Intellectual property for startups
By Michael J. Kasdan, Esq. and Richard P. Zemsky, Esq.
The early stages of a new business can be a whirlwind. Building the team, structuring the company, attracting investment and developing the product, key partnerships, sales channels and marketing plans are typically all-consuming tasks for the founders. Amid all this essential activity, intellectual property (IP) sometimes takes a back seat.
Three relevant types of intellectual property that startups should understand are:
It is extremely important for startups to understand the different types of patents and how they fit into their business.
- Utility patents are available for processes, machines, articles of manufacture, or compositions of matter that are deemed new, useful and non-obvious. The traditional subject matter of patents covers tangible, technical inventions, such as improvements to client-server systems, motors, radios, computer chips and various technical product features. For example, Boeing’s US Patent No. 6,227,447 is a patent that relates to methods of remotely controlling a vehicle. Patents can also be directed at new product features and functions. For example, Facebook’s US Patent No. 8,171,128, titled "Communicating a newsfeed of media content based on a member's interactions in a social network environment," protects its News Feed feature.
- Patents are also available for business methods, extending the significance of patent protection into many diverse fields. Many industries that did not traditionally seek patent protection, such as financial services firms, have lately found themselves focusing their energies on building patent portfolios. For example, First USA Bank’s US Patent No. 6,227,447 is directed to a method for completing a credit card transaction without the need for the physical presence of the credit card.
- Finally, a separate category of patent, the design patent, may be sought to protect ornamental (non-functional) designs. Recent notable design patents include Apple’s D 604,305 covering the design of its iPhone interface and Lululemon’s design patent covering its yoga gear.
The role of patents
Not every startup business will be best-served by investing its resources in building a patent portfolio, but the question of whether to pursue patent protection warrants a hard and early look. Knowledge of the role of patents is critical for two reasons:
- To protect your own business and inventions from your competitors
- To avoid the risk of being exposed to assertions of patent infringement by competitors and other third parties
Although patents are the most expensive and time-consuming type of intellectual property to obtain, they also provide the best scope of protection. A patent provides its holder with the exclusive right to make, use or sell an invention, meaning that it can exclude a competitor from making or selling the patented invention, irrespective of whether the competitor copied the invention or even previously knew of the patent.
The benefits for a young business
Patents may provide a number of benefits to young businesses. For example, a robust patent portfolio or a key patent can help attract investors, since it may serve as an entry barrier against competitors. Furthermore, the filing of a patent application will enable the company to advertise "patent pending" along with its product or service.
In addition to potentially attracting investors, the "patented" or "patent pending" labels may also help deter would-be competitors, or force those competitors to adopt different designs and technologies.
As indicated above, issued patents may be used to stop competitors from entering the field and to recover damages for any infringement that occurred. Finally, patents can also further help the finances of a business by providing an additional opportunity to generate revenue from licensing. For example, a company called Paice LLC licenses its patents covering hybrid cars to both Toyota and Ford.
Impact of the new America Invents Act
Recent changes in the patent law implemented by the newly passed America Invents Act (AIA) impact the leading practices for businesses looking to file for patent protection. First, the new "first inventor to file" system incentivizes early disclosure of inventions and early filing of patent applications.
When two people independently come up with the same invention, the first inventor to file for a patent on his or her invention is awarded the patent, regardless of which actually invented first. Therefore, it is important for businesses to streamline operations to reduce the time from invention to filing of patent applications.
Early and cost-effective filing can be achieved through provisional applications, which are essentially invention disclosures that can be converted to full patent applications within one year. In addition, the AIA also provides for a prioritized examination procedure, which expedites the patent examination process. While the use of prioritized examination is more costly up-front, it may reduce overall legal expenses since a patent can be obtained within one year.
How to file a patent application
A patent is obtained by filing an application with the United States Patent and Trademark Office. The application includes a description of the invention accompanied by drawings, followed by a list of the elements that form the invention, called the patent claims. The patent claims set out the metes and bounds of the invention; third-party products or services that practice the elements of the claim infringe the patent.
When a patent application is first filed, an examiner is assigned to it. The examiner will reject or allow claims based on an assessment of their patentability, and the patent applicant will have an opportunity to respond to the examiner’s decisions. This back-and-forth with the Patent Office, known as prosecution, can take a number of years and is best done by an experienced patent attorney or registered patent agent who understands the procedures, the legal requirements and the art of drafting strong patent claims.
Avoiding infringement of other patents
The second important aspect that startups should consider with respect to patents is a defensive one, i.e., avoiding infringement of the patents held by others. As a matter of practice, startups should conduct a patent search to verify that their intended industry and application is free of patents that could be asserted against them. The up-front cost of performing this search is rendered worthwhile by the potential for huge savings, both in terms of litigation costs and wasted investment in an infringing idea. The cautionary tale of Vlingo underscores this point.
Vlingo spent years developing voice recognition technology that led to talk of partnerships with Google and Apple. However, another voice recognition company, Nuance, which held a patent on voice recognition, sued Vlingo for patent infringement. Although Vlingo ultimately won the lawsuit, by then the company had already lost its potential partnerships, and the cost of defending the suit forced Vlingo to sell the business, to Nuance. An early patent search could have revealed the Nuance patent and may have allowed Vlingo to take appropriate strategic steps to address the issue.
Trademarks are words, symbols, logos, slogans or product packaging and design that identify the source of goods or services. The Coca-Cola logo is one of the more famous trademarks. Trademarks serve to build brand awareness and business goodwill. They can impart consumer confidence in a product by association with a brand the consumer trusts.
Unlike patents, trademark rights are acquired through use. Even without registration, the symbols "TM" or "SM" may be used to accompany trademarks or service marks to designate products or services. However, only registered marks may be accompanied by the "®" symbol.
Although registration with the US Patent and Trademark Office is not required to gain trademark rights, registration provides certain important benefits to the trademark holder. For example, without a registration, the trademark rights are limited to the geographic area in which the product or service is marketed and sold, and protection begins only after the product or service is available for sale on the market.
In contrast, federally registered marks have constructive nationwide rights. Registration also creates a prima facie case of validity of the ownership as well as an exclusive right to use the mark for specified goods or services. The owner of a registered mark can stop importation of infringing products through Customs.
Clearing and registering key trademarks
In addition to obtaining trademark rights, just as with patents, businesses should be aware of whether their desired name, logo or domain name is already in use by others. Searching for existing uses is known as trademark clearance, with the goal being to "clear" a desired mark for use. Clearing the name and brand early on will reduce the likelihood of problems down the road.
Startups should look to protect their brand early by clearing and registering key trademarks. Registration is relatively quick and inexpensive, generally a few thousand dollars for a clearance search and subsequent filing for registration. A trademark application must specify the type of mark -- i.e., whether the mark consists of just the words or instead a stylized design or even a sound -- and the application must also specify the particular goods or services to which the mark will apply.
Finally, as the company grows, it will become increasingly important to police infringing uses of its marks. Such efforts will help ensure that the business is not losing customers due to confusion with knock-offs.
Finally, copyright is a form of intellectual property that protects the expression of ideas. Books, music, art, photographs, architecture and even computer software are protected by copyright. While copyrights protect the expression of ideas, they do not protect ideas or concepts themselves. For example, a copyright can protect a particular photograph of a bird, but others may still create their own photographs of the same type of bird.
Another requirement for copyright eligibility is that the work is "an original work of authorship." Facts, titles, phrases, and forms per se cannot be copyrighted.
Six exclusive rights to copyright owners
Like trademarks, copyright registration is optional. As soon as a work is written or recorded or otherwise fixed, it is considered to be copyrighted. US law provides six exclusive rights to copyright owners, including the rights to reproduce the work, prepare derivative works and distribute copies.
Registration provides procedural benefits. Critically, registration is necessary in order to file a lawsuit for copyright infringement. It is also necessary to receive certain remedies, such as statutory damages and attorney fees. Registration provides a presumption of originality and ownership, and it allows US Customs to stop the importation of infringing or counterfeit works.
Businesses should include the "©" symbol or the word "Copyright" with all materials it distributes. They should also include the year of first publication, the name of the owner, and the language "All rights reserved."
Businesses should consider registering any important materials so that the option of filing lawsuits is available to address infringement. Registration can be filed online with the US Copyright Office for just US$35.
Startups should also be careful to avoid using third-party photos, music, or writings on their website, marketing materials or products. Such use could lead to a potentially costly infringement dispute with the copyright holder.
Finally, because the author is the copyright owner by default, startups should take steps to ensure that they receive the rights to any copyrightable work performed by employees or third-party contractors. The Copyright Act lists specific requirements for works for hire, and employment and third-party contractor agreements should include specific language to address ownership of any copyrightable works.
While intellectual property issues may sometimes get brushed aside during the early stages of a business, the benefits of a diligent and intelligent IP strategy are likely to produce serious value.
Startups should be aware of the types of intellectual property that can impact their business and strategically consider pursuing patent, trademark and copyright protection as appropriate. Defensively, startups should assess the intellectual property landscape of their industries. That awareness should be coupled with clearance efforts to ensure that the company will not infringe upon the intellectual property of others.
About the authors
Michael J. Kasdan is a Partner and Richard P. Zemsky is an Associate at Amster, Rothstein & Ebenstein LLP. Their practice specializes exclusively in intellectual property issues, including patent, trademark and copyright.
Michael works with established companies and startups to obtain, value, license and develop patent portfolios and trademarks. As a litigator, he negotiates, defends and asserts IP rights before the courts, the US Patent and Trademark Office, the International Trade Commission and in private arbitrations and mediation. He has been on the ground floor of efforts to turn New York City and State into a hub for innovation and entrepreneurship in technology, internet, e-commerce and new media.
Mr. Kasdan also teaches as a guest lecturer at his alma mater, NYU, and as an adjunct professor at New York Law School and Seton Hall University School of Law.