After raising a significant amount of cash from VC investors, it is time to do a top-to-bottom review of your company’s intellectual property (IP) portfolio.
To get started, here’s an overview of the four main types of IP:
- Patents protect rights regarding inventions and discoveries, such as machines and processes.
- Copyrights protect expressive works, including art, music, dance, and literature, as well as software.
- Trademarks protect product; service; and company identifiers such as brands, logos, and package designs.
- Trade secrets protect commercially valuable confidential information, such as business and financial plans, formulas, recipes, and customer information.
A patent is a right granted by a country’s government to an inventor for a limited time to exclude others from making, using, offering for sale, or selling the invention in, or importing the invention to, that country. To be enforceable, the patent must be registered by that country’s government after the inventor files an application for patent protection. In general, patents are granted for new and nonobvious ideas that have utility or an ornamental design.
Here is a list of next steps every VC-backed company should take regarding patents:
- Discovering and Acquiring Patents
- Implement policies and processes for identifying, disclosing, and assigning patentable inventions as an integral part of research and development efforts.
- File U.S. patent applications within one year of public disclosure of an invention.
- Confer with the Perkins Coie IP team as to the availability of international patent rights.
- Seek invalidity and/or noninfringement opinions before launching potentially infringing products.
- Seek patent clearance before investing heavily in a new product.
- Using Patents
- Mark products with patent numbers.
- Draft patent license terms carefully.
- Maintenance and Enforcement
- Implement docketing and other systems to ensure timely payment of S. and foreign patent maintenance fees.
- Discuss with us before notifying an infringer, threatening litigation, or offering to license.
- Notify us immediately upon being put on notice of possible infringement of another party’s patent.
After you accept VC dollars, you should strongly consider trademark protection if you haven’t already. A mark is any word, symbol, name, logo, or product design feature used in commerce to identify the single source of a product or service and to distinguish the product or service of one provider from that of another. Trademark, trade dress, and service mark rights can be lost if not enforced or if assigned improperly.
Here are next steps for VC-backed companies regarding trademarks:
- Discovering and Acquiring Trademarks
- Implement a process for identifying all names, marks, logos, slogans, trade dress, and other source identifiers.
- Implement a process for clearing names and marks, including full and (if applicable) international searches, before adopting and investing in new names and marks.
- Seek federal and (if applicable) appropriate foreign registrations for Consider state registration if federal registration is not available.
- Consider recording your registered trademarks with U.S. Customs and Border Protection to protect against the importation of infringing products; and with ICANN’s Trademark Clearinghouse to protect against third-party registration of infringing domain names.
- Using Trademarks
- Establish and communicate a policy for the appropriate use of all trademarks, including use as adjectives (e.g., Kleenex tissues).
- Use the ® symbol for all registered marks but only for those goods and/or services covered by the registration(s).
- Use the TM symbol for all unregistered marks.
- Maintenance and Enforcement
- Implement docketing and other systems to ensure timely renewal filings and payments.
- Police your mark, including using trademark watch services, monitoring competitors’ activities and websites, and tapping existing networks (e.g., distributors, customers, dealers) to watch for possible infringements.
- Monitor quality control on all licensees, distributors, and dealers.
- Verify and document your right to use the trademarks of others and licenses granted for the use of your marks.
- Maintain and regularly update records and samples of trademark usage for each of your marks across all relevant jurisdictions.
- Record assignments and other ownership changes with the U.S. Patent and Trademark Office (USPTO).
Copyright law protects original works of authorship in a fixed medium (e.g., art, music, literature, or software). Here are some tips for using copyrights, as applicable to your business:
- Establish and communicate a policy for marking all copyrightable works, including webpages, source code, software, advertisements, manuals, company literature, and artwork.
- Mark all copyrightable works with the copyright symbol ©, year of first publication, and legal owner.
- Implement a process to consider U.S. registration of copyrights in all key works, preferably within three months of publication.
- Consider recording your registered copyrighted works with U.S. Customs and Border Protection.
- Implement a system to archive copies of each version of copyrightable works.
- Require all nonemployees, especially those engaged to create or contribute to copyrightable works such as software or art, to enter into work-for-hire agreements with an express assignment of IP ownership rights.
- Verify and document your right to use the copyrightable works of others, including graphics, artwork, software, and photographs.
A trade secret is information, such as financial data, formulas, or customer lists, that is not generally known or readily ascertainable. This information derives economic value from being kept secret. Trade secrets are key pieces of IP for tech startups, and startups should follow these simple rules for protecting them:
- Establish a policy for determining what company information is a trade secret.
- Limit disclosure of trade secret information to parties with a need to know.
- Require those parties to sign nondisclosure agreements (NDAs) or confidentiality agreements.
- Establish a policy for labeling all documents containing trade secret information as “Confidential” or “Trade Secret.”
- Control access to trade secret information, including physical access (e.g., locked doors and cabinets, visitor sign-in) and computer access (e.g, encryption, password protection, firewalls).
Protect Your Domain Names and Websites
- Register your company’s name and important marks in all major top-level domains and applicable foreign top-level domains.
- Implement systems for tracking and maintaining all domain name registrations, renewal dates, and appropriate WHOIS data.
- Employ defensive domain name registration strategies, such as registering common misspellings and mark plus descriptors.
- Include on your website all appropriate legal notices, including copyright notices, trademark notices and symbols, patent notices, and disclaimers.
- Ensure that your website complies with the Americans with Disabilities Act (ADA) and other applicable laws.
Update Your Privacy Policies and Terms of Service
Other Recommendations for Protecting Your IP
It’s important that the company, as a VC-backed startup, has a legitimate claim of ownership over its IP. If your VC financing was publicly disclosed, you will have a target on your back from competitors and others who will want to know what you’re doing and how you’re doing it. Patent, trademark, and copyright registrations are ways to protect the “final” IP of the company, but these protections can be time-consuming and expensive and may not be appropriate for all forms of IP. Trade secret laws are also available to protect the company’s trade secrets, but only to the extent that they are treated as confidential. You should always follow these simple tips to protect the company’s IP at little or no cost:
- Update your forms of proprietary information and inventions assignment agreements (PIIAs) and continue to get them signed. Please reach out to us for the latest forms of PIIAs for the states in which you have hired or expect to hire employees and contractors. Also, be sure to have everyone who is performing services on behalf of the company (e.g., employees, contractors, and advisors) sign a PIIA before their start date. If you fail to have a service provider sign a PIIA before their start date, they will need to sign a separate confirmatory IP assignment, which will require payment of additional consideration and additional legal fees.
- Just don’t disclose. Do not disclose the company’s confidential or proprietary information to any third party unless absolutely necessary and only under a cover of a written NDA. We can provide you with updated forms of NDAs. A word of caution: NDAs can be difficult to enforce and should not be relied on alone to protect the company’s secret sauce. Once the secret has been revealed, no NDA can stop someone from disclosing private information, and monetary recovery (in the event that an NDA breach can be proven) may be inadequate to compensate for the damage done.
- Get licenses in writing. Enter into written license agreements with any third party that will use the company’s technology or IP in any way. Ensure that any licenses allowing another party to use your IP include indemnities against tort and product liability claims. Ensure that any licenses allowing you to use another party’s IP include indemnities against IP infringement and related claims. Also, you should consider purchasing insurance that covers IP risks.
- Be careful about conflicting obligations. In connection with hiring employees or consultants, startups should carefully inquire whether potential candidates may be under active contractual obligations restricting their ability to work as employees or consultants. “Moonlighting” issues can compromise the company’s IP ownership rights, particularly in the event that a venture fund on the company’s cap table is related to, or in direct competition with, the current or prior employer of a founder, employee, or consultant. Our forms of PIIA address this issue and should be thoroughly reviewed by all new hires.
If you have any questions about IP issues, please contact your Perkins Coie team member.
Congratulations! After months of networking, pitch meetings, phone calls, and negotiations, you’ve finally signed a term sheet for your company’s first round of venture financing. What you face next could be one of the biggest hurdles to successfully closing your round—the due diligence process. Read on for […]
October 17, 2023 BBG Ventures & Perkins Coie co-hosted a Term Sheet Tear Down Happy Hour during NY Tech Week, teaching women and diverse founders the intricacies of term sheet negotiation and “founder-friendly terms.” The interactive conversation with BBGV Principal Claire Biernacki and Perkins Coie Counsel Yashreeka […]
“Dead equity” refers to company stock owned by individuals and entities no longer contributing to the company. In general, there are two types of dead equity seen on emerging company cap tables: Departed founders/employees. A co-founder or early employee leaves a company or no longer significantly contributes […]