Intellectual Property Considerations for Start-Ups and Emerging Companies

The following is an excerpt from The Start-Ups & Emerging Companies Guidebook, a preliminary discussion on best practices and strategies for start-ups and emerging companies to easily leverage.

As technology becomes more prevalent in business, the need to understand intellectual property has become of paramount importance. Broadly speaking, intellectual property describes intangible assets that are subject to ownership and afford the owner of those assets certain rights under law. More specifically, intellectual property rights are the rights that enable their owner to protect assets such as their name, brand, designs, logos, software, inventions, domain names, written works, and trade secrets among other types of intangible assets.

Intellectual property assets largely fall into four different categories:

• Trademarks
• Copyrights
• Patents
• Trade Secrets

In addition to the different intellectual property asset categories recited above, it is also important for business owners to be aware of the different ways that intellectual property interacts with their business. Depending on the type of a business in which a company operates, non-disclosure agreements should be used, intellectual property assignments from employees and independent contractors should be obtained, and a terms of use and privacy policy should be adopted as well.                 

It is a common misconception that intellectual property assets are most relevant to certain industry sectors, such as the creative arts, manufacturing, engineering and healthcare. The reality is that most companies have intellectual property assets. In fact, once you have established your company’s name, logo and branding, you started to establish intellectual property assets.

TRADEMARKS

Chances are that you already are quite familiar with trademarks as they are commonplace in the market. A trademark is a property right associated with a name, brand, logo, design and other items that identify a product or source of a product. If a trademark is eligible for protection, it can be registered with the United States Patent and Trademark Office (“USPTO”). The USPTO is a federal office that regulates the use, registration and enforcement of trademarks. Importantly, domain names can be protected as a trademark as well. Trademark rights begin not when a trademark application is filed with the USPTO, but once the mark is used for commercial purposes. This is true whether the mark is registered or unregistered, but a registered mark puts the public on notice of ownership and provides its owner with enforceable rights to protect their market against infringement by third parties.   

An application for a trademark can be filed with the USPTO for either actually using the mark in business or having an intention to use the trademark in business. The more unique and distinctive a mark is, the more likely it is to be granted protection. A registered trademark gives the owner of the trademark the exclusive and enforceable right to use such mark in connection with the goods or services associated with the registered mark. A trademark, once granted, has an indefinite duration; however federal registration is renewable in ten-year increments.

Trademark applications can be denied if the trademark is a generic term. Generic terms are words or symbols that communicate the type of product or service being offered and do not receive trademark protection. Because a generic term cannot obtain a secondary meaning and is a general or common term for the product or service at issue, it cannot receive trademark protection.

COPYRIGHTS

A copyright is a property right that gives an author the exclusive right to a creative work in a fixed medium. This includes protection for books, magazines, photographs, software, drawings, graphic designs, music, movies, and websites among other assets. A “fixed medium” means the work is stored in a medium that can be copied, accessed, or transmitted. Unlike trademarks, copyrights are regulated by the Copyright Office rather than the USPTO. Copyrights arise not upon application, but immediately once a creative work is memorialized in a tangible medium of expression, and furthermore publication is not required in order for a copyright to take effect.

Although registration of a copyrighted work is not required, it can be beneficial because it puts the public on notice of ownership. Similar to trademarks, registration of a copyright is accomplished via the submission of an application to the Copyright Office. A copyright owner has the exclusive right to reproduce the work, adapt the work, distribute copies of the work, and display the work publicly. The duration of a copyright varies depending on the nature of the work, the creation of the work, when it was published, and if it was renewed. If the work is created on or after January 1,1978 the duration is 70 years of the authors death or in the case of a work for hire or anonymous work, the earlier of 95 years after publication or 120 years after creation.

PATENTS

A patent is a property right associated with an invention. There are three types of patents that can be granted:

• Utility patents: the most common type of patent, granted for inventions that are novel and non-obvious.
• Design patent: granted for new, original, and ornamental designs of manufactured items and protects the way an item looks.
• Plant patent: used to protect new varieties of plants.

Patents are obtained via a successful application to the USPTO by the inventor who files the patent application. Inventors usually work with patent attorneys who are admitted to practice before the USPTO as these are highly technical applications.

If a successful application is granted by the USPTO, the patent holder has the right to exclude others from making, using, selling, or importing the patented invention in the US. This also allows the patent holder the ability to license the technology to third parties. Patent applications submitted on or after June 8, 1995, if granted, have a maximum duration of 20 years.     

Like Trademarks, patents are regulated by the USPTO.

TRADE SECRETS

A trade secret is exactly as its name implies, a secret process, device, technique or information that is used by its owner and is not known to the public. Information can be considered a trade secret if it’s not generally known or attainable outside of its owner, its owner derives economic value from the information not being known, and its owner takes reasonable efforts to protect the secrecy of the information. Unlike patents, trademarks or copyrights, trade secrets are not registered with a central repository because doing so would no longer render the subject matter a secret. Rather, trade secrets are protected by the owner taking the steps reasonably necessary to protect the information. If a third party acquires the trade secret through improper means, the owner of a trade secret has a cause of action pursuant to federal and state law that it can pursue for damages. In theory, a trade secret is a secret for an unlimited duration provided reasonable steps are taken to maintain the secrecy of the information.

OTHER CONSIDERATIONS

In addition to the above intellectual property assets and intellectual property rights that can be implemented to protect certain intellectual property assets, there are other agreements that can be implemented to further protect your IP assets. These agreements include non-disclosure agreements, intellectual property assignment agreements, and terms of use and privacy policies.

Non-Disclosure Agreements

One way to help protect a trade secret (in addition to any other intellectual property asset) is via the use of Non-Disclosure Agreements (“NDA”). An NDA is an agreement that is entered into by two or more parties which creates a confidential relationship. NDA’s are commonly entered into when exploring a business relationship and obligate the party receiving confidential or proprietary information of the counterparty to the agreement to maintain the confidentiality of such information. NDA’s can also be required by a company for its employees to sign because employees often times have access to sensitive and proprietary information about the company. NDA’s can vary in their length, the manner and scope of what is defined as confidential information, if it’s a mutual obligation of non-disclosure or only one party has the obligation not to disclose the confidential information of the party, and the exclusions from the confidentiality requirements.

IP Assignment Agreements

In addition to an NDA, a company should consider having its employees and independent contractors enter into an Intellectual Property Assignment Agreement. These agreements are used to transfer intellectual property from one person to another (or to a company). These are extremely common to have for employees as the company wants to own anything an employee creates in connection with their role at the company. Furthermore, a company will frequently want their outside software developers as well as their employees and founders to assign any and all prior intellectual property assets to the company if those assets are going to be used by the company. Intellectual Property Assignment Agreements are extremely important for tech focused start-up companies, as the intellectual property used by the company actually needs to belong to the company, and not the individuals who make up the company.

Terms of Use and Privacy Policy

Two other important documents to consider implementing are Terms of Use and Privacy Policies. The terms of use of a company define the rules of use of a website or the application of a company. Terms of use are important because they help to limit a company’s liability to its users, can help limit liability associated with user generated content, help protect the ownership of the company’s content, and can outline the dispute resolution process among other items. A privacy policy on the other hand, describes to users of a website or application how the data a company receives from its users is processed and stored. It is important that a company’s privacy policy accurately details how user data is processed and stored, and provided it is accurate, it can help manage potential liability associated with user data. If users will be creating accounts, end users should agree to comply with the terms of use and privacy policy via account creation.

Artificial Intelligence

Artificial Intelligence (AI) is becoming more prevalent in the business world with each passing day. As AI becomes more widely used, new issues will constantly emerge. One of the present-day issues for a company to consider is ownership. Does the company own the items created by the AI model, or does the provider of the AI model own the created items? Another issue to consider is use of the AI model. Has the company determined proper guidelines for using the AI model? Do humans review the outputs from the AI model to ensure its accuracy? How are the prompts that the AI model uses to provide answers created? A third issue to consider is storage. Does the AI model store or share confidential information, or trade secrets, that is provided by prompts? A fourth issue to consider is compliance. Has the company considered how to ensure that its use of the AI model comports with applicable rules and regulations? If the AI model creates something that infringes another’s work, is the company responsible for any resulting liability, or is the AI provider? These are just a few of the issues that a company should consider when it is integrating the use of AI into its business.

IP SUMMARY

As detailed above, there are a number of different intellectual property assets and different rights associated with those assets. Depending on which type of asset is at issue, there are different protections that can be implemented for the asset. It is important to be aware of the proper asset type classification so that you can make sure to use the right type of intellectual property rights to protect the asset. Additionally, a company can enter into certain agreements to further protect the rights and ownership associated with intellectual property assets.

Continue reading more in The Start-Ups & Emerging Companies Guidebook.