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Intellectual property rights are a collection of intangible rights that consist of patents, copyrights, trademarks, trade secrets and mask works. Acquiring, or the potential to acquire, intellectual property rights is essential in order for startup companies to attract venture capital. Although requirements and processes may seem straightforward, there are many details that can be overlooked. Below are commonly made mistakes that can significantly injure a company’s value. 1. ARE YOU TOO LATE? Unfortunately for many good technology companies, it may be too late to file for patent protection. The current U.S. rule generally provides applicants with a one-year grace period during which a patent application must be filed after certain public or private disclosure of the invention. Such disclosure may arise, for example, from a mere “offer for sale” of the technology, even if the product has not yet been built or prototyped. The foreign rule, which applies to many industrialized jurisdictions, such as Japan and many European countries, does not give applicants the benefit of any grace period after a public disclosure has occurred. In either case, time is of the essence. There may be some special exceptions for late filings, but it is not advisable to count on those. 2. IS YOUR LEGAL SCOPE TOO NARROW? Many issued patents are not commercially valuable because the scope of the submitted claims is particularly narrow and can be relatively easily avoided by determined competitors. When submitting new patent claim language, applicants should broadly define novel concepts that include potential design-arounds by other parties. Although this legal blocking strategy sounds easy enough to state as an objective, in fact, the serious exercise of analyzing future competitive and industry direction can be an extremely difficult task, particularly because the analysis often requires sophisticated market understanding, as well as technical and engineering vision. 3. ARE YOU WILLFULLY INFRINGING ON ANOTHER PATENT? Under U.S. patent law, one’s awareness or willful state of mind about the existence and infringement of a competitor’s issued patent may significantly affect subsequent legal liability. So, if a party is proved to be a willful infringer of a known patent, then for punitive policy reasons, economic damages may be awarded to the patent owner up to three times normal recovery amount. This treble-damage exposure is so substantial that company management should be careful to avoid creating evidence of internal communications, such as e-mail, that may be construed later to indicate such willfulness. In many cases, it may be appropriate for companies, as a matter of policy, to discourage examining issued patents owned by other entities. And, when a suspect patent is already known, management must take careful steps to refer the matter to competent patent counsel for appropriate analysis and opinion. 4. ARE YOU RELYING SOLELY ON COPYRIGHTS FOR SOFTWARE PROTECTION? Copyright protection in the United States and many other countries arises instantly and at virtually no cost to protect software technologies, such as computer programs, electronic databases and graphical display screens and related media. In fact, copyright protection is often a suitable means to secure much digital media, such as video and audio creative works, often even without compliance with copyright registration and notice requirements. Copyright protection, however, is legally vulnerable to reverse-engineering efforts by competitors, during which no copyright infringement may arise when the reverse-engineering results do not result in literal copying of the original code, but merely an understanding of the underlying ideas and functions. In this vulnerable scenario, patent protection may be more appropriate to secure any novel algorithm, methods and computing apparatus. 5. ARE YOU INADVERTENTLY TAINTING INTELLECTUAL PROPERTY RIGHTS WITH THIRD-PARTY CO-OWNERSHIP RIGHTS? During the course of joint-development engineering projects, ideas may originate from many sources, including advisers, consultants, employees and even customers. This collaborative scenario sets the stage for creating intellectual property rights that may be co-owned by multiple parties. Unless the rights of such joint owners are specified up front — for example, by contract terms — there is a possibility that parties later may assert not just their partial ownership interest, but actually endeavor to offer licensing rights to other third parties or even competitors. 6. ARE YOU IGNORING THE IMPACT OF FESTO ? On May 28, 2002, the U.S. Supreme Court in Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Ltd, 122 S.Ct. 1831, substantially changed the legal effect of amending patent claims, particularly regarding the effective scope of amended claims. This judicial change cannot be ignored without possibly impairing the commercial value of many issued U.S. patents, especially where applicants introduce explicit arguments that distinguish various prior art cited by the patent examiner. Without getting into the subtle legal and policy complexities associated with the so-called doctrine of equivalents, the Festo decision and related subsequent federal cases clearly narrow many patent claims’ scope whenever applicants propose routine amendments to distinguish the claimed invention against cited prior-art references. 7. ARE YOU UNDERESTIMATING THE IMPORTANCE OF TRADE SECRETS AND CONFIDENTIALITY? Since patent protection may not arise for many years after filing patent applications, and copyright protection may not be applicable to protect functional aspects of various technologies, trade-secret protection may serve as a solid backstop against competitive piracy. Therefore, the importance of nondisclosure agreements and in-house policies and systems to secure confidential and proprietary information is incredibly important. Additionally, early disclosures, for example, through customer marketing presentations, may irreparably hurt a company’s right to file domestic or international patent applications. 8. ARE YOU OVERLOOKING A LEGITIMATE OPPORTUNITY TO SET UP OFFSHORE LICENSING TAX SHELTERS? Often neglected by early stage startup companies and entrepreneurs are offshore strategies for mitigating federal tax exposure. Such international tax strategies are especially relevant when foreign licensees of intellectual property rights are an issue. In many cases, it is particularly beneficial to deploy one or more corporate entities offshore much sooner — rather than after licensees are identified — in order to minimize certain taxable valuation exposure associated with transferring such licensed rights. 9. ARE YOU RESPONDING TOO SLOWLY TO U.S. PATENT AND TRADEMARK ORGANIZATION ACTIONS? Because the U.S. patent rules now provide 20 years of enforcement patent protection after the U.S. filing date, it is important to expedite the claim amendment and application prosecution process; otherwise, the applicant’s enforcement period is effectively eroded by unnecessary delays in the process. Accordingly, applicants should endeavor to respond in a timely fashion, expediting all office action responses and facilitating communications with patent counsel whenever possible. Additionally, the new patent rules actually apply a “time penalty to deduct” enforcement period against issued U.S. patents in certain situations where applicants contribute to delays during patent prosecution. 10. FINALLY, ARE YOU OVERSPENDING OR NOT SPENDING ENOUGH ON LEGAL FEES TO PROSECUTE PATENT APPLICATIONS? In the context of the current economic climate, especially in Silicon Valley, startups and entrepreneurs who are strapped for cash may negotiate for substantial fee discounts from patent counsel to prepare and file patent applications. However, patent applicants should ensure that the most qualified legal counsel are selected and engaged to work on critical company inventions — pricing should be just one of many factors to consider. Dennis Fernandez, a registered U.S. patent attorney, is the managing partner at Menlo Park’s Fernandez & Associates, www.iploft.com, which specializes in high- tech and intellectual property rights.

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