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4. INITIAL OPERATIONS

e. Intellectual Property

The term “intellectual property” (IP) refers to copyrights, trademarks, patents, and trade secrets. Federal and state laws generally prohibit the unauthorized use, reproduction, or distribution of intellectual property belonging to someone else. Companies should take reasonable steps to protect their own IP and avoid infringing on the IP of other companies.

The different categories of IP law protect the following types of intangible property:

• trademark law protects words, names, symbols, and devices
• copyright law protects original works of authorship
• patent law protects inventions
• trade secrets law protects confidential information

Trademarks

Trademark law generally gives companies the exclusive right to use their trademarks in connection with specific industry classifications of goods and services. In the United States, trademark rights arise upon the first use of the trademark in commerce, not upon the creation or government registration of the trademark. Trademark protection applies only for the period of use.

The trademarks of a start-up company usually consist of names and logos of the company and its initial products. For each name, two trademarks may apply – one for the standard text version of the name, the other for the stylized text contained in the corresponding logo.

Registration is not necessary for trademark protection. However, registration provides certain benefits under the law.

At the federal level, registration with the U.S. Patent and Trademark Office (PTO) allows the registrant to do the following, among other things:

• sue in federal court for trademark infringement
• prove ownership of the infringed trademark
• require the infringer to disgorge profits
• recover up to three times the actual damages
• register in foreign countries based on the U.S. registration
• register with U.S. Customs to block infringing imports

At the state level, the California Secretary of State also registers trademarks and service marks, but not trade names. Trade names may be registered at the county level. The benefits of registering with the California Secretary of State include, without limitation, the right to obtain an injunction against infringement. Registration at the county level may help the plaintiff prove, among other things, ownership and prior use of the trade name.

Even if trademarks are registered, the owner may lose the benefits of registration by failing to enforce its rights against infringers. Thus, if you discover an infringing use of your registered trademark, consult with a trademark attorney immediately.

Copyrights

Copyright law grants copyright owners the exclusive rights to copy, use, publish, and otherwise commercially exploit the original works covered by the copyrights. The period of exclusivity depends on various factors. In the case of new works owned by companies (as opposed to individuals), the copyright terminates 95 years after the year of its first publication or, if earlier, 120 years after the year of its creation.

Examples of protected works are websites (both the content and the underlying computer code), business cards, letterhead, brochures, and other marketing materials. Copyrights also apply to such works as instruction manuals, computer games, movie screenplays, and architectural designs.

Companies automatically own the copyrights in new works created by their employees on the job. In addition, companies may own the copyrights of new works created by their independent contractors, if the independent contractors execute written “work made for hire” agreements applicable to such works. With regard to existing works, companies may acquire the copyrights by executing written assignment agreements with the copyright owners.

You may register your copyrights at the federal level, but not the state level. At the federal level, the applicable agency is the U.S. Copyright Office. Unlike trademark law, copyright law protects works immediately upon their creation, not upon use or registration. However, registration provides various benefits, such as proof of ownership, statutory damages, and reimbursement of attorney fees in litigation.

Copyright law requires copyright owners to file deposit materials with the U.S. Copyright Office within three months after first publication. This “mandatory deposit” obligation is different than the registration of copyrights. Failure to file deposit materials may result in fines or penalties, but copyright protections continue to apply.

Patents

Patent law grants inventors (or their assignees) the exclusive right to exploit their inventions for 20 years after registration. Patent law only protects inventions that are useful, novel, and not obvious. Patents are usually one of two types -- “utility” and “design”.

Works must be registered to obtain protection under patent law. Registration takes place at the federal level only. The applicable agency is the U.S. Patent and Trademark Office.

Unlike copyrights, employers do not automatically obtain ownership of patentable works created by their employees. However, the “shop rights” doctrine allows employers to use inventions created by the employees within the scope of their employment or in the workplace. The employees maintain exclusive ownership of the patent rights other than use. The "shop rights" doctrine may be limited by agreement.

IP Notices

All of your products and marketing materials should prominently display the proper copyright, trademark, and patent notices, as applicable. For example, your website should contain copyright and trademark notices on every page and in the section with the legal terms (“terms of use” or “terms of service”).

The notices put third parties on notice of your claim to exclusive rights. In an infringement or misappropriation action, the existence of such notices may help you win the lawsuit and recover statutory damages, including attorney fees.

Timing of Registrations

Trademark applications may be filed at any time.

Copyright applications should be filed within three months after first publication or at least prior to infringement, because the law provides for extra statutory damages for “willful” infringement if the filing is timely.

Patent applications must be filed within one year after the first sale or other distribution of the invention to the public. However, some foreign countries may enforce your patent only if you filed your application in the United States prior to the first sale or other distribution. Thus, if you plan to register your patent in foreign countries, consider filing in the United States before distributing the product.

Registration of intellectual property usually takes longer than expected – especially with regard to trademark and patent applications. If you decide to register IP, you should begin the registration process as early as possible. You will probably need to consult with attorneys who specialize in the applicable areas of IP law.

Trade Secrets

The fourth category of intellectual property is trade secrets. Trade secrets are protected primarily at the state level, but certain federal criminal statutes also apply.

The law only protects confidential information with economic value. Legal rights arise upon creation of the information, not its use or registration. In fact, registration is not even possible.

To obtain legal protection, owners must make reasonable efforts to maintain the confidentiality of their trade secrets. For example, you should do the following:

• limit access to personnel with a “need to know”
• distribute a personnel handbook containing a confidentiality policy
• include confidentiality obligations in agreements with employees and independent contractors
• require personnel to return or destroy materials at the end of their services or upon request
• control disclosures to company outsiders
• execute “non-disclosure agreements” (NDA's) with outsiders before sharing information
• include a prominent confidentiality notice on materials containing trade secrets
• add “terms of use” to your website with a confidentiality provision