March 11th, 2013 NYTech Council: Legal Essentials for Startups - Intellectual Property Protection

On Monday, March 11, 2013, OLC attended NYTech Council's Legal Essentials for Startups: Intellectual Property Protection featuring Jerrold Spigel, Partner at Frankfurt Kurnit Klein & Selz; Glen K. Westerback, Associate at Frankfurt Kurnit Klein & Selz; Jessica Friedman, Of Counsel at Paul Ellis Law Group; Marc S. Reisler, Partner at Holland & Knight as the panelists and Paul Ellis, Principal at Paul Ellis Law Group acted as the moderator of the night.                          

Jerrod Spiegel first discussed the various elements of intellectual property. He first began with stating what the discussion would not be going over. "We're not talking about industry-specific issues," Spiegel said. "Music, film, advertising, foreign intellectual property, publicity or moral rights issues won't be gone over," he said. With that, Spiegel started the presentation. He first presented copyright as intellectual property. "Copyright grants the author exclusive rights to reproduce the work, prepare derivative work based on the original work, perform the work publicly, display the work publicly and authorize others to do the same," he said. Spiegel explained that copyright vests in the author's creation of the work, except when the work is created by an employee in the scope of employment and from work made for hire pursuant to written material. "Copyright protects the expression, not the idea," he said. Spiegel added that the terms of protection is the life of the author's plus 70 years and works of corporate authorship to 120 years after creation or 95 years after publication. "There's no formal requirements for copyright protection," he said. "Works not under copyright law is public domain." Spiegel also added that databases can be protected by copyright law, which "typically includes everything, which makes it complicated to protect," and is called a compilation copyright.

"Expression is very different from idea," Jessica Friedman said. "You can't sue for expression. Take Romeo & Juliet and West Side Story, as examples. Similar idea, but they are expressed differently. Also, when you do work for hire, you're commissioned work, and you created it, but the employer owns it from the get-go. The contract has to be signed by both parties for this to be the case," she said. "For the work to be under copyright, it has to be original and under the 1976 copyright law, you have the right to terminate copyright grant in 35 years."

"For a startup company, the issues you'll have to address are work for hire, assignments or outsourcing," Marc Reisler said. "You need to focus on these. Also, identify if you need to register for copyright to protect yourself."

Spiegel moved on to trademark, which he described as, "a service mark [that] is a word, name, logo, design or symbol used to identify the maker or seller of a product or service." A trademark may not be descriptive, generic, misleading or deceptive. "Trademark rights are acquired when it is used in commerce or filed with the US Patent and Trademark Office," Spiegel said. "It can be created through use and development of secondary meaning, which is the public recognition of the mark with a service of goods and services," he added.

"An explicit mark is related to particular goods and services," Friedman said. "A lot of people want to trademark a specific mark, a descriptive mark, and it's the hardest thing to do," she said. "Make words up, trademark something that doesn't have to do with your startup."

"For AT&T," Reisler began, "their most important asset is their brand. And when lawyers talk about brand, they're talking about the trademark and it's the most important thing to consider," he said.

Spiegel went into trade secrets. "Trade secrets means information including a formula, pattern, compilation, programming device, method, technique or process that derives independent economic value, actual or potential, from not being generally known to and not being readily accessible by proper means by other persons who can obtain economic value from its disclosure and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy," he said. Trade secrets are protected under state and common laws in 46 states, excluding New York. "You have to be rigorous in protecting your trade secret," Spiegel said. "If you have to discuss it, discuss it under a non-disclosure agreement.

"Keeping a trade secret is to keep a secret and it's best to sign a NDA [non-disclosure agreement]," Reisler said. "Be very judicious in discussing trade secrets with venture capitalists that refuse to sign NDAs. Don't disclose the most important parts of your startup."

Patents were the next intellectual property to be discussed. "Patents are the right to exclude others from making, using, offering for sale or selling the invention throughout the United States or importing the invention into the US," Spiegel said. "The term of patent is 20 years from the date of filing and to qualify for patent protection, the invention must be reduced to practice and must be new, useful and non-obvious," he said. "Ideas are not patentable, but devices and processes are. Patents are historically granted first-to-invent, but on March 16, it will be changed to a first-to-file system. A patent gives you the right to prevent others from creating your device. It can create a barrier to competition," Spiegel said.

It was at this point that Glen Westerback took the podium and talked about securing IP rights. "To secure IP rights, there are three cases that you need to consider. Founders, employees and programmers, vendors and consultants. In each case, it's important to have assignments in place," he said. "Founders often provide services to a company and it's important to secure a NDA with them; and keep in mind the rule for work for hire regarding employees," he added.

"The law sees coding as literary work," Reisler said. "So you need to enter an agreement and sign a contract when outsourcing software programs. It's very important to consult your lawyer on how to create appropriate assignment language. If you don't sign the contract with the programmer, you don't own the code—the programmer does," he said.

"To select a name for the business or its products and services, you need to first perform basic searches to make sure the name you want to use isn't used by others," Westerback said. "Use Google and use the USPTO to search for registered marks. Also check to make sure the domain name isn't in use. Reserve names on Twitter and Facebook. It's advisable to have a trademark attorney search on a trademark database as well for a more comprehensive search. Next, consider trademark registration. It takes nine to 18 months, but there are lots of benefits to doing this—it can collect attorney's fees if it is breached by others," he said. "And protect your trademarks. Use a superscript TM and R. If you don't use your trademark, you will lose it."

Regarding software development, Westerback said that it is protectable under copyright as an original work of ownership. Software can be patented and websites can be comprised of multiple elements: new code, pre-existing scripts and third-party licensed software. Westerback briefly talked about open-source software as not free and not public domain software. "Open-source license agreements generally provide the licensee with permission to take certain actions, such as Run/Copy/Modify and distribute the licensed code provided that certain conditions are met," he said. "Some open-source licenses apply to the use of open-source software by online software providers."

To exploit company's software and websites, End User License Agreement, "basically gives users the right to run and use code," and Terms of Service, "grants users to use the website," Westerback said and added, "but these agreements are all different from every app."

On user-generated content, Westerback gave examples of text comments, videos and Tweets. "Protection for operators of hosted services include indemnification of content providers, Digital Millennium Copyright Act—designed to protect transient ISPs that end users use to create content, not for ISPs that curate content—and the Communications Decency Act—which is for non-intellectual property cases," he said.

To conclude, Westerback summed up the presentation in a few points. "Potential investors and acquirers will insist that your company has all necessary intellectual property rights. Your company should have proper intellectual property agreements with all founders, employees and service providers. Have your attorney review all of your contracts containing intellectual property provisions. Your technical personnel should carefully monitor software development. And retain an inventory of all third-party software materials that are included in websites," he said.