Most states have adopted the Uniform Trade Secrets Act (“UTSA”), which defines a trade secret as “information that derives independent economic value, actual or potential, from not being generally well known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and which is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
Examples of “information” under the UTSA are formulas, drawings, patterns, compilations, programs, devices, methods, techniques, or processes. Generally, to be considered a trade secret, the information must be kept in a locked or secured location. Think of the “secret recipe” for Coke locked away in a vault. Trade secrets may include not only designs and formulas, but also customer lists and pricing information. Safeguards should also be put in place to prevent departing employees from removing or emailing to themselves any customer lists, technical documents, training manuals or computer programs/software belonging to your company.
- If you suspect infringement, contact an attorney specializing in intellectual property law. This area of the law can be complex and an attorney’s help can be crucial.