Intellectual Property Basics for New Companies
We help form a lot of new companies at Barlow & Williams. Almost every new company has questions about intellectual property: What is it? How do we protect it? Who owns it? This article will provide some basic answers to the most common questions we receive.
First off—what can be considered intellectual property (“IP”)? Most people have heard about patents, copyrights, and trademarks. All of these things are IP, but IP also includes trade dress and trade secrets. There are a few consistent misnomers out there about the technology companies we work with on a regular basis. The biggest concerns what can be protected by a patent. In the simplest terms, patents are for hardware. Patents are almost never used to protect source code as the need to update source code severely limits their effectiveness. Protection for source code is much more likely to fall under trade secrets, which you can think of as protecting software. Trade secrets can be more than just computer software, though. Sales processes can be trade secrets. Management handbooks can be trade secrets. Internal price lists or negotiation guides can be trade secrets. Since trade secrets can be so many things, they are at the core of the IP education we provide our clients.
When it comes to protecting IP, there are differences based on the category of IP. Obtaining a patent requires a drawn-out process going back and forth with the patent office. Trademarks also require governmental approval, but you should know that it is impossible to obtain a trademark before the mark is used in commerce. What this means is that you cannot get a full trademark for a brand name or logo until you are actually selling goods or services using that brand name or logo. There is an intermediate step, though, if you want to protect a name before you begin selling products. This is called an intent-to-use trademark, and it functions like a reservation—you claim the name and have a certain amount of time to use it in commerce and complete the full trademark application. For copyrights, protection is much simpler. Protecting trade secrets is not something that involves the government but is a matter of not sharing your information with people outside the company. To protect trade secrets, you will need to develop good habits and make sure your contracts are appropriate.
Ownership of IP can be a tricky thing. It is usually simple to set up properly at the beginning, but if there are errors then correcting them later can be a mess. The best practice for most companies is to have the founders assign all IP related to the company’s business to the company at the outset. Investors aren’t going to want to invest in a startup that does not own its key IP and few buyers will be interested either. New companies must also sure that any contractors they use (including software developers) or employees they hire assign ownership of their work product to the company. There is special language that must be included in contracts to make this happen, and the potential consequences of getting it wrong can be very expensive later.
If you have questions about getting IP set up properly to make your company investor-friendly or about correcting any mistakes your company may have made early in its journey, we’d be happy to help you. Contact us at info@barlowwilliams.law and we'll be happy to meet with you to discuss how we can help you achieve your business goals.