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Starting and Operating a Compnany

by Anthony Colesanti

Spring 2003, Vol. 66, No. 1

Intellectual Property (IP) encompasses intangible properties such as trademarks, patents, copyrights and trade secrets. Intangible properties are typically significant assets for both new and established businesses. Accordingly, the ability to identify, secure and enforce intellectual property rights is essential to the continued success of every company. The following outline is intended to provide the reader with a basic understanding of intellectual property law and a general awareness of the myriad issues surrounding the protection and enforcement of intellectual property rights.

Exceptions to the general rules and laws abound, and readers are therefore cautioned to seek the advice of an experienced attorney before undertaking any legal actions or implementing any business strategies pursuant to the information provided herein.

Trademarks
A trademark is a word, slogan, design or symbol used by a business to identify its products and distinguish it from those of other businesses. A service mark provides the same function for services. Marks can include words, symbols, colors, sounds and scents. A company name, when used to identify the source of particular goods or services, functions as a trademark or service mark. Trademarks may be protected under both federal and state law. Federal protection requires use in interstate commerce or in commerce between a foreign country and the United States.

The following guidelines should be employed when adopting and using company names and trademarks:

Select Strong Marks — Marks are judged on strength based on a continuum, with four general categories, shown below in decreasing order of strength. Weak marks, such as descriptive and generic terms, should be avoided.

1. Arbitrary and Fanciful Terms. Fanciful and arbitrary terms are afforded the greatest degree of protection. Arbitrary terms are existing words that have no direct relationship to the product or service they identify (e.g., APPLE for computers). Fanciful terms are coined words that have no prior use or meaning in language (e.g., KODAK for photographic supplies).

2. Suggestive Terms. Suggestive terms suggest a hint or characteristic of a good or service, (e.g. MICROSOFT for software for micro-computers) and are immediately protected as marks.

3. Descriptive Terms. Descriptive terms, such as LIGHT BEER for a low-calorie beer are only entitled to protection upon a showing of “acquired distinctiveness” through extended and continuous exclusive use.

4. Generic Terms. Generic terms such as SOFTWARE for software, can never be protected. Marks such as ASPIRIN and THERMOS may become generic through improper use.

Select a Company Name — Before adopting a name, make sure the name is not already in use by someone else for similar or related goods or services. Preliminary checks can be performed inexpensively. For example, key word searches on Internet search engines can be used to identify entities operating under the same or similar names. If you find that someone else is already using the name you have chosen, another name can be selected.

If preliminary checks do not reveal any apparent impediments to your adoption of a particular name, it is recommended that a complete or “full” search be performed by an experienced trademark attorney before investing significant resources to develop and promote a company name. Typically, a full search would include a search of federal and state trademark registrations, trade name directories, the Internet and a host of other sources. While there is never a guarantee that someone else hasn’t adopted a similar or identical mark, this type of search is considered to be reasonably thorough. These procedures should be employed before adopting any new company name, trademark or service mark.

Caveat: The Department of State does not perform trademark searches as part of the corporate name registration process. Thus, registering with the state to do business under a particular corporate name does not provide trademark rights to the registrant and does not guarantee the selected name does not infringe someone else’s trademark rights.

Register a Domain Name — If you intend to develop a company Web site, you should immediately seek to register the company name as a domain name. Domain names are relatively inexpensive to register and can be invaluable assets to a Web-based company, as they are often selected to coincide with the company name and with one or more of a company’s trademarks (e.g., colesanti-law.com). Even if you don’t currently maintain a Web site, a domain name can be reserved for later use. At the same time, you may also want to consider registering variations of the company name to create an umbrella of protection.

Register Your Trademarks — Your company name and your domain name can be registered as trademarks or service marks if they are used in association with providing goods or services. Likewise, any word, phrase, design or combination thereof may be registered as a trademark or service mark if used to market goods or services. Federal registration, if appropriate, confers substantial benefits including nationwide priority of use and potential for increased damages for infringement.

Expand Trademark Registrations — If you expand use of your registered mark to goods or services other than those identified in your registration, consider filing another application to extend coverage of the mark to the additional goods or services. Note: You should not use the registration symbol “®” in association with goods or services not identified in the registration.

Use Trademarks Properly — Once registered, a trademark or service mark may be identified by the registration symbol “®”, while non-registered marks should be identified with the superscript “TM” (for trademarks) or “SM” (for service marks). Marks should always be used as proper adjectives accompanied by a generic term. For example:
Don’t say: “make a Xerox”
Do say: “make a Xerox photocopy”

Keep Records — Trademark rights and the ability to enforce those rights may depend on the ability of a trademark owner to demonstrate continuous use of the asserted mark over time, in association with specified goods or services. Accordingly, exemplary product labels, tags, packaging, invoices, advertising brochures, Web site screen displays and other corroborating evidence of use should be chronologically catalogued over the life of a mark for later production in adversarial proceedings, if necessary.

Police Unauthorized Use — A trademark owner that fails to police unauthorized use of its mark by third parties runs the risk of forfeiting its ownership rights in the mark. Trademark owners are advised to employ watch services to identify unauthorized third-party use of identical or similar marks. Once incidents of infringement are identified, steps should be taken to enjoin further acts through the use of “cease and desist” letters or by instituting trademark infringement proceedings, when appropriate.

Rights of the Owner
Likelihood of Confusion — The owner of a mark has the right to prevent others from using identical or confusingly similar marks for competing or related goods or services. Ignorance of another’s mark is not a defense to trademark infringement.

Dilution — Marks that qualify as “famous” may be protected from dilution of their distinctiveness, even in the absence of confusion. Dilution usually involves identical or nearly identical marks in different fields (e.g., CANDYLAND the children’s board game from Milton Bradley versus CANDYLAND for a pornography site).

Trade Dress
Trade dress is the look or feel of a product, its packaging or even a business establishment that, like a trademark, denotes to consumers a particular source or sponsorship. One of the best-known examples of trade dress is the shape of a LIFESAVERS® candy.

Other notable examples of protected trade dress include the shape of a Pepperidge Farm GOLDFISH® cracker, the appearance of a BIG BERTHA® golf club head, and the overall design of a Ferrari Daytona Spyder classic sports car.

Trade dress protection is available for non-functional aspects of product configurations that, like trademarks, function as source indicators. Trade dress is afforded the same protections provided for trademarks and service marks. Consider incorporating ornamental aspects into your product that consumers may come to recognize as originating with your company.

Trade Secrets
Trade secrets are information that companies keep secret to give them an advantage over competitors. The formula for Coca-Cola is the most famous trade secret.

Trade Secrets are protected under state law. Many states have adopted the Uniform Trade Secrets Act. While the standards for protection vary from state to state, it is generally understood that the owner of an alleged trade secret must take reasonable precautions to prevent unwanted disclosure of the trade secret through use of, for example, employee agreements, non-disclosure agreements (NDAs) and by carefully restricting access to trade secrets.

Patents
In Article I, the Constitution empowers Congress “To promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” Enacted pursuant to Article I, the patent act of 1793 enabled the government to issue a patent to anyone who presented drawings, a written description, a model and an application fee, demonstrating “any useful art, manufacture, engine, machine or device, or any instrument thereon not before known or used.” Although the specific requirements and procedures for patenting an invention have evolved over the years (e.g., working models have not been required since 1870), the central thrust of patent policy remains unchanged. Patent law seeks to balance the rights of an inventor to profit from his or her invention (through the grant of a temporary monopoly) against the needs of society at large to benefit from the dissemination of new ideas.

Currently, patents provide rights for up to twenty years in three broad categories:

  1. Utility Patents protect any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof. Simply stated, utility patents protect the functional aspects of an invention—the way something works.
  2. Design Patents protect any original and ornamental design for an article or manufacture. In other words, design patents protect the non-functional aspects of an invention—the way something looks.
  3. Plant Patents protect invented or discovered asexually reproduced plant varieties.

Patentability
There are three requirements for patentability in the United States:

  1. Novelty — The invention must be new. That is, the invention must be different from any one item of “prior art” including patents, publicly used or sold products and inventions of others. Note: An application must be filed within one year of the first public use, offer for sale or commercial use of the invention. After one year, a statutory bar to patentability arises.
  2. Nonobviousness — The invention must not be an obvious modification of something that was already known at the time of invention.
  3. Utility — The invention must have utility. In other words, it must work.

Inventorship may be contested at any time before or after a patent has been granted. One way to contest inventorship (and patent validity in the case of an issued patent) is to assert that someone other than the patent recipient was the first to invent. To defend against such assertion the patentee may need to rely on inventor notebooks and other corroborating evidence to prove “priority” of invention. Accordingly, an appropriate record-keeping program should be implemented under the supervision of an experienced attorney.

A patent grants the owner the right to exclude others from making, using, selling or offering to sell the patented invention. What it does not grant is the right to practice the invention. Patents are assignable by an instrument in writing. Proper recordation within three months protects against later good faith purchasers and mortgagees.

An article for which a conventional or provisional patent application is pending in the United States Patent and Trademark Office should be identified by the words “Patent Pending” or an abbreviation thereof. An article protected by a U.S. patent should be identified by its patent number; e.g., U.S. Patent No. 6,188,579.

Patent infringement arises when an accused device embodies one or more claims of an existing patent. If your company is going to be manufacturing a product, make sure the product is not the subject of another’s patent. Normally, a patentability search will uncover relevant patents that may give rise to a patent infringement claim.

Certain methods of doing business on the Internet have also been patented. For example, Amazon.com received a patent for the “One-Click” method of shopping on the Internet, and Priceline.com owns a patent for the “reverse-auction” in which an online purchaser bids on an item and the seller accepts or rejects the bid. Therefore, before developing and implementing a product or business method you should consult with a patent attorney to ensure you won’t infringe another’s patent.

Remedies for patent infringement may include one or more of the following: an injunction against further acts of infringement, actual damages sustained by the plaintiff, defendant’s profits (to the extent they may exceed plaintiff’s actual damages), costs of the action and attorneys’ fees for the prevailing party in exceptional cases.

Copyrights
A copyright is simply the right to copy or, more accurately, the right to control copying. Copyright protection is appropriate for original creative works, including photographs, paintings, movies, literary works, Web page layouts and even computer source code.

Copyrights arise automatically when an original work of authorship is created, that is, when it is fixed in a tangible medium. A copyright owner is entitled to control the reproduction, distribution, modification, public display and, in general, the public performance of a copyrighted work. It is not necessary to register a copyright in a work to use a copyright notice (i.e.,“©”) or to be entitled to copyright protection. However, registration does confer additional benefits and is therefore recommended. For example, recently enacted legislation provides for up to $150,000 in statutory damages for copyright infringement; however, statutory damages are generally available only if the copyright in the work was registered before the infringing activity occurred.

Ownership of a copyright in a work is with the individual author, unless the work is a “work made for hire.” Works created by employees in their course of employment are works made for hire, and the employer is considered both the owner and author. The employer-employee relationship is governed by the traditional common law test. Works created by independent contractors are generally not works made for hire, and therefore are owned by the contractor, absent a written assignment.

Copyrights are assignable by an instrument in writing. Purported oral assignments are generally treated as non-exclusive licenses. Proper recordation within one month protects against later good faith purchasers. The following guidelines should always be employed when applying copyright notices to original works of authorship:
  • Apply a copyright notice to all original works. The work does not need to be registered to apply a copyright notice.
  • Every copyright notice should contain: (1) the word “copyright,” its abbreviation or symbol, (2) the year the work was first published, and (3) the name of the copyright owner (e.g., © 2003 Colesanti & Associates LLC or Copyright 2003 Colesanti & Associates LLC).
  • All software copyright notices should also contain the phrase “All Rights Reserved” (e.g., © 2003 Colesanti & Associates LLC. All Rights Reserved).
  • Exact copies of the work or copies having only trivial changes should be identified by the same year of publication as the first published copyright.
  • Revisions and derivative works should contain the first year of publication, plus any additional year of revision (e.g., © 2000, 2002 Colesanti & Associates LLC).
  • Consecutive revisions should contain either every year of publication or the first and last year of publication (e.g., © 2000, 2001, 2002, 2003 Colesanti & Associates LLC or © 2000-2003 Colesanti & Associates LLC).
  • All original works created by outside vendors, such as advertising agencies, photographers, software developers, publishers, consultants, etc., require a written copyright assignment. In order for the entity commissioning the work to have ownership rights, this written copyright assignment must exist. Without this assignment, the entity commissioning the work has a limited license and cannot legally create modified or derivative works.

The Copyright Act of 1978 changed the duration of copyright registrations. The copyright term for works created after January 1, 1978, is life of the author plus seventy years, or for “works made for hire,” the shorter of ninety-five years from first publication or 120 years from creation (for non-published works). The term for published, registered, pre-1978 works is up to ninety-five years, including renewals.

A copyright is infringed by works that are “substantially similar” to the copyrighted work. Remedies for copyright infringement may include one or more of the following: an injunction against further acts of infringement, impoundment of infringing articles, actual damages sustained by the plaintiff and defendant’s profits (to the extent they may exceed plaintiff’s actual damages) or in lieu thereof statutory damages of up to $150,000, costs of the action, and attorneys’ fees for the prevailing plaintiff in the case of willful infringement.

Conclusion
Careful preparation and planning are imperative to launching a successful company and maximizing intellectual property rights. Whether you are considering starting a traditional bricks-and-mortar company or launching an e-commerce enterprise, you should first consult with an experienced practitioner to maximize intellectual property rights while minimizing the risk of infringing the rights of others.