Essential Intellectual Property Tips For Startup Companies
Readers may be surprised to learn how often we are consulted by clients who face the following predicament: an individual or group of people get together to start a business. Working out of a home, or a garage, or a small workspace, they create a product or come up with a service that they think they can sell and proceed through sheer will and hard work to get the product or service to a point where the product really takes off.
Sounds like a success story, right? And it is. But then what too often happens is problems arise. Infighting starts about who created what, who owns what rights and who is entitled to what payments. And of course competitors notice the success of the product or service and before long knock-offs start appearing.
To do as much as is possible to protect against the foregoing problems and other intellectual property issues, we offer the following tips:
- Protect your intellectual property before you do anything else – consult with an experienced intellectual property attorney who can help identify what intellectual property rights exist and how best to protect them. Make sure you budget sufficient funds for legal advice and intellectual property protection – it will be money well spent in the long run.
- Put agreements in place to define specifically who created what intellectual property, who owns what and who gets what payments – such agreements can include corporate shareholder agreements, LLC operating agreements, license agreements, and assignment agreements. Also address at the front end what will happen if one or more of the founders wants out or if the success of the business fades – it is important to consider at the front end what will happen to the business assets and intellectual property down the road. The key is everything must be in writing – do not rely on trust, handshake agreements, oral agreements or any non-written agreement!
- A non-disclosure/confidentiality agreement is essential and must be in place before you discuss your product with anyone – and this includes not only potential vendors, business partners, etc. but also visitors to the place of business, friends, etc. if any protected details of products or services will be disclosed.
- Make sure to protect ownership through appropriate agreements – all employees and independent contractors should execute appropriate assignment agreements and work made for hire agreements. This is especially important with respect to website design and maintenance, marketing activities, outside sales people, and customer lists. It bears repeating: everything must be in writing!
- Put appropriate agreements in place if others will use your intellectual property to make sure there is no question who owns what and what uses can be made of the intellectual property.
A Social Media Handle Alone May Not Be Sufficient Use To Establish Trademark Rights
There can be no doubt that individuals and businesses are becoming increasingly reliant on social media like Twitter, Instagram, Snapchat and the like to market and sell their products and services. As users of these social media platforms are aware, the individual users are identified by unique “handles” which really are code names. For example, our firm’s Twitter handle is “@AffinityLaw.” The question therefore arises whether a use of a social media handle is sufficient trademark use in and of itself to create trademark rights in the word/phrase comprising the handle.
In its recent decision in Nazon v. Ghiorse (Opposition No. 91216729), the federal Trademark Trial and Appeal Board (TTAB) addressed the issue of whether a Twitter handle constitutes sufficient use to create trademark rights. The claimed trademark in the Nazon case was “Sextrology” for astrological services. The Opposer opposed an application to register the trademark “Sexy Astrology” for similar services. Given the similarity of the marks and services, a principal issue was who had priority of use. Among her other arguments, the Opposer claimed that she had priority of use because she had used the word “sextrology” in her Twitter handle. The TTAB rejected this argument, finding that the use of “sextrology” as part of the Opposer’s Twitter handle did not constitute sufficient use to create trademark rights.
In so holding, the TTAB was clear that its finding was based on the absence of evidence that the Opposer was actually offering any services using her Twitter handle. Consequently, it remains to be seen whether the Nazon case announces a bright line rule that no social media handle can create trademark rights (which is not likely) or, more likely, whether the Nazon case stands for the proposition that a social media handle by itself does not confer trademark rights and some additional trademark use in conjunction with the handle is necessary to create rights.
California Halts Efforts to Seek Copyright Protection for Public Records
On June 21, 2016, we published a post discussing an effort by the State of California to obtain copyright protection for public records. The proposed legislation sought to give copyright protection to public records created using taxpayer funds (such as maps, hearing transcripts, legislative reports, etc.), and would have authorized state and county governments to control and even prohibit their use. The proposed legislation met with strong opposition, primarily from free speech and open government advocates. Fortunately, the author of the controversial legislation (Assemblyman Mark Stone of Monterey Bay) saw the error of his proposal and has abandoned the proposed legislation.
What is the Difference Between Business Entity Names, Trademarks, and Domain Names?
One of the most frequent questions we must address in our practice is what is the difference between business entity names, trademarks and domain names in terms of legal protection and intellectual property status. A recent article in Forbes Magazine (republished from an article in Entrepreneur Magazine) has a good discussion on this topic. The article can be found at this link: http://fortune.com/2016/07/05/domain-names-trademarks.
We highly recommend this article to gain insight on this important subject.
Dissolution of California LLCs Will Be Easier and More Common Sense Starting January 2017
Consider the following two situations:
- Two people form a California corporation as equal owners. One of the owners later decides he/she wants to dissolve the corporation but the other owner objects.
- Two people form a California limited liability company (LLC) as equal owners (members). One of the members later decides he/she wants to dissolve the LLC but the other member objects.
Under current California law, the owner who wants to dissolve the corporation in the first scenario can do so without having to resort to court action because a voluntary corporation dissolution can be initiated by 50% voting power. However, under current California law, the member who wants to dissolve the LLC in the second scenario must file a costly and potentially time consuming lawsuit to obtain a court order to dissolve the LLC since the vote a majority of the members of an LLC (not just 50%) must vote to initiate a voluntary dissolution of an LLC under Corporations Code sections 17707.01 and 17707.02. Such an anomaly clearly makes no sense.
Fortunately, Governor Brown recently signed legislation to end this anomaly. Effective January 1, 2017, the LLC dissolution law will be harmonized with the corporate dissolution law. Consequently, starting January 1, an LLC member with 50% voting power can initiate a voluntary dissolution of an LLC just as can be done with corporations. Of course, just as is true with most other aspects of LLC operation and management, the members of an LLC remain free to draft their articles of formation and operating agreements to require a higher voting percentage than 50% for a voluntary dissolution, to require judicial dissolution, or to have other terms and conditions for voluntary dissolution.
New Rules for Trademark Trial and Appeal Board Practice
The Rules of Practice for the Trademark Trial and Appeal Board (TTAB) are changing effective January 14, 2017. The new rules will be applicable to all proceedings, including those filed before January 14, 2017 and pending on that date. The new rules will apply to inter partes proceedings (oppositions, cancellations, concurrent use) and ex parte appeal proceedings.
More information about the new rules can be found on the TTAB website at this link:
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