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Be a stickler about contracts: Employees and contractors must agree that anything they create or enhance on your behalf is owned by your company
My biggest business challenge is finding a fair and equitable resolution to a business dispute with a former 'informal partner.' I say informal because she did not invest capital nor did we have a written agreement. It's complicated because she believes she is entitled to patent rights as well. My business is skyrocketing and here I am mired in a legal battle. What should I do? —Desperately Seeking a Solution
Ouch. There's nothing worse than having to slow down your growth due to a legal hassle. Just when you've picked up speed, there you are slamming on the brakes. This is a prime example of why I am such a stickler about contracts. At this point Desperately needs to answer a key question first: Did the former partner help create the product? Could she be construed as a co-inventor? If there's no way she had any part in creating the invention (BusinessWeek.com, 9/12/07), make an offer. It should be a fair settlement offer, like 20% of the revenue generated since inception, since Desperately put up all the costs and 2007 was the first year of sales. If this offer is declined, the former partner can propose a counter-offer. If it is ludicrous, Desperately can raise her original offer a tiny bit and say it expires in two business days. If this doesn't work, it's time for mediation.
Far too often I see examples of deals that haven't been adequately covered with contracts and intellectual property that hasn't been adequately protected. Cover your assets—or risk losing them.
Every employee or contractor must sign a proprietary information and inventions agreement. This ensures that all intellectual property they create or enhance on your behalf is owned by your corporation. Have any third parties who'll be let into your company's inner sanctum sign this agreement, too. I prefer a proprietary information and inventions agreement over a nondisclosure agreement (BusinessWeek.com, 4/2/07) any day. The former is more comprehensive. The latter is often too lightweight and subject to interpretation and scope.
Remember, your brand equals the accumulation of the experience, beliefs, and ideas your customers have about you. They have an expectation of who you are, what you deliver. Their expectation and experience must be consistent. Your logo, trademark, and other intellectual property is how your brand is conveyed to the public. Without intellectual property protection, your brand is at risk. You must actively protect your brand or you will lose it. For instance, if you find out about brand infringement, you must step in and take legal action. If you don't, or won't, why bother protecting your IP?
In talking with my favorite intellectual property attorney, Eric Farber of Pinnacle Law Group, he stressed that entrepreneurs must know the four key types of intellectual property and they must protect them from the get-go.
Trademark. This protects a corporate identity, which is most often expressed in a logo or word mark. Start out by filing an Intent to Use application first to reserve your mark. Then start using it pronto, as the key to trademarks is to use them in commerce, especially interstate. As you use your trademark, its value will increase, making it worthwhile to now register it. Don't spend the money until you determine that people will buy what you have and resonate with your brand. Once you register your trademark, add a "TM" next to it. When the trademark is granted, you'll change the TM to an R. The registration process can range in cost from about $3,000 to $5,000, including lawyer's fees.
Copyright. This is a tangible expression of an idea; a movie, song, book, or magazine. A "raw" work can't effectively be copyrighted. For example, a script can only be truly copyrighted once there is a tangible expression of it, so once it is used in a play or movie it has now crossed over to being tangible and can be copyrighted. The rumor that if you change every 15th word you can break a copyright is not true. It only costs about $40 to file a copyright.
Trade Secrets. These are formulas, like the Coca-Cola (KO) recipe. The best way to protect trade secrets is to secure them away. But often you can't—they are key to your business. With our Coca-Cola example, workers have to mix the formula regularly, so the trade secret recipe cannot be kept under lock and key. A trademark protects the Coca-Cola brand, which is the vehicle that delivers the trade secret in tangible form to the market. If your trade secrets can be documented, be sure to stamp documents with the words "TRADE SECRET" if you are showing them to a business partner. How do you protect your employee from going to a competitor and sharing your trade secrets? Have them sign a proprietary information and inventions agreements.
Patents. This is a massive area of the law. The U.S. Constitution empowers Congress to provide a patent system to secure, "for limited Times to …Inventors the exclusive Right to their … Discoveries." The patent statutes, as enacted, provide for three types of patents: utility, design, and plant. To obtain the most common type of patent, the utility patent, an invention must be new, useful, and non-obvious and fall within one or more of the categories of process, machine, manufacture, and composition of matter. In addition, the patent applicant must provide a written description of the invention, a description of how to make and use it, and disclose the "best mode" for practicing the invention. A valid and enforceable U.S. patent provides its owner with the right, among others, to exclude others from making, using, selling, or offering for sale the patented invention in the U.S. and its territories. The remedies for patent infringement can include one or more reasonable royalties, lost profits, and injunctions. Patents are pricey, but worth it. Budget $10,000 to $30,000 per patent you plan to file.
Protect your assets by having your employees, contractors, and business partners sign a proprietary information and inventions agreement. Then bring an IP-savvy attorney onto your team to ensure your assets are covered!