Archive for April, 2010

Startup Corner: Tips To Protect Your IP

Sunday, April 25th, 2010

Intellectual property and other intangible assets constitute 80% of the market capitalization of S&P 500 companies. Nowadays, it is as critical for companies to properly maintain their patents, copyrights, trademarks, and trade secrets as it is to maintain their plant and equipment.

Below is a quick checklist of eight items your company should follow to protect and preserve its IP.

1. Implement Intellectual Property Ownership Agreements

For most forms of intellectual property, the default rule is that whoever created it, owns it, so have all employees sign employment agreements and independent contractors sign service or consulting agreements that stipulate all intellectual property they create while working for your company is either a work made for hire, or if not, that the creator automatically assigns ownership of its IP to you as of the time of its creation. For similar reasons, on joint projects that could result in patentable inventions, have co-researchers sign agreements assigning ownership of all IP to your company, or if that is not possible, specifying the terms of co-ownership of any patents. Having these agreements in place will save you from a claim that someone else owns valuable IP that you paid for.

2. Put All Licenses and Assignments in Writing

You should not allow other parties to use your inventions, creative content, software, logos, confidential information, etc., nor should you use theirs, without a license agreement in place. If there is a dispute, then at best it would be hard to prove who was allowed to do what for how much money, and at worst, you may lose ownership of your IP in part or in whole. Furthermore, where ownership in patents, copyrights, or trademarks are transferred (an assignment), then often a signed writing is required to make it legally binding.

3. Preserve Confidentiality of Trade Secrets

Trade secrets are valuable commercial information or formulas that maintain their protected status only so long as their owner takes reasonable measures to preserve their confidentiality. Therefore, companies should implement policies that require employees to preserve confidentiality of confidential information, and follow good housekeeping procedures, including: placing “confidential” or “proprietary” stamps on documents; requiring employees to sign nondisclosure agreements; requiring password protection for all computer-stored trade secrets; restricting physical access to areas containing trade secret information and implementing sign-out log procedures; and conducting exit interviews with departing employees. And before release of any valuable confidential information to an outside party, require the recipient to sign a nondisclosure agreement that requires the recipient: 1) to take at least reasonable steps to maintain confidentiality of the information; and 2) to only utilize it for the purposes allowed in the agreement.

4. Register Important Copyrights

Original, creative works such as text, images, music, websites, and software come under copyright as soon as they are fixed in a tangible medium, but in order to get meaningful enforcement capability against infringement, registration with the US Copyright Office is advisable.

5. Register Important Trademarks

Words, logos, or jingles that identify your company’s goods and services often qualify as trademarks. Some degree of protection exists even without registration, under the doctrine of common law trademark. But as with copyrights, in order to receive the maximum degree of protection, registration with the US Patent and Trademark Office is advisable. Furthermore, purchase all domain names that your company is likely to use in the future, including common variations.

6. Challenge Infringing Uses of Your IP

Perform periodic Google and eBay searches to make sure that others are not misappropriating or abusing your company’s copyrights or trademarks. If evidence of infringement is found, consult with your attorney about the advisability of a cease and desist letter or even a lawsuit. Especially in the case of trademarks, ignorance is not bliss — it can lead to forfeit of your IP.

7. Use Copyright and Trademark Notices

Use standard copyright notices, such as “© 2010 Your Company, Inc. All Rights Reserved,” for text, graphics, music, software, websites, and other original creative content, and standard trademark notices, such as “® Your Company, Inc.” or “®” (for registered trademarks) or “™ Your Company, Inc.” or “™” (for common law trademarks) next to words or logos that identify your goods or services. Better yet, have your attorney work with your marketing people to draft comprehensive guidelines for proper use of copyright and trademark notices for all products, product packaging, and company communications. This shows the outside world that you are knowledgeable and vigilant about your intellectual property rights, and also eliminates an “innocent infringement” defense in enforcement litigation. Or as Ali G says when pitching his idea for an ice cream glove to a venture capitalist, “That’s a ©, which means you can’t nick it.”

8. Post Effective Rules for Your Website

Website Terms of Service and Privacy Policies are important means of limiting your company’s legal risk and earning your customers’ trust. Although technically not IP protection devices, they are critical legal safeguards, especially for companies that engage in e-commerce.

A Bad Idea: Disclosing Ideas Without an NDA

Friday, April 16th, 2010

Potential clients often ask: “I have this million dollar idea I want to pitch to Company A, but if I ask them sign an NDA, they won’t have the meeting. Could they steal my idea?”

The answer is frequently “yes,” if the company does not sign a nondisclosure or other written agreement acknowledging the confidentiality of the idea.

That unfortunate fact was demonstrated in a case in which entertainment broker Bonnie Vent cold-called Mars Snackfoods and pitched an idea for a cross-promotion featuring characters from the Addams Family television show on M&Ms candies. According to Vent, Mars subsequently declined to use her idea, but eight months later, Mars ran advertisements featuring M&Ms candies altered to resemble the cast of the program:

In its decision, the federal Second Circuit Court of Appeals rejected her claim for compensation, and in doing so, set forth a nice primer on property-based misappropriation of ideas under New Jersey law. (Property-based misappropriation of idea claims share many elements with trade secret claims. Many states also allow contract-based misappropriation of ideas claims.)

According to the court, in the absence of a contract, an idea is protected against misappropriation only if: 1) it is novel; 2) it is made in confidence to the recipient; and 3) it is utilized by the recipient.

The court ruled that Vent’s claim failed the second requirement, because there was no confidentiality between Vent and Mars.

Vent did not claim that she offered an NDA or even discussed confidentiality during her pitch call with the Mars representative, but argued that: 1) confidentiality was implied because Mars, as the more powerful party in the relationship, had a fiduciary duty (obligation to take care of her interests); and 2) confidentiality was implied by custom in the entertainment industry.

A confidential relationship may be implied between parties if there is a fiduciary relationship between them, for example if the parties are in a relationship where one is vulnerable to or relies on special skills or knowledge of the other. This was not such a case, because Vent cold-called the Mars representative, and volunteered the information. Normally, a fiduciary relationship cannot be formed without the consent of both parties, ruled the court.

A confidential relationship may also be implied if customary in an industry, but assuming such a custom exists in the entertainment industry, the court ruled that it did not apply to Mars, which is not in the entertainment industry. (The decision referred to a case in which it was held that confidentiality is customary for idea pitches in the toy industry.)

One caveat — the law of misappropriation of ideas is state-based, with a wide variation in law among states. However, many (not all) states use some variation of the New Jersey three-part test of novelty, confidentiality, and utilization to decide when the idea originator must be compensated for property-based claims, and sometimes even for contract-based claims.

Takeaway:  granted, it is often tough to get an audience before a large company or venture capitalist to pitch your million dollar idea, but before you do so, carefully balance the benefit of requesting a nondisclosure agreement against the risk of losing the idea, or worse yet, getting ensnared in endless, Kafkaesque litigation:

Patents in the Information Age: Bilski Preview

Friday, April 2nd, 2010

The Supreme Court’s imminent decision in the case of Bilski v. Kappos will recalibrate the definition of patentable subject matter for the Information Age, and is likely to be a landmark case in the history of intellectual property law.

35 USC Section 101 requires that as a threshold matter, for an invention to receive a patent, it must be, “… a new and useful process, machine, manufacture, or composition of matter…”

Courts have interpreted the Section 101 language to implicitly exclude laws of nature, natural phenomena, and abstract ideas, since they are basic tools of scientific and technological work over which no one should have a monopoly.

While that test worked well in an age when most inventions were or acted upon tangible items such as chemicals or machines, it does not work so well when many valuable innovations are intangibles like software, but not akin to laws of nature or abstract ideas.

The narrow issue at stake in Bilski is an application for a so-called business method patent proposing a series of steps to utilize futures contracts to reduce economic risk in fixed-price electric utility contracts.

The broader issue in Bilski is how close a nexus an invention must have to operations or effects in the physical world to meet the threshold requirements of Section 101.

The Court of Appeals for the Federal Circuit ruled in In re Bilski that under existing case law interpretations of Section 101, “processes” do not include “laws of nature, natural phenomenon, [or] abstract ideas,” but rather would need to: 1) be “tied to” a particular machine or apparatus; or 2) transform a particular physical article or substance into a different state or thing. It then ruled that the Bilski business method did not pass this test, because: 1) the application did not claim the invention was tied to a particular apparatus or machine; and 2) the invention did not transform any physical article to a different state or thing, but only manipulated abstract financial data and legal obligations.

It is unknown whether the Supreme Court will adopt the Federal Circuit’s formulation of the Section 101 test, but many observers believe that the Bilski business method will probably be held non-patentable whatever the ultimate test. (And, contrary to many media reports, the Court could easily deny the Bilski invention without undercutting the rationale of all existing business method patents.)

The more difficult task for the Supreme Court will be to set forth a formulation of the Section 101 test that while consistent with existing case law, also protects economically important innovations of the Information Age, such as software, that require great innovation and yield great economic benefits, but do not at their core operate in the physical, tangible world.

At oral argument before the Supreme Court, the attorney for the Patent and Trademark Office, which opposed the Bilski application, nevertheless asked the justices not to disturb existing patent protection for software and medical diagnostic procedures, but some justices appeared to be struggling with just where to draw the line in a way that respected prior case law without stifling future innovation.

The Licensing Law Blog will post a full analysis of the Bilski decision when it is released.