In Louisiana, we have a thriving culture of entrepreneurship. These energetic, passionate businesses want to protect their fledgling rights and assets, but today, assets are not just machines and lumber. Presently, intangible assets represent over 80% of the S&P 500 market value, and for startups, the assets are normally just the human capital of the founders, the Intellectual Property, and that’s it. Startups may not be aware of it but protecting the value of their business means protecting the value of their IP. By learning the key IP problems startups typically face, you, the entrepreneur can better position your business for long term success. Here are 6 problems to avoid when learning to protect the value of your Intellectual Property. *
- Failing to educate about IP. The number one problem we find with startups is failing to self-educate regarding IP law. “If I had only known then!” is a statement I hear far too often from startups. IP represents the bulk of a startup’s assets. Ignorance of the extent of and how to protect and grow your IP rights can undercut and sabotage a budding business. This first failure is often the root cause of almost all of the remaining problems, but doesn’t need to be. There are many free resources offered for startup IP education by federal and state agencies, colleges, and online videos. Exemplary resources are hyperlinked. Use them.
- Using an identical or confusingly similar mark of another. This is the most common active failure we encounter, and it affects all startups. So often, startups will plan, invest, market, and launch a business around a brilliant, catchy name…that someone else already owns. Perform a clearance search. Minimal “knock-out” searches are free at the USPTO.gov and sos.la.gov. But (and this is important), being literally different from another’s mark is not enough. You could infringe if your chosen name 1) looks similar, 2) sounds similar, 3) is spelled similar, 4) has a similar meaning, or even 5) translates into something similar to another’s established mark – even if it is not identical. The inner marketer would have you choose a descriptive mark, so your mark informs the customer about the product, but descriptive marks are limited in legal protectability. Instead of descriptive, choose a mark that is distinctive. The more distinctive a mark, the legally stronger it is. (See the links above for the difference between descriptive and distinctive marks). Your brand and goodwill are a significant part of your business, but if you are trespassing on the name of another, you will have to abandon all the value you have created and may be liable for damages under state and federal law.
- Building a business based on technology owned by someone else. We encounter this failure in three different varieties, each significant and warranting its own discussion. First, you may be practicing a technology already patented by a remote third party – a patent clearance search can take care of this. Second, you may base your new business on technology created while working at a previous employer. The previous employer may have claims on the new technology even if it was developed after-hours on your own time. A review of the facts and the former employment agreement is needed. Third, you may have employees inventing without a clear obligation to assign the invention to your company. In patent law, the default rule is that the inventor owns the invention – employee or not. If your business involves technology at all, you should have your employees sign an “Invention Assignment Agreement” with key language. In a similar way, startups must be clear in their contracts with Independent Contractors over who owns creative works. The magic words “Work for Hire” rarely works to cover IC work.
- Waiving valuable IP rights through public disclosure. Patent rights in US begin to spoil upon first public use, sale, offer for sale, or disclosure, and will die if no application is filed within a year. Substantially all potential foreign patent rights, however, die immediately upon public disclosure if no application has been filed. More recently, crowdfunding without protection can also trap the unwary startup as a pitch can be a public disclosure. Similarly, trade secret rights evaporate when the information is no longer secret. Forfeiting IP rights due to disclosure is a common rookie mistake that new entrepreneurs make, and an expensive one at that. Be the exception.
- Believing Opens Source Software (OSS) is Free – with no strings attached. It is not. OSS is not free; it is licensed, and your ability to copy the code is contingent on you complying with the terms of the license. If not, you may be infringing on the code author’s copyright. The license’s terms may be simple or onerous. If you code or buy code from another, be alert this fact.
- Believing all patents are the same and all will lead to $$. Saying a “patent” is like saying “a drawing.” The Mona Lisa is a drawing, and so is a kid’s crayon refrigerator art, but they have vastly different resale values. There are good patents and there are patents that are so narrow as to be wallpaper. Further, even a strong patent with amazing technology, may not have a market ready for the technology, or the management, financing, or other elements of making a business work. A patent is an industrial asset, and invaluable to secure market space in many startups, but it must be put to work. Especially those on more limited budgets, actively patent core technology that others will want to buy, but also be discerning with representation.
*Disclaimer: This information is provided for informational purposes, and shall not constitute legal advice, or create an attorney-client relationship. The laws referenced in this document may have changed or could be affected by case law developments. Please consult your personal attorney for specific counsel regarding your business.
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Charlotte Holoubek, Patent Attorney, MBA
Holoubek Patent Law, LLC