IP Protection Strategies for Startups

AZ Center for Innovation
Commercial Reality StartUp Session

Protecting and Managing your
Intellectual Property

Sean Garrison
sgarrison@LRLaw.com
602 239-7434

Flavia Campbell
fcampbell@LRLaw.com
602 262-0244

A Legacy of Integrity and Trust

Types of Intellectual Property
www.lewisandroca.com

• Patents
• Trade secrets
• Trademarks
• Copyrights
• Rights of publicity

IP Portfolio Development and Management

• 50% - 85% of corporate value derived from IP and
intangible assets
• Budget Management
– Planning and allocation to various IP assets
– Patents, trademarks, trade secrets, copyrights
• Strategic Planning
– Competitive Planning
– Exit Strategies

Intellectual Property Policy

• Policy should address not only the intellectual
property owned by the company but also the
prohibition of the unauthorized use of third party
intellectual property
• Patents, copyrights, trademarks, trade secrets
• Reasonably concrete description of the types of
information the company regards as its trade secrets

Intellectual Property Policy

Supplement the general policy with specific policies
regarding the use of equipment and technology:
– Employee use of computers, e-mail, social media and the
Internet
– Employer’s right to monitor employee’s use
– Employee use of copy/scan/fax machines
– Document retention policy (hard copy and electronic)
– Policy and procedures to identify risks of disclosure and to
report violations

IP Valuation

• Three valuation approaches:
– Cost – What would it cost to develop/purchase a similar
replacement asset at current prices?
Problem in applying to IP – does not account for the economic benefits
to be enjoyed from the asset or the period of time over which those
benefits may last
– Income – What is the present value of the future stream of
income that can be derived from the asset?
Problem in applying to IP – May be difficult to reasonably estimate
proper income, economic life of the asset or proper discount rate
– Market – What is the value of comparable assets that have
been purchased/licensed by third parties?
Problem in applying to IP – Comparable assets may not exist

IP Valuation – Royalty Rates

• Determining proper royalty rates for IP assets involves
a number of factors:
– Barriers to market entry
– Capital investment requirements
– Market size and potential degree of market penetration
– Commercialization costs
– Likely profit margins
– Comparables and available alternatives
– Exclusivity v. non-exclusivity

PATENTS

Patents and Patent Portfolio

• Invention Disclosures and Assignments
– Requirement in employment or other contract
– Invention disclosure forms for documentation
• Periodic Patent/technology review meetings
– As grow larger, may need to form a committee
– Documentation
– Forum to discuss patent protection and competitive landscape
– Involve your patent counsel

Patents

• Provisional patent applications
– Placeholder for priority until utility application is filed
– Must file utility patent application within 1 year
– Not always a good strategy and often not appropriate
– Starts the clock for international filings
• Public use, disclosure or sale of inventions
– Only in U.S. – can file patent application within 1 year
– Precludes patent protection in foreign countries
– Use of non-disclosure agreements with vendors, customers,
investors

Patents

• Patent/Prior Art Searching
– Novelty searches
– Freedom to operate searches
– Validity
– Infringement
• Searching not required
• Searching can help build a stronger patent application

TRADE SECRETS

Proprietary, Confidential and Trade
Secret Information

• What do we mean by these terms?
• Proprietary - means really just means ownership
• Confidential - not for public disclosure
• Trade Secret - Confidential and derives economic value
from not being generally known to or readily
ascertainable by others who can obtain economic value
from its disclosure or use

Identifying Protectable Information

• What information do you have that others do not such
that it gives you a competitive advantage?
• What types of research and development do you
perform?
– Product
– Sales and marketing
– Technical
– Competitors
– Customers and potential customers

Identifying Protectable Information

• Other areas of potential trade secret information:
Processes Profit Margins
Formulae Vendor information
Financial Information Customer lists
Technical Information Diagrams
Quality Control data Sales Forecasts
Prototypes Marketing studies
Proprietary software Business plans
Cost and pricing data Employee information

Levels of Confidentiality

Determine the level of secrecy and relative value of
the information
– Investment of time and money to develop
– What particular advantage is conferred?
– What aspects, if any, are known to the public or to
competitors?
– Who within the company knows this information?
– What is the consequence of disclosure?

Security Measures

• Types of security measures
– Educational - Physical
– Contractual - Policies
– Electronic - Biometrics
• Assign measures appropriate to the level of
secrecy of the information

Trade Secret Agreements

Three types of contractual provisions:
(1) Covenants not to compete
– Post termination
– Pre termination
(2) Anti-solicitation agreements
– Employees
– Customers
(3) Non-disclosure agreements
– Limitations on use of information
– Obligations of return/destruction

Covenants Not to Compete

• One size does not fit all
• Who would truly hurt the company if he/she quit and
went to work for your competitor?
– High level employees
– Employees with R&D responsibilities
– Sales agents
– Customer service representatives


For each type of employee ask:
– What are the employee’s specific responsibilities?
– What interests am I trying to protect?
– In what ways might this employee damage those
interests?
– How long will it take to find, train and bring a
replacement up to speed?
– What is the competitive landscape for the particular
interests I want to protect?


• Restrictions must be narrowly tailored to the
interests to be protected
• Document the reasons why particular limitations
are selected and discuss them with the potential
employee
• Overly broad restrictions are invalid
• Arizona courts will not rewrite overbroad
provisions

Anti-Solicitation Agreements

Customers
– Restriction should be limited to those customers
with whom the employee had contacts and/or
supervisory duties
– Limited in duration until employee’s replacement
can shore up the customer relationship
– Limited in scope to contacts designed to interfere
with and/or terminate the company’s relationship
with that customer

Anti-Solicitation Agreements

Employees
– Restriction need not be limited to employees with whom
former employee had a relationship but should focus on key
employees whose exit from the company would damage the
company
– Consider a restriction that goes beyond mere solicitation
for competitive purposes where intensive training required
for new employees
– Consider liquidated damages for a successful effort to hire
away an employee through direct or indirect means

Non-Disclosure Agreements

• Provide a reasonably concrete definition of the
information subject to confidentiality
• Explain the reasons why confidentiality is
imperative and the potential harm that could
befall the company if the information is disclosed
• Define the limitations of use
• Define the obligations to return or destroy the
information upon the termination of the
relationship or the project

Employee Education

• Pre-hiring
• Orientation
• Periodic meetings
• Written memos and electronic reminders
• Prominent posted notices
• Performance reviews

The Exit Interview

• Every employee should receive an exit interview
upon the termination of employment
• Review terms of executed agreements
• Discuss types of confidential information and
duty to keep information confidential
• Return all physical items containing confidential
information – USB devices; memory cards
• Employee should execute an acknowledgment
• Forensic exam of untrustworthy employee’s
computer

TRADEMARKS

Process of Selecting a Trademark

• Brainstorming
• Registrability
• Availability
• Registration

Selecting a Mark

• Distinctiveness Spectrum

The more distinctive the mark, the greater its level of legal protectability.

Trademark Searches

• International screening search
• Country-specific search
– Trademark registers (federal and state)
– Common-law uses
– Internet, domain names
– Corporate names

How Are Trademark Rights Obtained?

Rights are obtained either:

- By use; or
- By registration

Common-Law Rights vs. Registration

Common Law
• Bound by the geographic area in which the product or
service is marketed.
• Protection generally begins only after the product or service
is actually available for sale on the market.
• Rights can be lost after deciding on a mark and before
bringing a product to market if someone begins commercial
sales first.

Common Law Rights vs. Registration

U.S. Federal Registration

• Valid in the whole country
• Priority based on date of application
• “Intent to Use” application allows applying for a mark
before using it
• Gives trademark owners the ability to expand at their
own pace
• How long and how costly is the process
• Notice of registration: ® ™ SM

• Renewals, Continued Use, Policing

Protecting Your Mark Abroad

• Rights are acquired on a country-by-country basis, so you should
obtain a trademark registration in all countries where you do
business.

• Most countries are First-to-File Countries, which grant rights to those
who file trademark applications first, as opposed to those who use
the mark first. Beware of trademark pirates.

• International Registrations – One U.S. based application/registration
can be extended to any country member of the Madrid Protocol (83
members), upon payment of additional fees

• Community Trademark Registrations – One registration covers all 27
members of the European Union


• Advantages of Filing Trademark Applications via Madrid
Protocol vs. Filing on a Country-by-Country basis
– Cost savings
– Simplified renewals, assignments, recordals of change of
address
– One simplified filing process as opposed to multiple countries
filing processes
– No need to engage counsel in several countries to file the
application


• Disadvantages of Filing Trademark Applications via
Madrid Protocol vs. Filing on a Country-by-Country
basis
– An International Registration must mirror the base U.S.
application/registration
– All foreign extensions from an International Registration
remain dependent on the base U.S. application/registration for
5 years, thus, if the base U.S. application/registration fails, all
foreign extensions fail

Proper Use — Avoiding Genericide

• Use the ™ and ® symbols where appropriate
• Always distinguish from surrounding text by
using:
Quotation marks – “Mercedes Benz”
Larger-sized print – Mercedes Benz
All capital letters – MERCEDES BENZ
Initial capitals – Mercedes Benz
Distinctive print – Mercedes Benz
Color – Mercedes Benz

Proper Use – Avoiding Genericide

• Always use the mark followed by a noun:
e.g., KLEENEX tissue, Q-TIP cotton swabs
• Never plural
Wrong: Two DELLS
Correct: Two DELL computers
• Never possessive
Wrong: POST-IT’s quality
Correct: POST-IT note pads’ quality

Proper Use — Avoiding Genericide


• Never a verb
Wrong: Xerox a document
Correct: Photocopy a
document on a XEROX
copier
• Proper spelling
Wrong: COCACOLA
Correct: Coca-Cola

Domain Names and Trademarks

• Registering a domain name does not create a
trademark or trademark rights
– But a domain name can be a trademark if advertised and
used that way (i.e. - Amazon.com, Buy.com)
• A domain name registration is an indication of a
potential prior user that may conflict with your
trademark
• If name is available, consider registering DNs in all
main gTLDs
• Consider registering typos and XYZsucks

COPYRIGHTS

Copyrights

• What it protects and what it does not protect
– Protects original, creative expression
– Does not protect ideas, concepts, functionality, or titles
– Protects against unauthorized copying but not against
another’s own independent creation (even if the resulting
work is identical)
– For software:
Protects the expression by the programmer in the written
software code and perhaps the design, selection and arrangement
of how portions of the code fit together (if not dictated by
function)
But does not protect the overall idea, function or output of the
program

Copyrights

• Registration is not required for protection
– Copyright attaches at the moment the protected
expression is fixed in a tangible medium (i.e. the source
code is written)
• In the U.S., registration is a prerequisite to filing a
suit for infringement
– Can register after learning of an infringement and still file a
lawsuit
– But it must pre-date the infringement for certain remedies
to be available (statutory damages and attorney’s fees)

Copyrights

• Employee v. Independent Contractor
– A frequent trap for the unwary
– If an employee creates a copyrighted work within the scope of her
employment, the employer is considered to be the author/owner and
the creation is a “work for hire”
– If a contractor is retained to create a copyrighted work, the
contractor is the author and owner of the copyright unless she assigns
it in writing to the company
In the absence of a written assignment, the company will only have a
limited license to use the work for the purpose for which it was created
Most likely, the company won’t be able to modify, make enhancements to
or create new works from the original work of the contractor
– If you hire a contractor to create a work and need to own all rights in
the work, you must spell that out in a written contract assigning the
copyright in the work to you

Building Your Website

• Although it is relatively simple to create and publish a
website, there are legal ramifications you should be aware of:

– Website content and risk of copyright infringement- make sure you
have the right to use all photographs, images, language and other
copyrightable materials shown on your website.

– Privacy Policy and Terms and Conditions- Privacy laws mandate that
websites disclose what type of viewers’ information is collected by the
site, how it will be used, who it will be shared with, etc.

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