Now that you have decided to launch your technology startup it cannot be overstated as to how important it is to develop and implement a comprehensive intellectual property (“IP”) strategy to ensure your company successfully secures, retains and commercializes its IP rights. Such a strategy should cover IP creation, acquisition, and protection, and also try to anticipate your company’s business growth and expansion.
Make Sure You Pick the Right IP Protection for Your Company’s Technologies
When deciding on the appropriate kind of IP legal protection for you company’s technology, consider the likelihood of obtaining the protection you think you want, the time and cost required to obtain that protection, and the protection’s length and strength.
The main IP rights in the U.S. that you will want to consider pursuing are patents, copyrights, trade secrets and trademarks.
Patents
In the U.S., patents are obtained by filing an application at the U.S. Patent and Trademark Office (“USPTO”) to protect the inventor’s rights in his or her invention. Patent protection derives from the federal Patent Act as amended by the America Invents Act (AIA). There is no common law patent protection.
The USPTO grants patents on applications filed by the inventor, the inventor’s assignee, or a person with sufficient proprietary interest in the patent application. Generally, patent protection lasts 20 years from the date the application is filed. In general, the USPTO issues three types of patents: Utility, design and plant patents.
Articles made or sold under a U.S. patent should be marked with the word “patent” or the abbreviation “pat.”, followed by the assigned number. The markings enable the patent owner to obtain damages in an infringement action for any period of time before the infringer has actual notice of the infringement.
Copyrights
Under the federal Copyright Act, copyright automatically vests in a protectable work upon its creation, and an author is not required to register a copyright to obtain legal protection for the work. With certain limited exceptions, however, copyrighted works must be registered to bring an infringement action in court. Registration is also required to obtain certain other benefits, including evidentiary advantages, the availability of statutory damages, and ability to recover attorneys’ fees.
The different protectable works include literary works, dramatic works, musical works, pantomimes and choreographic works, pictorial, graphic, and sculptural works, motion pictures and audiovisual works, sound recordings and architectural works.
The term of a copyright, whether registered or unregistered, is the duration of the author’s life plus 70 years. For works made for hire or created pseudonymously, the term is the shorter of 120 years from creation or 95 years after first publication. For registered or unregistered works first published on and after March 1, 1989, use of the traditional copyright notice “©” is optional, but is often beneficial and offers evidentiary advantages in litigation.
Registered works created on or after January 1, 1978, do not require renewal nor are they subject to any renewal fees following registration. Works published before that date have varying renewal requirements based on earlier versions of the Copyright Act.
Trade Secrets
Trade secrets are protected by federal law under the Economic Espionage Act as amended by the Defend Trade Secrets Act in 2016. Until the DTSA, private enforcement of trade secrets was governed by state law. The DTSA supplements but does not preempt state law.
All states, except New York and the District of Columbia have adopted a version of the Uniform Trade Secrets Act. Generally speaking, your company’s confidential information will protected as a trade secret if
(1) the information is not generally known or ascertainable (read, secret);
(2) you derive economic value or a business advantage from the fact the information is secret; and
(3) you take reasonable efforts to preserve the information’s secrecy.
There is no registration procedure for trade secrets. There is no legal notice requirement either. You, as the owner, should mark all trade secrets as “confidential” to show efforts to preserve secrecy. Trade secret protection lasts until the information is publicly available or the owner no longer derives economic value or a business advantage from its secrecy.
Given that trade secrets must remain secret to preserve legal protections, there is no public repository of trade secrets. Protection of trade secrets under U.S. and state law is the same for domestic and foreign owners of such secrets.
Trademarks
In the U.S., trademarks identify the source of particular goods or services with words, logos, symbols, designs or some combination. Trademarks are territorial in nature. A trademark owner can receive legal protection for its trademarks whether they’re unregistered – in the territory where they are used – or registered – in the territory where they are registered.
Trademarks are protected under the federal Lanham Act. Under the Act, owners can obtain federal registration for their trademarks through the USPTO. Trademarks also are protected under state statutes and common law. For a technology startup that aspires to sells its good or services nationwide – if not globally – trademarks should be federally registered because it provides several advantages, including presumptions of ownership and the exclusive right to use the mark in connection with goods and services listed in the registration across the entire U.S.
An internet domain name or a second-level domain name can be registered as a trademark with the USPTO under certain circumstances. A trademark owner must pay basic registration fees for each class of goods or services included in a registration. Protection lasts 10 years and is renewable indefinitely in 10 year increments if the mark is continually used in commerce.
Owners of federally registered marks should always use the traditional ® designation. Registrants who fail to give notice of registration may not be able to collect profits or damages for infringement unless the defendant had actual notice of registration.
Make Sure IP Contributed to Your Company by Founders, Employees, and Third Parties is Owned by Your Company
Several issues will almost certainly arise in the course of managing your company’s IP, including creation, licensing and avoiding infringement. Your company should maintain a list of all registered and unregistered IP in which it claims an interest. You can confirm your ownership of IP registrations through the appropriate registrars at the USPTO and Copyright Office. You should collect and archive formal registration documents. If your company is the recipient or transferor of registered IP, you should record the assignment with the appropriate registrar within the required time period, and collect and archive the recorded documents.
Your company should also collect and archive documents relating to inventorship, which is an important practice to help you resolve conflicts that may arise between two patent applicants who claim the same invention. The AIA transitioned the U.S. patent system from a “first-to-invent” system to a “first-inventor-to-file” system to resolve these priority conflicts. Lab notebooks and comparable materials are typically used to prove inventorship under the “first-to-invent” system and will continue to useful under the new system. All lab notebooks or comparable materials should be witnessed and archived by the inventors and their supervisors.
Employees and consultants will likely create IP in the course of their relationship with your company. It’s advisable for your company to require each employee to execute a written agreement that clearly states who owns all of the IP created during the employment. The agreement should specify that all work product created by the employee within the scope of employment or using the employer’s resources that may relate to the employer’s business is owned by your company. It should provide that all copyrightable work product created by the employee is a work made for hire under the Copyright Act.
Make sure a written agreement assigns to your company all work product that does not qualify as a work made for hire, including all inventions or discoveries made by your employees. Make sure you take steps to ensure that all of your employees cooperate with you to secure and protect the company’s IP rights during and after employment.
Similarly, a written agreement should be executed with any consultant or independent contractor you retain to develop IP for your company. The agreement should state that any copyrightable work product created by the consultant or contractor that satisfies the definition of work made for hire under section 101 of the Copyright Act will be considered a work made for hire, and is owned by your company.
The agreement should assign from the consultant or contractor to your company all work product that does not qualify as a work made for hire, including all inventions and discoveries made by the consultant or contractor in the course of the engagement.
You will also want to consider certain state law requirements that may limit what you can require of an employee or consultant in a particular state. Several states restrict the scope of the invention assignment agreements a company may request of its employees. And work made for hire statements in independent contractor agreements have implications under California’s workers compensation and unemployment insurance law. So be aware.
Make Sure Your Company Properly Licenses its IP to Maximize Revenue and Minimize the Risk of Infringement by Licensees
The mechanics for licensing IP rights depend on the type of IP you want to license. For instance, patent licenses can be exclusive. They grant rights under the patent to the licensee, and exclude all others – even the licensor – from practicing the patent, unless certain rights are otherwise reserved or carved-out by the licensor.
Patent Licenses
Patent licenses can also be sole. They grant rights under the licensed patent only to the licensee and also allow the licensor to continue to practice the rights granted under the license.
Patent licenses can also be non-exclusive. They grant rights under the patent to the licensee and also allow the licensor to continue to practice the rights granted under the license and to grant rights to any number of other licensees.
Under the Patent Act, exclusive patent licenses must be in writing. Sole and non-exclusive patent licenses need not be in writing, unless otherwise required by state law. Although patent licenses can be recorded with the USPTO – and in some cases it may be preferable to do so – it’s not required under U.S. law to record them. The parties must consider the costs and benefits of the public disclosure associated with recording. For large transactions, a brief “notice of license agreement” can be recorded in place of the detailed agreement to avoid disclosing confidential information.
Trademark Licenses
Most jurisdictions allow trademarks to be licensed to third parties. The trademark owner must monitor the “nature and quality” of the licensee’s goods and services. Failure to exercise adequate quality control can lead to abandonment of the licensed trademarks.
Trademarks can be licensed on an exclusive, sole, or non-exclusive basis, in each case, without goodwill. Domain names also can be licensed. Trademark licenses need not be written, unless otherwise required by state law, but it’s generally advisable to obtain them in writing.
Like patent licenses, trademark licenses can be recorded with the USPTO, but recordation is not required. The parties must consider the costs and benefits of the public disclosure associated with recordation.
Copyright Licenses
Any or all of the exclusive rights pertaining to a copyrighted work can be licensed on an exclusive, sole, or non-exclusive basis. An exclusive license to copyright must be in writing and signed by the owner of the rights conveyed. Non-exclusive copyright licenses need not be in writing, and may be oral or even implied.
A written agreement is generally advisable because a non-exclusive license may be considered personal to the current owner and may be lost if the copyright is later assigned to a new owner. Any license or other document relevant to copyright that complies with copyright recordation requirements can be recorded in the U.S. Copyright Office. It is not a requirement to record a copyright license. However, recordation of an exclusive license, which is considered a transfer of copyright ownership under the Copyright Act, is advisable for the same reasons as for copyright assignments.
Trade Secret Licenses
Trade secrets can be licensed on an exclusive, sole, or non-exclusive basis. Trade secret licenses need not be written, unless otherwise required by state law, but it is generally advisable to put them in writing. There is no registration requirement for trade secrets and there is no opportunity to register or record trade secret licenses.
The terms of an IP license are governed by the commercial intentions of the parties, subject to the general law and any anti-trust considerations that may arise as a result of the transaction. The terms that are usually included in a properly prepared IP license include the following:
(1) Description of IP licensed;
(2) ownership and use of IP developed from the licensed IP (read, derivative work);
(3) exclusivity or non-exclusivity of the license grant;
(4) field of use, territory, and other restrictions the scope of use, if any;
(5) rights and limitations on assigning, sub-licensing, or transferring the rights;
(6) for trademark licenses, goods and services, quality control, and approvals;
(7) license fees and royalties;
(8) representations and warranties as to the IP licensed and its uses;
(9) indemnification for IP infringement;
(10) responsibility for IP maintenance obligations;
(11) IP enforcement rights, audits and other obligations;
(12) term and termination events; and
(13) boilerplate provisions, which are actually very important for, among other things, enforcement and recovery of attorneys’ fees and costs if you have to enforce your right under the license, which is after all, a contract.
Make Sure Your Company Takes All Reasonable Steps to Avoid Infringement of Your IP and Infringing on Other Company’s IP
Your company should consistently take some simple steps to protect against other parties infringing on your IP. Familiarize yourself with your competitors’ products to make educated decisions as to whether your IP is potentially being infringed. Conduct regular searches of IP registrars and review the registrars’ weekly publications of newly registered IP, whether patent, copyright or trademarks. Subscribe to a variety of trade publications or industry-specific newsletters to stay abreast of information about potential infringers.
To minimize the risk that your company may be infringing on IP owned by others, you should also take some simple steps to minimize the risk of such infringement. Periodically and consistently train your employees about the IP that is relevant to your industry and the particular good and services your company provides to its customers. Develop and implement clear guidelines aimed at avoiding IP infringement within your company, and ensure that all new and existing employees know and comply with these guidelines. Train them in these guidelines and work to develop a culture of IP awareness and aversion to infringement.
Where Appropriate, Adopt a Company Social Media Policy and Educate All Your Employees on the Policy and How to Comply
While this will be the subject of a later blog, the following are some concepts to keep in mind and adhere to when you develop a social media policy for your company. Despite, or because of, the ubiquity and casual nature of social media, it’s important to develop and implement a comprehensive social media policy for your company. Train all employees on how to follow the policy, and enforce it with vigor. Your company might otherwise find itself embarrassed by postings on social media platforms.
Do not assume that because of the casual nature of social media and other online and mobile applications that these activities cannot cause significant harm. They absolutely can.
Secure the company’s rights in its website and other online assets. Adopt a business-appropriate website privacy policy and create a strategy to ensure all of the company’s employees adhere to it. Become familiar with laws regarding endorsements, contests, and promotions if your company is involved in the on-line sale of goods or services to consumers.
Pay close attention to privacy and data security laws that govern the collection, use, security, transfer and disposal of the personal information of employees and customers that your company collects and maintains in the course of its day-to-day business. The data is important to your success, but you cannot misuse it or disclose it wantonly. This is particularly true and important in a jurisdiction like California, which has a relatively new, comprehensive and somewhat unclear consumer privacy law that likely applies to your business, particularly if you collect and use consumer data anywhere in California. Create a business-specific terms of use agreement for your company’s website.
Train employees not to comment on or even mention prospective or ongoing financing rounds in social media posts or you may find yourself the recipient of a letter from the U.S. Securities and Exchange Commission or the California Department of Business Oversight. Never a welcome letter.
Ensure that all your employees understand that they must consult with in-house legal counsel before posting on social media about material information pertaining to any aspect of your business like, by way of example only, pending litigation or new product development.
If appropriate for your company’s business, consider and plan how to address a variety of legal issues that typically surround early-stage e-commerce companies. These issues frequently involve business and legal matters pertaining to interstate commerce, business and tax payment mechanisms, privacy, sales tax, and data security. If you are involved in e-commerce, these issues will absolutely touch your company, and your employees need to be trained on how to deal with these issues when they confront them.
Develop and Consistently Implement a Process to Clear Third Party Content That You May Need to Use in Your Business
When it is appropriate for your business, you should create, train and implement an internal process to adequately and confidently clear third party content (read, IP rights) that you may need to use in your company’s business. Consider what rights must be obtained from the various third parties – including for social media and other non-commercial uses – and implement a consistent thoughtful process for doing so.
IF your company intends to create and use materials that may be subject to copyright, trademarks, and other IP rights and personal right of third parties, you must ensure that all appropriate licenses and permissions are in place. This process is known as “rights clearance.”
For any materials that may be subject to IP or personal rights protections, rights clearance involves a number of steps. First, identify the potential rights protections for both the work as a whole, and individual elements of the work.
Second, for legally protectable elements, determine whether the client or a third party owns the relevant and important legal rights.
Third, for rights not owned by a client, evaluate whether permission is required from a third party for the intended use, and if so, identify the owner and request a license or other relevant permission so you can legally use the content.
Fourth, to minimize the risk of liability for any claims, maintain written records that explain the legal basis for concluding that a license is or is not required for particular elements of the content at issue.
Fifth, it’s also wise to maintain written records that clearly explain the legal basis of all of the licenses and permissions you secure, including the scope and duration of each license, and any restrictions or limitations that may placed on the license.
One of the greatest areas of IP infringement occurs not because of a lack of a license, but rather for using the IP well beyond the scope of permitted use.
Where to Get Legal Help to Tackle These IP Issues
Finkel Law Group, with offices in San Francisco and Oakland, has more than 25 years of experience working with technology startup companies and investors to secure, protect and commercialize intellectual property rights in a wide assortment of technologies across numerous tech industries.
When you need intelligent, insightful, conscientious and cost-effective legal counsel to assist you with an intellectual property transaction or investment you may be contemplating, please contact us at (415) 252-9600, (510) 344-6601, or info@finkellawgroup.com to speak with one of our attorneys about your matter.