What Every Startup Needs To Know: IP Pitfalls- Part One

By Debby Winters

On their path to success startup companies often face significant risk and liability with respect to Intellectual Property (IP). The failure to adequately address IP issues can potentially lead to the permanent loss of these rights and could possibly create a litigation risk. Insufficient or nonexistent IP protection can also hamper business transactions, including seed funding and status as a desirable acquisition target.

In a series of blogs, we will look at some of the common IP pitfalls startups face and possible steps that startups can take to avoid those pitfalls and protect their valuable IP assets while at the same time reducing the risk of litigation.

Let’s start out by defining what an IP asset is.

The term “intellectual property” can be thought of as creations of the mind that are given legal rights commonly associated with real or personal property. These rights can and do have real economic value. These property rights are generally a result of either federal and/or state laws and include the commonly understood rights belonging to patents, trademarks, copyrights and trade secrets.

All businesses have some form of IP that provides a competitive advantage and helps generate profits. Many companies mistakenly believe that patent protection is the only form of IP protection and ignore the value of non-patent IP. However, startups should identify both patent and non-patent related IP assets when evaluating their IP portfolio.

Startups, no matter whether small or large, should develop an IP plan. This IP plan should identify both existing and future IP assets. In the next of this series, we will talk more about the IP plan; what it should include and how to put it together. Stay tuned!

 

Trade Secret Theft Can Be A Big Deal

By Debby Winters

Most of the time that I write about IP, it is about patents, trademarks, or copyright, but a fourth form of IP that doesn’t get talked about much does exist. That’s the intellectual property protection of trade secrets. There are many companies that protect their IP with Trade Secret protection.  If you don’t know of any, think Coca Cola’s trade secret formula or Google’s proprietary search algorithm, for example.  Trade Secret is defined in the  Uniform Trade Secrets Act (“UTSA”)  as:

  • information, including a formula, pattern, compilation, program, device, method, technique, or process,
  • that derives independent economic value, actual or potential, from not being generally known to or readily ascertainable through appropriate means by other persons who might obtain economic value from its disclosure or use; and
  • is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

One of the problems with enforcing trade secret law is that it is largely state-based law, unlike Trademark, Copyright, or Patent law.  While there has been a push to nationalize trade secret law,  that hasn’t been accomplished. Most states have adopted some form of the UTSA, giving companies some form of uniform way to recover damages from such theft.

Often employees steal these trade secrets to sell to the “enemy” for big bucks.  It happened recently to Dupont with their formula and process of making their “white” color from TiO2. And it happened to Coca Cola in 2006.  In some cases, the competitor is the one who notifies the company of the theft, but not usually. In 2006, when Pepsi, the usual bitter enemy of Coke got a letter offering Coke trade secrets, it went straight to its corporate rival. But if you protect your trade secrets in this manner, don’t expect your theft to turn out this way, Dupont’s certainly didn’t.

This is an interesting form of IP protection but a risky one to pursue, as the usual damage that occurs is the theft and sale of the “secret” to a competitor.  For more information on trade secret law, feel free to contact me or comment below. For more details on the Coca Cola or Dupont stories, click on the links above.

 

 

Intellectual Property for Start-Ups

By Debby Winters

I work with start-up companies at both early and late stage. One of the questions that I frequently get when I mentor these entrepreneurs is whether they should file for intellectual property (IP) protection for their innovation. Even though it may be a drawn-out process, in most cases it is critical in their business plan to protect their IP.

On average, it takes about two to three years to complete a patent application process and obtain a patent in the United States. Engineering patents are likely to take longer, with average wait times clocking in at almost 4 years. But that time could make the difference in getting investors or not, since the most valuable asset a start-up company has may be its intellectual property, rather than its physical assets.

In addition to filing for patent protection, a start-up company should consider obtaining trademark protection for the name of the business and/or names of products or other parts of its services. Many times entrepreneurs will file both word marks and logos, especially if they have invested time in designing a unique logo. The time for trademark registration can vary from one year to several years but most trademarks that get through the process do so in about a year and a half.

Other intellectual property protection can come in the form of copyright protection for designs, software, or other artistic renditions. Design patents are sometimes an alternative to copyrighting. Another alternative to patent protection can come in the form of trade secret protection. Trade Secrets are not filed with the United States Patent and Trademark Office or with the Copyright Office; rather they are kept a “secret.” That offers many advantages and disadvantages, in keeping it a “secret” and keeping the protection. Trade secrets are not filed at all with any agency. The owner of the trade secret takes extra precautions to make sure no one finds out the “how-to” of the innovation under protection. The biggest advantage to trade secret protection is the cost-savings. Since no time is spent preparing a patent and no filing fees are incurred (same with trademark costs), protection of the trade secret is much less costly. However, since there is no governmental agency to file with, once your trade secret is infringed you have less enforcement power behind it. Once a secret is out, it is out. This can be a huge disadvantage. One of the best known trade secrets is the recipe for Coca-Cola. It has been a closely held trade secret for years with only a few who know the formula.

If you think you have an innovation that could use IP protection, seek advice from an attorney that specializes in Intellectual Property.

Bring Your Own Device- Part II- Employee’s Rights

By Debby Winters

In the BYOD movement, we’ve discussed the employer’s right to maintain its confidential business information and trade secrets from being exposed. This time we will discuss the employee’s right to privacy, in regards to this movement.

Employees’ Right to Privacy Does this right cease to exist?

The right to privacy that the employee has in the personal device may indeed cease to exist once the device is used for business purposes. The need to protect a company’s confidential information and trade secrets can often conflict with the need to respect an employee’s right to privacy.  Indeed, violating employee privacy rights is another risk that employers face in properly implementing BYOD programs.  A well thought-out policy, however, can help minimize the risk of potential criminal and civil liability under state and federal laws that protect employees’ privacy rights.

A BYOD policy should state that employees choosing to participate in the company BYOD program have no expectation of privacy with respect to any communications made with the device in connection with their employment.  As far as the personal information on employees’ devices, the employer’s BYOD policy should set forth clear disclosures explaining that employees are forfeiting some of their privacy rights, should they choose to participate in the BYOD program.  Employees must understand, and consent to, their responsibilities under the company’s policy and the specific privacy rights they are surrendering.  Accordingly, the employer should also require all employees participating in its BYOD program to sign a written acknowledgment consenting to the policy.

What if the Company gets sued? Does Electronic Discovery include employee’s personal information?

The simple answer to this question is that it can include the employee’s personal information.  Competing with the need to respect employee privacy rights is the employer’s duty to comply with litigation and discovery obligations.  A transparent policy and employee consent are vital to protecting the employer.  Thus, an employer’s BYOD policy should notify employees that they must treat any business-related documents and information stored on their personal devices in accordance with the company’s document retention policy.  The BYOD policy should further notify employees that their personal data may be reviewed if the information becomes subject to discovery in litigation or in the course of an investigative proceeding, including internal investigations by the company.

Employers with BYOD programs must also ensure that any litigation identifies employees’ personal devices for preservation of data. Another electronic discovery risk associated with BYOD programs is increased litigation costs for employers. For instance, if a company has to respond to a discovery request for electronically stored information, BYOD programs could markedly increase the number of additional devices subject to review.  Indeed, a single employee could easily use three different personal devices for work, such as a smartphone, an iPad, and a personal laptop.

One avenue of mitigating potential future litigation costs is the use of technology that creates two different workspaces within an employee’s personal device. Such technology can separate employees’ corporate and personal workspaces, preventing employees’ personal applications from accessing work information and preventing work information from being copied and pasted into personal applications or personal email messages. Use of this type of technology will not only enable a company to collect corporate data in a more efficient manner, should the need arise, but will also act as an additional safeguard against inadvertent disclosure of company information.

What about work done off the clock?

The risk of off-the-clock work also is noteworthy. BYOD programs essentially allow employees to work 24 hours a day. On one hand, around-the-clock work may present an attractive benefit for employers. On the other hand, this type of work can pose a significant risk of liability under the Fair Labor Standards Act (FLSA) and state wage and hour laws.

The easiest and safest way to avoid the risk of wage and hour litigation is to make a BYOD program available only to exempt employees not covered by the FLSA overtime provision. For some employers, however, that is not a practical business solution. Consequently, those employers must ensure that their BYOD policies clearly outline the obligations of nonexempt employees. For instance, a company could implement a policy that prohibits nonexempt employees from utilizing their personal devices for work purposes when they are off the clock.  The policy should define what constitutes “working” on their personal devices, such as checking company emails or answering company calls.  Employees should also be made aware that any violations of the policy will subject them to disciplinary measures. Employers may wish to consult their IT departments regarding the use of software programs that block after-hours use of company emails and calls.

Even where nonexempt employees are prohibited from working on their personal devices after hours, however, a company still must ensure that its employees are aware that nonexempt employees will be paid for all time worked, that nonexempt employees must report all time worked and that employees should feel safe to report any pressure or encouragement to work off the clock.  These policy statements should be set forth in an employer’s BYOD policy, as well as in its specific FLSA policies. Regular employee training and signed acknowledgments are also key in mitigating the risk of off-the-clock work.

What’s the Bottom Line?

Employers will not likely be able to completely ignore employee demand for BYOD programs. Accordingly, employers should confront the BYOD movement head-on by drafting and implementing a clearly defined BYOD policy that not only considers, but balances and manages all of the competing interests and issues.  If you need help, consult your attorney.

You’ve heard of BYOB, but have you heard of BYOD? Bring Your Own Device?

By Debby Winters

Many companies have moved to a “Bring Your Own Device “(BYOD) movement allowing workers to use their personal devices for work-related functions. This movement is in ful
l swing and has proven to save companies a substantial amount of money. As people own their own smart phones, tablets and laptops this will become more and more of a reality in the workplace.  However, a company is putting itself at risk, not to mention an economic disadvantage, by moving forward in this movement without a clearly defined BYOD policy. Let’s consider some key issues for putting just such a BYOD policy in place.

Confidential Business Information and Trade Secrets

Employers should take a proactive approach in preserving confidential business information and trade secrets as the use of personal devices in the workplace opens up a myriad of different avenues through which company information might be accidentally leaked to the public. And accidental disclosures of company information may result in the loss of a company’s confidential business information as well as company trade secrets. A written BYOD policy is a must. This is only one of the first steps an employer can take to show a court that the company has made reasonable efforts to protect the secrecy of its confidential information. Not only must a BYOD policy meet the company’s individual goals and facilitate smooth day-to-day business practices, it also must be easily understood and followed by the company’s employees. If the employees cannot understand it, a court may not view the policy as an adequate protective measure. Adequate training is often necessary in implementing a policy. This training should not be limited to initial hiring, but should be on a regular basis. And in light of the increasing capabilities of employees’ personal devices, employers must also periodically review their policies to ensure that these stay current, and must manage any new security risks created by technological advances. When updates to the policy are necessary, additional employee training should be conducted. This is an ongoing process of redrafting the policy and retraining the employees to ensure understanding and compliance.

During any employee BYOD training, an employer needs to address the security risks associated with employees’ using their personal devices. Many employees are simply unaware of the various ways in which company information might be vulnerable to disclosure. Some common examples include employees:

  • Losing personal devices or having them stolen.
  • Sharing personal devices with family and friends.
  • Connecting personal devices to unsecured wireless networks; upgrading their personal devices.
  • Resigning or being fired from their jobs, and taking the data on their devices with them.

By considering and addressing the various ways in which confidential business information might leak, both in the policy itself and in training, employers and employees can manage security risks at the outset.

In the next installment of BYOD we will explore whether Employees have any right (or expectation to a right) to privacy.

To Patent Or Protect As A Trade Secret?

By: Debby Winters

With the patent system switching from first to invent to first to file, trade secret law, as an alternative to patents, may be one of the most important ways to protect and develop new and cutting-edge ideas. Trade secrets are generally defined as an exclusive right to valuable information not generally known in the industry or readily ascertainable by competitors.

In many cases, it makes more sense to protect intellectual property using trade secrets rather than patents. Trade secret law: (1) provides broader protection than patent law; (2) is immediately available and requires no government approval and costs significantly less; and (3) permits the inventor to keep the innovation “secret” without having to disclose the idea through patent publication.

First, with respect to breadth, trade secret law protects assets that are not otherwise protectable under the patent law. Trade secrets need not be “novel” and extend to valuable information like business plans, customer lists, technical drawings, processes, procedures, marketing data and forecasting that are specific to the innovator so long as they are secret, valuable and not generally known in the industry. A trade secret can also be “negative” know-how, that is, what paths to development would be unsuccessful, which are sometimes as valuable in terms of time and money as those that are successful. Moreover, trade secrets may be protected in perpetuity – or until someone else independently develops the idea or reverse-engineers it – whereas the duration of a patent term is 20 years.

Second, trade secret protection will attach automatically to ideas and information that are kept secret and subject to reasonable measures to protect secrecy. Trade secrets do not require any government approval, they are not subject to a registration process, or incur any official costs. Trade secrets are also not subject to the attendant delay of the patent process, which could take years to complete, and therefore are a more practical and attractive alternative for innovators in fast-moving industries. For the same reasons, trade secret protection is often less expensive than obtaining a patent and is also attractive to start-up companies and small businesses.

Third, unlike patents that are published and must be enforced through litigation if infringed, the holder of a trade secret must only keep the information secret to qualify for protection. The ability to keep information secret, rather than disclosing it through the patent process, could potentially be a very lucrative decision. The classic example, of course, of where an inventor made a great choice choosing trade secret over patent protection is the formula for Coca-Cola, which still maintains its trade secret status approximately 100 years later.

Trade secret protection is not always the best strategy for protecting intellectual property. Trade secrets are not protected if another person develops – independently and without accessing the secret information – the same exact idea. Moreover, if a product that contains a trade secret is released into the market, trade secret protection is lost if the trade secret can be reverse-engineered. Thus, trade secret law is not effective for obvious and generic new ideas or those that could be easily reproduced once a product is in the market. For example, the design of a cement mixing truck was held not to be a trade secret because it was obvious once the truck hit the street which direction the cement was being loaded to be mixed.

With the upside of protecting vast amounts of otherwise not patentable information and ideas through the use of trade secrets, the question becomes: Are innovators doing enough to protect their trade secrets? Methods for protecting trade secrets will vary depending on the size and scope of the enterprise and the secrets kept therein, but here are general guidelines to help ensure secrecy:

• Build a culture where innovative ideas and information are highlighted as critical, valuable and that they will be protected.

• Emphasize the importance and secrecy of the information through the use of nondisclosure and non-compete agreements.

• Ensure that facilities where trade secrets are kept are physically and electronically secure with locks, passwords and credentials, and limit access to such information to those that really need to know.

• Mark physical and electronic documents with legends and footers indicating that the information is “trade secret” and “confidential.”

•Establish policies and procedures to protect the information and continue to make employees aware of the importance of such information through training.

• Keep current with technological advances that allow misappropriation of trade secrets and adjust security, monitoring and policies as necessary.

THE PROS AND CONS OF PRIOR USE RIGHTS

By Debby Winters

A change in prior use rights (“PUR”) would be a benefit to both trade secret and patent protection.  By filing a patent application, unless a request for nonpublication accompanies the application, the invention will be published and therefore disclosed. Since the patent may never be granted, protection is not guaranteed.  For PUR, there is no publication and thus definitive protection.  In the long run, this may mean that the number of defensive patent filings may decrease in favor of reliance on PUR. This in turn would mean that inventors may not feel as obligated to file patents over things like minor changes in a process.

PUR would be especially important in protecting trade secrets in an industry such as the pharmaceutical industry, where the information to be protected is fragile by nature.  In the internet age, secrecy that must be maintained is most threatened by data mobility and especially by employee mobility.  Since the pharmaceutical industry has one of the highest rates of employee mobility, maintaining trade secrets under any circumstances is particularly difficult.  Pharmaceutical firms also typically rely heavily on outside vendors, presenting even more of a chance for data disclosure.

One major drawback to PUR could be the potential disruption of the patent portfolio valuation processes.  For starters, it is difficult to evaluate how PUR and trade secret protections will fit into company valuations.  This is of particular importance to startups, where the company’s patent portfolio value can be a critical factor in an investor’s decision to pursue the company further.  Also of concern for both large and small firms is that PUR will devaluate patents overall.  In typically competitive markets, it will be uncertain whether potential infringers have secrets and therefore unknowable PUR, which would lead to the weakening of patent protection.

In terms of preference, larger pharmaceutical companies may choose patent protection due to the availability of injunctions, money damages, and other remedies.  For smaller or startup companies, PUR do not appear to be a viable patent alternative at all, particularly due to the requirement of secret commercial use for more than one year to qualify for PUR.  Many startups never intend to commercialize their product, as they are just looking to be acquired by a larger pharmaceutical company that they hope will eventually commercialize the product.

PUR usage may just prove to be technology dependent.  For technology that moves quickly, PUR may be irrelevant, but PUR may be very important for technology that moves more slowly.  Fortunately, if desired, inventors can delay making the decision on whether to rely on PUR or patent protection by using a “patent insurance” strategy.  This strategy involves first filing a provisional patent application, followed by filing a non-provisional application with a non-publication request within 1 year.  This can buy the inventor additional time to both establish the 1-year commercial use that is required to establish PUR, as well as more time to monitor published applications and evaluate what direction of protection to pursue.  The patent could then be fully prosecuted, or should PUR prove to be the better option, the patent application could be abandoned without trade secret-destroying publication or disclosure.