Leadership

LegalJunck: The Startup's Guide to Intellectual Property

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The most valuable assets of a business may be those that cannot be touched. Yet many startups overlook their proprietary rights and fail to properly secure their intellectual property (IP). 

A 2009 survey conducted by the U.S. Census Bureau and National Science Foundation found only 15 percent of U.S. businesses ranked trademark protection as very or somewhat important. Twelve percent of those same businesses identified copyright protection as very or somewhat important. 

Costs of filing, attorney fees and time are often cited as the most prohibitive factors for registering a company’s IP.  Further, many startups may not see the benefit in filing intellectual property with the appropriate agency. However, millions of dollars are spent every year litigating the rights to copyrights, trademarks and patents.  Startups cannot afford to miss the opportunity to protect these indispensable assets. 

Copyright

A copyright is a form of protection for original compositions including literary, dramatic, musical and artistic works.  A copyright provides the author with an exclusive right to perform, use, publish, distribute, sell, license or transfer the work. 

In addition to articles, advertising content and product or service descriptions, startups may benefit from copyrighting their databases. Although factual data cannot be copyrighted, the selection and arrangement of facts in a database is subject to copyright protection. 

Today, piracy and plagiarism are more prevalent than ever. Registering with the U.S. Copyright Office is not a prerequisite for copyright protection. However, registration establishes a presumption of ownership and may entitle the author to statutory damages and attorney’s fees in the event of litigation. At the very least, a proper copyright notice should be affixed to all original literary or creative works. 

Trademark 

Words, phrases, symbols, logos, designs or any combination of the foregoing that identify and distinguish the manufacturer of goods or the provider of services are trademarks and servicemarks, respectively. Establishing distinctive marks can differentiate a startup from the competition and help gain public recognition. 

A company owns its trademarks at common law even if the marks are never registered with the U.S. Patent and Trademark Office (USPTO). However, use of common law trademarks is restricted to the geographic area in which the product or service is offered. Conversely, registering a mark with the USPTO grants nationwide protection, subject to prior common law use in limited geographic areas. 

Additionally, registering with the USPTO provides constructive notice of ownership. In the event another party uses the same mark for a similar product or service, owners of registered marks can bring an infringement lawsuit in federal court, and may recover treble damages if successful.  

Patent

A patent is an exclusive property right to an invention that prohibits others from making, selling or using the invention for a specified period of time. Patents must be novel, useful and not obvious.  

There are numerous benefits to filing a patent with the USPTO, but only one that bears mentioning. With the passage of the America Invents Act in 2011, the U.S. switched from a “first-to-invent” system to a “first-to-file” system, meaning the first person to file receives the patent. Failing to properly register a patent could lead to forfeiture of the rights to the invention. 

Why register?

In addition to the above-mentioned reasons, there are numerous benefits to registering intellectual property with the appropriate agency. Startups may have the opportunity to generate revenue by licensing their IP. Although common law IP rights can be licensed, savvy licensees would insist on proof of ownership before executing a license agreement. 

Registering intellectual property creates a rebuttable presumption of ownership. Companies that wish to challenge ownership will face the uphill battle of showing the regulatory agency erred when it granted registration. 

Startups that seek to raise capital from investors or build the business to sell are wise to register all IP. Although intangible, IP rights are measurable balance sheet assets that can attract investors and lenders and increase the startup’s market value. Legally secured proprietary rights also add authenticity to new startups struggling to gain recognition. 

Do unto others

It is imperative that startups follow that IP golden rule of never infringing on others’ proprietary rights, as they would not wish others to infringe on theirs.  

One pitfall startups encounter is the use of infringing images. Numerous enforcement groups use sophisticated image recognition software to patrol websites for copyrighted images. Once the software recognizes an image, a settlement demand is issued. In many instances, the infringing image was provided by a website developer, yet the website owner is still legally liable. Startups should revisit their website and any promotional materials to ensure a purchase order or license agreement is on file for every image or video. 

Startups should also exercise caution in the use of any competitor’s trademarks in drawing comparisons or generating traffic through website metadata, online search keywords or other marketing strategies. Use of such marks in any manner that is likely to cause consumer confusion could result in an infringement lawsuit. 

In the early stages, proprietary rights are often a startup’s only significant assets. Protecting those assets is vital in developing a successful startup. 

Lindsay Junck is an associate attorney at the Lotus Law Center, where she practices business and intellectual property law. The Lotus Law Center was founded as a way to make legal services affordable for all sizes of businesses. Focusing on the practice of business and technology law, the Lotus Law Center provides premium personal and professional responses to the legal needs of business clients at an affordable fixed or hourly rate.  Contact her at lindsay@lotuslawcenter.com.

 

 

 

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