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There are a few basics that should be understood by every attorney; every businessman; everyone who deals in any sort of technology; and anyone who wants to protect and/or commercialize any idea or creative work. Even though you don’t appear to have any immediate need or concern about patents, etc., you should complete reading at least Chapter I of this book.
Patents
- Protecting a New Idea
- Avoiding Loss of Patent Rights
- Scope of Patentable Subject Matter
- Avoiding Patent Infringement
Trademarks and Trade Names
- Protecting a Corporate Name or Other Business Name
- Federal Registration
- Scope of Trademark Subject Matter
- Avoiding Infringement
Copyrights
- Scope of Copyright Subject Matter
- How Copyright Protection is Obtained
- Registering the Copyright
- The Copyright Notice is No Longer Mandatory on Published Works
- Avoiding Infringement
Trade Secrets and Proprietary Information
- Scope of Trade Secret Subject Matter
- Protecting Trade Secrets
- Accepting Ideas or Suggestions From Outside the Company
- Avoiding Infringement of Trade Secret Rights
Miscellaneous Matters
- Invention Development Companies
- The Economic Risks in Investing in a New Idea
- Evaluating the Commercial Potential of a Product Relative to Patentability
- Employee Agreements
- Co-Ownership; Co-inventorship; Co-authorship; Joint Development Agreements; and Giving People a "Piece of the Action"
- Assigning or Licensing Patents, Trademarks, Copyrights and Trade Secrets
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As soon as you have the idea, write out a clear description and (if possible) add a sketch of the idea. Sign and date each page as the inventor, and also have at least one witness (preferably two or more witnesses) who is not a co-inventor sign and date each page as of the date of signing. This proper witnessing is essential. Then see a patent attorney. This documentation of your idea is not the same as patent protection, and it alone will usually not protect your ideas. However, in some instances it can prove very valuable. Also you should document subsequent development work in the same manner.
MYTH: Sometimes I hear: I wrote my idea down on a piece of paper, signed and dated it, put it in a sealed envelope and mailed it to myself by registered mail. It’s still in my drawer, unopened, so I’m protected."
ANALYSIS: Right? Wrong!! That likely will not even document your conception, unless there was the proper witnessing of the disclosure. Another person could independently come up with the same idea at a later time and obtain quite valid patent rights.
File your U.S. patent application on time. A U.S. patent application must be filed within one year of any sale, offer for sale or commercial use of the invention in the United States, and also within one year of any publication of the invention anywhere in the world. Also, if foreign patent protection is desired, then at least the U.S. application should be on file before there is any public disclosure or publication of the invention.
Most any machine, article of manufacture, composition of matter, or process is the type of thing which can be patented. Further, objects with an ornamental design, computer programs, some kinds of business systems, living organisms, plants, and even animals can be patented. A patent even issued on a method for combing your hair to cover up baldness. Look at the Smith patent cover page on the right.
If you are planning to manufacture a product or adopt an industrial process, or starting any venture involving potentially patentable subject matter, investigate the possibility of patent infringement before you become committed to a particular design or industrial process. That will give you options to redesign, possibly negotiate a license while you still have a reasonable bargaining position, or drop the project if it is too risky. Be particularly cautious if your product is in a newly emerging technology, and also if you are copying the product of another. Also, keep in mind that sometimes a quite simple mechanical "gadget", even though superficially "simple", could be covered by a patent.
DANGER: In the last decade, with all patent cases on appeal now being referred to a single Federal Circuit Court of Appeals, the "pro-patent" pendulum has swung far to the right. The presumption of validity has been greatly strengthened. Treble damages and attorneys fees can be imposed if "willful infringement" is found. Also in some instances, the owner of a company or a key person who is responsible for the infringement can be found personally liable.
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Protecting a Corporate Name or Other Business Name A corporate name is fully protected by reserving it at the proper state office (i.e. in Washington State at the Secretary of State’s Office) Right? Wrong!! That will only stop another from later registering that same corporate name (or possibly a similar corporate name) in that state. However, there could be a pre-existing federal application to register a trademark that is similar to your company name and in a similar line of business. The reservation of the corporate name, even though done in full conformity with the laws of the state, would have to give way in face of conflicting earlier established federal trademark rights. On the positive side, if you wish to properly protect a corporate name or other business name, consider immediately filing a federal trademark application. In an indirect way, that could immediately protect your rights throughout the country, subject to any pre-existing rights of another.
As of November, l989, it is now possible to file a U.S. application to register a trademark federally merely on the basis of intent to use. Subject to later registration, and also subject to pre-existing rights of others, this application immediately preempts your rights in that mark throughout the United States. As indicated above, this is a good way to indirectly protect your company name nationally, by registering it as a trademark.
A trademark is used to identify products or services, and in some instances certify products or act as a "collective" mark. A trademark could be any of the following:
- a word or group of words (including an invented word such as "Xerox" or "Kodak");
- slogans ("Good to the last drop" for Maxwell House Coffee);
- letter and number trademarks ("707", "727", "737", "IBM", "RCA", "3M", "7-up", etc.;
- logos, pictures, background patterns and colors (the checkerboard pattern of Ralston Purina);
- character marks (the Jolly Green Giant);
- a person’s name (Ford, Boeing);
- sounds (introducing a radio show) or a distinctive scent;
- architectural shapes (MacDonald’s Golden Arches);
- product and container configuration or trade dress (Haig & Haig pinch bottle for Scotch);
- any device that would serve to identify products, services, etc.
QUERY: Can a person’s wearing apparel function as a trademark? In some instances, yes.
EXAMPLE: Even the costume of the Dallas Cowboy Cheerleaders has been protected as a trademark (more specifically a service mark identifying their performance). In this case, the court concluded what has long been evident to a great many TV viewers, namely that the uniforms of the Dallas Cowboy Cheerleaders do something more than simply provide a sufficient cover of clothing to permit the performers to appear in public. The Pussycat Cinema was displaying the picture entitled "Debbie Does Dallas," which the Court found "…has no other purpose than to display sex acts in minute detail." The court further pointed out that during a particular sequence of "minutely depicted sex acts," the film goes to great pains to have parts of Debbie’s cheerleader uniform (resembling the Dallas Cowboy Cheerleader uniform) in view. The Court noted that licenses had been granted for the use of the Dallas Cowboy Cheerleader’s name and the distinctive uniform was used in connection with products such as posters, playing cards, calendars, and T-shirts. It also noted that the ladies selected for this group must meet standards regarding moral character, and no one is accepted who has been photographed for magazines such as Playboy or Hustler. The court held that the film created a likelihood of confusing the public as to the sponsorship of the movie by the Dallas Cowboy Cheerleaders, and was a violation of section 43(a) of he Lanham Act. The court also held that there was a violation of the New York Anti-dilution Law. The defenses alleged under the First Amendment and also on the basis of fair use were rejected.
Before becoming committed to a particular company name or trademark, if you are planning a substantial investment in the mark or name, have a proper search conducted.
CAUTION: Access to trademark data bases is readily available, and these are sometimes quite useful in making an initial review. But, if the mark is reasonably important, be cautious regarding who is conducting the search. You need to do more than just search for that exact name for that same product, and the searcher should know certain fundamentals of trademark law. The services of a qualified searching agency may be advisable.
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Most every business produces some sort of copyrightable material. Copyrights cover not just things such as books, music, paintings and poetry. On the contrary, copyright protection extends to computer programs, data bases, directory listings, catalogs, advertisements, photographs, business letters, customer lists, architectural works (including buildings, drawings and plans), technical drawings, landscape layouts, etc.
Under the U.S. copyright law which became effective in l978, as soon as you put the copyrightable material in any tangible form (written on paper, recorded on an audio or video tape, etc.), protection under the federal copyright law automatically comes into existence. In other words, you automatically have the protection whether you know it or not.
Copyright registration is not mandatory, but desirable. First, the copyright must be registered to enable you to sue for copyright infringement. Also, if the copyright is already registered, any infringement that occurs after the effective date of registration could be subject to certain specified statutory damages and attorneys’ fees. This can be very helpful, since sometimes actual damages are difficult to prove. There are other benefits such as prima facie evidence of ownership, helping to stop importation of infringing products, etc. Registering the copyright does not involve the same time and effort required for a patent application.
It used to be that if you didn’t see a copyright notice on some published material (e.g. "Acme Publishing l99l"), you might be safe in copying it in the U.S. (But there are certain exceptions to this.) However, in March of l989, the law was changed so that the published work (or non-published work) is fully protected under the U.S. copyright law, whether the copyright notice is on its work or not.
To infringe you have to copy or otherwise appropriate the copyrighted material (e.g. in some instances a public performance of the work). Copyright infringement is different than patent or trademark infringement in that if you independently create your own work, even though it turns out by coincidence to be quite similar to someone else’s work, there is no copyright infringement, because you didn’t copy. (But there still could be a patent infringement.) Also, don’t fall into this trap of "I’ll just make a few changes, and that will mean I’m not copying."
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Most every company has some sort of confidential business or industrial information that would be protectable under trade secret law. This could include industrial processes, tolerances of parts, ingredients or formulas, customer lists, sources of supplies, testing procedures, etc. (or even an entire machine if it kept secret).
There is no way to register a trade secret. Rather, a trade secret is protected simply by keeping it secret. To qualify for trade secret protection, the subject matter must:
- have some degree of secrecy in the first place
- be capable of being kept as a trade secret
- have reasonable steps taken to preserve its secrecy
A company will commonly get what are called "outside inventor letters", where a person is suggesting some improvement to the company’s product line, or an idea for a new advertisement, etc. There is usually the implied condition that if the idea is adopted by the company, compensation is expected. In general, if you are receiving the idea, these should be accepted only if the person submitting the idea signs an agreement that it is not being accepted on a confidential basis, and that the person will rely only on the patent right or the copyright. It may be that you have already had the idea within the company for a number of years, but had delayed adopting it. When you do finally adopt it, you may have a very difficult time proving that you did not steal the idea from this person who had suggested it to you earlier. However, these "outside inventor letters" should be distinguished from situations where there is a legitimate need to exchange information under a proper confidentiality agreement.
It’s a legitimate practice to buy the product of another on the open market and reverse engineer it to identify what the manufacturer might consider a trade secret. (However, be cautious of patent or copyright infringement or possibly unfair competition by "palming off"). On the other hand, it is not lawful to use improper means, such as obtaining confidential information from an employee or former employee of another company, industrial espionage, etc. Many trade secret violations occur when an employee changes jobs or starts his own business in competition with a former employer.
PRACTICAL ADVICE FOR THE COMPANY: The legal protection afforded trade secrets is almost directly proportional to the effort you make to preserve its secrecy. Implement proper procedures.
PRACTICAL ADVICE FOR THE EMPLOYEE: When you go to a new job, you clearly have a legal right to use the basic skills of your trade or profession, even though these were learned on your former job. However, when you get into that gray area of where this might overlap with the legitimate trade secrets of your former employer, seek legal advice. Many of these problems can be avoided by proper planning.
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If you are trying to find a way to commercialize an idea, be cautious of the "high flyers". Some so called "invention development companies" have glowing advertisements on how they will give you your "inventor’s kit", do a market study, and turn your idea into riches by selling it to a "big company". Most all patent attorneys on a regular basis will encounter situations where people have paid anywhere from $500 to several thousand dollars to one of these companies to promote an idea which is absolutely unprotectable and has substantially no commercial value as a saleable idea. It’s truly a shame. On the other hand, there are some avenues to get legitimate and helpful advice. For example, a number of Universities have programs to do an honest evaluation of a new concept and give some practical guidance as to how to commercialize it. Sometimes the best advice is that the commercial potential is sufficiently speculative so that efforts would best be spent on some other venture.
On a statistical basis, the odds are stacked heavily against the amateur inventor who is investing in an idea with the thought of licensing it to an established manufacturer in the field. For example, out of the many thousands of ideas that are submitted by "outside inventors" to automotive or aerospace companies, maybe a very small fraction of one percent of these submitted ideas might ever be adopted by the company. When an independent inventor consults me about the possibility of patenting a new idea (assuming that this person does not have a special expertise in this field), the advice that I often give is as follows:
"The expense of getting patent protection on this idea will possibly be about the same as it would cost you and your spouse to have a vacation for a week or two in Hawaii. If you would rather forego the vacation and spend your money this way, recognizing that statistically you may never realize any return on your investment, then go ahead. But if you’re counting on this money to put groceries on the table or send your kids through college, then I’d recommend against it. It can be more like playing roulette at Las Vegas and putting your money on "0" or "00".
"On the other hand, it can be an interesting venture in trying to develop and commercialize a new product. If you can treat it as a hobby and figure that what you spend on pursuing this idea is in lieu of what you would spend on your golf game or your art collection, then have at it."
 ANOTHER PERSPECTIVE: On the other hand, there are any number of instances where the originator has bucked the odds and persevered through many difficulties to finally make the idea a commercial success. Many of our successful industrial companies had their origin in this kind of perseverance. (For example, it took a couple of decades for Chester Carlson’s concept for "Electrophotograph" to be developed into a commercially successful product which we now know as "XEROX" machines.) Look at the Carlson patent cover page on the right.
FURTHER COMMENT: Also, the situation of the amateur inventor must be distinguished from an idea which is developed by a company as an improvement to its existing product line, or a new product which the company is equipped to manufacture and market. In this instance, the patent protection may give the company some extra leverage in stopping its competition from following on its coat tails, and the investment in the patent is less speculative.
In many instances the possibility of patent protection tends to unrealistically inflate the perceived commercial potential of a product. Many businessmen, even though quite sophisticated in other lines of business, will tend to regard a new idea through rose colored glasses if it has the "aura" of patentability. It’s truly unfortunate that even a modicum of credibility continues to be given to the old bromide, "Make a better mousetrap and the world will beat a path to your door". Patentability is often an important factor, but it should be evaluated realistically.
PRACTICAL ADVICE: If you are evaluating a product as a commercial venture, and if you have reason to believe it is patentable, consider the following steps:
- First, forget totally about whether it’s patentable or not and simply evaluate the product on it’s merits, with regard to such things as consumer acceptance, marketing or manufacturing problems, requirements for investment capital, unusual risks (e.g. product liability or environmental hazards), etc. If it passes muster by these standards, then you should go to the next step for evaluating how the patentability might affect the decision to commercialize the concept.
- This next step is to evaluate not only the probability of obtaining patent protection, but also the scope and value of such protection. On the assumption that the patentability search has been completed, it would be helpful to have a brainstorming session with your patent attorney to see if there are alternative designs which would be outside the scope of your patent protection and which would be competitive with the product you envision, and see how this might affect your decision.
EXAMPLE: Your product is a novelty item which is optimally made by a plastic injection molding process. You do not envision a long life for this product (e.g. two to five years). You expect that more likely the competition would be an offshore company which is something of a rip-off artist, doing no original design work of their own but making substantially identical copies of a competitor’s products. Under these circumstances even quite specific patent protection may be of value. However, if your expected competition is from those who do their own original design work, and if there are other practical design options outside the scope of your expected patent, filing a patent application is less attractive.
ANOTHER PERSPECTIVE: These recommendations must, of course, be viewed in light of the market potential. If you contemplate millions of dollars in sales, then even where specific patent protection is rather speculative, filing a patent application might be worth the effort.
 EXAMPLE: Consider U.S. patent 3,079,728, what we know as the "HULA HOOP". The patent coverage is very limited (e.g. quite specific dimension limitations), and it would have been simple to make a very similar product outside the scope of the patent. However, who knows? It may have provided some extra leverage and been worth the patent expense many times over. Look at the Melin cover page on the right.
FURTHER NOTE: Quite possibly the trademark right to "HULA HOOP" is much more valuable than the patent rights.
A common type of employee agreement is the so-called "Employee Invention Agreement" which covers patentable inventions, confidential information, and also copyrights. Further, in some instances, a non-compete agreement might be appropriate. Non-complete agreements will be upheld only if the restraints are reasonable, and these should be fair to both employer and employee. The time to enter into these agreements is when the employee is coming on board.
NOTE: In the State of Washington and a number of other states, there are statutes limiting the scope of employee invention agreement.
Many promising ventures suffer an early demise by people carelessly drifting into some kind of partnership, joint venture, or working relationships to develop a new idea. There are many serious pitfalls in this area, such as in the following Example:
HORROR STORY: Hank has a new idea for a post hole digger and begins building a prototype. He needs some special parts for a drive transmission to produce an up and down corkscrew action with just the right amount of wobble. He goes to Fred’s Fix-it Shop and asks Fred to do certain design work. Hank is short of cash and asks Fred if he will do the work for a share of the action. They sign a short agreement that Hank owns seventy five percent of the idea and Fred owns the other twenty five percent, and that Fred will do the transmission design work and supply the parts for the prototype at no cost. After the design is completed, Hank and Fred have a patent application filed as co-inventors. They sign and record in the U.S. Patent & Trademark Office an agreement that Hank is seventy five percent owner and Fred owns twenty five percent, but the agreement covers very little else. After the prototype is completed, Hank tries to license the idea to an established company in the business of manufacturing post hole diggers, but without success. A few months later, Fred decides he could establish a small manufacturing operation in his own shop to produce enough of these post hole diggers to make a reasonable profit. When he suggests this to Hank, Hank reluctantly agrees, but demands a full seventy five percent of all of the profits. Fred declines, since he feels he is taking all the risk. Finally, Fred tells Hank that he has a right to recoup his losses, and that he is going to manufacture the post hole diggers anyway, whether Hank likes it or not. Fred and Hank each go to their own attorneys to see what their rights are.
ANALYSIS: Hank has his first big disappointment when he finds out that his seventy five percent ownership does not give him control of the venture. In accordance with the U.S. Patent Law, each co-owner of a patent (even if he is a one percent owner) has the right under the patent to make, use or sell the invention without the consent of the other co-owner(s), and without even accounting for the profits to the other co-owner(s). SHOCKING!! Fred can simply go his own way, make a decent profit, and give Hank absolutely nothing. Even so, Fred says he is willing to give Hank a small royalty as a good faith gesture. Hank is infuriated, and they never do finalize an agreement. Fred simply begins manufacturing without coming to any understanding with Fred. (However, some situations are more complex, and there may be some other legal theory, such as claiming an implied contract, that might help Hank.)
FURTHER HORROR STORY: In the next year of two, Fred’s manufacturing operation becomes moderately successful, and a competitor (realizing that Fred is selling the diggers at a very substantial markup) copies exactly the same design and goes into competition with Fred. The patent to Hank and Fred had issued, and Fred accuses his new competitor of patent infringement. The competitor consults a patent attorney, and a search of the Patent Office records confirms that Hank owns a share of the patent. The competitor approaches Hank to find if a license is available for a reasonable fee. Hank sees his chance to get even with Fred and maybe make a little profit. He gives the competitor a license for a very modest fee, and Fred can do nothing about it. The competition becomes too stiff and Fred simply goes out of business. Hank continues to get his very small royalty, and Hank does not have to account to Fred for any of the royalty income. So Fred doesn’t even get twenty five percent of the pittance that Hank gets as royalty payments.
FURTHER ANALYSIS: These type of co-ownership problems can be disastrous. This should have been avoided by having a short agreement where the patent rights could be handled as a "single bundle", with appropriate safeguards for each of the parties.
PRACTICAL ADVICE: Any time you are involving anyone else in the conception or development of a new idea, whether it be as an investor, consultant, subcontractor, etc., consult a legal specialist before becoming committed to the arrangement, and have a written agreement. Be careful that the control of the patent rights and other intellectual property rights are not split. An arbitration clause might be inserted so that if the parties can’t agree, you have a tie breaker.
An assignment of rights in a patent, a federally registered trademark or a copyright should be recorded in the appropriate federal office. Intellectual property agreements (i.e. dealing with patents, trademarks, copyrights and trade secrets) have certain peculiarities where normal contracting provisions may not apply, and where there should be provisions that would not normally appear in other commercial agreements. Following is one example.
EXAMPLE: George and Joe are partners in a business called "Mountain Valley Landscaping". They decide to split up, and they are to divide the assets equally. As part of this general agreement, each is permitted to operate his business under the mark "Mountain Valley Landscaping".
ANALYSIS: For all practical purposes, this will likely destroy their right to enforce the trademark rights against any third parties. Since George and Joe are operating their separate businesses, using the same mark in the same geographical area for essentially the same services (i.e. landscaping), there will inherently be customer confusion as to the source of the services rendered under that mark. In effect they have abandoned their trademark rights. (Similar problems often occur, for example, when musical groups split up.)
SOME FURTHER CAUTIONS: Any agreement involving intellectual property even peripherally, (e.g. a distributorship agreement involving an item that happens to be patented) should be carefully examined as to whether there are not any illegal ties-ins or restrictions that might amount to "patent misuse" or some other violation. With regard to patents, courts generally abhor any monopoly, but they do condone the patent monopoly because that is specifically provided for in the U.S. Constitution. Nevertheless, if the patent holder steps outside the lawful bounds of the patent monopoly, the penalties can be very harsh, making the patent totally unenforceable, and even subjecting the patent holder to a serious counter-claim in the event the matter is litigated. What might be permissible under the doctrine of the "Rule of Reason" relative to the Anti-trust laws could be a per se violation under the patent laws.
A FINAL CAUTION: Although this may seem a needless reminder of what should be very obvious, be sure you understand what the rights are that are being transferred. For example the rights given by a patent are defined by the claims (i.e. the numbered paragraphs at the end of the patent), and these are nearly incomprehensible to someone who is not a patent specialist.
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