Brown: Ounce of prevention for business IP assets worth pound of cure

Brown

By Chris Brown

It may sound exhausting. Your client is focused on starting a new business and of course, they have plenty on their plate. Purchasing equipment and inventory, leasing premises (if not operating from home), arranging sales and/or other business development opportunities, as well as getting the word out on the new business will take every bit of a 24-hour day.

However, the fruits of labor will pay off. Indiana offers an easy online filing system as well as access to many other resources. Organizing a business structure may just be the easiest step.

Your client needs strategies and concepts regarding the intellectual property assets encompassed in the new business even before the articles of incorporation are filed. Many pieces may already have been created and others will be developed as the business grows. Remember, as with any other task, an ounce of prevention in the form of planning for intellectual property is worth at least a pound of cure, especially when the client is engaged with the day-to-day efforts of running the business.

Trademarks and Trade Names

Clients may not understand that adopting a company or corporation name (even one not used as a brand) can result in unfair competition claims under the federal Lanham Act (e.g. 35 U.S.C.§ 1125) or state law.

I’ve seen clients that have incorrectly assumed that registration of their company name is without consequence. I’ve also experienced that similar misconceptions arise with domain names. Most states, Indiana included, do not have a process to evaluate the likelihood of consumer confusion among corporate names. If Indiana does not find a match with an existing corporate name, it will usually go ahead and register the name. The same goes with domain names. If a registrar does not find a match with an existing domain name, the registration will proceed. Only later may the client discover that there is a non-identical, yet potentially confusing domain name, corporate name or trademark that has already been registered by another entity.

Indiana has a searchable database of registered business names: https://bsd.sos.in.gov/publicbusinesssearch. Once your client has decided upon a company name, guide them to take the simple step of searching the Indiana database to review any similar names and the business they conduct. Note that this review is not comprehensive. However, it can be utilized to locate and avoid specific pitfalls. Your client can also arrange for more in-depth searches. Again, before the corporate articles are filed, a basic, quick search is highly recommended.

Trade Secrets

If the client has no employees, trade secret issues may be minimal. The new businessperson always needs to be aware of what business information is valuable and safeguard that information. The easiest step is to keep such information locked away when not in use, whether digitally (separate server or drive) or physically.

When employees, investors, or corporate officers come into the picture, the small-business person needs to consider who needs access to valuable information and how to compartmentalize it. A good practice is to get written agreements from employees and others involved with the business that include clauses requiring them to use such information for the business, and not for themselves. Also, keep a log of people admitted to nonpublic areas of the business’ premises, and have them sign a short agreement not to divulge what they observe or learn.

Patents

Not all new businesses will include an inventive product, method, or device as part of its plan. However, a new businessperson needs to know that the clock starts ticking on applying for a patent in the United States when an invention is “ready for patenting” and non-confidentially disclosed or otherwise made public. Once that happens, the client has one year from such publication to file a U.S. application. Accordingly, as a new business is formed, Quick decisions concerning a patent search or application and secrecy agreements (preferably written) with investors, employees or others may be needed.

Copyrights

Copyright automatically exists in an “original work of authorship” as soon as it is “fixed in a tangible medium of expression.” A copyright is initially owned by the author unless (1) assigned by the author, or (2) a “work made for hire,” i.e. made by an employee in the scope of employment.

When others are the authors, the new businessperson must be aware that he or she may not own, and may even have limited rights to, materials created for the business. Web designers, for example, may retain ownership of copyright, and while the new business may use material created by the web designer, the businessperson may have limited ability to alter or add to the material. The new business needs to be aware of, or negotiate away, any such limitations.

The number of people who assume that material on the internet or posted on social media is free for anyone’s use is remarkable. Informational sites frequently allow a license to use material for noncommercial or educational purposes. However, know that the new businessperson (your client) needs to investigate and observe such licenses, where they exist. Fair uses are permitted by statute (17 USC 107), but are generally not associated with commercial use of copyrighted material. It is vital for a new businessperson to remember that photographs, text or other online material are rarely free for the taking.

Winding it Down

As with life in general, whether a business is large or small, it does not last forever. Intangible property should be treated with as much care as tangible property. Hoosiers may remember when the Roselyn Bakery chain ceased operation, but the trademarks and associated goodwill were valuable assets that continued in use.

Intellectual property can pass by assignment or by operation of law. In a bankruptcy, patents, copyrights, trademarks (with associated goodwill) and trade secrets may be sold or assigned for the benefit of creditors. In the winding up of a corporation or limited liability company, intellectual property must be considered in the disposition of all property. While it may seem that there need be little or no concern for intellectual property in a soon-to-be defunct small business, potentially valuable rights are at least in ownership limbo and may be lost if provision for them is not made in the winding down.

In a noncorporate business, where any intellectual property owned by the “business” is in fact owned by the individual proprietor, winding down the business may have little effect on the property of the business — it remains owned by the proprietor. However, in such cases any intellectual property — which can include copyright in personal and business papers — transfers on the death of the owner occur according to a residuary clause in his or her will, or according to the applicable law of interstate succession.

• Chris Brown is a partner at Woodard, Emhardt, Moriarity, McNett & Henry LLP in Indianapolis. Opinions expressed are those of the author.