In the Know
You wouldn't open your office for business but then go home without locking up, right? That's essentially what you're doing if you don't secure your business ideas. By taking the proper steps, you can protect your trademarks, trade secrets and product design and packaging with intellectual property laws.
Chicago attorney Kara E.F. Cenar of Bell, Boyd & Lloyd says that entrepreneurs should start thinking about these issues earlier than most do. "Small businesses tend to delay securing intellectual property protection because of the expense," Cenar says. But a business that hasn't applied for copyrights or patents, registered its trade name and trademark, or protected its trade secrets--and actively defended them--may have trouble making its case in court.
One reason many entrepreneurs don't protect their intellectual property is that they don't recognize the value of the intangibles they own. Cenar advises entrepreneurs to take their business plans to an experienced intellectual property attorney. Spending money upfront for legal help can save you from expense later by giving you strong trademark or copyright rights, which can deter competitors from infringing.
Once you've figured out what's worth protecting, you have to decide how you'll protect it. This isn't always obvious. Traditionally, patents prohibit others from copying new devices and processes, while copyrights do the same for creative endeavors like books, music or software. But in many cases, the categories overlap. Likewise, trademark law now extends to distinctive elements like a product's color and shape. Trade dress law concerns how a product is packaged and advertised.
Consider Ty Inc., maker of Beanie Babies and other plush toys. Before launching the Beanie Baby line, Cenar explains, the owners sat down with their lawyers to look over their business and marketing plans and discuss intellectual property issues. The plan was for a limited number of toys in a variety of styles, with no advertising except word-of-mouth. Getting a patent on a plush toy may have been impossible and would have taken several years--too long for easily copied toys. Trademark and trade dress protection wouldn't help much, since the company planned a variety of styles. But copyrights are available for sculptural art, and they're inexpensive and easy to obtain. The company chose to register copyrights and defend them vigorously. With help from its lawyers, the company has fended off numerous knockoffs.
Tricks of the Trademark
Your first experience with intellectual property will likely be your trademark, since you need to think about that before choosing a company name. Note that your trademarks might include not only your name, but also a slogan, symbol, picture or logo. Your trademarks are how people identify your business. Think, for instance, of General Mills' cursive "G" or Apple Inc.'s apple with a missing bite.
If you've registered your trademark, you indicate that with an ® behind the name. If it's a trademark you're using but haven't registered, you use a TM instead. A service mark, sometimes seen as an SM behind a name, identifies a service company like a retail store.
Any trademark you use is protected under common law as soon as you start to use it. Under common law, the first entity to use a particular name, slogan or symbol has the right to it. So if you're just planning a single shop, it might be enough to know that no similar local business is using the same name. But if you have aspirations to go further, you'd better have a proper trademark search done and register your mark.
State trademark registration is simple, fairly quick and inexpensive, but it only protects your trademark in your state--so someone with a federal patent still gets first dibs on it.
It's best to register your trademarks with the U.S. Patent and Trademark Office. You can do a preliminary trademark search online, but because of the complexity of the process, you should still use an intellectual property lawyer. And since the process can take several years, you start by filing an "intent to use," which is an image of the trademark and a sworn affidavit that you intend to use it in commerce.International trademark protection, which you'll want if you plan to set up shop online, is especially complicated. That's even more reason to spend the $2,000 or so it costs to have an experienced trademark lawyer search NAFTA, the USPTO and the international registry of the World Intellectual Property Organization, as well as state databases and common law uses. Once you're properly registered, though, you have exclusive rights to your trademark in the U.S. and 50 other countries.
Beat 'Em to It
If you've created a new product, process or machine--or made a significant improvement on one--you might be able to obtain a utility patent, which protects your right to that invention for 20 years from the filing date. A design patent on original ornamental designs for manufactured items gives you 14 years of protection. It takes a long time to get either one, but you can file a provisional application that holds your place in line, in case someone else comes up with the same thing. You can file for a provisional utility patent online, but a provisional design patent has to be done through the mail.
To be eligible for a patent, an innovation has to be new. It can't have been in use in this country for more than a year or be described in any printed publication anywhere in the world. It also can't be a modification obvious to anyone familiar with the field, such as making an existing product in a different color or size. Only the inventor can apply for a patent, unless the inventor is dead or mentally incapable.
While the application for a design patent is fairly simple, a utility patent application is pretty complex, requiring drawings with multiple views, technical information and numerous forms. As with trademarks, it's important to hire an experienced patent lawyer to help you through the maze. For more information, see the USPTO website.
Do Copyrights Right
Unlike patents, copyrights are easy to get. In fact, the minute a book, film, photograph, drawing, software, website or other creative product is created in fixed form, it's copyrighted. ("Fixed form" means, for instance, words on a page as opposed to ideas in your head.) Creativity is what counts here--you can't copyright, say, a standard calendar. Copyright protection gives the owner the exclusive right to reproduce, distribute, perform or display the work or authorize others to do so.
In most cases, you can register your copyright with the federal copyright office by mailing two nonreturnable copies of the work with an application and $45 fee. Before you can file a copyright infringement suit, you need to have registered a copyright. Find out more about copyrights at www.copyright.gov.
Remember, this door swings both ways. Suppose you hire a photographer to shoot photos of your products. You pay for prints, but the first time you use the pictures you get a letter from the photographer's attorney. The photographer owns the copyright for the photos, even though you commissioned them. Unless your contract states otherwise, you have to pay extra to actually use the photos. The same principle goes for writing, artwork, music, software and website designs.
The major exception is "work for hire," which is created by employees in the course of their jobs. In that case, the copyright belongs to the employer unless a contract states otherwise.
Anytime you hire someone to create a logo, software, website content, etc., make sure you know what you are getting. Do you have the right to use the material as often as you wish? Negotiate the rights you need, and get them in the contract.
Similarly, if you find a song or a cool image online that would be perfect in your ad, find out who owns the rights and what it would cost you to use it. Otherwise, you may face a court order to discontinue using it or a lawsuit demanding payment.
Armed and Vigilant
After you decide how you want to protect your intellectual property, the next step is enforcing that protection. You need to monitor the marketplace for knockoffs and copyright or trademark infringements and take increasingly firm steps to enforce your rights. These typically begin with your attorney's letter of warning to the infringer. If the infringer doesn't stop, you might have to sue. Courts are often willing to issue a cease-and-desist order and sometimes even assess damages.
If you fail to be vigilant, you may lose your trademark. Courts take a dim view of businesses that go for years without ever objecting to another business going by the same name, then suddenly sue for trademark infringement.
And what about your trade secrets? Employees who leave your company to work for competitors may take more than their coffee mugs with them. They might abscond with critical information--your formulas, suppliers, customer data and techniques--that could devastate your competitive edge.
The law treats trade secrets as property. Under the Uniform Trade Secrets Act, adopted in most states, information counts as a trade secret if it meets three criteria: The information must have independent economic value to people outside the company, the information must be generally unknown and unlikely to be discovered by lawful means, and the owner of the secret must make efforts to maintain the secret.
The third one is the clincher. The law offers protection for trade secrets, but only if employees explicitly understand that the information is confidential. Consider a recent case: Four sales reps resigned from a Chicago company to accept positions with a competitor. Before leaving, they downloaded huge amounts of confidential company data, including proprietary customer lists, sales quotation information and the company's price book. The former employer sued, but the court ruled that the information did not count as protected trade secrets because the company didn't take reasonable security measures to protect the information. The fact that it was stored in password-protected directories wasn't enough. The court was "troubled by the failure to either require employees to sign confidentiality agreements, advise employees that its records were confidential or label the information as confidential."
Of course, the law can't require employees to forget what they know. While it might be stealing for an employee to walk off with a customer list stamped "Confidential," the same person might be able to reconstruct the list from memory. That's why you should consider a covenant not to compete, in which an employee joining your firm agrees not to work for a competing business for a specified period of time.
To be enforceable, though, these agreements can't be unreasonable, such as forbidding the employee from working in the same field anywhere in the state for 10 years. The more limited in scope, the more likely a court will enforce the agreement.
What's the lesson in all this? Sleep on your intellectual property rights and you'll lose them. Be proactive and you'll protect them--and save money in the long run.
Are You Prepared?
Do you have your intellectual property ducks in a row? Answer these questions to find out.
Have you invented or greatly improved a product, process or machine? You may be eligible for a patent. The process takes awhile, but you can get a provisional patent that may protect your rights in the meantime.
Does your product have a special design that gives it a competitive edge? Consider a design patent.
Does your marketing plan hang on distinctive packaging or the unique look of your shop? Make sure you're not copying someone else's "trade dress," and watch out for competitors who could be stealing yours.
Have you done trademark searches for any names and logos you're considering for your business? Don't forget international trademark searches.
Have you registered your trademark, logo and trade names?
Does your business involve creative works that you or your employees have made, such as books, films, artwork or software?
Are people who aren't your employees doing creative work for your business? Make sure you have a legal right to use what they create.
Are you sure you have a right to use all the creative material you intend to? Check your advertisements, brochures, packaging and website design to make sure you're not infringing on someone else's copyright. Usually you can get permission to use it--for a fee.
Do you have trade secrets you need to protect from your competition? Courts are willing to order others not to use or reveal them, but only if you've treated them as secrets. Consider confidentiality agreements and covenants not to compete.Excerpted from Start Your Own Business: The Only Startup Guide You'll Ever Need (4th Edition) by Rieva Lesonsky and the staff of Entrepreneur