Intellectual Property at All Stages of a Company's Life

by David J. Dawsey, PE, Esq

Many businesses believe that intellectual property (IP) law only applies to the large corporate giants. Nothing could be further from the truth. Business owners who take the time to educate themselves on the basics of IP will be able to avoid common pitfalls and take full advantage of IP opportunities throughout the life of the business. After all, there are many points in the life of a business firm when the firm and its employees should consider IP matters.

Starting Up: The Company's Name

You should start thinking of IP issues as soon as you begin thinking about starting a company. While few people think of their firm name as IP that warrants protection, everyone desires a distinctive name that customers easily associate with a particular organization. If a business plans on conducting interstate business then a comprehensive trademark/service mark search is warranted. Obviously, one should always error on the conservative side. You don't want to find out you cannot use a particular name outside the initial state after you have developed a booming business and achieved name recognition.

An informed business owner must understand the simple distinctions between trademarks and service marks, as well as distinctions between state and federal registration. First, a trademark is any word, name, symbol, or device, or any combination, used, or intended to be used, in commerce to identify and distinguish the goods of one manufacturer or seller from goods manufactured or sold by others, and to indicate the source of the goods. A service mark is any word, name, symbol, device, or any combination, used, or intended to be used, in commerce, to identify and distinguish the services of one provider from services provided by others, and to indicate the source of the services.

One common misconception about marks is that if a mark is not federally registered then it is not protected. Actually, common law rights arise in a mark from its actual use in commerce even if it is not registered federally or with a state. Common law rights offer less extensive protection than afforded by state trademark registration, which offers less extensive protection than afforded by federal trademark registration.

Federal registration has several advantages including notice to the public of the registrant's claim of ownership of the mark, a legal presumption of ownership nationwide, and the exclusive right to use the mark on or in connection with the goods or services set forth in the registration. Therefore, when forming a company one should file for state mark registration at a minimum, and preferably seek federal registration.

Employee Policies and IP Law

During the formation stages of a business, one must consider establishing a non-compete policy. Most company's go through tremendous efforts to protect their physical property while paying little attention to protecting their intellectual property, which is often worth far more than a company's physical assets. A company should do everything possible to ensure valuable information such as marketing data, client lists, and other proprietary information does not fall into a competitor's hands.

Such information generally falls into �he hands of a competitor when they hire away an employee that had access to this confidential information. Non-compete agreements can minimize this threat. A non-compete agreement is a contract between the employee and employer that explicitly identifies what the employee may and may not do when that employee leaves the company. The laws governing these agreements vary from state to state, however, virtually all states require reasonableness in the scope and type of information protected.

Non-compete agreements are essential for the owners of a company and should be addressed in the articles of incorporation/organization or the partnership agreement. Similarly, key employees that have access to confidential information should be required to sign a non-compete agreement.

Ideally, employment should be conditioned upon the signing of a non-compete agreement. However, when key employees and owners are developed from within the company, a plan must be in place identifying when an "up and comer" must sign such an agreement. Some states consider continued employment with the company sufficient consideration to support the enforceability of a non-compete agreement, however, one should always have their attorney draft such agreements and identify procedures that are in accordance with state law. Often it is convenient to require that a non-compete agreement be signed prior to promotion to management or other high-level positions.

Generally, low level staff should not be required to sign non-compete agreements unless they have access to information the company needs to protect. Lower level staff members generally do not have access to this information and are not hired away for this knowledge. Additionally, employees expected to sign non-compete agreements often require additional compensation, therefore the fewer employees that really need to sign, the less expense to the employer.

In addition to non-compete agreements, management should be required to sign confidentiality agreements. Everyone is familiar with the old adage that "loose lips sink ships." While the confidential information shared among the executives of a business is not likely to sink a ship, it undoubtedly has the potential to cause friction between employees and management and result in tremendous reductions in productivity. It is simple human nature that when one must sign an agreement to keep certain information confidential they will be less likely to disclose the information.

Copyright Issues Occur in Daily Practice

Once the company has been formed, its name and products protected with service marks and trademarks, and appropriate non-compete and confidentiality agreements signed, the focus must turn to IP issues encountered during operation of the business.

Business owners often make mistakes regarding copyright law. Copyright is a form of protection provided by the laws of the United States to the authors of "original works of authorship," including literary, dramatic, musical, artistic, and certain other intellectual works, including architectural works. This protection is available to both published and unpublished works. Copyright protection may be appropriate for the company's web site, marketing material, published articles, installation instructions, user's manuals, and software developed in-house.

Patent Law and the Business Owner

A patent on an invention is the grant of a property right to the inventor, issued by the United States Patent and Trademark Office. Generally, the term of a new patent is 20 years from the date on which the application for the patent was filed in the United States. U.S. patent grants are effective only within the United States, U.S. territories, and U.S. possessions.

The right conferred by the patent grant is "the right to exclude others from making, using, offering for sale, or selling" the invention in the United States or "importing" the invention into the United States. There are three types of patents: utility, design, and plant. Utility patents may be granted to anyone who invents or discovers any new and useful process, machine, article of manufacture, or compositions of matter, or any new useful improvement thereof. Design patents may be granted to anyone who invents a new, original, and ornamental design for an article of manufacture. Plant patents may be granted to anyone who invents or discovers and asexually reproduces any distinct and new variety of plants.

Business owners must avoid the mindset that they are just applying tried and true principles in carrying out their business.

Trade Secrets

Business owners should also be aware of the potential for trade secret protection. Consider that fact that a recent study estimates that Fortune 100 companies lost more then $45 billion in 1999 from the theft of proprietary information.

Generally, a "trade secret" can include all forms and types of financial, business, scientific, technical, economic, or engineering information. This includes patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing. Protection is available if the owner has taken reasonable measures to keep the information secret; and the information has independent economic value, actual or potential, from not being generally known. Trade secrets are afforded protection both under state and federal law.

A protectable trade secret may not be "within the realm of general skills and knowledge" in one's field of business and is something not "readily duplicated without involving considerable time, effort or expense." Therefore, business owners should discuss trade secret matters both with their attorney and clients.

Business Owners as Software Pirates?

The one IP issue that may get the most small businesses into trouble is software piracy, both intentional and inadvertent. Unlicensed copying of software by businesses and individuals, known as end-user copying, is the most common type of software piracy found within new businesses. This includes installing software on more company computers than you have licenses for and disk swapping among friends and associates. These activities are illegal and put not only the individual performing the copying at risk, but also the company.

Software piracy does not only hurt the software companies. A recent survey estimates that software piracy resulted in the loss of 118,000 jobs in the U.S. and approximately $5.6 billion in wages! Every business should have a written policy against unauthorized software duplication. Additionally, software and licenses should be meticulously cataloged and stored in a locked enclosure.

You will get caught! All it takes is one disgruntled employee to tip off a software company. Just consider that a recent tip offered to Autodesk through their website resulted in a settlement of close to $208,000 with a consulting engineering firm.

Final Issues: IP Concerns in Winding Up a Business

Every business must plan for the eventual retirement or discharge of the owners. Virtually every ownership agreement will include the necessary provisions as to how the company will be valued and the method of distributing the leaving owners share in the business. However, owners of businesses having intellectual property should be particularly concerned as to how it will be valued. While intellectual property valuation is a complicated subject beyond the scope of this article, it's not a subject to consider for the first time when dissolving a firm. It should be discussed with your attorney at the outset to avoid litigation when an owner leaves the firm.

DISCLAIMER

We hope you understand that we cannot possibly give accurate legal advice to all inventors in a brief article on intellectual property issues that should be considered when starting a business. Accordingly, nothing in the above is intended as specific legal advice to any person. Such legal advice can only be given by a qualified practitioner after a careful review of all the individual facts. We urge you to consult us, or another licensed professional, before you proceed.
About the Author

David Dawsey is an experienced intellectual property attorney specializing in the prosecution and litigation of domestic and foreign patents, trademarks, and copyright. David is one of the few patent attorneys that is also a registered Professional Engineer. In addition to his legal and engineering education, David has also earned an MBA degree. You may reach David via the firm website www.Invention-Protection.com.