If your startup company is taking the plunge into the world of entrepreneurship, or you have a small business that is just finding its feet, identifying and protecting your company's intellectual property should be high on your priority list. This is especially true if your business depends on monetizing these assets. You can start by taking stock to see if you have any of these five intellectual property assets: trade secrets, trademarks, copyrights, patents, or trade dress. If you think you do, you should seek legal counsel so the proper steps for protection are identified and put into motion.
Failure to take these steps can severely hamper the chances that your business will succeed, especially if you intend to seek outside investment. Serious investors will want to see proof that you have locked down all IP relevant to your business model before cutting you a check. Presenting a pitch deck to investors or making seemingly innocuous disclosures on social media can even be hazardous; these communications might jeopardize your ability to protect certain types of IP (i.e., trade secrets or patents), or limit your remedies in case of infringement (i.e., copyrighted material, where statutory damages and attorney's fees are not available when registration takes place more than three months after publication).
The following are brief overviews of the main types of IP you should be on the lookout for in your business. Note that sometimes, protection may overlap depending on the content (for example, logos can be both a copyright and trademark asset).
Trade secrets are important IP assets that may be lurking under your nose but you don't even know it. While the most famous trade secrets are product formulas and recipes, they may also include customer lists or proprietary business plans and methods. You have a trade secret if you possess:
- information, including a formula, pattern, compilation, program, device, method, technique, or process,
- that derives independent economic value, actual or potential, from not being generally known to or readily ascertainable through appropriate means by other persons who might obtain economic value from its disclosure or use; and
- is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
The key to maintaining trade secret protection is to make "reasonable efforts" to keep the information you are trying to protect secret. Some of the steps to take include:
- Executing non-disclosure agreements with employees (including founders) and outside contractors that require them to avoid disclosure of the company's trade secrets (or any confidential information for that matter) to any third party;
- Making sure content that contains a trade secret is marked confidential and is not disseminated to the public at large;
- Educating employees about the risks and consequences of publicly disclosing the information;
- Adopting and enforcing policies that place limits on the transfer of trade secret-related materials outside of the office, whether as hard copies or to personal devices or email addresses.
A trademark is any word, name, symbol, or design, or any combination thereof, used in commerce to identify and distinguish the goods or services of one manufacturer or seller from those of another and to indicate the source of the goods or services. In addition to product names, service marks, and logos, other key brand identifiers that trademark protection might encompass include domain names, social media handles, slogans, or even colors or sounds. Trademark protection is generally garnered through use of the mark in commerce ("common law trademark rights"), but may be enhanced through registration.
However, before your business uses any mark in commerce, the mark should be the subject of a trademark clearance performed by a trademark attorney (preferably with a written legal opinion for future due diligence efforts by investors) that makes sure the mark is (1) protectable (i.e., not generic or descriptive) and (2) does not infringe any other mark in use already. Once cleared, all domain names and social media handles should be registered in the name of the company or its authorized representative and not to an individual. In addition, the login and password information for the registrar accounts must be controlled by the company.
A copyright comes into existence when a work of authorship is "fixed in a tangible medium of expression" from which it can be "perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device." Examples of copyrightable works of authorship that may be present in your business are websites, photographs or videos posted to social media by your business, logos, promotional materials, or source code.
Copyright owners have the exclusive right to reproduce, distribute, perform, display, license, and to prepare derivative works based on the copyrighted work. However, copyright owners can only sue for infringement in federal court, and only if their works are registered with the Copyright Office.
Generally, when works are created by employees within the scope of their duties, or in very limited circumstances, by contractors with special written agreements, the employer is deemed the “author” under the "work made for hire" rules. However, to avoid any authorship problems, businesses should have every employee and contractor execute an assignment agreement in favor of the company.
A patent grants the holder the exclusive right to exclude others from making, using, importing, and selling the patented innovation for a limited period of time. To qualify for a patent, an invention must (1) be patentable subject matter, (2) have utility, (3) be novel, (4) be nonobvious, and (5) be "enabled" via a sufficiently detailed disclosure in a patent application. Categories of patentable subject matter are broadly defined as any process, machine, manufacture, or composition of matter, or improvement thereof. Public disclosure of a patent, either by use or sale, can start the clock ticking on legal bars to patentability; failure to file for a patent within one year after public disclosure can lead to the inability to secure patent rights and thus forfeiture to the public (and your competitors).
Unlike copyrights, patents are not subject to "work made for hire" rules, so an invention is generally owned by the person (or persons) who first reduced it to practice, regardless of whether the inventor was an employee or not. To remedy this situation, a written assignment agreement should be executed by all employees and contractors granting all rights to any inventions created within the scope of employment to the company.
Trade dress is related to trademark protection because it serves the same source-identifying function for goods (and sometimes even restaurant services). A lesser-known IP asset, trade dress is the design and shape of the materials in which a product is packaged, or the design and shape of the product itself. Trade dress can be registered, but is also protected under federal law without registration under 15 U.S.C. § 1125(a).
There are many moving parts to consider when addressing your company's IP, but with awareness and proper guidance at an early stage, major pitfalls can be avoided.