Intellectual Property Protection for Start-Ups (memorandum)
by Roger Royse
When companies first begin, they usually start out with the goal of maximizing profits. To maintain those profits however, it is important to obtain protection for the assets driving those profits through intellectual property law. There are four ways a start-up can protect its assets: patent law, copyright law, trademark law, and trade secret rights.
One of the most important protections a start-up should have, especially for technology start-ups, is patent protection for its inventions. Having an invention patented (securing patent registration) basically means the inventor, or the company, is the first to create such an invention and thus the only one to be able to use the invention outside the context of a license agreement. Without a patent, an inventor runs the risk of having his or her invention copied without just compensation. With a patent in place, an inventor can sue others who copy the invention without permission for patent infringement. Patent law protects inventions such as games, chemical compositions, machines, and business methods.
A patent is a grant given by the government that allows the inventor, for a limited duration, to exclude others from using or selling the invention. There are three types of patents:
- Utility patents: Granted for useful inventions such as a new and useful process or machine.
- Design patents: Granted for “new, original, and ornamental design for an article of manufacture.”
- Plant patents: “[G]ranted to anyone who invents or discovers and asexually reproduces any distinct and new variety of plant.”
To apply for a patent, a patent application must be filed with the U.S. Patent and Trademark Office (“USPTO”). An invention must also be useful or possesses a useful purpose. It also has to be in the stage of being more than a simple idea (the patent application requires a complete description and drawing of the invention). Another requirement is novelty; the invention must be new which means that the invention cannot have been known by others (i.e. through printed publication), in public use or sale in the U.S. or in a foreign country. In addition, the invention must be “nonobvious”; though an invention may be based off of a patented invention, it “must be sufficiently different from what has been used or described before that it may be said to be nonobvious to a person having ordinary skill in the area of technology related to the invention.”
An inventor has the option of filing a provisional patent (not available for design patents) or a non-provisional patent. A provisional patent can be thought of as a preliminary application for the invention, usually filed when the inventor needs more time to assess the invention’s commercial value or expand on its details. A provisional patent gives the inventor the benefit of establishing an early effective filing date in a subsequent non-provisional patent application. It also allows the inventor to use the terms “Patent Pending” on the invention. The inventor then has twelve months to file a non-provisional application for the invention. Otherwise, the application will automatically become abandoned twelve months from the filing date, meaning the inventor may lose rights over the invention and its filing date.
A non-provisional patent application can be viewed as an application to have the invention formally patented. Filing this application begins the examination process as to whether the invention is patentable. If approved, the effective date of the patent is the filing date of the application or, if a provisional application was filed previously, the filing date of that application. If denied, the applicant will have a chance to either amend the application or request a second reconsideration. If the application is rejected again, the applicant may make an appeal to the Board of Patent Appeals and Interferences in the USPTO. If the appeal results in a decision unsatisfactory to the applicant, he or she may institute an action in the Court of Appeals for the Federal Circuit.
While a utility patent requires maintenance fees at certain periods of its duration, design and plant patents do not. The term of a design patent is 14 years and the term of a utility and plant patent is 20 years.
The length of time it usually takes to obtain a patent is at least a year and a half, which may be longer than the duration of most start-ups. However, there are still benefits to obtaining a patent. Patent holders may license away use of their patent or even sell the patent.
A trademark is also important to a start-up. Companies are mostly recognized by their branding, logos, and names, also collectively known as trademarks. Trademarks help consumers identify the source of a product; they serve as shortcuts that help consumers quickly distinguish the quality of a product or service from others.
A trademark is a word, symbol, and such, used to associate with a product to indicate its origin to consumers. A mark that identifies a service is similarly called a servicemark. Product names, company names, logos, and even colors (i.e. Tiffany’s blue) and fragrances may be trademarks. Trademarks protect the goodwill developed by the originating companies that manufacture or supply goods or services bearing the associated trademark.
Trademark protection begins when the mark is used in commerce or in the marketplace. Though registration is not required in order to secure rights over a mark, registration provides many benefits such as the ability to sue another for trademark infringement in federal court and use ® on products (unregistered marks can only be denoted ™ for products and SM for services). It also puts the public on notice that the mark is being used, giving the owner a presumption of ownership over the mark.
Before a start-up adopts a mark or name, it should conduct a preliminary trademark search, even a basic Web search, to avoid infringing on another’s identical or similar mark. In registering for a mark, an application, along with the specimen, must be filed with the USPTO, who will then determine, among other factors, whether the mark in application is confusingly similar to a previously adopted mark. If the mark in application will cause confusion among consumers, the application will be denied. The mark must also encompass some level of distinctiveness and the spectrum of distinctiveness is usually applied to determine a mark’s classification:
· Fanciful/arbitrary: Words that have no relationship or meaning to the product (i.e. Apple for computers). Such words are registrable.
· Suggestive: Words that indirectly allude to the quality of the product (i.e. Jaguar to indicate fast cars). Such words are registrable.
· Descriptive: Words that describe the service or product (i.e. Lektronic for electronic goods). Such words are not protectable unless they acquire secondary meaning, also known as acquired distinctiveness, in which the public has come to view the word as associated with the source of the product (i.e. Sharp for televisions).
· Generic: Words that are commonly used in connection with the product or service (i.e. Apple for apples). Generic terms are never registrable.
Once granted, trademark registration exists for as long as it continues to be used. If the owner stops using the mark, the registration will become abandoned, allowing any other party to use the mark without permission. In addition, if the mark becomes generic in which it becomes a term widely used by the public, also known as genericide, the trademark will no longer be protected since the mark no longer will denote the source of the product (i.e. Aspirin no longer has U.S. trademark protection). Therefore, many companies strictly monitor the way their name is used to prevent misuse. For example, Google is known to have made attempts in preventing the public from using its name as a verb, i.e. googling.
When it comes to the idea of copyright law, many may mistakenly believe that it only applies to books and music. However, copyright law actually protects a variety of works, including marketing material, photographs, web-site content, and computer source codes. Copyright protection extends to any work that is original and possesses some minimal level of creativity. The work must also be fixed, which means it is written in some form and not simply an idea or concept. Copyright law grants the owner of a work the following exclusive rights:
- To make copies of the work;
- To prepare derivative works based upon the work (i.e. making a movie based on a book);
- To distribute copies of the work, including selling and transferring the work;
- To perform the work in public;
- To display the work in public;
- To perform the work by audio transmission for sound recordings.
The copyright owner has the right to exclude any other person from doing any of the above and may institute a claim for copyright infringement if another party uses the work without the owner’s permission.
Copyright protection begins as soon as the work is created and fixed and lasts up to seventy years after the author’s death. Copyright over the work automatically belongs to the author unless it is a “work for hire” situation. A “work for hire” situation exists when an employee creates work in the scope of his or her employment and this work belongs to the employer or when an individual is commissioned to create a specific work. Such works enjoy copyright protection for the lesser of 95 years from publication or 120 years from creation.
Though registration is not required in order to secure copyright protection over a work, similar to trademark registration, it offers a variety of advantages to the registrant such as the ability to pursue a copyright infringement action. Applications for registration are made to the U.S. Copyright Office and the average processing time ranges from three to ten months.
Trade Secret Rights
A trade secret is any information that provides value to its owner due to its confidentiality the owner maintains using reasonable efforts. Trade secrets include technical information such as formulas and computer program code, as well as business information such as customer lists. Trade secret rights exist until the information is publicly disclosed and is no longer the exclusive property of the original owner (i.e. reverse engineering). In the U.S., trade secrets are not federally protected; they are protected under individual state laws.
Companies generally protect their trade secrets through non-disclosure or confidentiality agreements and non-compete provisions (largely invalid in California) executed with employees. Trade secret rights may potentially exist indefinitely which is the main reason some companies choose to protect their inventions as trade secrets rather than patents. For example, though Coca-Cola does not have a patent for its cola formula, it has been successful in keeping it confidential, giving it protection over the formula for a longer period of time than a patent would have.
A start-up may protect its assets using one of the four laws described above or obtain multiple protections. For example, logos can be protected under copyright law and trademark law. A computer source code can be protected under copyright law or local trade secret laws. Regardless, protecting intellectual property assets are very beneficial to a company and can usually equate to monetary rewards through licenses or sale of a right and even when the company liquidates.
For additional information on legal issues, contact Roger Royse.
 Bowman, Jill H., Creating a Strategic IP Plan: The First Step, http://www.iplawforstartups.com/creating-a-strategic-ip-plan-the-first-step/#more-219 (Jul. 29, 2011).
 United States Patent and Trademark Office, General Information Concerning Patents, available athttp://www.uspto.gov/patents/resources/general_info_concerning_patents.pdf (last updated Jan. 2010).
 Id. at 4.
 Id. at 14.
 Id. at 13.
 Id. at 21-22.
 Id. at 23.
 Id. at 26, 29.
 Id. at 25-26, 29.
 See United States Patent and Trademark Office, Frequent Questions and Their Answers USPTO Kids’ Pages, http://www.uspto.gov/web/offices/ac/ahrpa/opa/kids/kidprimer.html (last visited Aug. 17, 2011) (stating that it takes about 22 months to get a patent); United States Patent and Trademark Office, On Line Chat Transcripts, http://www.uspto.gov/inventors/independent/chats/faq/transcriptsf_m.jsp (last updated Jul. 8, 2011) (“[t]he issuance of a patent can take anywhere from 12-36 months depending on how we classify your invention”).
 United States Patent and Trademark Office, “Basic Facts About Trademarks”, available athttp://www.uspto.gov/trademarks/basics/BasicFacts_with_correct_links.pdf (Oct. 2010).
 Id. at 13.
 Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4 (2d Cir. 1976).
 Sturgeon, Will, CNET: Google Wants People to Stop Googling, http://news.cnet.com/2100-1030-6106479.html (Aug. 16, 2006).
 Feist Publications, Inc. v. Rural Telephone Serv. Co., 499 U.S. 340 (1991).
 United States Copyright Office, “Copyright Basics”, available at http://www.copyright.gov/circs/circ1.pdf (Jul. 2008).
 Id. at 5.
 Id. at 7.
 United States Copyright Office, I’ve Submitted my Application, Fee, and Copy of my Work to the Copyright Office. Now What?, http://www.copyright.gov/help/faq/faq-what.html#certificate (last updated Jul. 1, 2011).
 Stuart P. Meyer, Exploiting Intellectual Property Assets Through Licensing: Strategic Considerations, 468 PLI/PAT 29 (1997).
 Cal. Bus. & Prof. Code § 16600 (Westlaw 2011).
 Mark Pendergrast, For God, Country & Coca-Cola 456 (2d ed. 2000).