The term “intellectual property” applies to more than just a copyright. Here are some questions for companies to consider about their IP when security is a concern.
Q. What is considered intellectual property but is often overlooked when deciding what to protect?
A. When people think of intellectual property, they most often think ’patent’ or ‘copyright.’ There are other forms. One that’s often overlooked is trade secrets.
As noted in an influential restatement of the law, a ‘trade secret is any information that can be used in the operation of a business … that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.’ They take a wide variety of forms, including product formulas, data compilations, customer lists, manufacturing techniques and other types of business know-how.
Q. How might a company’s trade secrets be vulnerable?
A. A business has to identify its trade secrets before it can protect them. Common sense goes a long way here. Business owners should start by asking, ‘What does my business do better than the competition, which the competition doesn’t know about?’ The answer might qualify as a trade secret.
Q. What policies or procedures should a company put in place to protect its trade secrets?
A. There are no hard and fast rules, but a business must take ‘reasonable steps’ to protect its secrets. This could include password-protecting computers, limiting access on a need-to-know basis, keeping documents under lock and key, and/or requiring employees to maintain secrecy during and after employment.
Q. How has social media affected a company’s ability to protect its trade secrets?
A. It has made it more difficult for businesses to argue that it has trade secrets — a point underscored in Sasqua Group Inc. v. Courtney, No. 10-528, 2010 WL 3613855 (E.D.N.Y. Aug. 2, 2010), where the court held that compiled customer data was not a trade secret because the information was also available on the Internet and social media sites.
There are no easy answers, but one thing seems clear: Businesses must take care when posting to social media sites and educate employees about using social media sites.
P. Andrew Fleming is a partner with Novack and Macey LLP. He represents individuals and small, midsize and large companies in complex commercial litigation.
Most businesses have ‘comprehensive’ insurance policies that cover damage to the company’s physical assets and protect against third-party bodily injury or tangible property damage claims against the company. But this traditional coverage generally does not fully protect against losses related to intangible assets, like computer-stored data and intellectual property.
“Businesses need to be aware of this exposure and consider specific coverage designed for their individual business needs and risks,” says Steven J. Ciszewski, a partner at Novack and Macey LLP.
Smart Business spoke with Ciszewski about where comprehensive polices might fall short and how to plug the holes with additional coverage for your business’s needs.
What types of coverage are available for computer-stored data and other cyber risks?
Some aspects of computer- or data-related losses might be protected by commercial crime coverage that applies when a third party or employee commits a crime or fraud directed at your business. This coverage can be an add-on to a general commercial policy or a stand-alone policy. Beyond that, many insurers offer both first-party and third-party coverage dedicated to computer and cyber risks. First-party coverage typically pays for costs incurred if your computer network or data systems suffer a catastrophic failure. The coverage might pay for costs incurred to restore your network and data, and/or the lost profits suffered because your business lost the use of its network and data. Third-party coverage protects against liability claims arising out of computer or cyber risks — for example, claims arising out of a breach of your network security. In the event of a breach, confidential customer information could be exposed or stolen. Third-party coverage would cover those claims and pay damages suffered by customers, pay for customer notification, and fund a credit-monitoring program for the affected customers.
What coverage is available for intellectual property?
Increasingly, courts have found that trying to secure coverage for intellectual property (IP) risks under a general liability policy is like trying to jam a square peg into a round hole. As a result, businesses with IP assets or exposure are wise to consider dedicated IP coverage. Again, this coverage generally falls into two broad categories: Defense coverage, which pays for the cost to defend and satisfy any judgment arising out of a claim that your business infringed another’s copyright, trademark, patent or other IP; and abatement coverage, which fronts the cost of pursuing a claim against another for infringing on your IP. For abatement coverage, even if your claim fails, the insurer typically covers all or most of the cost. If the claim succeeds and you recover, the insurer may be entitled to some of the recovery to offset the costs it fronted. For businesses with critical IP, both types of coverage are important just to pay for litigation costs, since IP litigation can often become prohibitively expensive.
Are there any other emerging areas where businesses may be unknowingly exposed?
Just like IP claims, many employment-related claims, such as discrimination — race, age, gender, etc. — sexual harassment or wrongful termination, are not covered by most general liability policies. Accordingly, businesses should consider employment practices liability (EPL) coverage. EPL policies pay for defense costs and for judgments arising out of these types of claims against your business by prospective, current or former employees. Again, coverage for defense costs is particularly important since it can be expensive to defeat even a frivolous claim brought by a disgruntled employee.
Steven J. Ciszewski is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or email@example.com.
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Intellectual property is one of your company’s greatest assets, but modern technology makes it easy for that property to be stolen or infringed upon if it’s not properly protected.
Having an up-to-date inventory of your intellectual property will help should a dispute arise. If a dispute happens, experts may be called upon to place a value on those potential intellectual property infringements.
Keith Hock, CPA, CFF, CFFA, CVA, director, Financial Advisory Services with GBQ Consulting LLC, says that companies are often missing out on opportunities or forced to defend themselves in situations that have significant financial consequences — all because they did not have a complete catalog of their intellectual property.
“It’s important for companies to think about, catalog and inventory potential intellectual property and understand its value,” says Hock. “Then you know what steps need to be taken to protect that value, or prevent creating exposure by infringing on someone else’s intellectual property.”
Smart Business spoke with Hock about how to catalog and value your intellectual property.
How do you take proactive steps to protect your intellectual property?
You have to understand what items can be intellectual property. It’s always good to talk with legal counsel or an intellectual property valuation person. You need to gain an understanding of what constitutes intellectual property and understand the value, or range of value. This allows you to know whether it’s worth trying to protect, what your exposure may be if you choose not to protect it or what your exposure may be if you have infringed on someone else’s intellectual property.
Oftentimes companies do not fully appreciate the potential scope of their intellectual property and its value. Patents, trademarks and copyrights are the most common forms of intellectual property.
A fourth type, trade secrets, is often overlooked, and these can have significant value. You have to take certain steps to protect those and treat them as such, or you’ll lose the protection provided by the laws governing trade secrets.
How can you calculate the damages lost in an intellectual property suit?
That’s the million-dollar question. There are methodologies that are generally used.
In some cases, the best indication of intellectual property value may be a license agreement for that same piece of intellectual property. If a patent has been licensed at a particular rate, that’s a good indication of the value. Unfortunately, those types of license agreements don’t always exist; in those cases there are other approaches to assess the value. But that’s always a good starting point.
It’s similar to real estate. If you’re interested in finding out what your house sold for, you look at the selling prices of other houses in your neighborhood.
There are also other valuation techniques that can be applied, such as the amount of incremental cash the patent is expected to generate.
What are the risks of not understanding your intellectual property inventory?
The risk of not understanding your own intellectual property is that you are not necessarily fully exploiting it, in terms of leveraging its use in your business, or you’re not fully protecting it. Not being proactive can put you at risk for litigation that can have significant consequences.
Keith Hock, CPA, CFF, CFFA, CVA, is director, Financial Advisory Services, at GBQ Consulting LLC. Reach him at (513) 252-0223 or firstname.lastname@example.org
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Intellectual property (IP) might be one of the most valuable assets of your company. But if it’s not protected, you can be foregoing a significant advantage in the marketplace.
There are four major IP categories:
- Patents, which protect inventions;
- Copyrights, which protect artistic forms of expression;
- Trademarks, which protect brands; and
- Trade secrets.
Generally, the types of IP small businesses may be interested in protecting are unique to the kind of company and its core competencies. For example, businesses that are predicated on developing new products or technology will be interested in patent protection, while another business may be identified by its brands and would want to protect those through trademarks.
However, John P. Cornely, of counsel at Fay Sharpe, LLP, says it’s important to take a close look at everything — from catalog photographs to manufacturing processes — to ensure the security of all of your IP.
Smart Business spoke with Cornely about successful strategies to identify and protect IP.
How does a small business identify and track its IP?
In a small business, to some extent, you have IP being created by many people in your organization at many points in the workflow cycle. You want to be systematic about identifying your IP. When it comes to patents, consider using an invention disclosure form. These forms can be made available to employees, especially those involved in the invention creation process, and are used to collect the data necessary for completing a patent application — inventor’s names, the date the invention was created, a description and/or drawings of the invention and the location of records that support the invention, such as a hard drive or lab notebook.
Encourage your inventors to use the forms and have regular sessions to review inventions and the potential for protection. Regular review meetings can also assist in identifying and/or ranking the relative importance of multiple inventions.
This form system can be used with other types of IP to identify creations and have a way to systematically collect information about them.
What are important inventions to protect?
It’s most important to protect those that make a product stand out in the market. As a small business, maybe you don’t have the resources to file 100 patent applications and might only be able to do a couple each year, so it’s critical to identify where to best apply your resources. Find the aspects of your products that make them more valuable and desirable in the marketplace. Think of it in terms of what features of your products your competitors would like to copy and select strategic patent protections that will keep your competitors from doing so.
Should companies federally register their trademark?
Yes. There are procedural benefits to registering your trademarks that will help in potential infringement actions.
When you start using a trademark in commerce you naturally gain common-law rights whether you’ve registered the mark with the federal government or not. However, one of the problems is those common-law rights are limited to the geographic area in which you’re doing business. So if you’re selling a product in Cleveland, Ohio, under a specific mark, you only have common-law rights in Cleveland. A federal trademark registration extends your rights nationally. Further, federal registration of your trademark provides you with procedural benefits if there’s an infringement action.
And, much like patents, you want to register those marks and brands that are most important to you if your resources are limited.
What can a company keep as a trade secret?
Sometimes there may be an idea that’s not a good fit for patenting or that you don’t want to disclose, for example, like a process of manufacturing a product. Trade secrets are great tools for protecting some ideas because, theoretically, the protection can last forever while patents commonly expire after 20 years. However, the secret generally has to be something no one else can easily discover, for example through reverse engineering; you have to treat it cautiously and control its dissemination. Many small businesses may think they have trade secrets, but since they are not effectively treating them as such that information won’t enjoy the legal status of trade secret, which has certain advantages.
Some things are easy to keep secret, such as formulas and manufacturing processes, because only a few people have or can discover that information. If the information can be discovered from viewing or reverse engineering your product, you won’t be able to keep that a secret. One risk is that if your secret is discovered legitimately then you’ve lost your trade secret status, but if someone were to uncover your trade secret through theft or breach of contract, then you have a case.
How does a small business secure rights to the company’s IP from its employees and contractors?
While this is important, it’s also often overlooked. You want to have some language in your employee or contractor agreements that details ownership of any IP rights. Contrary to what some might think, it’s not always the small business that owns the rights to IP developed by contractors. For example, when hiring a contract photographer to take pictures for your website, the copyright for the work (i.e., the photographs) stays with the photographer unless you have a written agreement that says otherwise. That also extends to contract programmers who can retain the copyright for developed software absent a sufficient written contract to the contrary.
In general, it’s a good rule to have your agreements explicitly spell out IP ownership rights in writing up front.
John P. Cornely is of counsel at Fay Sharpe, LLP. Reach him at (216) 363-9000 or email@example.com.
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Intellectual property (IP), whether patents, copyrights, trademarks or trade secrets, is an important asset for almost every company, regardless of industry or market focus.
“Business owners should be careful not to fall prey to the misconception that if their business does not involve manufacturing, research and development, or high-tech innovation, there is no IP to protect,” says Alexis Dillett Isztwan, member at Semanoff Ormsby Greenberg & Torchia, LLC. “In fact, with reliance on the Internet for the delivery of goods and services, as well as marketing, strong brand recognition and the development of original creative works have become an important driver for generating revenue. It is not unusual today for a business to have only one category of assets — its intellectual property.”
Smart Business spoke with Isztwan about how you can know whether you really own the IP that you paid for.
How does ownership typically work when a contractor develops IP?
Often, owners assume if they paid a contractor to create something — a website design, an Internet platform or portal, a logo design, a software program — then the business owns all the rights. The reality, however, is quite the opposite. Under copyright law, the author — the graphic designer or the software programmer — owns the copyright, and under patent law, the inventor owns the rights. This is true regardless of whether, or how much, the company paid.
For copyrights, there is a narrow, often-misunderstood exception called the ‘work for hire’ doctrine. The work for hire exception covers only two categories: (1) employees who create works within the scope of their employment, and (2) nonemployees who create a work that falls within one of the specifically enumerated categories in the copyright law. The second category applies infrequently, covering only works such as contributions to a collective work, parts of a motion picture or other audiovisual work, translations, an instructional text, a test, answer material for a test, or an atlas. The first exception covers works prepared by an employee, not contractors.
Determining whether a person is an employee requires evaluating the level of control the employer has over the work as well as the creator and his or her conduct. Even if the creator is an employee, it calls into question when the work was created and whether the subject matter is related to the scope of employment.
What can business owners do to ensure they own what they pay for?
The best way to solidify IP ownership is with a written contract signed by both parties prior to any services being performed, whether by an employee or contractor. The contract should clearly grant ownership of all works and inventions and related IP rights to the business. Ownership should not be dependent on or timed with payments.
Even businesses that attempt to cover ownership in a written agreement sometimes limit effectiveness by stating that all work should be considered ‘works for hire.’ Since copyright law does not cover all IP rights, the contract language should contain an immediate, explicit and irrevocable assignment of all rights in the work created.
One pitfall is failing to recognize when the contract is necessary. Whenever a business hires an outside party to prepare a product or other deliverable, a written contract for those services should contain a favorable ownership statement.
Too often, the contractor convinces the owner a written agreement is unnecessary or that the contractor operates on a purchase-order basis only. This is a red flag, as trying to extract an ownership statement later will come with a price and often be refused.
Is this an area of growing concern?
To many business owners, it is counterintuitive that IP ownership generally resides in the author or inventor rather than the party paying for the work. As a result, a number of owners are unaware of the problem until it surfaces in another context, such as when trying to sell the company, looking for financing, or in a dispute with the contractor or employee who created the work.
The ownership issue is not industry specific, but startup companies are more vulnerable to missteps. Startups, often low on cash, frequently look to friends to work for them based on a handshake promise of future interest in the company. When the business starts growing, those ‘friends’ come looking for their equity, and if you did not obtain an assignment of rights, you have little leverage, particularly when the savvy friend holds the IP ownership hostage in exchange for a
percentage of the business.
During the due diligence of a sale or financing, buyers or potential investors look at whether the company owns all of the asset rights, either to determine the value or ensure security. Increasingly, those assets are entirely or largely IP related. An unclear ownership chain often devalues the business. For example, a business hires multiple programmers to develop software without agreements, and tying up ownership requires tracking down each programmer to obtain an assignment of rights. It may be impossible to find each programmer and, if you do, even harder to convince them to agree to an assignment.
If you don’t have an assignment, what can happen to your property?
If your company does not own the IP rights, not only is the business potentially vulnerable to infringement claims but the actual owner also has the right to license or sell the work to other parties, including competitors. Imagine having a new software platform developed by a contractor without an assignment, and then that contractor licenses or sells it to your competitor. You lose control over what was supposed to add value to your business, and you could have to focus time and resources on either defending an infringement claim or obtaining the rights from other parties, likely at a much higher cost than originally paid.
Alexis Dillett Isztwan is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach her at (215) 887-0200 or firstname.lastname@example.org.
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Regardless of where you are at in your company’s life cycle, it is prudent to protect your brand by obtaining state or federal registration for your mark or company name. State or federal registration helps ensure that your business and reputation are not tarnished, or that you do not lose clients as a result of others encroaching upon your area by using a name or mark that is confusingly similar to yours.
“There exists common-law rights that take effect from the moment you start your business, but to enhance your protection it is best to obtain federal or state registration for your brand to better enforce your right of ownership,” says Timothy Jordan, a shareholder at Garan Lucow Miller PC. “Registration establishes that you own the mark and anything confusingly similar can be barred from entering the market.”
Smart Business spoke with Jordan about registering a trademark and the consequences of not doing so.
What are common-law rights and what protections do they offer?
As soon as a company uses a name or mark, it’s developing common-law rights of use. However, the protection of that mark under such rights is limited.
Say you have been using your name in the Detroit area for six years without obtaining federal or state registration. Suddenly a businessman from California, independent of you, comes up with the same or similar name and applies for and obtains federal registration. That registration can provide for the blanket use of that name throughout the United States. Your competitor may now be able to stop you from expanding the use of your mark outside of the geographic area in which you are currently operating, if the business appears related. You can still use your name and continue to do business in your geographic area, but you cannot expand your business beyond that point.
In a similar scenario, another company in the same field and state obtains a state registration after you have been using your mark. That company can prevent you from expanding into the other company’s territory within the state.
When should you apply for state and/or federal registration?
A state registration is relatively inexpensive and fairly easy to obtain. If you are a startup that has any realistic hopes of getting your business out of your garage, spend the money to obtain a state registration. If things are taking off within the first year apply for federal registration, a process which can take between eight months to a year and a half.
But first, find out if the name you would like to use is already registered or in use. You do not want to spend the money on a website, materials and advertising only to find out there is another business with the same or similar name doing similar work or selling a similar product.
How do you search for a name?
There is a federal database maintained by the U.S. Patent and Trademark Office that you can access and search to determine if the word or phrase you would like is ‘live,’ in other words is in use as a trademark. You can navigate the site as you would most any Internet search engine.
Trademarks are valid for 10 years but require a notice of renewal be filed in the fifth year to maintain it, and again between the ninth and 10th years for each additional 10 years of protection. If you do not file for renewal after five years, the mark can become part of the public domain and will eventually expire, which means someone else can use that name.
How do you protect a slogan or phrase associated with your business prior to registration?
Companies that have tag lines or a slogan that accompanies their mark often put the initials ‘TM’ or ‘SM’ at the end of it. By doing so the company is using the phrase as if it were a trademark or service mark. While there is no registration in place, the company is putting the world on notice that the phrase is viewed as a trademark or service mark.
The phrase attached to your company name has to develop secondary meaning before registration is possible. Once the word or slogan conjures up a meaning different than the literal words or slogan, such as Levi’s® representing jeans, then your mark has developed secondary meaning and you can seek registration.
Make a note of when your phrase or tag line was posted to your website or used on some other material viewed by the public because it will help establish the date of your initial use, which will be noted by the trademark office.
When is it appropriate to seek registration for a new product or line?
If you are a large, existing business and you are going to expand into a new product line, from the get-go it is worth the time and money to obtain registration on the new product name. It may cost you a few thousand dollars, but it will save you more down the road. However, if you’re only making $10,000 annually, it might be more prudent to use the TM designation because that is free.
You have to look at your market, your perception of your future success and your resources. If you work only in Michigan, and not all over the country, a state registration may be sufficient. If your product takes off, then you have to decide when it is right for you to invest the money to obtain a federal registration. It’s a personal decision to determine when you are successful enough to need to protect your name.
Timothy Jordan is a shareholder at Garan Lucow Miller PC. Reach him at (313) 446-5531 or email@example.com.
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Smaller businesses often don’t have the wherewithal to enforce their patent rights because pursuing this type of litigation is very expensive, and they lack the expertise. However, the rise of nonpracticing entities (“NPE”) — organizations that enforce patents against alleged infringers with no intent to manufacture or market the invention — have made this an area that businesses need to take seriously.
“When you are a company that has one or two patents in an area and you’re fighting against an entity with hundreds in that area, it’s difficult to win,” says Michael G. Craig, a patent attorney with Brouse McDowell.
If you don’t have a standalone IP protection program, you’re losing revenue now, have lost it in the past and will continue to do so in the future.
“In the past, people assumed patents were a trophy for smart people to hang on their walls,” he says. “Now companies are monetizing their IP. Studies have shown that some 50 to 60 percent of a company’s worth comes from trademarks alone. These are commodities that need to be monetized. If you don’t have a strategy to do that, you are losing revenue.”
Smart Business spoke with Craig about NPEs and the importance of IP protection strategies.
What is a nonpracticing entity?
There are different types of nonpracticing entities. Generally, NPEs own and enforce patents but don’t intend to manufacture the products or provide the services associated with them. They instead enforce the patent rights in other ways. Some NPEs purchase patents from companies that don’t have the wherewithal to enforce those rights, doing so through licenses or lawsuits against infringers. These are groups created solely to buy up the intellectual property of others and enforce those rights without any other business plan or means of revenue.
Some entities hold defensive patents. Companies can partner with them for protection against lawsuits, and collectively, they become a harder target because they’re part of a group. There is also the purchase of patents for offensive purposes, such as buying patents to take over a segment of the market and force others to leave or enforce their rights.
Patent trolls are another aspect of NPEs. They hold patent rights, wait for someone to monetize the idea and then pounce. EBay’s one-click purchase — which allows buyers to bypass the bidding process and buy the item instantly — was a victim of a patent troll, as was BlackBerry, which had a patent troll sue it for its technology, worth hundreds of millions of dollars.
Why are NPEs significant?
They can drive the way a company’s patent strategy is developed. NPEs don’t have anything to lose when enforcing their rights. When you are sued, you have to allocate resources to defend your rights, which takes money away from your core processes. NPEs’ resources and business models are designed to enforce patents. You need to understand what NPEs are doing because they change the landscape of IP, and you need to develop an R&D strategy to navigate it and determine where you fit in.
You can join an aggregator, which is an NPE that aggregates IP property for the benefit of having safety in numbers. Those that join them can use the IP of others, as well as the aggregator’s resources for protection, offensively or defensively. And because the cost of a lawsuit is so deleterious, most will give up their IP rather than pursue a lawsuit. Also, when you practice in an area, particularly one that utilizes an industry standard, such as wireless networking, there is likely to be an NPE from whom you, or your parts supplier, may need to license the technology.
What can companies do to protect themselves from NPEs?
There is an overarching concern in the industry that there is no protection against an NPE. The reality is, under the current legal system, NPEs are not doing anything wrong. They would say they are just protecting the rights of inventors. IP is actually property that can be bought and sold and infringements against that need to be protected.
Err on the side of overprotection. Managing IP may seem expensive at first, but as far as costs associated with patenting or licensing, in the long run, the payback is tremendous. Further, you need a strategy to deal with NPEs in areas in which you do business, such as licensing agreements and hold harmless agreements.
IP programs should have the use of legal professionals to help them determine what is worthwhile to patent and how to go about it. A lot of companies have brainstorming sessions to come up with a list of ideas of what to patent, then flesh them out and go to their legal professionals with a list of ideas to determine which are worth protecting and the costs to do so.
Also, every company needs to have a strategy on how to protect their IP when certain situations arise, such as a potential infringer or infringement.
What should companies do when they are in a potential infringement situation?
That can be an anxious time, particularly if it is a product that drives your business. Your first call should be to an attorney who specializes in that area to analyze the claim to see if it has merit. They could contact the other party and negotiate because you don’t want to reach litigation. The worst thing you can do is put your head in the sand, because after you have been notified, it becomes willful and the penalties can add up.
You don’t need to reach that point. If a company is unsure of what the next step should be, contact a professional to manage the process. All you need is a little help to point you in the right direction and periodic management from an attorney to help along the way.
Patents are assets that need to be exploited and monetized. The IP landscape is changing, and those who don’t recognize this and look at the other way are going to be left behind.
Michael G. Craig is a patent attorney with the Intellectual Property Group at Brouse McDowell. Reach him at (330) 535-5711 or firstname.lastname@example.org.
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Intellectual property (IP) is an area regularly overlooked; however, this is a pivotal area of law, especially for entrepreneurs and mid-size businesses.
“We often get calls once a client has already landed in some sort of IP trouble, but many of these issues could have been averted through some simple diligence early on,” says Salil Bali, an Intellectual Property Litigator at Stradling Yocca Carlson & Rauth.
Bali says many people are overwhelmed by the topic and might think it to be in the purview of larger companies.
“Surprisingly, for small businesses, this is an area we have seen affect them the most, and often this impact is significant,” he says.
Smart Business spoke with Bali about the importance of protecting your intellectual property, regardless of the size of your company.
What types of businesses are most at risk when it comes to IP?
Most people, when they think about IP, assume it pertains just to tech-based innovations. However, at some level, every company has IP rights to protect. In today’s world, fewer companies have tangible assets such as equipment, manufacturing facilities or real estate. Instead, the vast majority of companies today have most of their assets based on IP rights. This includes the ‘mom-and-pop’ yoga studio that needs to protect its name, all the way to the biotech company that has inventions to protect. No matter what type or size company you have, there are aspects of IP law that touch your company and those rights need to be protected.
What are some common intellectual property issues entrepreneurs should recognize?
The four main areas of IP affecting business today are trademarks, copyrights, patents and trade secrets. Companies need to be aware of all four areas and how to protect themselves with regard to each.
Trademark law deals with the protection of a word, name, symbol or device used to indicate the source of the goods or services. The purpose is to distinguish from other similar goods or services and prevent public confusion. When determining your brand or company name, you should perform trademark clearance to ensure you don’t infringe on pre-existing marks and that your desired mark is strong and protectable. Discussing such issues with a trademark attorney early on can minimize exposure and create IP assets for a company right out of the gate.
Copyright law deals with the protection and permissible uses of original works of authorship, including photographs, videos and written documents. These issues often arise with hastily launched websites, when companies start loading copyrighted images or text without first getting permission or the appropriate licenses. This could lead to cease-and-desist notices and claims for damages. Similar issues can arise with the use of personal likenesses, especially those of celebrities.
Patent law grants an inventor the right to exclude others from making, using or selling his or her invention. If you have an innovative idea, it’s important to talk with an attorney to determine what is patentable and whether or not your idea infringes on other patents. Doing this early diligence can protect your idea from being abandoned to the public domain or help you sidestep and minimize potential litigation exposure.
As far as trade secrets, companies need to be mindful about how they manage information to make sure secrets stay protected. Early-stage companies often aren’t careful about employment contracts and what information is being divulged to whom. This lack of discipline can adversely affect the company’s ability to claim trade secret protection. If you share sensitive information without outlining the recipient’s duties to hold it in confidence, you can lose the ability to protect your trade secrets.
What are the potential consequences of ignoring intellectual property issues?
The risk of not protecting your mark is that someone else assumes a similar name and thus limits or destroys the value of your brand. Though there may still be recourse, it becomes an uphill battle. An infringement lawsuit by a trademark holder for your use of a confusingly similar mark could cost your company its brand and/or logo, the goodwill associated with them and subject you to potential damages.
The risk with copyright infringement is financial penalties. Unlike patent and trademark laws, there are express damages written into the copyright statute that can be considerable.
The consequence for infringing on a patent is litigation, which may result in an injunction preventing further sales or use of the infringing product. Damages and costs in such cases can quickly add up. Conversely, if you fail to seek patent protection for your innovation, you could permanently lose your ability to protect your invention. When you have a new idea, there are key timelines you should be aware of that can be impacted by public disclosure and sale. You must act quickly to secure your idea or you could lose your rights, even if your invention is otherwise patentable.
With trade secrets, it’s simple: If you don’t protect them, you lose them. As soon as a secret enters the public domain, it’s gone.
How could these problems be avoided?
Often, talking with someone who is knowledgeable can help you understand how to protect yourself from infringement. The costs associated with protecting yourself are proportionately low and can have a big impact on your company’s valuation when you’re looking for funding. The stronger your IP portfolio is, the stronger your company is. However, if these issues are ignored, it can become a costly distraction for you and your company. Taking steps early on to make sure your IP house is in order can pay dividends.
Salil Bali is an Intellectual Property Litigator at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4278 or email@example.com.
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MyCorporation has always reminded me of a Russian nesting doll — it is a business that helps other business owners start their business. Along with being a tad complicated to explain, this puts me in a unique position as its CEO. I have to be an expert in starting a business, which is an inherently risky venture. I’ve seen great ideas crumble and silly concepts flourish.
I’ve seen the most dedicated become beaten down and weary after only a few days while those who were at first noncommittal to the whole “running a business thing” grasp and cling to their company through every hurdle and hardship.
So when people ask me for my No. 1 piece of advice, all I can say is “protect yourself.” You may be able to influence sales, marketing, reviews and customer satisfaction, but you cannot control them. The amount of protection you give yourself and your business is something you can control. So why would you skimp on something as rudimentary as protecting your intellectual property?
Of course I know exactly why so many people skip filing trademarks and copyrights. It costs money and can be a bit complicated. New business owners keep track of every single cent that they spend — I know I did. You don’t know if you’ll even be able to break even when you first start out, so why would you want to send a fat check to the United States Patent and Trademark Office so early on?
Well, you should. I’ve had plenty of clients who have failed to protect the trademark or brand they spent so much time building. They always say the same thing — that once they are making more money, they’ll think about filling out the paperwork. Then, out of the blue, a competitor is using their intellectual property. And that same competitor has filled out paperwork with the USPTO.
It may sound like a campfire story, but it really does happen. We aren’t talking about million-dollar corporate behemoths here. This kind of thing happens between the smaller guys whether it’s two tow-truck drivers in the same town, a couple of restaurant chains or a pair of small Internet start-ups.
Typically, no one involved has the money to bring an infringer to court and prove that they were the first ones to use that particular image or name. So the infringer gets the trademark protection and the infringed has to start from scratch. It’s annoying, and a bit underhanded, but it happens.
Trademarks and copyrights are a lot like insurance — everything is fine until you need it. Then, if you don’t have it, the costs are astronomically higher than what you would have spent on the policy in the first place. “But it won’t happen to me,” you may say, scoffing at the prospect of filing protection for your little brand.
Maybe it won’t, but what if it did? Would you be willing to put as much blood, sweat and tears into building the same level of respect and trust for your new brand? It might not even be a question of would you — it might be one of could you.
We sometimes forget, or choose to block out, how much effort it took to really get our businesses started. It takes a lot out of a person, and I’m not sure if I’d be able to devote that much of my focus and energy again if the original object of my efforts was stolen.
So here is my mantra, repeated to every new business owner seeking my sage wisdom: Protect yourself early and thoroughly. Don’t wait until it is too late, or you have a bit more money or whatever other excuses you might have come up with.
Protect your business, your intellectual property and your future sanity now.
Deborah Sweeney is the CEO of MyCorporation, an online filing services company that specializes in incorporations and LLCs. Find her online at mycorporation.com and on Twitter @deborahsweeney and @mycorporation.
The impact of intellectual property litigation can devastate a small business, as it is an extremely expensive and there are many steps involved in preparing a defense.
“The most important thing is to not ignore the complaint,” says Jude A. Fry, a partner with Fay Sharpe LLP. “When a complaint is delivered, you typically have 21 days to answer or to file a motion to dismiss. Don’t just sit on it for two weeks and then decide you have to act because there is a lot you need to do immediately,” she says.
Smart Business spoke with Fry about how to defend yourself against intellectual property infringement lawsuits both before and after a complaint has been filed.
When a suit is filed, how much time can pass before a company needs to take action and should you assert potential defenses?
Act immediately. Contact and retain legal counsel as soon as possible. Preferably, hire an attorney who specializes in patent, trademark or copyright law who can help you figure out the strength of the complaint and your potential defenses.
However, chances are that the attorney you hire will want a retainer. Ask him or her for an estimate of the attorney’s fees you may expend over the course of the litigation so that you’re aware of the potential costs of the suit. Talk with your general counsel to get a recommendation for someone who could handle the case.
It’s possible to assert a counterclaim against the other side to try to leverage a settlement. For example, the products of the entity filing the suit could be examined to determine if any infringe on your patents. You can also assert counterclaims that the other side's intellectual property is invalid or unenforceable, assuming you have a basis for making these claims. Once the other party is under the gun, it may not want to pursue the lawsuit.
The counterclaims that you assert are going to be related to the facts that are alleged against you in the complaint. There are times when the other side may try to file a motion to strike your counterclaims or remove them to a new litigation, but typically they are going to be part of your answer to the complaint.
Can claims contained in the complaint be covered by insurance?
Yes. Particularly if the claims include an advertising component, they could be covered under an ‘advertising injury’ provision of a comprehensive general liability insurance policy. While this type of provision is often part of a policy, it usually has exclusions.
Immediately contact your insurance agent and send him or her a copy of the complaint. The insurance company could agree to defend you in the suit and cover your attorney’s fees. However, it may retain counsel of its own choosing to defend you, and you might want to dispute their choice.
The insurance company may also pay the other side to settle the matter or pay any judgment against you, although this is often only the case when you’ve included previously such a clause in your policy. Either way, it’s worth the time to determine whether your insurance will cover any part of this.
Should documents and emails related to the complaint be destroyed?
Definitely not, because the court is likely going to discover you did so and will sanction you. As a result, you will either have to pay damages or the court could presume that you have done something wrong. Destroying evidence could be devastating to your case.
Contact your IT department and place a preservation hold on documents, including emails that may pertain to the litigation. Take affirmative steps to make sure all evidence is maintained and put steps in place to ensure that you identify and protect documents that, without intervention, could be destroyed.
Have an attorney speak with key people who may have knowledge or documents that pertain to the litigation and advise them of the necessity to preserve evidence.
How can a company assess its potential exposure in a lawsuit?
Work with your lawyer to see what types of damages could be available to the other side, such as monetary damages that could include an award of your profits, a reasonable royalty on sales of infringing products and actual damages to the other side. Also, estimate your sales of the product that has been accused and the profit that you made from those sales.
Statutory damages could also be available in copyright infringement cases. Statutory damages can be applied if fault is established without proof that the claimant has been damaged or that it lost sales to you. Damages claimed can range from $750 to a maximum of $150,000 if willful infringement can be proved.
Also, consider the business implications of an injunction enjoining the sale of the accused product. This could result in an injunction that prevents you from selling the product associated with the violation, which could mean the end of your business.
What steps can a company taketo avoid this type of litigation?
Do your research and determine whether competitive products are protected. Examine packaging, advertising and websites for trademark and copyright symbols and references to patent numbers. If a party is holding a similar product out as covered by intellectual property, talk to an Intellectual Property lawyer prior to selling or manufacturing your product. While there is always the chance that regardless of the precautions you take, you could still get sued, consulting with counsel in the early stages can better position you to disprove a claim that you intentionally infringed a copyright, trademark or patent.
Also, apply for your own intellectual property protection. In addition, if you are working with independent contractors, make sure you have agreements in place to ensure you own all the rights in the work and that your employees execute agreements assigning all rights in IP to you.
Jude A. Fry is a partner with Fay Sharpe LLP. Reach her at (216) 363-9000 or firstname.lastname@example.org.
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