PART I – FORMATION
Authors:
Allison Gifford is counsel and member of Stradley Ronon’s intellectual property group. She can be reached at agifford@stradley.com or 610.651.2270.
Elizabeth O’Donoghue, Ph.D., is a partner and member of Stradley Ronon’s intellectual property group. She can be reached at eodonoghue@stradley.com or 610.640.7970.
Question: What are the stages of a business?
Answer: Under a typical scenario, the venture is formed, conducts research & development, begins to commercialize a product, seeks to enforce an advantageous position, and then may be sold.
Question: IP (intellectual property) is everywhere we go – people just do not realize it when they see it. Particularly for a new business owner, what IP considerations are top priorities when forming a business?
Answer: Certainly, it is important to know that IP is a penumbra word that encompasses four types of legal protection; patents, trademarks, copyrights, and trade secrets. 1. Patents protect new, non-obvious, and useful ideas. 2. Trademarks protect designations that identify goods and services and distinguish them from those of your competitors. 3. Copyrights protect original works of authorship fixed in a tangible medium of expression. 4. Finally, trade secrets protect information used in a business which offers an advantage over competitors who do not know or use the information. All forms give you a right to exclude others from doing something; none necessarily give you a right to do anything. In this first round of Q&A, we will focus on the IP issues related to the formation of a business.
Question: What would be one of your first pieces of advice for a new business owner related to IP?
Answer: Look at your business and determine what you may need to protect. Are you developing and selling a new product? Perhaps the new product is patentable, and you want to file a patent application. If the product will have a brand name, trademark protection may be advisable. Is your company name part of the brand name? Again, trademark protection may be appropriate for your company. Think about your website and securing a domain name? Depending on the contents of your website, copyright protection (or at a minimum copyright notice) may be appropriate. Do you have agreements in place for new employees for development purposes, are you using independent contractors, etc.? You would want to ensure that the company owns all the IP either prepared by employees or independent contractors. I would ask many of these questions to get to the bottom of what is important from an IP and a business perspective and then develop a plan of attack.
Question: It seems there are a lot of considerations facing an entrepreneur at one time, IP, business formation, funding. What would be a “first things first” consideration?
Answer: Let’s look at a timeline as an entrepreneur begins and grows a successful venture. Under a typical scenario, the venture is formed, conducts research & development, begins to commercialize a product, seeks to enforce an advantageous position, and then may be sold. We will touch on the IP considerations for each stage in subsequent articles, and for today, the discussion will focus on formation.
Question: What are the IP issues at formation?
Answer: Upon formation, certainly register your company’s name in your state of incorporation. But don’t stop there. Clear the name and any logo to make sure they do not infringe already extant trademark rights. Understand that a company name and trademarks may be different, so there are two separate searches that you may need to conduct, one on the state level for the availability of a business name and a possible separate search to use a trademark. Consider a separate holding company to own any IP assets; this may be beneficial both to avoid liability and for tax purposes. Secure a domain name: register it and, again, clear it to avoid trademark infringement issues. Be concerned about existing IP rights of former employers. Check all related contracts, especially regarding restrictions against the use of trade secrets, assignment of patent rights, and provisions precluding competition. Finally, consider the advantages of employment contracts obligating employees to assign patent rights, protect trade secrets, and, perhaps, refrain from direct competition with you after departure.
Question: How about patent protection? I assume it is not too early to consider, is that correct?
Answer: As you begin R&D, it is advisable to do a collection search of already extant patents. You will learn from and build on the ideas of others. You will also be in a position to avoid patent infringement issues while developing your product. When you talk with others, do so only under the protection of a confidentiality or non-disclosure agreement. Encourage inventions by implementing an incentive plan (monetary rewards, plaques, dinners). Memorialize all inventions with a written invention disclosure document and have inventors maintain detailed notebooks. For important inventions, conduct a patentability search and, if warranted by the search results, file patent applications. Specifically for biotech companies, you will be privileged to become intimately familiar with Federal Food & Drug Administration product requirements, including perhaps the Abbreviated New Drug Application. Finally, if research is done jointly, prepare a formal agreement defining what pre-existing IP each party brings to the table and who owns the new technology.
Question: What about the names of your product and services – what are your first next steps?
Answer: From a marketing vantage, consider adopting, using, and perhaps registering trademarks. Before adopting any new trademarks, we recommend, at a minimum conducting a preliminary (knock-out) search of the U.S. Patent and Trademark Office database and online to see if there are any third parties using similar marks for similar goods and/or services. Depending on the results of a preliminary search, a comprehensive search may be advisable. Finally, if you are IP risk-averse, insurance options exist both to pay for suits defending against IP infringement charges and to enforce your rights against others. IP litigation is expensive.
Question: Any other considerations before a new business owner embarks on their great adventure?
Answer: Protect trade secrets by taking all necessary precautions (legally called “reasonable measures”) to maintain secrecy. Consider copyright protection for and in any materials used for the business – website pages, marketing materials, photographs. etc. When creating a website, ensure that you have a good agreement with the developer concerning the use of third-party photographs and obtaining the necessary permissions for photographs and other materials. Also, if hiring any independent contractors, ensure you have all the necessary agreements in place regarding ownership of IP.
Question: I know that the above is only an outline – will more specifics be provided?
Answer: Yes, next time, let’s have more in-depth conversations about patent protection, trademark and copyright protection, trade secret protection, and related enforcement and due diligence considerations.
