Starting a new business can be a scary venture, especially for an inexperienced entrepreneur. [1] However, adhering to one little known business fundamental can help make the process run as smoothly as possible. [2] Specifically, securing one's intellectual property ("IP") interests from the start can secure a solid future for a new business by ensuring more funding from venture capitalists and investors. [3] IP traditionally includes patent, trademark, copyright and trade secrets, all of which can be protected with the right legal knowledge or competent attorney. [4] This article explains the four types of IP interests, their advantages and disadvantages and the benefits of securing them during the start-up stage of new businesses.
When venture capitalists consider funding a business, the deciding
factor in whether to invest often rests with the availability of IP
interests like trade secrets.[5] A trade secret is defined as, “a
process, method, plan, formula or other information unique to a
manufacturer, which gives it an advantage over competitors.”[6] Because
of the private nature of trade secrets, “legally they are property that
can (and should) be protected because, like real or tangible property,
they can also be misappropriated, or stolen.”[7] In the mind of a
venture capitalist, the availability of trade secrets is the factor
that sets potentially successful businesses apart from those that will
most likely prove fruitless.[8] Venture capitalists are acutely aware
of this driving factor and look for entrepreneurs with exclusive
knowledge or access to trade secrets. Additionally, “[I]t should be
kept in mind that the patent system and trade secret system are not
mutually exclusive but, in reality, are complementary. To protect
adequately new inventive products or processes both can and should be
used in complementary, even synergistic, ways.”[9]
Hence,
in addition to availability of trade secrets, holding a good patent can
also help secure funding for your company.[10] However, one must
consider the costs and benefits of obtaining a patent. Patents
protect an interest in a tangible good.[11] A solid patent can
safeguard an entrepreneur’s economic future by barring others from
imitating the patent holder’s conception.[12] Additionally, holding a
patent can shield an entrepreneur from the potential aggravation of
another inventor claiming he/she made the good first.[13] However,
because patents offer such broad protection over certain IP interests,
they are harder and more expensive to acquire than copyright or
trademark protection.[14] Yet, while sometimes expensive and time
consuming, obtaining a patent may prove to bring in a larger return
than would have otherwise been possible.[15] One must consider the cost
of the patent versus its likely value in the end.[16] A valuable patent
should be constructed in such a way that a competitor “cannot design
around it or, if he can, it will cost too much in time and money to be
justified.”[17] Moreover, should one need to enforce the patent, one
must have the resources to fight suspected infringement by others.[18]
“Your patent will be valuable if there are simple (inexpensive)
observations, tests or measurements you can perform which will confirm
infringement.”[19]
Generally, attorneys with a specialization in IP have the tools to help
entrepreneurs establish an appropriate system to detect
infringement.[20]
In
contrast to patents, copyright protection covers the expression of
ideas.[21] This type of IP protection is more useful when dealing with
literature, the written word and media.[22] However, copyright provides
less protection than a patent because the individual holding the
copyright must generally show actual replication of the language itself
and not merely the idea behind it.[23] Because it provides a lesser
level of protection, copyrights are generally cheaper to obtain than
patents.[24] Copyright protection includes the right to “copy and sell
(or rent) protected works and, for some, the right to perform or
display publicly.”[25]
Trademark
protection, a more narrow type of security, covers “a name, phrase,
sound, or symbol used in association with services or products.”[26] To
obtain a trademark, one must simply attach the “TM” symbol, essentially
marking one’s territory.[27] Another’s use of the
name, phrase, sound or symbol will be hard to enforce, however, if the
item merely identifies a service or individual’s surname.[28] Instead,
identifying specifics in a name, such as an uncommon surname or fake
word, sets it apart from others.[29] Therefore, it is important, when
deciding to obtain a trademark, to choose an item that is distinct and
somewhat unique.[30]
Depending on the
type of business, securing international IP interests may prove to be
as important as securing local interests.[31] According to Connie
Bagley, Harvard Business School associate professor, one of the most
common mistakes new entrepreneurs make is waiting to consider
international IP protection.[32] Bagley notes that “a tremendous amount
of money might be spent developing a brand in the United States, yet
when the product is shipped overseas it could violate trademarks of
companies dealing in similar goods outside the United States . . . one
must make intelligent choices . . . at an early stage in order to
ensure that the brand is available in those markets [where there is a
demand].”[33] Additionally, as patent systems in developing countries
continue to mature, it is imperative for international businesses to
safeguard their interests in the global market and follow the progress
of patent systems in developing countries.[34]
While the stress and demand of starting a company from the
ground up may seem overwhelming, one way of ensuring your company has a
competitive edge from the beginning is to secure IP interests as soon
as possible. Properly securing interests through trade secrets,
patents, copyrights and trademarks, can mean a more secure future for
your business.
[2] Thomas Field, Intellectual Property: The Practical and Legal Fundamentals, Mar. 3, 2003, http:// www.piercelaw.edu/tfield/plfip.htm.
[3] Id.
[4] Robert Myers, Intellectual Property Challenges for Entrepreneurs (Intellectual Property Consultant, FRI Working Paper, 2002), available at
http://home.nyc.rr.com/ramyersip/entrepreneurs.htm.
[5] Id.
[6] Law.com Dictionary, http://dictionary.law.com/default2.asp?typed=trade+secret&type=1 (last visited Sept. 15, 2007).
[7] Id.
[8] Id.
[9] Karl Jorda, Intellectual Property: Reflections on its Nature and Importance, Mar. 22, 1999, http://www.ipmall.info/hosted_resources/pubspapers
/jorda_03_22_99.asp.
[10] Id.
[11] The ABC’s of Intellectual Property Protection, http://www.csoonline.com/fundamentals/abc_ip.html#3 (last visited Sept. 7, 2007) [hereinafter “The ABCs”].
[12] Myers, supra note 4.
[13] Id.
[14] Field, supra note
2 (stating that trademark and copyright protection is generally cheaper
than patent protection because the former protect only against exact
copying of the original, whereas patents protect ideas and concepts, as
well as tangible goods).
[15] Myers, supra note 4.
[16] Id.
[17] Id.
[18] Id. (Additionally, “in order to be infringed, the infringer must practice every element of at least one claim in a patent.”)
[19] Myers, supra note 4.
[20] Id.
[21] The ABC’s, supra note 11.
[22] Id.
[23] Field, supra note 2.
[24] Id.
[25] Id.
[26] The ABC’s, supra note 11.
[27] Id.
[28] See Field, supra note 2.
[29] Id.
[30] Id.
[31] Harvard Business School, supra note 1.
[32] Id.
[33] Id.
[34] See Jorda, supra note 9 for discussion of a developing country’s need for advanced intellectual property systems.
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