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Overlooking the need to protect a new company’s intellectual property can prevent that company from realizing the full commercial value of its trademarks, copyrights, patents and trade secrets. Worse still, it may cause the company to get involved in expensive litigation or lose its rights altogether. Although strategies for protecting and maximizing the value of intellectual property vary depending on the nature of a company’s business, there are a few points that attorneys should advise virtually every business to review at the outset. CHOOSE THE RIGHT NAME Before deciding on a trade name, an emerging company should check on whether a similarly named business is already in the marketplace. Finding out that another company is already doing business under the same name can be a nasty surprise. Advise your client to invest in a company name search; it will be money well spent. BUILD A BRAND A start-up may need assistance in deciding on trademarks or service marks — names and designs to brand the company’s products and services. Many companies choose to use their company name for this purpose, but separate product names, logos and slogans also can be important trademarks. When working with clients to choose brand names, remember that the strongest ones are arbitrary or fanciful, rather than descriptive. For example, the trademark “Yahoo” is a strong trademark, at law and in the marketplace. In contrast, a name such as “Food Store” for use with a shop that sells foodstuff would not be entitled to legal protection as a trademark because it is descriptive of the service for which it is used. Of course, brands may not be confusingly similar to existing marks or other companies; it is essential for a start-up’s counsel to conduct or order a thorough search for conflicting names. CONSIDER TRADEMARK REGISTRATION Once your start-up client has decided on distinctive trademarks, discuss federal registration of the marks. Federal registration confers numerous important benefits, including: (1) the right to use the � symbol in conjunction with the mark; (2) the ability to record ownership and transfer of the mark; (3) the right to sue infringers in federal court; (4) the benefit of statutory presumptions as to the mark’s ownership and validity; (5) the right to certain statutory remedies in the event the mark is infringed. Federal registration also constitutes nationwide notice of your client’s rights in the mark — something that is particularly important if the business’s initial launch is limited in geographic scope. If your client is still developing the goods or services with which the mark will be used in conjunction, encourage it to file an “intent to use” registration. Such registration will confer your client with ownership rights in the mark from the date it files a trademark application for the mark rather than the date it actually used the mark in commerce. GET WIRED Most new companies will want to know whether they can register the company’s name or mark as an Internet domain name — another important way of protecting and enhancing the company’s brand in the marketplace. A company can own as many domain names as it likes provided those domain names aren’t already taken. If your start-up client’s domain name of choice already has been registered by someone else, have the company consider registering a slight variation of that name, or have it consider registering the name under another general top level domain, like the recently authorized .info or .biz. SEEK PATENT PROTECTION Don’t forget that patents aren’t for high-tech and research and development companies alone; new inventions, discoveries and even business methods may be eligible for patent protection. Make sure that your start-up company client files for patent protection within the time limits set by the law; failing to do so could mean abandoning its rights. SIGN UP EMPLOYEES AND CONSULTANTS An important early step in intellectual property protection is to obtain appropriate agreements with employees and independent contractors to ensure that your client company, and not the employees and contractors, owns the patents, copyrights and other intellectual property rights in works they produce for the company. Well-crafted noncompetition, confidentiality/nondisclosure, and nonsolicitation/anti-piracy agreements are important to ensure that the client company’s intellectual property is protected from claims to intellectual property assets brought by the company’s employees or consultants. Some clients also may need to consider adopting invention disclosure and transfer provisions to ensure that their employees and consultants understand at the outset that the company owns key intellectual property. In addition to such contractual protections, attorneys should advise clients to take steps to protect trade secrets and proprietary information by adopting trade secret protection policies. Such policies should identify the company’s intellectual property, trade secrets and confidential business information. In addition, companies should develop and implement policies and procedures related to computer security, physical access restrictions, employee notification procedures and procedures for disclosing sensitive information to new employees, consultants and outsiders. INSURE INTELLECTUAL PROPERTY ASSETS A start-up client’s intellectual property assets may be accused of infringing another entity’s copyright, patent, trademark or trade dress rights. Your client also may have to defend itself against claims for defamation, business disparagement or invasion of privacy. Internet and e-commerce businesses are especially vulnerable: These claims could, in theory, be brought in countries throughout the world. According to one recent estimate, the median defense costs in a copyright case are $180,000. In a trademark case, the median defense costs are $249,000. In light of these risks, advise your client to consider purchasing Comprehensive General Liability policies. The “Advertising Injury” portion of such policies should provide coverage for your client’s defense of copyright, trademark and trade dress infringement actions. In addition, consider specialized policies to cover intellectual property and related claims as they relate to online activities. These include Media Perils Policies, Professional Errors & Omissions Policies, and stand-alone Internet liability policies. A number of insurance carriers now offer them. COMMERCIALIZE INTELLECTUAL PROPERTY Once you have established and protected your client’s intellectual property rights, you can help the client to commercialize these rights through licensing and franchise agreements with third parties. A well-drafted licensing agreement can protect your client’s intellectual property in a wide variety of business situations, while creating a range of revenue streams for the client’s business. When drafting IP licensing agreements, attorneys must be mindful of the need to limit the scope of rights, to provide for appropriate warranties and indemnities, and to control the creation and address the ownership of derivative works. Attorneys also should consider advising the client to use IP trusts or separate IP subsidiaries to isolate parent companies from liability arising from the use and licensing of intellectual property. Attorneys also should work with clients to ensure that their participation in industry consortia — something that companies in certain industries often do to obtain access to and participate in product standards — does not create an automatic license or otherwise obligate the company to disclose its intellectual property. In addition, attorneys should counsel clients on the danger of entering into covenants not to sue other members of such consortia. USE INTELLECTUAL PROPERTY AS COLLATERAL A wide range of intellectual property — including patents, patent applications, unregistered and registered trademarks, copyrights and trade secrets — can be used as collateral to secure a start-up company’s loans. Attorneys representing companies that are borrowing or lending money therefore must be well versed in the rules for perfecting a security interest in intellectual property. Remember: If a security interest isn’t perfected properly within 10 days of the date of the loan, the security interest may be set aside in the event of bankruptcy. To perfect a security interest in a patent or registered trademark, a secured party must file Uniform Commercial Code financing statements and make a filing with the U.S. Patent and Trademark Office. To perfect a security interest in a registered copyright, the secured party must file with the Copyright Office. It is advisable to do a UCC filing for registered copyrights, also. Carol V. Rose is an attorney at Hill and Barlow in Boston, where she is a member of the Intellectual Property Practice Group and Emerging Companies/Private Equity Practice Group. E-mail: [email protected] hillbarlow.com. Parts of this article were based on materials prepared by members of the Hill & Barlow Intellectual Property Law Practice Group. � 2001 Hill & Barlow.

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