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Avoiding Intellectual Property Pitfalls When Starting a Business

Entrepreneurs ought to put intellectual property management and protection at the forefront of their concerns in a new business venture. But between daily operations and a focus on growing the business, action to protect innovations and brand reputation is sometimes pushed to the backburner.

Those that do so are harming their business. They should be reminded that intellectual property is the largest asset class held by businesses in both the United States and Canada. Studies have shown that 80% of the value of a typical business is intellectual property. Despite this, some small business owners do not consider intellectual property protection, believing it to be the domain of large corporations.

That assumption is the largest mistake a small business can make. Small businesses are built on intellectual property as well, perhaps more so, and opportunities to build the business’s value through intellectual property should not be missed.

While problems related to intellectual property may not surface immediately, it is better to be proactive rather than reactive with respect to intellectual property. We summarize common issues with intellectual property below.

Get Familiar with the Law

The first step in ensuring that your business does not fall prey to common intellectual property issues is to gain a basic understanding of applicable intellectual property laws. This includes being able to identify the types of intellectual property you have created or plan to create, any protections that are already in place, and the process of obtaining further protection or intellectual property rights.

For example, if your business offers a product or service in commerce in association with a name, design or slogan, you may have some level of common law trademark rights but you would be better off to apply for a trademark registration to exclusive rights to the trademark across Canada. This creates more value for your business. Similarly, it is worthwhile to understand the basics of patents, industrial designs, copyrights, trade secrets, and other forms of intellectual property that may be applicable to your business and the products and services it offers.

Aside from acquiring rights, you will want to avoid unlawful use, or infringement, of others’ intellectual property rights. For example, although many images, videos and texts on the Internet may not be explicitly marked as copyrighted, the absence of a copyright notice does not necessarily mean the work in question is in the public domain and free for you to use. Taking the time to determine which works are in the public domain, and therefore are free to use, and which works have copyright restrictions attached to them could help you avoid intellectual property problems and legal liability in future.

Moreover, avoiding intellectual property infringement issues helps your business enjoy a good reputation in its industry as well as with your consumers and employees.

Avoiding Issues with Trademarks

Intellectual property issues can also arise in regards to your business name (or trade name), trademark, logo or slogan. Although business owners often take a significant amount of time to come up with a business name, few conducting a thorough trademark search to determine whether the trade name, trademark or slogan is currently used or would be confusingly similar to one that is being used in their jurisdiction. In order to avoid trademark infringement, it is prudent to conduct a trademark search prior to settling on a business name, trademark, logo or slogan.

Another common pitfall for business owners is assuming that the business name they have settled on is protected simply because they have incorporated a company under the name in their jurisdiction or have registered it as an Internet domain. An incorporation of a name, or registration of it as a domain, does not confer trademark protection.

On the flip side, registering a business name as a trademark does not guarantee exclusive right to a domain name with the same spelling. As such, it is prudent to secure any needed domain names, and potentially variations on that name, early on as well.

Finally, a trademark registration gives you exclusive rights in the countries or regions in which you have obtained registrations. Registered trademarks cannot be used to prevent others from using your business name, trademark or slogan in countries or regions in which you are not registered. Accordingly, you should consider filing a trademark application in each country or region in which you intend to do business, ideally within six months of the filing date of the original application in your country of origin.

Avoiding Patent Issues

When seeking a patent, innovators should also plan a strategy for monetizing their invention. For many patent applicants, manufacturing and selling their patented good or service on their own may not be a viable or preferable option. Instead, they should pursue companies that are able to produce their invention for them and license rights to manufacture and sell the product or, alternatively, sell their patent outright.

If this is what you are considering, you should consider using a non-disclosure agreement with those you disclose your invention to in order to prevent public dissemination and misappropriation by the recipient.

Whether you are going to be producing your innovation independently or collaborating with a partner, you should make sure that you do not prevent yourself from obtaining further patents in the future. Further development on your product may generate additional patents as you continue improving on your original design, which requires the novelty requirement to be met for those improvements (as well as other requirements for patentability). Explaining to others the direction in which you plan to take the invention in the future absent non-disclosure agreement could conceivably result in losing your ability to patent the further modifications.

Avoiding Issues with Partners and Employees

In a start-up or business venture conducted by more than one person, intellectual property pitfalls occur more frequently. Between attempting to accurately determine who created and owns the intellectual property, and the potential for trade secrets to be leaked by contractors or employees, it can be difficult to ensure that your business is fully protected. You should educate all involved about the importance of protecting and maintaining intellectual property, and the value it can bring to a business.

One of the simplest intellectual property pitfalls to prevent is accidental leakage of confidential information through employees. Make sure that employees only have access to the information they need to perform their tasks, and that access limitations exist to restrict others. For example, someone focused on marketing may not need unlimited access to the technical documents of the developers. Protecting your network with anti-malware programs and ensuring that your employees know how to avoid downloading viruses to the organization’s computer network is also recommended to protect trade secrets and confidential information.

Second, you can avoid problems by determining in advance the ownership of relevant intellectual property between co-innovators, collaborators, employees and contractors. When outsourcing any work that could contain intellectual property components (i.e. collaborating on your innovation research with technology and design labs, or asking a contractor to take photos or write copy for your website), it is important to have contractual provisions that provide for the transfer of ownership in the work created. In some circumstances, the individual or group that has created the work may otherwise own the intellectual property rights, having only licensed them to you to use. They may then subsequently license the work to other individuals or businesses, including your competitors.

It is best to agree on these provisions before any money has been paid, as there is often little leverage available after the fact to incentivize a contractor to transfer their intellectual property rights to the work after the project is over and paid for. Moreover, failure to specify such provisions in writing at all could well result in litigation, not only in respect of ownership but what the parties intended that the work could be used for.

Finally, there are some precautions that should be taken with your employees. Although work created by full-time employees with use of company time and resources is usually intellectual property of the company, it is better to put in place a written contract to leave no doubt of the assignment of intellectual property rights.

Confidential information and trade secrets, which may be crucial to the profitability and success of your business, could be exposed after employees are terminated, or transition to new positions, or simply due to negligence. Including non-disclosure provisions in employment contracts will reduce the risk of trade secrets being leaked by employees, or at very least better enable effective enforcement and policing of unlawful dissemination of confidential information that does occur.

Further, specific non-disclosure provisions or agreements may be helpful in identifying to the people who sign them what parts of the business are confidential. Including non-disclosure provisions in other documentation, such as licensing agreements and sale contracts, is also recommended to further protect your business’s trade secrets.

It is also important when dealing with third parties to maintain a record of what exactly has been disclosed to who and when in case a dispute over misuse of confidential information arises at a later date.

When to Register Intellectual Property

With these strategies in mind, when is the best time to apply for protection of your intellectual property? The answer is: as early as possible.

For example, in Canada and in the United States, while you are entitled to a one-year grace period for filing a patent application after the initial disclosure of your invention, filing the application right away puts you ahead of any other inventors that may file for a conflicting invention, as the patents are awarded on a first to file basis. Depending on your individual circumstances, you may later be able to refine and expand upon the description of your invention for up to twelve months from the original filing date, which may help if you are continuing to develop your invention.

Since patent applications in Canada, the United States and most other jurisdictions usually take at least a few years to reach issuance, early filing is a way to reach issuance faster. Similarly, although trademark applications typically take a shorter time to reach registration, the process usually requires over a year, and makes early filing a priority for trademarks as well.

When to Get Legal Advice

Although preparing and filing applications for patents, trademark registrations and copyright registrations on your own is an available option, retaining a registered patent agent, a registered trademark agent, or intellectual property lawyer will almost invariably produce better results. As a general rule, you should expect that using an experienced intellectual property professional to help you protect, monetize and maximize your intellectual property’s value will produce returns in excess of 10 times your investment.

If you are accused of infringing someone else’s intellectual property rights, advice from an intellectual property lawyer is essential to help navigate through how to respond to or refute the claim. Similarly, if you believe that someone is using your intellectual property unlawfully, an intellectual property lawyer can advise you of your options and potential remedies.

Conclusion

Entrepreneurs ought to obtain at least a basic understanding of intellectual property rights as early as possible. Adequate attention to intellectual property in the early stages of a business will help you seize opportunities which will be lucrative to your business as well as avoid becoming entangled in legal conflicts which will drain time and money down the road.