7 Intellectual Property Myths That Could Endanger Your Business

By David Oberdick

If you’re building a new business, you’re likely developing a brand, learning how to differentiate yourself from your competitors, and creating unique products and services. Likely tied in with each of these efforts is the need to implement a strategy to manage intellectual property (IP).

This strategy is vital for companies that accumulate a large amount of IP, particularly in the event of a transaction, such as a merger or acquisition. Not only do well-considered practices surrounding IP help avoid potential infringement disputes and related proceedings, but they also make the transaction’s due diligence process easier.

Traditionally, IP includes trademarks (words, phrases, symbols or designs, or a combination of each that identifies and distinguishes a product or service); copyrights (an original artistic or literary work fixed in a tangible medium of expression); patents (inventions, such as new and useful processes, machines, compositions, or new and useful improvements); and trade secrets (confidential technical or business information).

In the United States, businesses can find protection through the U.S. Patent and Trademark Office (USPTO), the U.S. Copyright Office, and/or through non-disclosure agreements (NDAs) or similar terms in other contracts. However, there are some common intellectual property myths that all business owners must be aware of when developing an IP strategy for their company. Here are seven of the most common—as well as a helpful IP due diligence checklist.

Busting common intellectual property myths

1. I automatically own all IP I pay for and that my employee or contractor creates

The key word is “all.” Works created by an employee within the scope of employment do fall within the “Work Made for Hire” concept of employer ownership under the U.S. Copyright Act. However, this Act also provides that, as to an independent contractor, specific works prepared within the scope of employment or specially commissioned material belong to the employer only if specifically designated for such ownership in a written agreement.

If a written contract does not explicitly state that the employer will own rights to the IP, the business may not own or only have limited ownership of the IP. To be safe, an employer should get a written agreement acknowledging assignment of all IP rights by an employee or contractor.

2. U.S. registrations provide worldwide protection

Research by the USPTO has shown that a large majority of businesses are unaware that protection from the USPTO applies only to the United States. For companies that do a significant amount of business across borders, separate country or regional trademark or patent registration is required to have rights in almost all countries.

3. “Official” agencies are official

Have you ever received an inquiry from a domain name registration office alerting you to a possible registration of your domain name in China, along with an offer to help? Have you received “official” correspondence from trademark registration bureaus that include invoices? Regardless, if you have or haven’t, be aware: scams regarding IP protection are beginning to proliferate.

As with spam emails or phone calls, just because someone says they are “official” doesn’t make it so. Legitimate trademark offices generally won’t reach out by unsolicited mail or email.

More articles from AllBusiness.com:

• 10 Intellectual Property Strategies for Technology Startups
• The Real Cost of Franchising Your Business
• 13 Key Intellectual Property Issues in Mergers and Acquisitions
• Business Registration Scams to Avoid

4. Materials on the internet are all free to use

The legal doctrine of “fair use” allows the unlicensed use of copyrighted works in specific circumstance, and you see the doctrine used frequently in academic and journalistic settings. “Fair use,” however, has very limited applicability in the business setting, and there are no bright line rules for how much of another’s work can be used before it constitutes infringement.

Also, federal law no longer requires a copyright notice, so copyrights exist upon creation of any copyrightable work—even if it’s not registered or has no symbol. Nevertheless, registration through the U.S. Copyright Office provides several clear advantages, including the ability to claim statutory damages and attorney’s fees if the work is registered before infringement (or registration occurs within three months of publication).

5. Trade secrets are an easy IP “catch-all”

Don't fall for the intellectual property myth about the nature of trade secrets. Rather than cover all of their ideas or inventions by a patent, new business owners may try to save some money by protecting this information as trade secrets. However, that protection is not viable if an invention can be reverse-engineered or if the secret is disclosed. It is contingent on businesses to maintain reasonable efforts to keep the information safe.

6. All NDAs are alike

When having employees or contractors work on confidential projects or if they are exposed to trade secrets, an NDA may be in order, but these documents are not one-size-fits-all. When approaching each specific NDA for a given product, ask these questions, among others:

• What is protected and how is it designated?
• Is protection mutual?
• Is a term of years appropriate? Or will a term act to limit the indefinite life of a trade secret?
• Is injunctive relief for a breach secured?
• How is ownership of IP rights after disclosure addressed?
• Do you expect resistance from established companies?

7. I can wait on my IP strategy

A common intellectual property myth is that coming up with an IP strategy is something to worry about later. Don’t try to implement a piecemeal IP strategy after a product or service has been introduced, as ownership or IP assignment issues may already exist and may not be easily resolved. For example, failure to file a timely registration and/or use proper markings can limit enforcement options. Likewise, a product introduction may preclude patent and trade secret protection.

Intellectual property due diligence checklist

These IP pitfalls and issues often emerge when a company is involved in an acquisition, making the due diligence phase of these types of transactions even more important. Organizing your patents, trademarks, and copyrights will help the process go smoothly, so you should have the following items prepared:

• Schedule of patent registrations and applications, identifying each patent by title, registration number, date of registration, and country or state where registered.
• Schedule of trademark (service mark and trade dress) registrations and applications identifying each mark, including the date of registration, registration number, status, and country or state where registered.
• Schedule of copyright registrations and applications, identifying each copyright title, registration number, and date of registration.
• For each schedule, identify all inventors, creators, and authors, and whether there are employment/IP assignment agreements in place, any litigation/disputes pending, prior employers with potential claims, and if they are a present or past employee.
• Manual or written documents detailing the procedures for maintaining the secrecy of trade secrets.
• Licensing agreements, merchandising agreements (naming the seller as licensee or licensor), or assignments relating to IP.
• Communications to or from third parties relating to the validity or infringement of the seller’s IP.
• Studies or reports, if any, relating to the validity or value of the seller’s IP and the licensing or merchandising thereof.
• Agreements pursuant to which any IP has been sold or transferred by or to the seller, as well as recordings thereof.
• List and describe any actual, pending, or threatened infringement proceedings, governmental proceedings, claims or assessments concerning the IP controlled, owned, or used by the seller, providing the current status and expected outcome.

The items should be created and updated as your list of IP grows, even if the company is not part of a transaction or facing any proceedings. In the event of either, or if the company faces other issues related to IP, having this information organized and easy to access will save time and potential headaches.

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