Intellectual Property Basics for StartUps & Entrepreneurs

A starter’s guide to intellectual property, and general IP concerns that should be addressed by any small business, startup or entrepreneur.

It goes without saying that there are many concerns an entrepreneur or small business owner must contend with when embarking on a business venture, but among the most important of those concerns are issues relating to the business’s intellectual property. In the ever-evolving world of technology and social connectivity, intellectual rights are playing an increasingly important role when it comes to starting or growing a business, and in many circumstances can make or break a company.

No matter what type of business is involved, it is important to be aware of (a) what intellectual property rights the business may possess, and (b) how to protect and enforce those rights. This article is intended to provide entrepreneurs, startups and small businesses a general overview of IP, including:

What Is Intellectual Property?

Intellectual property (commonly referred to as “IP”), is an umbrella that encompasses several different forms of legally recognized property rights. IP rights generally apply to creations of the mind or conceptual information such as inventions, brand names or creative works (hence the term “intellectual”). That is why it is distinguished from other property rights such as ownership of real estate, money or tangible objects.

The IP umbrella is comprised of four primary categories, which you have likely heard of. The three most widely known are: (1) copyrights, (2) trademarks, and (3) patents. The fourth category, which is equally important, though operates slightly different is: (4) trade secrets.

1) Copyrights

What is a copyright: A copyrights protect creative works such as literature, music, photography, illustrations, architecture, computer programming and more. The unique characteristic of a copyright is that copyright ownership is automatically created as soon as the work is fixed in some form of physical medium (ie. when the drawing is drawn, the writing is written down, the computer code is typed, the photo is taken, etc.)

However, just because you own the creation, it can be difficult to actually prove that you own it. Issues of ownership come up if another person starts using or infringing the work that you created. In a copyright infringement lawsuit, it must be shown who actually created the work first. That is why, even though it is not technically required for ownership, it is important to register your copyright with the Copyright Office. Doing so will give you several advantages:

Considerations: For startups or small businesses, you should identify any potential copyrights that you or your business may own. Once ascertained, you should register each and every item with the US Copyright Office (found here: www.copyright.gov). This will give you protection over all of your business’s copyrights and grounds for a copyright infringement lawsuit if anyone uses it without authorization.

2) Trademarks

What is a trademark: A trademark is a word, symbol or phrase used in connection with the sale or goods or services. The purpose of a trademark is to allow customers in the marketplace to distinguish the products or services of your business, from those of other businesses.

Though commonly confused with one another, there is a distinction between a trademark, and a trade name. A trade name is simply the name of a business. However, a trade name alone cannot be registered, and only becomes a trademark when it is actually used in connection with a product or service that is being sold. As with copyrights, there are many advantages to obtaining a registration for your mark:

Considerations: If you are selling goods or services, or have legitimate plans to offer such goods or services within 6 months, you should consider obtaining trademark protection by filing your mark with the United States Patent and Trademark Office (aka the “USPTO”).

Though the filing itself is relatively streamlined, there are many considerations to address before submitting an application. Small businesses owners and entrepreneurs typically benefit from consulting with a trademark attorney before filing. In addition, the USPTO provides extensive guidelines and tutorials regarding the trademark filing process (found here: www.uspto.gov/trademark).

3) Patents

What is a patent: A patent provides legal protection for new and useful inventions, mechanical innovations or processes. Patents are among the most powerful and potentially lucrative forms of intellectual property. This is due in large part to the inherent value of innovative products and inventions, their applications across multiple industries, and their licensing opportunities. Indeed, some businesses build their entire model around a single patent, which they may offer directly to consumers through some type of product, or license their technology to other companies who may incorporate it into a variety of their own products. The 3 types of patents are:

Considerations: If you have created some type of unique product, either individually or through your business, you should consider obtaining a patent. Though you should be prepared to invest a significant amount of time, money and patience to secure your patent rights, having such exclusive rights can be very beneficial, and potentially very lucrative.

If you think you may benefit from a patent, you should consult with a patent agent or patent attorney before making any significant investments in time or money. In addition, the USPTO provides extensive guidelines and tutorials regarding the patents and the filing process. (found here: www.uspto.gov/patent).

4) Trade Secrets

What is a trade secret: A trade secret may be any type of confidential information that gives your business an advantage over its competition. It can include things such as special formulas, information or manufacturing processes that set your business or product apart from others.

The primary difference that distinguishes trade secrets from other forms of intellectual property is that it is kept secret and undisclosed rather than publicly registered. Copyrights, trademarks and patents are all based on publicly filed registrations that put the public on notice of the owner’s rights. However, instead of registration, the method that protects a trade secret is, obviously, its secrecy.

Examples Include: customer information, advertising lists, sales strategies, processes, product materials, chemical compounds, formulas, data, and much more.

Considerations: The first step is to identify if your business has assets that qualify as trade secrets. Once identified, you should enable measures to ensure the confidentiality of those assets, including confidentiality agreements in employee contracts, and other reasonable steps to ensure the information is not disclosed to unauthorized individuals. If your confidential information is ever stolen, and you can show the steps you took to keep it confidential, you may be able to bring a lawsuit for unfair practice and violation of trade secrets.

Tip: A business asset may qualify as both a trade secret and a patent (ex. a specialized and unique chemical compound). In these instances, you will have to make the decision of whether you would like to protect it by trade secret and keep it confidential, or protect it through patent registration and make it public.

Filing Costs & Time Frames

Before securing any IP, you should be aware of the costs and consider formulating a cost-benefit analysis. The different forms can range in price, and can provide different benefits.

Copyright Costs: Filing a copyright is relatively inexpensive, starting around $35, and takes about 8 months to process. Because of the low cost and process for filing, it is considered the simplest form of IP to protect.

Trademark Costs: The costs for filing a trademark application are more than copyrights, but less than patents. There is a standard filing fee of about $225 to $325 per class. However, the bulk of the costs involved are related to preliminary clearance searches, risk assessment and preparation. Because of the 6 or more month wait time, you want to make sure you don’t file a trademark that already exists, or may be rejected. A proper search and assessment may cost between $500 to $1500.

Patent Costs: Though the actual filing fees for a patent may be low, the overall cost from start to finish can be extremely expensive. Like trademarks, the majority of costs involved are in the preparation of the application, but patents are much more involved and complicated. Basic patents can range from $2500 to $10,000, with larger law firms charging anywhere from $30,000 to over $100,000 for more complex and highly technical applications. Further, after filing the application, it may take a minimum of 18 months for it to be reviewed.

Tip: Because of these high costs, many law firms offer packages where they forego payment, in exchange for an equity share in the patent. If costs are an issue for you at the outset, you may try to find a firm that offers this kind of payment package.

Each type of IP comes with its own costs. But the higher the cost, the higher its potential value. If there are assets your business depends upon, it is probably worth the investment. Operating a business with unprotected assets, leaves itself open to piracy, infringement, expensive litigation, and the potential of a ruined business.

How to Protect Your Ideas Before They Are Created

A problem that many entrepreneurs or small business owners face is that they have a brilliant idea for a product or business, but they do not have the resources to develop it themselves. They want to pitch the idea to other potential investors or business partners, but want to ensure that their ideas are not stolen.

Unfortunately, ideas themselves are not protectable as intellectual property. Generally you must actually create an artistic work before it can be copyrighted, and you must show proof of a working model before you can file a patent. However, there are ways to protect your ideas as the outset, aside from obtaining IP registrations.

Non-Disclosure Agreements: A common way to protect your ideas when disclosing them to others is through a Non-Disclosure Agreement (also known as an “NDA”). An NDA is a private contract between two parties that says, whatever is discussed during your meeting or interactions is confidential and not to be used for any other purpose than to discuss your potential collaboration. Though you don’t have protected IP, the other party is bound by the terms of the contract not to disclose or misappropriate information you give them. If they do, you may bring an action for breach of contract and recover revenues that they make from your idea. As with other forms of IP, issues of proof become crucial, therefore be sure to make detailed notes and records of your ideas and what you are presenting to your potential business partner.

Employees & Independent Contractors

It is very common for IP assets to be created by employees or independent contractors, rather than you or the business itself. Because of this, you need to ensure that anything created on behalf of the business, belongs to the business. Because there is a legal distinction between an employee and an independent contractor, you must take slightly different steps to ensure ownership of work they create.

Employees: Employees typically fall under the company umbrella and likely already have employment agreements in place. Under the law, any IP created by an employee within the scope of their employment, belongs to the company by default. Even so, it is beneficial to include provisions in the employment contract stating such ownership, as well a confidentiality agreement ensuring the employee doesn’t disclose any private information to others.

Independent Contractors: Independent contractors operate independently and do not fall under the company umbrella that employees do. Under the law, any IP that an independent contractor creates belongs to the contractor by default, even if it’s on behalf of and paid for by a business (ex. if you hire a developer to create some code, the contractor will own the code by default). Therefore it is crucial that you have a contract in place, outlining the work to be performed, with an assignment agreement that assigns all rights and ownership to the business for anything created by the contractor, and a confidentiality agreement, ensuring the contractor doesn’t disclose the information to others.

Consult a Professional

The world of intellectual property is broad, and each type has its own set of considerations, processes and technicalities. Though the information here provides an overview of the IP field, it is not intended to be comprehensive. There are many distinctions and considerations that come with IP protection, and before making any significant decisions, you should consult with an intellectual property attorney to ensure you are taking the right steps.

With proper legal advice, research and attention, any startup, small business owner or entrepreneur can secure their IP rights, protect their efforts, and maximize the value of their business. If you have any questions about your business or intellectual property, you may contact Holm Law Group at 858-707-5858 to speak with an experienced attorney.