Starting a business can be an exciting and potentially lucrative endeavor, and many entrepreneurs are understandably excited to get started. Developing a concept into a monetized reality requires planning and execution, and skipping steps in this process can cost you significantly in time and money. Whatever your business may be, it is important to fully explore and understand any legal issues that can arise in your particular industry, whether those issues are basic state or local licensing requirements or determining what business entity would best fit your needs (discussed in our last blog post here.)

Protecting your most important assets

Of particular concern to startups is intellectual property law, or IP, for short. The advent of internet- based businesses has made novel ideas very valuable, and disputes about who “thought of it first” could result in legal battles of hundreds of millions of dollars. One only need to think of the well-publicized dispute between Facebook founder Mark Zuckerberg and his Harvard classmates Cameron and Tyler Winklevoss to see what can be at stake in an IP dispute; after the Winklevoss twins sued Zuckerberg for allegedly stealing their idea and source code for Facebook, Zuckerberg settled out of court with the twins for $65 million.

The best way to avoid such disputes is to anticipate any issues and put into place legal mechanisms that will protect intellectual property and clearly define the relationships between parties to a business venture. In turn, the best way to achieve this goal is to consult with an attorney who understands the unique legal needs and concerns of startups. In the first of a two-part blog on IP issues important to startups, we will examine two ways in which ideas not yet in the public domain can be protected from theft or misappropriation by other people or parties.

Non-disclosure agreements

At its most basic, a non-disclosure agreement (NDA) is a contract that exists between parties that identifies certain material, knowledge, or information that the parties to the contract share with one another but may not share with third parties. NDAs are important for parties considering doing business with one another to protect any ideas they need to share while evaluating a potential business venture. For example, if you had an idea for an iPhone or Android app, but needed to solicit bids for the app development, you could use an NDA to ensure that your idea was not stolen or disseminated to other parties.

Another way that a business can use an NDA to protect ideas is by having employees sign an agreement to keep them from disclosing company information or trade secrets to third parties. These types of NDAs are particularly important to tech startups who hire individuals who have intimate knowledge of a product or service being developed.

Trade Secrets

Trade secrets are defined by federal law in 18 USC §1839, as information, for which reasonable measures have been taken to keep confidential, that has independent economic value because it is not publicly known. Methods of protecting trade secrets include NDAs (discussed above) and non-compete clauses. In addition to preventing employees from disclosing information, employers may also require that employees assign any intellectual property produced in the course of employment to the employer. These types of agreements allow employers to invest in research and development without fear that their employees will walk away with the fruits of their investment.

Trade secrets are regulated by both state and federal law, which generally make theft of trade secrets a crime.

Protect your intellectual property from the start

These are just a few of the intellectual property issues that can arise when starting a small business or a startup. To best avoid any future disputes, it is important to consult with an attorney experienced in intellectual property law. As an entrepreneur, your ideas can be your most valuable asset, and protecting them from the start is the best way to go.

This month, book publishers and Google reached a settlement regarding how Google may digitize books and make them available for its users.  At issue is whether Google’s book-scanning project, known as “Google Books,” violated both publisher’s and author’s copyrights. In traditional publishing, the publishing company and the author share royalty fees that come from the sale of books. This litigation started in 2004, when Google announced that it would partner with several prestigious universities and public libraries to make their catalogues available online, effectively undercutting traditional publishers who charge to make content available.

Google Books, which has been previously known as both “Google Book Search” as well as “Google Print,” is a service that allows Google users to search full text of print media that Google has scanned and converted to text.  As of March of this year, Google has scanned over 20 million books into its database.  Google allows users to view full text of works in the public domain, as well as allowing the option of downloading the book. For books still under copyright, the service allows readers to view 20 percent of the book for free, and then offers the option of buying the full text at its “Google Play” store.

Supporters of the service argue that digitizing and indexing the entire body of human knowledge will benefit society by allowing faster access and preserve works for generations to come.  Detractors argue that Google’s actions are pushing the intellectual property concept of “fair use” to an absurd limit, and will ultimately result in tighter regulations.

The terms of the settlement have not been disclosed, but the parts of the agreement that have been made public include allowing publishers to choose whether Google digitizes its out-of-print books that are still under copyright protection as well as a  revenue sharing scheme between Google and the publishers. Among the publishers who have reached an agreement are Simon & Schuster, McGraw-Hill Companies, Pearson Education, the Penguin Group, and John Wiley & Sons. The authors involved in the suit will continue their class-action claims against Google.

The United States Patent and Trademark Office (USPTO) recently announced that it plans to open a regional branch in the San Jose area. Satellite offices are also planned for Dallas and Denver, in addition to a recently-opened office in Detroit. The USPTO is notoriously backed up, and the new satellite offices are part of a plan to streamline patent and trademark applications and spur American innovation. The four cities chosen for the regional offices were selected out of 600 US cities because of their diversity, regional economic impact and intellectual property contributions.

San Jose was selected as the site of one of the new satellite offices because of its leading role in technology and biotech innovation. In 2010, California accounted for 26% of all US patents and Silicon Valley alone received 12% of all US patents (or 10,000 patent filings). Nearby cities added to that total, too, with another 6,290 patent applications from San Francisco, Oakland, and Fremont. The USPTO plans to open the Silicon Valley office by 2014.

If you blog or have a website, chances are you have looked at other people’s writing to get ideas or content. At what point do you cross the line from legitimate research to copyright infringement?

A few guidelines may help you stay on the right side of the line. First, don’t copy verbatim. If you are taking more than two or three words in sequence, you should attribute to the original author and ideally link back to that person’s website. Second, if you use an image or video, it should be your work or you should get permission from the person who created it. Links to Youtube are one exception to that rule and have been generally found to be okay. Third, think about the practicalities. Your risk is lower the less visibility your blog or site has. The more people that are seeing your work, the more potential exposure you are getting to copyright infringement claims. Finally, ideas are not copyrightable. If you are looking at other people’s work for inspiration from which you will create your own, unique work, you will probably be just fine.

Having a website is essential for almost all business owners, and the Internet is a tool that allows companies that were once operating in a limited geographic area to literally conduct business across the globe. As much as a website can increase a company’s reach, it also can create new and sometimes unforeseen sources of liability.  Here are some ways we help our clients avoid some of the more common sources of liability that can arise from having a website.

Make sure the content on your site belongs to you or you have permission to use it.

Copyright infringement is another potential source of liability that comes with having a website. Make sure that all the content on your website is your intellectual property, or that you have permission to use it, or that it falls within the fair use exception to copyright. “Fair use” allows limited use of copyrighted material without having permission from the copyright holder; some examples of fair use are commentary, criticism, news reporting, research, and scholarship. Keep in mind that you can be held liable for what other people post on your site; this means that if you allow comments on your site, you own any content posted on your site by the commenters. One way to limit your exposure is to have a disclaimer stating that by posting on your site, the poster warrants that the material posted is their intellectual property, or that they have permission to use it. However, this does not completely shield the website’s owner and, if infringing material is posted, the owner could still be sued.

Don’t say disparaging things–unless they are true.

Libel is one of the most obvious potential sources of liability for the owner of a website. A statement is libelous if it is a written communication expressly or impliedly stated to be factual that paints something in a negative light. “Something” can mean an individual, a product, a business, group, government, or even a nation. So, for example, if you sell widgets on your website and you are certain that your widgets are the best in town, tread carefully when discussing your competitor’s widgets. Also, be aware that there are many defenses to a libel claim, the most obvious one being that of truth; if the statement made is true, it cannot, as a matter of law, be libelous.

Have a well-written terms of use and privacy policy.

Having a well-drafted terms of use and privacy policy will limit the liability to which a website owner is exposed. The terms of use could potentially state that the information provided may not be up to date, state that the opinions on the site are solely that of the author, reserve the right to change the terms and conditions, or prohibit visitors from using the site in certain ways. The privacy policy will state the ways in which you will be using the personal data, if any, submitted through the site.  Of course, what the terms of use and privacy policy will include is highly dependent on the type of business you are running and the website itself.

You have a great piece of software or technology that you have developed, and you think it could be worth something. Should you file a patent? And how hard or easy it is to do?

Patents (most of which are issued for 14 years) are an interesting mix of the complicated and the obvious. This is emphasized by the sheer volume of patent applications. 520,277 applications were filed in 2010, and around 250,000 patents were actually granted. But many patents are also successfully amended after a first denial—especially if the inventor gets qualified legal help to fix any original filing problems. Talking with a lawyer will make it easier to spot issues about earlier, similar patents or give protections against possible future infringement of your patent.

Of course, “costs” are the most common questions for an inventor who is starting the patent process. While always important, thinking of the apparent costs of a patent may actually confuse the process. This is because the costs of getting a patent are not always what decides a successful patent. Instead, getting advice from a lawyer is often the very best first question: “Is it the right time to get help on my patent?”

A lawyer will first help explain the type of patent that is likely to be needed, and they may recommend first filing a provisional patent. Provisional patents require less work (and expense) to file, but only last for one year, so if you really want to protect your idea you will have to eventually file a regular patent application.

Many inventors, more interested in creating things and not getting a patent, might simplify their process by working with a lawyer who will help set up a business to get the patents. This may also identify investors, while also getting as much proprietary (such as trade secrets) protection as possible, before filing a patent application. While patent law is entirely federal, getting legal help also makes it easier to protect an idea by knowing what state laws or rights might help protect your idea.

Because patents are so important to the entire American business system, the Patent and Trademark Office (PTO) is making the system easier, all the time. For example, some patents may be filed entirely online (USPTO.gov). Part of the reason e-filing is meant to make the process easier is because of delays in actually getting a decision. Waiting has been one of the least easy parts of filing for decades. From initial filing to a final decision, the average PTO wait is now almost three years. Because experienced lawyers can watch for USPTO “red flags,” getting legal help can be not only the best investment, but also the easiest step in the whole process.