IP Basics for Start-Ups and Small Enterprises: What Growing Companies Need to Know About Respecting, Acquiring, and Enforcing Intellectual Property
Congratulations! You have just been hired as general counsel at an exciting and fast-growing start-up company. You were a corporate attorney in private practice, but now you suddenly face legal challenges across all disciplines, including intellectual property. So what do you need to know in order to make your tenure—and your company’s IP strategy—a success?
While every company and every GC position is different, general counsel will do well to consider general strategies relating to six intellectual property concerns commonly encountered by start-ups:
Choosing outside IP counsel;
Protecting your company’s innovations;
Copyrights and the Internet;
Protecting your company’s brand; and
Enforcing your company’s IP rights.
Choosing Outside IP Counsel
The company’s CFO comes to you and says that the company needs to hire new outside IP counsel. You just came from a general practice firm and have more of a general corporate background, so IP is a bit outside of your comfort zone. How do you decide what firm to recommend?
The best starting point is to find an outside firm that has special expertise in intellectual property. This firm should understand the competitive landscape surrounding the IP that the company is trying to protect, and have (or quickly acquire) specific knowledge about the company’s IP needs and concerns.
Look for firms with industry or sector focuses that align with your business. Since many start-ups revolve around innovative technology, the more experienced the firm is in your specific technology, the better.
Given the nuanced nature of IP law, there is no “one size fits all” among general business counsel for complex IP issues. Consider hiring different firms for different matters with pricing that makes sense for the matter. Also, patent law is a niche even inside IP law, so when a GC needs patent counsel, he or she should select a dedicated patent attorney in the company’s particular industry sector (i.e. software, mechanical, chemical, life sciences, etc.).
And while personal relationships matter, they should not override quantitative factors when choosing outside IP counsel. Do not select a firm based solely on personal relationships but do seek trusted recommendations and verify the recommendations received. In particular, start-ups should avoid hiring counsel simply because he/she is a friend of an executive or board member. However, it is a good idea to have internal stakeholders interview the firm(s) to ensure that they are a good fit for the company.
Protecting Your Company’s Innovations
You have researched and recommended the right outside counsel to management. Now the company’s CTO tells you that he thinks your company has invented technology that would qualify for a patent but he’s not sure what the patent application process looks like and whether it would be a good idea for your company. What should you tell him about protecting your company’s invention?
For starters, understand that not every invention qualifies for a patent. A patent is available to anyone who “invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” 35 U.S.C. § 101. Not every invention qualifies under this standard—and even if it does, start-ups may not want to pursue patent protection for every invention.
Why? The patent application process is expensive and time-consuming. It can take years to take an application from filing at the Patent and Trademark Office to issuance of a patent. Before applying for a patent, a GC should meet with the company’s executive team to discuss what types of inventions will help the company be more valuable and whether the company should enforce the invention or license it to others.
In other words, start-ups should be strategic in what inventions they patent. Patenting every invention could lead to an expensive portfolio that does not really add any value to the business. One possible strategy is to create a committee to develop parameters on which inventions to patent.
Also, start-up executives must understand that only an issued patent can be enforced. Because the patent application is lengthy, a start-up may not be able to enforce the invention for several years while a patent application is pending.
Before applying for a patent, search the relevant field of invention to know what other patents exist in the area and whether your invention has already been patented. Outside counsel or third parties can be hired to conduct prior art searches on a regular basis to monitor the competitive landscape and to assist in identifying areas ripe for development and filing.
On the record-keeping side, document every step of the research and development process to avoid potential inventorship or priority challenges down the road. That means the research and development team needs to be educated on their obligations regarding intellectual property and when to approach in-house or outside counsel about a potential invention.
The company’s CEO is now obsessed with IP and wants to protect your company’s technology in every possible way. She asks you whether the company has any information that would qualify as a trade secret and, if so, what you can do to make sure they are protected? What should you tell her?
Trade secrets are perhaps the most misunderstood aspect of intellectual property law, but have gained increased attention in recent years with the passage of the Defend Trade Secrets Act, which created a federal cause of action for trade secret misappropriation. A trade secret is any information (which could include a formula, a recipe, a program, customer lists, among many other things) that (a) derives economic value from its secrecy – that is, the fact that others do not know the information makes it more valuable; and (b) you have made “reasonable efforts” to maintain in secrecy.
Acquiring trade secret protection is very different from acquiring a patent or a trademark. Companies do not apply for or register a trade secret. Instead, they receive trade secret protection by taking affirmative steps to keep the information truly secret.
Trade secrets may not convey the same prestige or return on investment as patents or trademarks. Protecting a trade secret is a long-term investment in a company’s technology or information and may not result in any immediate monetary gain.
So how do start-ups protect trade secrets? Employee training and education are vital to acquiring and keeping trade secret protection. Access to trade secret information should not be widespread but should be limited to a “need to know” basis.
Any disclosure of the information believed to be a trade secret to a third party destroys trade secret protection. Nondisclosure agreements and labeling documents “confidential” or “trade secrets” are healthy and should be used but by themselves do not guarantee trade secret protection. More steps generally are required. Likewise, do not accept all confidential information from third parties. Third-party information can taint a company’s development of trade secrets, either accidentally or purposefully. In short, a company should work carefully internally and with outside counsel, as necessary, to develop and maintain reasonable and effective safeguards for its confidential information.
Copyrights and the Internet
Your marketing team approaches you and asks you to develop a comprehensive plan for how the company can use others’ creative material and protect their own copyrighted material. You don’t have any experience with copyrights but have heard of “fair use” before. How should you develop your plan and what should you include in it?
When using works copyrighted by others, the first step is establishing a list of copyrighted works required by the business. Meet with the company’s marketing team to identify what copyrighted works you need in your day–to-day business so they can acquire the necessary permissions. Then, develop a standard policy for acquiring permission (i.e., clearance) and properly attributing authorship. Educate the in-house team on when copyright notices are required and why they are necessary.
Start-ups should beware of overreliance on “fair use” because the exception is narrow. Just because an image, article or other piece of content is on the Internet does not mean that it is free for everyone to use.
In addition to avoiding misuse of others’ copyrights, start-ups also need to take steps to protect their own copyrighted material. For example, start-up GCs should enter into strong licensing agreements for the company’s own copyrighted works and educate the company’s team on why they should be seeking copyright protection for works they create.
If the company hires third-parties to create copyrighted works for the company, ensure that they are hired on a “work-for-hire” basis and have assignment agreements in place that have been prepared or reviewed by counsel.
Protecting Your Company’s Brand
You’ve just given your marketing team a comprehensive copyright plan but now they want a comprehensive trademark plan, too. And they think your company needs to come up with a brand name and logo that will be as recognizable as the Nike Swoosh logo or the “Just Do It” slogan. What should you tell them?
Trademarks gain strength and significance through use, which takes time and resources. Creating a brand name and symbol that will be immediately recognizable does not happen overnight.
Start by meeting with the leadership and marketing teams early to discuss the importance of trademarks and the scope of trademark protection you want to achieve (company names, brand names, slogans, symbols, etc.), including what value having trademarks will add to the company and whether the company plans on enforcing trademark rights. Meet with the marketing team periodically to update your strategy and make sure that the marketing team is aware of what samples of usage are needed for trademark filings.
Trademarks can be protected on a US federal and state level and internationally. Pay attention to territorial limits and ensure that the start-up is using its trademark in all places the company does business to get as much protection as possible.
As with patents, start-ups may want to consider hiring outside trademark counsel that has expertise in its market and can provide strategic advice on which marks to file for and how to prioritize them, including which classes of services or products to file for. Outside counsel should also be able to provide strategic and practical advice on designing an effective trademark strategy, including conducting trademark clearance searches and monitoring others’ use of the company’s trademarks or similar marks.
Finally, start-ups should register domain names as soon as they are identified—including prior to applying for a trademark—to ensure that they are available.
Enforcing Your Company’s IP Rights
You have successfully been granted a patent and registered your trademarks and copyrights. You’ve also put an airtight trade secret policy in place. Congratulations! Now your CTO comes to you and says he thinks 10 competitors are copying your invention and designs and he wants to sue all of them right away for IP infringement. He asks you to contact outside counsel to go ahead and prepare complaints but you have reservations about whether this is the best way to enforce your newly acquired IP rights. How do you advise him?
There are many options to enforcing IP rights besides filing a lawsuit that may be more effective in certain circumstances. The first step is to assess the potential costs of an IP dispute. Costs of IP litigation can quickly escalate (particularly if the opposing party files a counterclaim) and could drag on for years. In addition, an IP dispute may have unexpected repercussions on a company’s public image.
For example, suing a competitor for patent infringement means they are likely to challenge the validity of the plaintiff’s patents, and that IP may come out of the lawsuit looking differently than it did before. In some cases, patents can be invalidated entirely during the litigation process. If the competitor challenges our patent after a suit is filed, the company may end up litigating on two fronts—both in district court and through an administrative proceeding—further adding to the cost of filing a lawsuit.
Enforcement activity can quickly cause public relations issues especially for companies that are looking for investors. For example, lawsuits can scare off prospective investors who do not want to expose their larger IP portfolio to the unpredictability associated with litigation. Involve the communications team before launching significant enforcement or litigation activity and make sure communications with the public and with the opposing party match the company’s brand voice and mitigate harm to the company’s reputation, especially when a young company is still making first impressions.
A start-up GC is well-advised to assess all options with outside counsel before taking action. This includes doing due diligence to make sure that the company is not violating someone else’s rights. In-house counsel must educate their management about the costs of litigation, monetary and non-monetary.
That isn’t to say that litigation is never the right option, but initiating an IP infringement lawsuit only should take place after careful deliberation about the pros and cons of such action. Sometimes, a cease and desist letter or licensing agreement can be a cost-effective alternative to filing a lawsuit.
There certainly are additional IP considerations that GCs at start-ups will need to consider. These may include joint development agreements, open source software and licensing, key domain name registration, and “big picture” IP strategy development. But in terms of getting started, making sure the six core aspects of IP are addressed early gives a start-up the best possible chance of avoiding costly intellectual property-related missteps in the company’s nascent period.
This article is based on a presentation made at the Association of Corporate Counsel’s 2020 Annual Meeting. Creighton Frommer, Chief IP, Technology & Procurement Counsel at RELX, and Melissa Fruge, Chief Legal Officer at Financial Force, participated in that presentation and contributed to this article.