Protect Key Technology From the Start
by Sarah Curtis Richmond    Bio

This article was first published in the September 2001
issue of the Woman's Business Journal

A high-tech company's crown jewels are its intellectual property, yet these are the very assets companies often fail to safeguard. It is not nearly enough to have break-through technology. A company must protect its trademarks, copyrights, trade secrets and patents in order for its technology to be worth anything. The best-laid plans for a sale or an IPO can evaporate if key technology turns out to be owned by a third party. For a company to succeed it must understand how its intellectual property works and take appropriate steps along the way to protect these important assets.

Document Your Ownership.

Document all transfers of technology in writing. Keep in mind that nobody will be your friend forever and there can be legitimate disagreements about ownership of work product. Founders' rights to developments created before incorporation should be assigned to the company immediately upon organization. Make sure that no employees are incorporating the property of any former employer into work for the company. If you wait until later to document these things, it may be too late.

Have employees and consultants sign agreements for the assignment of their inventions as of their first day of work for the company. Without an agreement, a consultant who develops software code will own the copyright to all the code she develops even though the company pays for it. If the company doesn't plan ahead, it may find itself at the mercy of a former consultant who owns the cornerstone to the company's core technology. When the former consultant is a disgruntled one, she can literally hold the company hostage until the company can convince (or bribe) her to play ball.

Implement a Trade Secret Protection Program.

Trade secrets consist of confidential information that has been kept secret from the public, giving the owner of the secret a competitive advantage. Trade secrets are vital assets of the company developed at great expense and effort. Without a trade secret protection program, they may be lost forever.

Sign confidentiality and non-compete agreements with all employees and consultants, and conduct exit interviews with them when they leave the company to remind them of their continuing obligations. But play it safe. Only give access to trade secrets to employees and consultants on a need-to-know basis.

Sign nondisclosure agreements with all business partners but be realistic about these documents. They can be difficult to police, so if you don't trust the company you are talking to, think twice before revealing anything too valuable.

Take common sense precautions. Label all materials containing trade secrets with confidentiality stamps, and destroy confidential documents when they are no longer needed. Lock desks and file cabinets, and make sure that computer systems require ID codes and passwords. Ensure that your site is secure, using sign-in logs, badges and keys, and restricting third party access.

Search and Register Your Trademarks.

Trademarks are words or designs (or both) used to identify a business's products or services, and are important assets of the business. If you do not take appropriate steps when coming up with the company's product name or logo, the company's trademark can become a liability rather than an asset. Many companies make the mistake of starting to use a name without first finding out whether it is available. Those same companies often find themselves receiving a letter down the road from the owner of a similar mark demanding that they stop all use of the name and pay damages.

A Web search is not sufficient by itself to clear a mark. Once you have conducted a Web search which discloses no obvious obstacles to your mark, order a thorough search from a reputable searching company, and have an experienced lawyer interpret the results for you.

You can gain enforceable trademark rights simply by using the mark, provided that it is available. However, it almost always makes sense to apply to register your company's trademark with the U.S. Trademark Office. A federal trademark registration will make your company's ownership a public record, reinforce your rights and allow you certain legal advantages. You can also stake out nationwide trademark rights by filing an application even before using the mark.

Consider whether you might sell your products or services outside the U.S. If so, you may need to clear your mark and file applications in other countries as well.

Use Your Trademarks Properly.

If you allow your company's trademarks to be misused, the marks can become "generic" and be lost forever. If that happens, anyone can then use the mark because it no longer indicates to the public the source of the product, and you have lost the company's investment in that asset. Examples of trademarks that became generic include such familiar names as escalator, kerosene, corn flakes and linoleum.

The following steps should be taken to prevent a company's trademark from becoming generic: Use the mark as an adjective to modify the common name for your product or service, and not as a noun or verb. Distinguish your mark from a mere word throughout the text of your documents by capitalizing the mark or using bold or italic font, quotes, or contrasting colors. Use the trademark in its exact format. Do not combine words, vary the spelling or add letters. If the trademark is a logo, do not alter its color, proportions or typeset.

Trademark protection can also be lost in other ways. If you don't use it, you may lose it, even after you have a registration. You can also forfeit your rights in connection with a trademark license if you fail to maintain quality control over the product being licensed under the mark.

File Applications for Your Intellectual Property.

File applications for your intellectual property assets with the appropriate authorities. Failure to do so may cost you significant rights.

In addition to filing federal trademark applications, register the domain names for your marks as well as common misspellings as early as possible. If not, you may be forced to deal with a cybersquatter who has gotten there first.

Talk to a patent attorney early on about filing patent applications, as patent rights are only obtained through a registration from the federal government. A patent enables you to exclude others from making, using or selling your invention. Unless you take the appropriate steps to patent your invention, no protection may be available against someone who makes even an exact replica.

File copyright applications for software code the company develops. Although copyrights do not require a federal registration in order to enjoy protection, a copyright registration is required in order to file an infringement suit seeking damages or attorneys' fees. If you are like many technology companies and do not go to the trouble of registering your copyrights, be sure to keep copies of all major releases of your software, which are needed for registration. If you find yourself scurrying around at the last minute to register your copyrights in order to sue an infringer, you don't want to be stymied by your sloppy record-keeping.

Put Form Contracts in Place.

Put standard forms of license, reseller and other applicable contracts in place to protect your company from liability. Without contracts in place, you will have no idea what you're signing up for when you sell your product. If the company's agreements will be negotiated by different sales people, make sure the sales people understand the agreements and are provided with a list of non-negotiable terms. Also protect all activities you are conducting online by making sure that your web site contains the necessary terms and conditions and privacy policy.

Enforce Your Rights

Enforce your rights against others when appropriate, and be consistent in your enforcement. If you fail to act now it may be harder to protest a similar situation later. Enforce your employee non-compete agreements on a consistent basis, or you may not be protected from former employees competing when it really matters to you. Monitor the use of your trademarks by third parties, ensuring that they are only used as factual references, so that you can protest any misuse when appropriate.

Talk to a Lawyer.

Companies often cut corners and ignore legal formalities at the early stages, figuring that they can talk to a lawyer later on when they have more cash and time. This can be a big mistake, causing the company substantially more expense and problems down the road when things need to be cleaned up. You don't want to be in the position of having to buy back the intellectual property you should have owned at the outset, if only you had put the proper procedures into place. Worse than that, some problems can't be fixed at the later date.

The success of a high-tech company will largely be based on the strength of its intellectual property assets. Don't undermine all your hard work: beware of the pitfalls from the start.


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