Imagine, you’re a university student and an aspiring entrepreneur. For your final project, you and a group of five students diligently work on your business idea that you plan to use after graduation. Moreover, you believe the idea is so good that you are contemplating patenting the idea. During the project, the students help you improve on your idea. At the end of the course you present the business idea to the class and the professor and earn an “A+”. After graduation, you take your idea and start your business and it’s an instant success. Everything was going well until the day you make that startling discovery that you forgot to protect your intellectual property!
For all intents and purposes, those 5 students who worked on the group project may come knocking on your door claiming that their work on the group project improved your original idea and at that point became an idea created by the whole group. In addition, the university had a written policy that any ideas or inventions created by the student using the university resources belongs to the university. Unfortunately, regardless of whether they are correct or not, resolving the dispute will most likely cost more time, money, and resources than you can afford. Yet, if you don’t resolve the dispute, you could lose the rights to your genius idea like many students, owners, and business have before you.
Many promising entrepreneurs lose their rights to intellectual property every day because they don’t understand how to properly protect it. If you think about, when starting a business, intellectual property is perhaps the most valuable asset to an emerging business. Whether it’s’ something as simple as a business name, a patentable idea, a fancy logo or even a customer lists, most experts have found that intellectual property may be more valuable than the business itself. As such, protecting intellectual property is crucial to business success.
Now, when I say protect your intellectual property, it’s important to know the limits of intellectual property law. For example, it may be a surprise to many entrepreneurs that stealing (or using) someone else's business idea is often perfectly legal. In most cases, unless the entrepreneur took the appropriate steps to protect his or her idea, anyone can take the idea and run with it. Especially if you share your ideas with someone else before protecting your idea. In fact, early on in the history of the United States, several famous ideas were taken from the originally owners and used to make billions of dollars. This happened with the inventions of radio, lasers, and even the telephone. In fact, it is alleged that the CEO of Facebook, Mark Zuckerberg, stole the ideas of his fellow classmates to start Facebook. Facebook is now worth over $56 billion and Mark Zuckerberg is worth $70 billion. Although the fellow classmates sued Mark Zuckerberg, they only received shares 1.2 shares of stock in Facebook which was worth $300 million at the time. Had they protected their intellectually property (their creative ideas) maybe they would be worth $70 billion.
It is also important to realize that despite your best efforts to protect your intellectual property, others may nevertheless use it, steal it, or otherwise interfere with your rights to it. Although the law can’t prevent these actions from happening, the law will provide you a money award for an infringement of your rights (provided you properly and legally protected your rights). Because the purpose of intellectual property law is to incentivize you to come up with great ideas and ensure you are compensated for your efforts, money awards can often be generous. Take for instance some of the below verdicts that compensated a person or business for theft of intellectual property:
- 1.7 million jury verdict award for the theft of an idea for a component of action figure toys.$30 million jury verdict for theft of the Taco Bell talking chihuahua idea (“Yo quiero Teco Bell”)
- $240 million jury verdict for theft of idea for sports complex at Disney World
- $8.2 million jury verdict for theft of an idea for a golf-themed restaurant$19 million jury verdict for theft of an idea for a movie
- $9.5 million-dollar verdict for theft of an idea for a radio station (“Radio Disney”)
One of the best ways to protect your intellectual property is by an agreement. The most common documents used to protect intellectual property are confidentially and non-disclosure agreements. These types of agreements are indispensable for entrepreneurs when it comes to protecting ideas, business plans, and other proprietary information especially when during the initial formation stage of a business. The reason is that during the formation stage, the entrepreneur and/or the business will likely spend a great deal of time revealing valuable intellectual property to potential investors, friends, and other possible key relationships. For example, entrepreneurs are often concerned about businesses or persons sharing or profiting from his or her ideas. Confidentiality and non-disclosure agreements have proved to be essential in protecting valuable intellectual property even before the business gets off the ground.
Confidentiality agreements and non-disclosures agreements are often used interchangeably; however, confidentiality agreements are typically used when a higher degree of secrecy is required. Whereas a non-disclosure agreement prohibits disclosing particular information, a confidentiality agreement requires the other party to be more proactive in making sure information is kept secret. For example, if the entrepreneur is disclosing ideas to a business, he or she may require the business to take steps to ensure that its’ employees, contractors, or other parties are not privy to the information. Most importantly, both agreements ensure that if certain information is revealed, the entrepreneur has the legal right to claim a breach of contract and is entitled to seek injunctive relief and monetary damages.
In addition to the agreements providing legal recourse for an unlawful use of his or her intellectual property, the use of these agreements can also prevent the forfeiture of valuable patent rights. In the U.S. the public disclosure of an invention can be deemed as a forfeiture of patent rights in that invention. A properly drafted confidentiality agreement can avoid the undesired—and often unintentional—forfeiture of valuable patent rights.
Consider the case of Peter Roberts, an employee of Sears, who invented a unique socket wrench for which he thought about obtaining a patent. However, a co-worker suggested that, instead, he submit his ideas for the socket through the employee suggestion program at Sears. Unwittingly, Mr. Roberts followed the employee’s advice and revealed his socket wrench idea to Sears. Consequently, Sears took Mr. Robert’s idea and considered it their own. To protect their new socket wrench idea, they hired a patent lawyer who quickly patented it. By protecting their idea, Sears made millions of dollars while Mr. Robert’s went bankrupt attempting to convince a court that the socket wrench idea was his intellectual property. Imagine if Mr. Roberts would have required Sears to sign a confidentiality agreement before submitting his socket wrench idea to Sears. In contrast to Mr. Roberts, Sabeer Bhatia collected over 400 non-disclosure agreements from employees, friends, and roommates prior to founding “Hotmail”. His confidentiality agreements gave him a crucial six-month lead on the competition. Eventually he sold Hotmail to Microsoft for a reported $400 million in stock.
In addition to confidentiality agreements, there are a number of additional ways to protect your intellectual property. A great way to protect a new and better product, process, or method is with a patent. In order to take advantage of a patent, the intellectual property that you are trying to protect must be unique, useful, and non-obvious. In order to secure a patent, you must apply at the U.S. Patent and Trademark Office (“USPTO”). The USPTO will review your application and if you meet the correct standards they will issue you a patent which will give the right to exclude others from making, using or selling your invention for a period of years (usually15 or 20 depending on the type of patent). Ownership of an invention is important for patents so it is very important to have a clear understanding about who owns the patentable inventions. In some cases, businesses make sure of ownership of an invention by having employees sign an agreement ensuring inventions created by them while working for the business belong to your business.
Patent infringement occurs when someone uses a businesses’ patented invention without permission. Juries tend to award significant damages for patent infringement. For example, in 2018, Apple was awarded $5.3 million because Samsung infringed on one of its patented iPhone designs. In another patent infringement case, IBM sued Groupon for using their patented ecommerce technology. Other companies like Google, Amazon, and Facebook paid for the right to use the technology, but Groupon failed to obtain a license before using it and was found liable for $167 million. Similar damages have been awarded to small companies. In one patent infringement case involving a much smaller company in Texas, the jury award $10 million in damages when Nintendo infringed iLife’s six patents on motion-sensing technology. Accordingly, although patenting your idea when you first start your business may be expensive (usually between $1,000 - $10,000), it can be well worth the expense to protect your idea through patent when comparing to the possible money award in a patent infringement case.
Much less expensive than obtaining patent is protecting your intellectual property by copyright. It only costs about $35 to obtain a copyright. Copyrights protects original works of authorship that are fixed in a tangible medium of expression. Examples include literature, music, dramatic works, photographs, audio and visual recording, software, and similar intellectual works. To illustrate, consider the author of the fantasy novels “Harry Potter”. The well-known author protected his intellectual property in Harry Potter by copyrighting, among other things, the book, the movie, the soundtrack, and the poster. The most common items that business copyright include, but are not limited to, the following:
· Product manuals
· Engineering drawings
· Press releases
· Product drawings and photographs
· Product packaging
Unlike patents, copyright protection begins as soon as the work is fixed in a tangible medium. So technically you don’t have to register a copyright to protect your original works. However, to avoid copyright infringement disputes, it’s a good idea register your intellectual property with the US Copyright Office. Often times when you don’t register a copyright and there is a dispute, you may have to provide evidence to prove you’re the original author of a copyright item. In addition, you may have the burden to prove the date the item was created in order to preserve protection. Moreover, in the event you claim copyright infringement in a dispute, you also may have to prove you incurred damages from the violation. On the other hand, if you register your copyright with the United States Copyright Office, you won’t have any trouble proving you’re the owner, the date you became the owner. Furthermore, you will not need to prove damages, upon successfully proving copyright infringement you’ll be entitled to statutory damages which usually are in the range between $750 - $150,000 per infringement. In one recent example, Wixen Music sued Spotify for using their music without license or compensation. They alleged that Spotify used more than 10,000 of their songs and requested a $1.6 billion judgment. In other notable cases involving smaller businesses:
· A sculptor successfully sued the United States for putting a replica of his copyrighted sculpture on a U.S. Postage Stamp.
· A photographer won a copyright infringement lawsuit when he proved that a website owner caused embedded “Tweets” to appear on their websites, an act that violated the photographer’s exclusive display right.
· A business named “Grumpy Cat” in California, won a copyright infringement lawsuit when it proved that a local beverage maker put pictures similar to the copyrighted Grumpy Cat on its coffee products.
In addition to protecting your ideas, businesses need to make sure their products and services are distinguishable from other products and services. The best way to do this is through registering your trademarks in the USPTO and/or in your state. Similar to copyrights, you don’t have to register your trademark because you can still receive trademark protection by federal law, state law, and common law when first start using your mark. However, as discussed above, it’s a good idea to register at the federal and state level for the same reason it’s important to register your copyright. When a business registers a trademark, they are the presumed owner of the trademark. Therefore, in the event of a dispute, the unregistered owner will have the burden to prove that the registered owner is not the actual owner of the trademark. Moreover, instead of having to prove damages to the trademark infringement, the registered owner can receive statutory damages which are usually between $1,000 and $200,000.
So, what is a trademark? In essence, a trademark is a source identifier for your goods and services. In other words, trademarks are necessary protect consumers from confusion or deception by preventing other businesses from using the same or a confusingly similar name for their products. For example, most everyone knows the famous Nike “Swoosh”. When you see the Swoosh you now that you’re getting a product or service with a particular quality. If the Swoosh wasn’t trademarked, consumers would be confused as to what products or services they were purchasing.
The following are examples of the most common items that businesses trademark:
• Logos & Designs
• Letters and/or Numbers
• Color on a Particular Product or Service
• Product and Package Configurations (Trade Dress)
• Fragrance Applied to Goods
Trademarks are a critical asset for your business and are relatively inexpensive. It typically costs only $275 to register a trademark. When compared to how much money you could be awarded in trademark litigation, the price is negligible. Consider the money award granted to Variety for Walmart’s infringement of Variety’s trademark. Apparently, Variety registered a trademark for the mark “The Backyard” in connection with its law and garden supplies and had common law rights in the marks “Backyard” and “Backyard BBQ”. Subsequently Walmart began using the mark “Backyard Grill” in connection with grills and grilling supplies. The court awarded Variety $95.5 million for the infringement. As a result, every entrepreneur should be aware and take advantages of the many benefits of trademarks.
A less talked about but equally important form of intellectually property protection is “Trade Secrets”. Trade secrets are certain types of information (e.g. formulas, patterns, programs, methods, techniques, or processes) that you use in your business that derives independent economic value from not being generally known to the public. In order to qualify for trade secret protection, businesses must prove that they made reasonable efforts to maintain the secrecy of the information. Many businesses seek trade secret protection in lieu of filing a patent because when you patent an idea, the idea is only protected for a limited amount of time. For example, utility patents are only protected for 20 years. After the 20 years, the idea goes to the public domain and the owner of the patent no longer has the right to exclude others from using the idea or creation. Trade secrets last forever, so if you want to protect your idea from the general public forever, trade secret protection is the best route to go.
Good examples of companies that have chosen to protect their ideas through trade secrets include, but are not limited to:
· McDonald’s Big Mac Secret Sauce
· Kentucky Fried Chicken’s 11 Herbs and Spices
· Coca-Cola’s Secret Drink Formula
· WD-40’s Corrosion Prevention Formula
· Google’s Search Algorithm
· The New York Times’ Method for Choosing the Best Seller List
Remember, in order to receive protection under the law, businesses should take appropriate steps to protect their trade secrets by making written agreements with employees and contractors to ensure they are taking sufficient steps to keep their information secret. In addition, businesses should label documents that contain protected information, secure computers, limit public access, and train employees on company policies in regard to the information.
The following are common examples of secrets that businesses should consider protecting:
· Methods of Assembly
· Other Methods
· Cost Data
· Customer Lists
Sometimes, despite the most meticulous and scrupulous efforts to maintain secrecy, secrets can be stolen by someone inside your business. For example, in 2012, Hootersagreed to an out-of-court settlement in its federal lawsuit against former executive Joseph Hummel and Twin Peaks restaurants developer La Cima Restaurants LLC. According to the lawsuit, Joseph Hummel, former vice president of Hooters, decided to leave Hooters to start a similar restaurant called “Twin Peaks”, which now competes with Hooters. However, before leaving, he downloaded and emailed to his private account a substantial volume of Hooter’s documents including plans relating to management, recruitment, distribution, and sales.
This type of theft of intellectual property theft frequently happens to small business owners. Take for instance two business partners who start a business and are prosperous for 2-3 years but after this time they start fighting about the direction of the business. When the disagreements began to escalate, they eventually decide to part ways. The business partner that leaves decides, without permission of the remaining business partner, to take customer lists, business plans, and marketing and sales information. Unbeknownst to the parting business partner, this is not only a violation of the remaining partners rights, but it is also a crime. Just last year, US federal prosecutors charged six former and current Fitbit employees in an indictment for possession of stolen trade secrets from the company’s former rival Jawbone. The then Jawbone employees sent over 300,000 confidential files to Fitbit including, but not limited to, including outlines of future products, manufacturing prices and schedules. The companies reached a settlement agreement.
There are many ways to protect your intellectual property. Some businesses need many forms of protection and others only need one or more forms of intellectually property protection. Either way, its critically important to protect your intellectually property as it is quite likely the most valuable part of your business.
Disclaimer: Articles are made available for educational purposes only as well as to give you general information and a general understanding of the legal concepts, not to provide legal advice. By reading this article you understand that there is no attorney-client relationship created between you and KMP Business Consulting Services. The information provided in this article is not legal advice. You should not act upon this information without seeking advice from a lawyer licensed in your own state or jurisdiction.