Part VI) Internet & Tech Company IP Protection
So you are working on the hottest new startup and want to know how to protect your ideas when you are out raising money and recruiting new engineers and designers. Here is a brief overview of the types of intellectual property (IP), ways to protect them, and tips for your startup. I will focus on some of the more common issues in internet and tech related companies, although some of these issues appear in other contexts.
Copyright is a protection for original works of authorship that must be tangible. You can’t use copyright protection to protect an idea until that idea is put into a tangible form. The most common ideas people have of copyright is usually with authors who write film scripts or books where they often see the words “copyright” or a c with a circle around it and things like the name of the author and year next to it. The idea of the book is not protected by copyright law, it is when the book is written is when it becomes tangible and subject to copyright laws. In the internet and software context, source and object code can be protected under copyright laws if they are an expression of an idea, not if they are simply the idea themselves.
It also does not protect facts or data and the work must be original. Say you are using source or object code that is commonly used to create a widget or menu on your website. That common code is probably not protected under copyright law as it is not original, but the selection, arrangement, and presentation of each element put together to create your website or e-commerce site may be protected.
Most internet related issues will come under the purview of the Digital Millennium Copyright Act (DMCA) in the United States, but may also include areas from the Copyright Revision Act of 1976. The person who creates the work is generally considered the owner as soon as the work is created; however, the main exception in the tech context are works made for hire. If you hire a developer to design and create the back end code for your e-commerce site, the general rule on ownership of that back end comes down to whether the work was made for hire. If you hire a company or independent contractor to create it, they will likely own the rights to it; however, if you hire an employee to develop it, your company will likely own it. There are very specific tests to determine whether it is an employer-employee relationship and it is not as simple as putting into a contract that the person is an independent contractor. You will need specific legal guidance in this area and the value of these works could be too valuable to not hire an attorney. You can have a contractual agreement regarding the ownership rights of any works developed, but again, something that is best handled by an experienced attorney.
In order to protect works under copyright law, you do not have to publish or register the work with any agency as your rights would attach upon creation; however, it is best practice to include a copyright notice to make others aware of your rights. It is also a good practice, in some cases, to register the work with the U.S. Copyright Office as it gives you better chances in court to protect your works and other advantages. There are costs involved and if there are revisions made to the website or code, it may be too time consuming and costly to keep registering the newest version and the company may not want to disclose some specific information they want to keep confidential.
A patent is a form of protection for the actual idea behind an invention, which must be new or novel. There are too many specifics of patent law to get into the details, but there are many different types of ideas that can be patented, for example, many software companies do get issued patents on their software (code). The process generally involves filing a patent application with the U.S. Patent and Trademark Office (USPTO). It can be filed at various stages of the idea’s development, both prior to, and after use of the patented idea; however, failure to file the patent application and beginning to use the idea in commerce can result in all kinds of legal issues that can end up in court for many years, so it is usually best to file the application early on. Also, just filing the application is not an automatic guarantee of protection. The USPTO goes through a process of review before it actually issues the patent, so it may take time before you can be sure if you have that form of protection or not. You will often see products out there with something on the packaging that says “patent pending” meaning they (hopefully) filed a patent application, but it has not yet been issued to give them full patent protection.
You also have to prosecute your patent to protect from infringement, even if you have a validly issued patent. No one is going to do it for you and the company has to incur the costs of making sure no one is infringing on their patent. Again, similar to copyright notices/markings, it is not required, but usually a best practice to include some form of notice of a patent application being filed for the particular product if it is already launched and being sold or marketed. There can be significant costs involved to file the patent properly, so an attorney who also has the additional distinction of being a “patent attorney” qualified through the USPTO should be consulted to see what kind of costs will be involved and the time frame for filing. There are also “patent agents” qualified through the USPTO; however, they are typically not licensed attorneys and, if not licensed, cannot give you legal advice.
Trade secrets are most commonly protected under various state laws and in California, a trade secret is information with value kept secret within and used by a business and the fact that it is secret gives the owner an advantage or benefit. Trade secrets, copyright, and patent protection sometimes overlap and there are strategies involved in using patent, trade secrets, or copyright protection, so it is best to consult with a qualified attorney to make that determination. Often, tech companies don’t like the fact that a patent is a public filing and prefer to rely upon trade secret protections, since it does not involve a public filing or application. Once the idea becomes publicly available, you often lose any potential trade secret protection outside of copyright or patent protection. Some common forms of trade secrets are recipes, processes, customer lists, and business plans. In the tech community, a trade secret may not be the actual software code, but the idea or way that the software runs may be.
Trade secrets are protected so long as they remain confidential. The biggest problem is when someone with knowledge of those secrets quits or is fired from a company. In California, the law is on the side of allowing former employees the right to earn a living, which includes protections for the former employee possibly leaving and using trade secrets. This means the company may not be able to go to court to force the former employee not to use the secrets. This is similar to California’s significant limitations on contractual agreements not to complete. Companies doing business in California need to be very careful with any trade secrets and not take the policies surrounding hiring and termination of employment lightly. There are a number of measures that should be implemented to protect these secrets such as privacy policies, procedures for departing employees, confidentiality and similar agreements, and limiting the number of people who learn these secrets.
A trademark is an identifier related to a business, product, or other good or service to determine ownership of that mark or name. It can be a company name, a logo, or the way a name is used. This includes domain names and mere registration of a domain name does not guarantee trademark protection. The anti-cybersquatting laws were put into place to give some protection against people registering domain names for profit with no intent to use the domain name. Trademarks can be registered on the state and federal level to provide protection through the USPTO or the state agency in charge of regulation. The trademark application is filed and then after a process, a trademark is issued and registered. Trademark applications list certain categories of goods and/or services that the company intends to use in association with the trademark. The common way of marking a trademark to let others know of the company’s IP ownership rights are using a super-script TM next to the trademark to signify that a trademark application has been filed, but not formally registered. Once registered and issued, the common form of notice is the R inside of a circle placed next to the registered trademark.
When it comes to starting a business, there are a number of things a company needs to consider. The name of their company, product name, and domain name are all things that may have trademark implications. If a search is not performed to determine if someone holds trademark rights to a new company’s name or a domain name, the company can face issues down the road of facing a trademark infringement lawsuit. Even if the company obtains a registered trademark, they still have to continue to keep it current to avoid it being determined to be abandoned and losing their rights.
If another company is distributing a product or service for the owner of the trademark rights, the trademark owner often needs a license agreement to give the other party permission to use the trademark in advertising or product packaging, but with limits on use and other specific contractual conditions. When using another company’s trademarked name or other IP on a website or within code, the company needs to be sure that they have the right to use the trademark or obtain consent from the owner of the trademark to avoid claims for trademark infringement.
There are many factors to be reviewed in technology and internet companies from their formation through product development, growth, and exit transactions that have intellectual property implications. The company definitely needs to consider many of these issues at all stages and if nothing else, needs policies and confidentiality agreements to use to try to protect its ideas and developments (or anything else that may have existing or future value to the company). For most tech and internet companies (in fact most startups early on), their intellectual property is often the only thing of value that they have, so it is critical to be sure the proper protections are in place. Even in the development stages, disagreements can arise as to who developed/designed and owns what, so agreements should be in place to deal with those types of issues before things go bad and end up in court (e.g. Facebook’s early years).
These are important issues that need to be looked at to protect the company’s IP and its business in general. They are covered in the section on Online Contracts & Policies.
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Legal Disclaimer: All answers and discussions in this article are meant to be general and educational in nature only and should not be relied upon as legal, business, or tax advice for your specific situation. Most discussions refer to laws and regulations as applied to a California corporation and these can vary by location, as can other factors in certain situations within California, so it is always best to consult with a licensed local attorney with experience in these matters. Use of, or any discussion as a result of these articles does not create an attorney-client relationship and is not governed by rules on confidentiality.