Presentation for GW Business Plan Competition – March 2014

Peter S. WeissmanBlank Rome LLP(202) 772-5805

Protecting Your Ideas and Brands with Patents and Trademarks

weissman@blankrome.comhttp://www.linkedin.com/in/pweissman

© 2009-14 Blank Rome LLP

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Startups – Legal Pitfalls

•Budget for legal expenses•Failing to protect Intellectual Property• Comply with gov’t regulations

– FDA, FCC, etc.– Exportation of technology

• Recognize your strengths and weaknesses• Obtain insurance: product liability• Your attorney as a business resource

Startups – Legal Pitfalls

• Agreements– No founders’ agreement– Online legal forms– Watch for non-competes and trade secrets– Use contracts to avoid litigation– Indemnification clauses

• Know when to have one• As company grows, have a lawyer “audit” your

business to check your contracts, corporate structure, title to assets, insurance, employment agreements, consultant agreements, etc.

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Forming a Company• Reasons to form a company

– Insulate you from liability– Establish ownership early for stakeholders

• Vesting schedule: owners get 1/48th of total shares until fully vested in 4 years, but with 1-year cliff (don’t receive until after 1-year)

– Establish ownership of assets and obligations• Tangible: equipment, real property• Intangible: customers, receivables, bank account, patent,

trademark (secure ownership in consulting and employment agreements)

– Have structure in place for board of directors– Simplifies Investment Process (exchange an interest

in your company for $$)

Starting a Company• Responsibilities of having a company

– Maintain formalities• Don’t comingle funds or assets• Company should not just be a shell

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Types of Companies

• Sole Proprietorship (personal liability)• General Partnership (personal liability)• Limited Liability Company (LLC)

– No tax advantage or disadvantage– Income is passed to owner, who pays tax– Few formalities: operating agreement

suggested, but no annual meetings– Inexpensive to form– No personal liability

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Types of Companies

• C-Corporation– Hold profits in company, so that company and

owner each have lower income– But, company must pay tax on its income,

and the owner pays tax on profits (“dividends”) that it receives

– Complicated to form: articles of incorporation

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Types of Companies

• S-Corp– Profits must be distributed based on number

of shares• Taxed on your reasonable employee salary• No employee tax on dividends• But, must have payroll and payroll tax

– More formalities: file annual report, bylaws, minutes, annual meetings, stock, etc.

– Some states require shareholders to be U.S. citizen or have residency status, and not own another LLC

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Types of Companies• Non-Profit

– Protection against liability– Has a purpose which is not to make profits

• The purpose must be permitted by law• Charities, trade unions, hospital, schools,

political organizations, public arts

– Does not:• Distribute its surplus (i.e., “profits”) to the

owners (uses it to pursue its goals)• Issue stock or pay dividends

– Can have paid employees and directors, though usually constrained 9

Types of Companies

• Non-Profit (cont.)– Types of non-profits

• Tax exempt or not– For federal tax (under 501(c)), if religious,

charitable, scientific, public safety, literary, educational, protect children / animals

• Charitable or not (donors can deduct contributions)

– Usually also have to be chartered

• Chartered corporation– Board of Directors controls

– Look into private pro bono assistance10

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Intellectual Property - Patents

• What is a Patent: any new and useful process (i.e. method), machine, manufacture, or composition of matter, or any new and useful improvement thereof

– Software, method of making, method of using– Ornamental design

• Not: abstract idea• Rights: exclude others from practicing your invention

Patent Standard

• Standard of patentability– Formal test: is the invention “obvious” to one of

ordinary skill in the art based on the existing technology

• Need not be a tremendous breakthrough– Practical test: any feature of your system /

product / service that differs from the existing technology

• Does it provide you with a commercial advantage?

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Patent Protection

• Advantages– Establishes ownership (also use employment and

consulting agreements)– Investors want to see patent and trademark protection

and knowledge of competition– Increased value of your company as a whole (may be

most valuable asset for a start-up)– Patent is “prior art” that prevents a competitor from

patenting your process– Provides leverage in industry– Sets up possibility of cross-licensing technologies– Rights can be licensed or assigned– Positive reinforcement and establish culture of innovation

Patent Protection

• Patent Disadvantages / Considerations– Doesn’t give you the right to make, use or sell

• Could be infringing someone else’s patent• Still need to comply with relevant gov’t regulations

– Costs: substantial investment of time and capital– Territorial: must file in each country where protection is

desired– 2-6 years to get a patent– Costs: substantial investment of time and capital– Application (proprietary information) may be published

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The Provisional Application

• What is a provisional patent application?– Expire in one year– Does not become a patent– Is not examined– Lessened formal requirements – no claims

• Advantages of a provisional– You can say “patent pending”– Cheaper to file– Not factored into patent term– Can be filed quickly if danger of public disclosure or to beat

potential bar date• Disadvantages of a provisional

– Dangerous to rely on !!!• Does it satisfy enablement, written description and best mode??• Your non-provisional will not benefit from the provisional if the

provisional does not disclose each element claimed in the non-provisional

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Patent Strategy ***• STATUTORY BAR

– A single disclosure by you may forfeit rights in countries outside the U.S. and starts a 1-year grace period in the U.S.

• Disclosures include commercial use (even if secret), printed publication, public speaking, sale, offer for sale, ordering a commercial quantity from a supplier

• Non-disclosure agreements are not always a guarantee• But, may not fully preclude a patent if the disclosure was

not enabling

– Strategy: file your application in the U.S. “before” you disclose the invention. That will preserve your right to file abroad later.

• Can’t rely on an incomplete provisional application to preserve your rights abroad

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Patent Strategy• STATUTORY BAR (cont.)

– Common activities by start-ups / students / researchers that “may” trigger the 1-year U.S. grace period and preclude foreign protection:

• Speaking: Business Plan Competition or venture fair;• Publication: Your research paper (dissertation) online or

catalogued / indexed in school library is a publication;• Speaking: classroom discussion (possibly), poster

session, speaking engagement;• Publication: An National Science Foundation grant

proposal and Nat’l Institute of Health grant application can be a publication;

– But, a publication disseminated by mail is not prior art until it is received by at least one member of the public;

– And, a submission for review by a scientific committee prior to publication is not itself a publication.

– Consult an attorney

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Patent Pitfalls• Misperception of the standard of patentability

– Does it provide a commercial advantage• Don’t delay

– File “before” you disclose the invention– First-to-file system (started March 16, 2013)– Early filing date helps in both cases– Invention doesn’t have to be reduced to practice

• Inventors should all be with your company– Avoid loss of rights in the event of disputes– Employment and consulting agreements should assign

rights to your company– Collaborations raise ownership issues– Grants raise ownership issues

Patent Pitfalls

• Continuously update your patent portfolio– Patent those “improvements”– Record progress in log book

• The “authors” of a paper are not always the “inventors” of the invention

• A research publication can be used as a patent application

– But include a basic discussion, drawings, and background of the invention

– Also include features being developed, even if not yet tested or reduced to practice

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IP Risks – Mitigation Practices

• Before product launch:– Conduct a “clearance search” to reduce risk of patent /

trademark infringement• Maintain a patent portfolio

– Patentability searches will reveal potential problems– Obtain patents to establish prior art and dates of

commercial activity• Minimize possibility of being sued by a “patent

troll”• Maintain a “watch service”

– Have an ongoing review of competitor patent portfolios (published applications and issued patents)

– Potential risk of “willful” infringement

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Intellectual Property - Trademarks• Trademarks: identifies the source of goods / services

– Distinguish goods (™) / services (SM) from your competitors

– Use ® when mark is registered– A word, name, symbol, logo or device– Just about every company is using a

trademark of some sort– You can apply now, and don't have to wait

until you start making sales– The strongest marks are those that are

arbitrary, and not descriptive of the goods / services you provide

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Trademarks – Pitfalls & Strategy• Forming a company may give you a state

trademark, not a federal trademark• A trademark is not necessarily available just

because the domain is available• Allows you to establish your brand and build

goodwill– Think global – Chevy Nova means “no go” in

Spanish– Distinguish your products and services from those

of your competitor– Indicates a level of quality

• Select an arbitrary, fanciful or coined mark– EXXON® for gasoline– Do not describe the goods or services

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Trademarks – Pitfalls & Strategy• Obtain a search and opinion letter

– Avoid inadvertent infringement and loss of goodwill

• Promptly file an application with the PTO– Use is NOT required to file application– File based on your intent-to-use

• File in foreign countries where you have distributors

– Avoids dispute over ownership• Use “TM” or “SM” before registration• Use “®” after registration• Maintain a watch service

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Intellectual Property - Copyrights

• Copyrights: protects expression, not underlying idea

– Protects literary, dramatic, musical, artistic expression or software

– User manuals, articles, papers, photographs, website

– © [owner name], [year]

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Trade Secret Protection• Trade secret protection

– Concept unlikely to be disclosed during the normal course of business

– Difficult to reverse-engineer– Take affirmative steps to protect the information as a

trade secret– Employment agreements, consulting agreements– Risk of competitor developing independently and

patenting– Risk of theft– What is the value of a trade secret?

• Generate “prior art” by publishing the invention

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Links• U.S. Patent & Trademark Office

– www.uspto.gov– Search patents and published applications– Search and file trademarks– U.S. only; search patent offices in other countries

• PACER – search litigation– http://pacer.uspci.uscourts.gov/

• U.S. Copyright Office – information and forms– www.copyright.gov

• Corporate Information– State websites walk you through how to form a company– May need to register to do business in more than one

state

Questions ?

• For a copy of this presentation– weissman@blankrome.com

• Connect on LinkedIn

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Peter S. Weissman, Esq. | Weissman@BlankRome.com | 202.772.5805 | © Blank Rome LLP, 2012-13

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Questions / Comments ? Contact Peter Weissman, Weissman@BlankRome.com. Peter is a partner at the international law firm Blank Rome. As a patent attorney, Peter counsels startups and companies with large international portfolios to protect their ideas and brands with patents and trademarks. This material is not a substitute for legal advice.

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WHAT IS A PATENT? A patent is a grant of exclusive rights in a new and useful process (method), machine, manufacture or composition of matter, or any new and useful improvement thereof. It enables you to exclude others from making, using, importing or selling your invention.

BENEFITS: • Protects against unauthorized use of your invention • Investors like to see that rights are protected • Increases company valuation; shows novelty of business and

raises consumer perception • Patent is prior art that could prevent a competitor from

obtaining a patent • Provides market leverage, raises the barrier to entry and

creates licensing opportunities • Establishes ownership over inventors, consultants and

distributors

CONSIDERATIONS: • Discloses invention • May have to publish application even if

patent isn’t granted • Substantial investment of time by key

employees • Costly and time-consuming to obtain,

especially outside the U.S. • Can take 4-6 years or longer to get a patent,

or 1-2 years if expedited • No requirement to enforce the patent

WHAT IS A PROVISIONAL PATENT APPLICATION? A provisional patent application is a simplified filing with the U.S. Patent & Trademark Office.

BENEFITS (over a non-provisional): • Low initial cost with lessened formal requirements • Expires after 12 months, during which the

commercial potential of the invention can be tested • Establishes an early filing date in the U.S. and abroad • Can use “patent pending” designation • Filing does not factor into patent term • Can be filed quickly to beat imminent disclosure of

invention or a potential 1-year bar date (see “When to File” below)

RISKS (over a non-provisional): • Can lose filing date if the invention is not described

in sufficient detail to meet standards of enablement, best mode and written description

• Does not become a patent: must file a non-provisional application within the 12-month period

• Cannot use for design inventions • Cannot claim priority to earlier applications • Be careful not to disclose more information than

contained in the provisional application

BEST PRACTICE Whenever possible, you should file a non-provisional application to ensure that it satisfies the standards of enablement, written description and best mode (see “What to include” below). However, a provisional application is much cheaper to file and can be useful where the inventor is faced with a loss of rights due to an imminent disclosure or 1-year bar date (see “When to File” below), or where there are insufficient funds to prepare a full non-provisional application.

Proud Sponsor of the GW Business Plan Competition

Peter S. Weissman, Esq. | Weissman@BlankRome.com | 202.772.5805 | © Blank Rome LLP, 2012-13

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Questions / Comments ? Contact Peter Weissman, Weissman@BlankRome.com. Peter is a partner at the international law firm Blank Rome. As a patent attorney, Peter counsels startups and companies with large international portfolios to protect their ideas and brands with patents and trademarks. This material is not a substitute for legal advice.

WHEN TO FILE

• The patent system is based on a “first to file” rule; so the earlier you can file, the better • You do NOT need to reduce your invention to practice or have a prototype in order to file an application • To preserve your rights abroad, you must file a U.S. application “before” the invention is disclosed • If you have already disclosed your invention, you must file your U.S. application within 1-year of the earliest

disclosure (the 1-year bar date) • A “disclosure” can occur (for example) through a:

• Speaking engagement, such as a presentation, venture fair, business plan competition or classroom discussion

• Printed publication, such as a paper in a trade journal or a dissertation filed with a school library

• Published grant proposal, such as those with NSF or NIH

• Commercial use (even if secret)

• Sale • Offer for sale • Website

• Note that a partial disclosure may not fully preclude patentability; improvements can still be patented • While a confidentiality agreement is helpful, the disclosure can possibly trigger the 1-year bar

WHAT TO INCLUDE IN YOUR PATENT APPLICATION: • A complete application must include a written description, drawing(s) and one or more claims that clearly identify

what you consider novel about the invention; the main claim(s) should broadly recite the invention • The application must describe the invention as completely as possible to enable others to reproduce the

invention; make sure it includes the following: • The purpose of the invention • The problem solved by the invention • The old device / method • Problems with the old way • The detailed structure and operation • For software inventions, include a flow diagram

and hardware block diagram • Indicate the differences between the old device

/ method and the invention

• List the advantages of the invention over the old device / method

• Include at least one drawing: remove color, insert reference numerals for each material element and refer to that numeral in the written description

• Remember, it’s all about describing the invention in as much detail as possible

• Separate your discussion into the following sections: Background of the Invention (the old way and its shortcomings); Summary of the Invention (no more than a few paragraphs; indicate the broad objects of the invention); Detailed Description of the Invention (detail…detail…detail); and Claims (at the end)

• Drafting tip: when preparing the detailed description, start with the overall invention, then describe each of its parts, and then describe the subparts for each part, and so on; be sure to refer to the numerals you used to label those parts / subparts in the drawings; and be sure to describe the operation and benefit provided by each part / subpart and how it relates to or is connected with the other parts of the invention

• Drafting tip: if your invention has many embodiments, give at least one concrete example of the invention • Drafting tip: state the most preferred dimensions / values and provide a range of suitable dimensions / values • Drafting tip: describe each structural element with a broad term (e.g., storage device; fastening element), and

indicate suitable specific elements (e.g., memory, database; adhesive, screw, zipper); use those terms consistently throughout the application (don’t switch terminology)

• Drafting tip: describe all anticipated commercial implementations of your invention and alternative embodiments, even if they haven’t been tested or reduced to practice

• Drafting tip: indicate if an element can be removed, is integral or separate, or can be changed in size, shape, connected differently, or replaced with a different element or have a different operation

• Medical / Biotech inventions: describe test examples and data results obtained