Shhhh!

Trade secrets can be a valuable asset in the entrepreneur's IP portfolio. Unlike copyrights, trademarks, and patents, trade secrets are not registered nor are they applied for, granted, or issued. In a short definition, trade secrets are information that is maintained confidential and which gives the entrepreneur competitive advantage and/or derives independent value from being kept confidential.

Virtually every state protects trade secrets using some form of the Uniform Trade Secrets Act. Common law also gives some protection to trade secrets. Theft, or misappropriation, of trade secrets can also implicate the Federal Economic Espionage Act.

But trade secrets are only protectable if they are maintained as secret, and that includes the requirement that (a) the information is not easily available to competitors, and (b) reasonable precautions are used to maintain secrecy.

Customer lists are frequently claimed to be trade secret, but in many cases the customer and contact list is as easy to discern as looking in a known industry directory, or typing a well phrased Google(R) search. On the other hand, some customer lists are not accessible that easily and can only be created over time using sources not readily available. In such a case, the list may well qualify as trade secret...but only so long as reasonable precautions are used to maintain it. Is the information let out to people who are not under a written obligation of confidentiality? Is the information laying on a desk that members of the public or frequent vendors walk past? Do employees have a written obligation of confidentiality? Is the information on a computer connected to the Internet that has only the most rudimentary of security protections? Do the customers know each other and do that they know that they are all customers of the entrepreneur? These things factor, sometimes dispositively into the question of whether reasonable precautions are being used.

One easy self assessment is to ask the following questions. For (a), is the nature and reason for the trade secret status easy to state. For (b), are the precautions taken to preserve secrecy well documented and do they include documentation on the items just listed. If either of the answers are "no", then trade secret protection is not being well established and/or maintained. But don't tell anybody that, it'll be our secret.

Insurance and the Intrepid Inventor

Inventors who bring their own product to market should consider, among other insurance issues, both product liability insurance and patent infringement insurance. Product liability insurance covers liability for claims for injury caused by the new product. Patent infringement insurance comes in two flavors, offense and defense. Insurance exists for infringement offense to cover the cost of bringing a suit in the event someone infringes on the inventor’s patent. Conversely, insurance exists for infringement defense for claims that the entrepreneur infringes someone else’s patent. None of these types of “invention” insurance come cheap, so it is important to find out the premiums on these when writing the business plan.

A Rose by Any Other Name.

If patents are the heart of a business’s competitive edge, trademarks are the face. New entrepreneurs frequently seek information regarding choice of a company or product name. Despite the seeming ease, choosing a mark by which people will identify your product or company can be difficult. Opposing considerations come into play. Does the chosen mark add to marketability? Does the chosen mark infringe someone else’s mark? Can the chosen mark be protected? The more descriptive a mark is, and thus potentially more immediate marketing edge, the less protection it may receive, and perhaps no protection at all.

Marks are placed on a spectrum of protectiveness defining what must be done to make them protectable, i.e., are they inherently distinctive, distinctive only after acquiring secondary meaning, or never distinctive. While generic marks immediately identify the product, they are not protectable in most jurisdictions. Fanciful or arbitrary marks can be immediately protectable, but they give no information about the product whatsoever, so have no immediate marketing bump. A choice must be made then, whether to seek little or no protectability with a generic or highly descriptive name, little or no immediate marketing bump with a fanciful or arbitrary name, or somewhere in between. Once that choice is made, the question becomes whether someone else has the name for the same or related good, which would interfere with the ability to get protection for the entrepreneur, and open the entrepreneur up to trademark infringement or dilution liability.

How does an entrepreneur navigate these shoals? First, make the choice of whether to seek immediate marketability using a descriptive or generic name, or to go with a name less immediately marketable but more immediately protectable. Second, conduct a trademark clearance or name availability search. Third, if a name is chosen that is potentially protectable, and a search reveals no conflicting uses, decide whether to seek formal registration of the mark. Choosing a mark, like growing roses, can be thorny, but when grown correctly, be just as sweet.

Double Duty

Any business that gains a competitive edge from a custom software engine may wish to consider a multi-faceted IP protection plan. Software can be the subject of a patent, the subject of a copyright, and in some cases, the subject of a trademark (or trade dress) for a unique user interface. Engineers frequently seek patent protection on a new device, but almost invariably focus on the electrical, circuit or mechanical aspects, never considering (or perhaps considering too “soft”) protecting the unique code that runs the new widget. But the original expression in code is just as copyrightable as the novel and nonobvious useful process of code is patentable. From an enforcement perspective there is almost no richer or worse type of suit to prosecute or defend. Software code can be the hardest to convey to a judge or a jury, even without throwing in the impenetrability of patent law and claim construction. Similarly, the copyright law surrounding code and user interface protection is literally (small copyright joke) a patchwork quilt.

Small Changes and Big Realities

Isn’t it true that competitors need only make a small change and get around a patent? If so, then why should I get a patent? This is a common refrain, mistaken both in its premise, and in pragmatic reality. For patents, a small change is neither here nor there. Is the competitor’s product within the terms of any claim in the patent? That is the question. If a small change is within the terms or, in many cases, is the equivalent of the terms, then a case for patent infringement may exist.

That is the analysis on the merits. But the real analysis is on the economics.

Patent litigation is unbelievably expensive. More so for defendants, in most cases, then plaintiffs (for reasons that will be the subject of other blog entries). A defendant receiving a cease and desist letter faces an economic wake-up call. When the defendant takes it to the patent lawyer, the lawyer often will require a seemingly gargantuan retainer fee and monthly litigation budget. For most small, and even medium sized, defendants, making a patent infringement defense is not practical, and in many cases not possible. A small change (or even not so small) to a product can still nevertheless come within the terms of a patent claim, allowing a patent holder to terrify, in many cases into submission, a defendant who cannot meet the sticker price for a defense. The threat or even reality of a patent infringement lawsuit can be effective at keeping the competition in line. But, the patent owner has to be willing to enforce it.

Plan to Succeed

The new IP entrepreneur typically seeks to protect his or her new creation, whether it is an invention, a new name for a product, an original design, an artistic performance, or otherwise. At first glance, the costs of IP acquisition/protection can seem large. A successful IP entrepreneur will first create a business plan that provides a roadmap of how the new busines is going to succeed, factoring in not only the costs, risks, and advantages of IP acquisition/protection, but also costs of prototyping, manufacturing, getting the product to market, marketing the product, administrative costs, and a host of other start up costs (licensing, business formation, etc.) that go into being an entrepreneurial business. The U.S. Small Business Administration has a good site with information on how to write a business plan. The State of Washington's Small Business Development Center also has a good informative page on business plans. Once a solid business plan is created, the entrepreneur can weigh and allocate the costs for doing IP acquisition/protection right away, versus waiting until other milestones are reached. Of course, the IP entrepreneur is wise to take consultation to discover the risks of waiting for IP aquisition/protection, as some risks can be substantial and sometimes the IP acquisition/protection work must be done immediately. Making a good business plan is the best first step in succeeding in the new venture. When you fail to plan, you plan to fail.

Start Right at Start Up

The best time to avoid later problems is before the dispute occurs. For the entreprenuer, this means at the beginning. Written Assignments, Shareholder Agreements, Work for Hire Agreements, Non-disclosure Agreements, and Noncompetition Agreements, among others, are frequently desired after the fact. Putting these in place at the beginning of a business or a relationship let's everyone start on the same page, lessening the chance of a later misunderstanding. Good fences make good neighbors, and good contracts make good business.