Business

Jan. 30, 2014 8:30 am

What startups need to know about intellectual property

When should you apply for a trademark for the name of your startup? Do you own a logo that you paid a freelance designer to make? Frank Taney of South Jersey law firm Taney Legal answers those questions and more in this primer on intellectual property for startups.

Lawyers say that 3D printers's main legal battles will over intellectual property. Photo by Flickr user Keith Kissel via Creative Commons. Taken on Sept. 17, 2011.

This is a guest post from Frank Taney (@scarylawyer) of South Jersey law firm Taney Legal

When should you apply for a trademark for the name of your startup? Do you own a logo that you paid a freelance designer to make? Frank Taney (@scarylawyer) of South Jersey law firm Taney Legal answers those questions and more in this primer on intellectual property for startups.

Edited for length and clarity.

There are four main kinds of intellectual property.

Patents are exclusive rights to make, use and sell inventions. To be protectable by patent, inventions must relate to eligible subject matter, be novel, useful, and non-obvious. Utility patents mainly include:

  • machines (i.e., a robot or a new smartphone)
  • manufactured articles (i.e., a medical device or a 3D printed object)
  • compositions of matter (i.e., Kevlar or a cancer drug)
  • methods or processes (i.e., data encryption technology or a better way to make cars).

Design patents include non-utilitarian and ornamental design features of a functional item.

Trade secrets are methods, skills or techniques that are not known to the public and that give the organization practicing them an advantage in their trade. Probably the most famous trade secret is the Coca-Cola formula. Other examples include proprietary customer lists, or a proprietary search algorithm.

Copyrights are exclusive rights to copy and use original, creative works in media. There’s a low bar for what’s considered “creative.” For startups, common examples of copyrightable materials include logos and software.

Trademarks are words, symbols, designs that identify a person or entity as the source of a product or service. It could be the name of a company, a logo or a tagline. For startups that are pinching pennies, you might trademark your company name and logo together, but bigger companies have portfolios of separate trademarks for specific branding efforts: the company name itself (Twitter), logo (the bird), company name written in specific script (Twitter written in bubble letters) and more.

Who owns IP when it is created?

It depends. If the inventor is an employee and created the invention in the employer’s place of business using the employer’s tools and equipment, the employer generally generally has the right to require the employee to hand over the patent rights to the employer. If the inventor is an independent contractor, it can get fuzzier.

So, in order to ensure exclusive rights to an invention, a business owner should specify this in her contract with the employee or contractor.

The same goes for copyrights: without a written agreement, a freelance designer (independent contractor) would own the rights to a logo she designed. In the trade secret arena, depending on the circumstances, multiple entities and people can have ownership of particular trade secrets. As with patent rights, a business owner should use written agreements that clarify ownership of trade secrets with both employees and contractors.

For trademarks, the person or entity who uses the ‘mark’ while selling a product or service owns the mark. Trademarks can only be protected when they’re used in commerce. That means that a person coining a phrase, or conceiving a logo cannot use trademark rights to protect that phrase, logo or mark unless and until she is actually using the mark to sell a product or service.

How do you protect your rights in IP? 

With all varieties of IP, and especially if you are building your business around them, it is particularly worth it to obtain the advice and assistance of a competent attorney in protecting them. This is not an area to be penny-wise and pound foolish.

Patents – Apply to the United States Patent and Trademark Office. To maximize your potential patent rights, you should generally apply before going to market or showing the technology to potential investors. The government filing fee is $125, but you will likely also need the assistance of a patent prosecution attorney.

Filing a provisional patent application, which is less expensive than a formal patent application, gives you a year to decide whether to proceed with the full application. In my experience, legal fees for formal software related business method applications patents, for example, typically range from $8,000 to $12,000.

Trade secrets – You must preserve their secrecy. This is typically done by way of confidentiality agreements and other agreements with contractors and employees requiring them not to disclose the trade secrets to third parties, and by restricting the people with access to the trade secrets.

Copyrights – Apply to the United States Copyright Office ($35). I typically advise applying before you publicly display your copyrighted material or distribute it to customers. You must register before you can sue someone for copying your mark.

Trademarks – Apply to the United States Patent and Trademark Office. Depending on the format of the application, the government filing fee ranges from $275 to $375 per class of product or service. In my view, federal registration offers you more bang for the buck than a state-level registration. I typically advise applying as soon as you can afford it.

How do you sell IP or give someone permission a license to use IP?

If you want to sell or license your IP, the best practice is to do so in writing, so that the parties’ rights and obligations are clear. In the case of patents, trademarks and copyrights, the sale must be in writing and recorded with the United States Patent and Trademark Office or the Copyright Office.

What do you do if someone starts using your IP without your permission?

The federal courts have exclusive jurisdiction over suits for patent and copyright infringement. Both state and federal courts have jurisdiction over trademark-related claims. Depending on the facts of your particular situation, state and/or federal courts may have jurisdiction over trade secret misappropriation and related claims. Depending on how quickly you move and the nature of the infringement involved, you may be able to get a judge to make the other party stop using your IP, as well as money damages, among other things.

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