Intellectual Property, Patents and Lawyers

• Intellectual property includes patents, trademarks, copyrights, and trade secrets
• Intellectual property represents important assets for the entrepreneur
• Intellectual property should be understood before engaging the services of an attorney

How to Select a Lawyer

• Entrepreneurs need to be aware of any regulations that may affect a venture
• A lawyer may work on a retainer basis or be hired for a one-time fee
• A good working relationship with a lawyer eases some of the risk in starting a new business
• A good working relationship with a lawyer gives the entrepreneur necessary confidence
• Entrepreneurs can offer the lawyer stock in exchange for services

Patents

• A patent grants the holder protection from others making, using, or selling a similar idea
• Patents are issued by the Patent and Trademark Office (PTO)
• A utility patent protects new, useful, and unobvious processes, machines, compositions of matter, and articles of manufacture
• The term of a utility patent is 20 years
• A design patent covers new, original, ornamental, and unobvious designs for articles of manufacture
• The term of a design patent is 14 years
• A plant patent is given for new varieties of plants

International Patents

• The Patent Cooperation Treaty (PCT) was established to facilitate patent filings in multiple countries in one office
• PCT is administered by the World Intellectual Property Organization (WIPO) in Geneva, Switzerland
• WIPO has over 100 participants
• PCT provides a preliminary search that assesses whether the filing firm will face infringements in any country
• Differences may exist in the patent laws of each of these countries

Provisional Application

• It is the initial application to the PTO providing evidence of first to market
• The provisional application replaces the disclosure document previously accepted by the PTO
• It gives the rights to the patent based on the concept of first to file
• The actual filing of the patent in its final form must occur no later than 12 months after the provisional disclosure document if filed

Patent Application

• The introduction consists of the background and advantages of the invention, the problems that it overcomes, and how the invention differs from existing offerings
• The description of invention includes a detailed description of the invention and of the drawings that accompany it
• Claims specify what the entrepreneur is trying to patent
• The application should contain a declaration signed by the inventor(s)

Checklist for Minimizing Patent Risks

• Seek a patent attorney who has expertise in your product line
• The entrepreneur should consider a design patent to protect the product design or product look
• Before making an external disclosure of an invention at a conference or to the media, or before setting up a beta site, the entrepreneur should seek legal counsel since this external disclosure may negate a subsequent patent application
• Evaluate competitor patents to gain insight into what they may be developing
• If you think your product infringes on the patent of another firm, seek legal counsel
• Verify that all employment contracts with individuals who may contribute new products have clauses assigning those inventions or new products to the venture
• Be sure to properly mark all products granted a patent; not having products marked could result in loss or damages in a patent suit
• Consider licensing your patents to enhance the investment in a patent by creating new market opportunities and increasing long-term revenue

Business Method Patents

• The growth of Internet use and software development has given rise to business method patents
• Firms use these patents to assault competitors and subsequently provide income from royalties or licensing fees
• Concerns have evolved regarding these patents
• Not all start-ups will have a product or concept that is patentable

Trademarks

• A trademark is a distinguishing word, name, or symbol used to identify a product
• It can last indefinitely
• Trademarks can be filed solely on the intent to use the trademark in interstate or foreign commerce, also with the intent to use in the future
• Trademark categories: Coined marks, arbitrary marks, suggestive marks, and descriptive marks

Registering the Trademark

• Filing must meet four requirements: Completion of the written form, a drawing of the mark, five specimens showing actual use of the mark, and the fee
• Initial determination of suitability takes 3 months
• Objections must be raised within six months, or the application is considered abandoned
• The entrepreneur has the right to appeal in case of refusal
• Once accepted, a trademark is published in the Trademark Official Gazette to allow any party 30 days to oppose or request an extension to oppose
• Registration is issued if no opposition is filed
• Procedure takes about 13 months from initial filing

Benefits of a Registered Trademark

• It provides notice to everyone that you have exclusive rights to the use of the mark throughout the territorial limits of the United States
• It entitles you to sue in federal court for trademark infringement, which can result in recovery of profits, damages, and costs
• It establishes incontestable rights regarding the commercial use of the mark
• It establishes the right to deposit registration with customs to prevent the importation of goods with a similar mark
• It entitles you to use the notice of registration
• It provides a basis for filing a trademark application in foreign countries

Copyrights

• Copyright is the right given to prevent others from printing, copying, or publishing any original works of authorship
• Issues surrounding access to material on the Internet have led to major legal battles for the entertainment industry
• Copyrights are registered with the Library of Congress
• The term of the copyright is the life of the author plus 70 years

Trade Secrets

• Trade secrets provide protection against others revealing or disclosing information that could be damaging to business
• Trade secrets have a life as long as the idea or process remains a secret
• Trade secrets are not covered by any federal law but are recognized under a governing body of common laws in each state
• Employees may be asked to sign a confidential information agreement
• Entrepreneurs need to take proper precautions to protect trade secrets
• Legal action is only possible after the secret has been revealed

Licensing

• Licensing is a contractual agreement giving rights to others to use intellectual property in return for a royalty or fee
• Types of licensing: Patent license agreements, trademark license agreements, and copyright license agreements
• Patent license agreements specify how the licensee would have access to the patent
• Trademark license agreements involve a franchising agreement
• Copyright license agreements involve rights to use or copy books, software, music, photographs, plays, etc

Factors to be Considered for Licensing

• Customers’ recognition of licensed property
• Whether licensed property complements existing products or services
• Entrepreneur’s experience with the licensed property
• Long-term outlook for the licensed property
• Kind of protection provided by the agreement
• Commitments in terms of payment of royalties, sales quotas, and so on
• Renewal options

Product Safety and Liability

• It is the responsibility of a company to meet any legal specifications regarding a new product covered by the Consumer Product Safety Act
• The Act created a commission with the responsibility of prescribing safety standards
• The development of stricter regulations regarding labeling and advertising is also part of the commission’s responsibility
• Large fines as well as product recalls are the typical outcomes of any action enforced by the commission

Insurance

• Insurance provides a means of managing risk in the new business
• Some insurances are required by law and cannot be avoided, while others may be necessary to protect the financial net worth of the venture
• Skyrocketing medical costs can have a significant impact on insurance premiums
• Entrepreneurs also have to consider health care coverage

Types of Insurance and Possible Coverage

• Property insurance covers losses to goods and premises resulting from fire and lightning
• Casualty insurance includes business interruption coverage, general liability coverage, and automobile liability
• Life insurance protects the continuity of the business, especially a partnership, and can also provide financial protection for survivors of a sole proprietorship or for loss of a key corporate executive
• Workers' compensation is mandatory in some states and provides benefits to employees in case of work-related injury
• Bonding shifts responsibility to the employee for performance of a job and protects the company in case of employee theft of funds or protects a contractor if a subcontractor fails to complete a job within an agreed-upon time frame

Sarbanes-Oxley Act

• Congress passed the Act in 2002
• It provides a mechanism for greater control over the financial activities of public companies
• CEOs need to vouch for financial statements through a series of internal control mechanisms and reports
• Directors must meet background, length of service, and responsibilities requirements regarding internal auditing and control
• Attempts to influence or impede the internal auditing process is a criminal act
• The law covers bank fraud, securities fraud, and fraud by wire, radio, or TV
• There has been some concern as to the interpretation of this law and subsequent directors’ liability
• There are conflicts with the provisions of the new law and the laws of foreign countries
• Private companies are subject to control if they consult with or influence a public company in any wrongdoing established by the Sarbanes-Oxley Act
• Entrepreneurs can set up a board of advisors instead of an extended board of directors

Contracts

• A contract is a legally binding agreement between two parties
• Courts insist on a written contract for all transactions over $500

Contract Conditions and Results of a Breach

• An offer is made, and it can be oral or written, but it's not binding until voluntary acceptance of the offer is given
• Voluntary acceptance of the offer is required
• Consideration (something of value) is given by both parties
• Both parties are competent and/or have the right to negotiate for their firms
• The contract must be legal and any illegal activities under a contract are not binding
• Any sales of $500 or more must be in writing
• The party in violation of a contract may be required to live up to the agreement or pay damages
• If one party fails to live up to its end of a contract, the second party may also agree to drop the matter and not live up to the agreement; this is referred to as contract restitution

Essential Items for Legal Protection in an Agreement

• Understand the terms and conditions in the contract
• Cross out anything that you do not agree to
• Do not sign if there are blank spaces
• Make a copy for your files after signing