Getting to Know Your Intellectual Property--Perform an Audit!

Successful entrepreneurs understand the importance of protecting their “IP”—their unique ideas and other intellectual property. Protecting its IP can increase an enterprise’s value and encourage further investment. In some cases, timely IP-related decisions must be made to avoid losing the benefits of the protections.

If your endgame is to be acquired, then it is even more critical that your IP house be in order when the buyer knocks on the door.

As in-house counsel for Lawson Software, a global provider of ERP software, I was responsible for managing the corporate IP portfolio as well as the due diligence review of the IP assets of any potential acquisitions. It always amazed me how businesses, both large and small, paid little attention to their IP until they were under the pressure of a potential sale or acquisition, and then a fire drill would ensue as questions were raised and the valuation of the business was put in jeopardy. In some cases IP issues caused the deal to tank. These issues, if addressed earlier, might have been eliminated or mitigated.

Lesson learned: Don’t wait until a buyer is in the midst of due diligence to fix ownership or other critical IP issues. Here are some examples of where timely decisions are necessary:

Patents - In the United States, timeliness of patent filings has taken center stage as a result of the recent movement from a “first to invent” to a “first to file” approach. This significant change in our patent laws will lead to even earlier discussions of whether or not and when to file a provisional or complete patent application.

Copyrights - The ability to recover damages for copyright infringement may be limited if a copyright registration is not timely filed with the United States Copyright Office.

Trademarks - By filing a federal trademark application with the United States Patent and Trademark Office, you gain priority over any applications with a later filing date. Since a trademark application can be submitted based upon an intent to use a mark, you can preserve your rights even before actually using the mark in commerce. Getting an early filing date can be critical.

Agreements - Agreements related to the ownership of intellectual property require special scrutiny. Just a few words in an agreement or the absence of appropriate language can relinquish ownership of core intellectual property. These ownership issues can be difficult to correct after the damage has been done. Remember the twins who allegedly made early contributions to Facebook? Attention to the proper use of agreements to cover ownership of IP is of paramount importance for any new business venture.

How can you get your IP house in order and avoid later issues?

First, make sure that you have a thorough understanding of what intellectual property you own or might be acquiring. The best way to capture this knowledge base is through an IP Audit.

What areas should the IP Audit cover?

·         Clarify business objectives and strategy regarding IP

·         Create an actual inventory of IP assets

·         Identify the status and pedigree of IP assets

·         Review agreements, notices, and other relevant business practices and procedures necessary to maintain protection

·         Confirm that the IP portfolio covers actual or planned products and services

Once the necessary information is collected, a report can be generated that will help to identify any risk and protection issues as well as uncover opportunities to increase the value and levels of protection for these assets.

You might be surprised at the amount of valuable information you will discover and how easy it may be to correct any issues. It is always easier and less expensive to fix issues and problems without the demands and pressures of another party questioning your practices or whether you own what you think you own. Don’t wait for these issues to be discovered in the course of a due diligence review conducted by an interested buyer or investor. These discoveries will only serve as an impediment and distraction in negotiations.

The IP Audit can also be expanded to cover e-commerce and privacy-related business practices and procedures, as these will likely be part of any due diligence review.  Here's more information on conducting an IP, Privacy, and E-commerce audit.

Cleantech Alive and Well in the Midwest

A few weeks ago, I attended the Innovation Expo & Awards event for the North Central region of the Cleantech Open. The awards event was the culmination of 3 days of networking, investor meetings and a trade expo for Midwest-based cleantech start-ups. The companies participating in the event had each completed several months of training through the Cleantech Open, a national accelerator for cleantech companies, which I have written about before.

The awards event featured short elevator-pitch style presentations from each of the 20 semi-finalist companies in the regional Cleantech Open competition. After the presentations, the crowd got to vote for their favorites, like American Idol, except without the mean-spirited judges. 

Before the awards event, the semi-finalist companies each gave investor presentations to a panel of judges, who selected the three finalists for the North Central region: HEVT, based in Chicago, Illinois, IrriGreen , based in Eden Prairie, Minnesota and SiNode, based in Chicago, Illinois; as well as the regional sustainability winner: Barasa, based in Wheaton, Illinois.

The three finalists and the regional sustainability winner were invited to present at the Cleantech Open’s Global Forum on November 8th and 9th in San Jose, California. At the Global Forum, HEVT was named the Grand Prize Winner and Cleantech Entrepreneur of the Year. This is the second consecutive year in which a company from the North Central region has been named the Grand Prize Winner and Cleantech Entrepreneur of the Year.

When most people think of cleantech, they think of wind, solar, hydro power, biofuels and other sources of power generation based on renewable resources. However, the cleantech sector is much broader and diverse than that. It includes power storage, resource conservation, efficient space design, repurposing of used components, and other similar technologies. 

• IrriGreen, for example, has developed a patented landscape irrigation system that significantly reduces water usage and installation cost;
• HEVT has developed a technology that optimizes performance and reduces the cost of electric motors.

The Cleantech Open provides a good showcase for talented cleantech entrepreneurs throughout the country, but especially in the Midwest. With back-to-back winners in the national competition, it shows that the cleantech sector is alive and well in the Midwest. There is no shortage of good “cleantech” ideas and technologies being developed—there are many good entrepreneurs and executives in the space trying to polish and commercialize these ideas and technologies. 

Even with all the interesting technologies being developed, many companies in this space continue to struggle to find capital. Without necessary capital, they won’t be able to achieve the scale necessary to succeed. Hopefully, events like the Cleantech Open will connect enough investors with these companies to help get them to the next level.

Christmas, Copyright, and the Public Domain

We recently had a client mention an idea to us for spreading holiday cheer throughout their company this season – they planned to videotape employees singing holiday songs and place the videos on the company’s YouTube site. While this sounded like a pretty innocuous exercise (the kind of thing that people probably do all the time), the client sagely realized it didn't want to inadvertently select any songs that were still covered by copyright protection. Suing someone for singing a Christmas song sure sounds a little “Grinchy,” but it could happen.

First, a little background on copyright law. In brief, a copyright is a form of intellectual property protection “grounded in the U.S. Constitution and granted by law for original works of authorship fixed in a tangible medium of expression.” These original “artistic” works include anything from novels, movies, and songs, to computer software and architecture. While many people believe works must be published or registered to be protected by copyright, this is not the case. A work is automatically protected under copyright the moment it is created and fixed in a tangible medium. 

When something is protected by copyright, the owner must give authorization in order for someone else legally to use the work (the “fair use doctrine” recognizes a limited exception – often more narrow than people understand – for minor quotes or samples used in scholarly articles, news reports, etc.) Desiring users who receive permission may have to pay royalties for the use, and unauthorized use could lead to a lawsuit.

So how does all of this apply to our client’s Christmas caroling plans? The protection provided by U.S. copyright law does not last forever. Our country’s rules attempt to balance the need to encourage and protect individual creativity with the benefits to society of free access to such creative output. Since the law has evolved over time, the matrix of potential expiration terms, depending on date of publication and placement of copyright notice, is confusing. In the U.S., published copyrighted works generally have entered the “public domain” (meaning their copyright privileges have expired) if they were created prior to 1923. As one might guess, this applies to many classic melodies.

So, how does your favorite tune stack up this year?

• “Jingle Bells”: Written by James Lord Pierpont and originally published and copyrighted under the title “One Horse Open Sleigh” in 1857. Result: Public Domain. 
• ”Deck the Halls”: A Welsh melody dating back to the sixteenth century, with lyrics likely American in origin dating from the late nineteenth century. Result: Public Domain. 
• “Silent Night”: Composed 1818 in Austria and published with an English translation in 1859 by John Freeman Young. Result: Public domain. 
• “Rudolph the Red-Nosed Reindeer”: Written by Johnny Marks in 1939 and famously recorded by Gene Autry and made #1 on the U.S. charts the week of Christmas 1949 (note, here, the music written by Marks and the recording by Autry are each separately copyrighted works). Result: neither is in the public domain. 
• “Frosty the Snowman”: Written by Walter “Jack” Rollins and Steve Nelson for Autry in 1950, after the success of “Rudolph” the year before. Result: NOT in the public domain. 
• “Have Yourself a Merry Little Christmas”: Written by Hugh Martin and Ralph Blane for the 1944 musical “Meet Me in St. Louis,” and more famously recorded in 1957 by Frank Sinatra. Result: NOT in the public domain. 

While Mr. Scrooge is unlikely to show up at your family holiday party with a summons and complaint because you decided to sing some carols, you should be careful if you’re planning to publish that video version of Uncle Albert’s rendition of a “modern” classic to the web...

A Post by Karen Wenzel, Guest Blogger

An ounce of prevention….

A recent article in the Minneapolis Star Tribune describes a local company’s experience with the counterfeiting of its products. According to Midwest Rubber Service and Supply of Plymouth, Minnesota, its current problems might have been mitigated by paying more attention to the protection of its intellectual property at an earlier stage of its business development.

As a provider of intellectual property legal services, I like Midwest Rubber’s message. Too often, my first introduction to a client’s intellectual property is after a problem has surfaced, when options may be limited and nearly always costly.

Some problems are preventable, such as infringing a third party’s trademark or patent, missing the window to file for patent protection, or establishing proper procedures for the protection of a trade secret. Others, such as counterfeiting, may not be avoidable. But early analysis and planning can create awareness of vulnerabilities, identify options and take steps to at least reduce potential risks.
Early in my career I was working with some scientists who had developed some pretty exciting new medical technology. They were experienced inventors and held several patents on other technologies that they had filed on their own. People they were talking to in connection with raising funds for the new company believed they needed a patent on the new technology, and the scientists were already in the process of drafting an application when they were convinced to consult a patent attorney who determined that it would be difficult to obtain a patent that could not be engineered around once the technology was disclosed.

This timely advice allowed the company to modify its business plan and build a successful operating model based on protection and use of the technology as a trade secret. Had the company proceeded based solely on their familiarity with patents, the company could have lost its business before it even started.

In another situation, I was working with a client that was approached to license copyrighted designs for use in a variety of home décor items. The company desiring to license the designs was a major player in the market and the opportunity for my client was huge.

In negotiating the license agreement, however, the licensee refused to include a standard provision that would require the licensee to enforce my client’s copyrighted interests against third-party infringers. The attorney for the licensee candidly told me that the products incorporating the designs would be manufactured in China, and were almost certain to be copied by other manufacturers, and maybe even duplicated by the same manufacturer. They had learned early on that it was nearly impossible to stop such activity, and definitely not cost effective.

So what did they do to protect their financial interests in the designs, and in turn my client’s rights? They identified the five or six countries that constituted their major markets, built strong brand images in those markets and maintained tight control over distribution. Goods sold by unauthorized retailers in those markets were easily identified as counterfeit and shut down fairly easily as the financial benefit to those selling the goods was generally not sufficient to risk legal action or reputational harm. Authorized retailers were warned that purchasing from anyone but authorized dealers would have serious consequences, including the loss of access to all goods from the licensee – not just those that were counterfeited. By concentrating enforcement efforts against those who least benefited from the sale of counterfeit goods, the licensee could effectively eliminate the market for counterfeit goods in the markets that were most important to it.

Although this company’s practices did not eliminate the infringement of my client’s copyrights or the counterfeiting of the licensee’s goods, they did effectively eliminate the financial harm to both by relegating the counterfeit goods to markets that had little or no impact on the business of the licensee. Not a perfect solution, but a realistic and cost-effective approach based on a sound knowledge of the nature of their intellectual property and viable alternatives for protecting and enforcing their rights.

Intellectual property is a complex subject matter. Patents, copyrights, trademarks and trade secrets are very different in their respective application, protection and enforcement. An early understanding of one’s intellectual property rights is critical not only to decisions relating to the protection of such rights, but also to business decisions relating to manufacturing, distribution and marketing. Foregoing early attention to intellectual property issues because of a concern for costs, or in the mistaken belief that the issues can be dealt with later, often result in more costly corrective measures, or even the loss of opportunity.

No matter what efforts are made, there is no guarantee that one’s intellectual property will not be compromised. But early analysis and planning can create awareness of vulnerabilities and options, reduce the risks, and if nothing else, eliminate surprises.

A New Tool for the Elevator Pitch

I’ve written before about the importance of a good elevator pitch in attracting interest in your business.  Looks like the folks at Harvard Business School have created a new interactive tool to try and help entrepreneurs create their two-minute pitch.

I’m sure it isn’t perfect (and it certainly won’t bring the experience of a guy like Nathan Gold to the process), but it might be an interesting way to get started on developing a good pitch.

You can read more about it here.

Let’s Call it “Days of Our Entrepreneurial Lives”

Now that the election is over and watching television is actually bearable again, you might want to check out Bravo’s “Start-Ups: Silicon Valley.”  One fun fact about this show: the executive producer is Randi Zuckerberg, sister of some other guy you may have heard of who has built a mildly successful tech company over the past few years.  I must admit, it is pretty nice to be able to watch Bravo and call it “research.”

I watched the first episode of the show, which premiered on Monday, November 5, and so far it looks to me to be about 75% personal drama (dating (mis)adventures, friendships gone bad, etc.) and 25% entrepreneurship (fundraising, investor pitches, coding).  While the people featured on the show are universally young, good-looking, and tech-focused, the issues they face in their business are not unique to that subset of entrepreneurs.  We are only one episode in and already the show has touched on themes we have previously explored in this blog or have discussed with many of our clients, in many industries, and many locations, including:

• Entrepreneurs are often the CEO, CFO, maid, and plumber all rolled into one in the early stages of a business.  Entrepreneurs who are passionate about their businesses are usually willing to get their hands dirty to get the job done and are not above doing menial tasks that will save the company precious cash.

• Connections are invaluable, irreplaceable, and can lead to some key ingredients to a company’s long-term success – money, customers and talent.  It’s also a good reminder for all of us that businesses are fundamentally run by people who sometimes hold grudges, and that we should remember to treat anyone we meet like s/he might be the CEO of our next customer. It’s just good business.

• Not everything about Silicon Valley or entrepreneurship in general is glamorous or exciting. As one of the personalities on the show commented, watching people write software code for hours on end in a bare apartment with a mattress on the floor probably would not be very entertaining. Nonetheless, for a start-up trying to get off the ground, those behind-the-scenes hours certainly consume more time and effort than a television show like this would ever display.

• Make sure you spray tan before attending a toga party. (Okay, we might not have discussed that one before.)

Let’s keep our eyes open in case our own Frank Vargas makes a cameo while he’s in the neighborhood.  You never know!

A Post by Alyssa Hirschfeld, Guest Blogger

The Book: Richard Restak, M.D., Mozart’s Brain and the Fighter Pilot: Unleashing Your Brain’s Potential (Harmony Books, 2001).

Why You Should Care: Your brain never loses its capacity to learn, and the more you learn, the stronger this capacity is.

Last week, Dan Tenenbaum gave us a look at the world of musical theater from the inside. Dan, a highly skilled and accomplished lawyer in the entrepreneurial “space” (not to be confused with a parallel universe), also has been giving the right side of his brain a thorough workout for the last few years, with very impressive results.

 My office is next to Dan’s, and I have been treated to the working versions of librettos and snatches of tune now and then through the paper-thin wall that separates us (makes a nice change from the conference calls about Series A Preferred Stock and other venture financing terms). Once or twice, I was even flattered by consultations on matters of historical trivia that may or may not have triggered a thought that found its way into a rhyme or two.

 Let’s just say this process has been almost as interesting for Dan’s friends to witness as it has been for Dan to experience.

 Who knew that Dan is also doing what, according to Dr. Richard Restak, we all should be doing to maintain our mental capacity and performance as we age? As Dr. Restak observes, “[W]e describe a person possessing varied and far-ranging knowledge as a ‘Renaissance’ person. That is the model we should all strive to achieve.”

 We used to think that you can’t teach an old dog new tricks. And, indeed, it is true that, with respect to a learned skill, you either use it or lose it—“if you stop learning, your overall mental capacity and performance will decline.” Not a great message, but something all of us would intuitively endorse.

 It turns out that medical research over the past decade or so has revealed that “the brain retains its plasticity across the entire life span.” A person’s capacity for new learning “remains and may increase as you grow older.” Those of us like me with loved ones who have suffered from mental impairment as they have aged may doubt this, but studies indicate that a person who thinks of education as a lifelong project (and regularly engages in new learning over the course of a lifetime) measurably reduces his or her chances of developing such an impairment.

 I guess serial entrepreneurs, who repeatedly approach new products, services and business models as they build business after business, often in varying industries, are doing more than just scratching an entrepreneurial itch.

Nostalgia: An Open Letter to My Family and Cookie Monster

In honor of cookie monster’s birthday, I started to think about the things that may have shaped me in my childhood. I LOVED Sesame Street, and I honestly think it taught me a lot about life.  In the modern era, cookie monster is more of a fruit monster, with cookies as a “sometimes food.” When I was growing up, he (and others from Sesame Street) was a great source for learning little lessons and preparing me to be an adult.

Sometime ago, I posted about how to instill entrepreneurial spirit in your children. Teaching kids to do what they love and succeed as adults is a difficult task; it takes a bit more than Sesame Street, I suppose. Well, I think my parents did something right. I might be biased, but I think my siblings and I took a little bit of Sesame Street, a little bit of Clarissa Explains it All, and a lot of my family’s influence, and all really ended up with a similar spirit. 

Even though the three of us do vastly different things, we have a similarity—we figured out how to live as productive adults, in careers that require an inner drive to succeed, and to do what we really love.

My brother, Greg, is a filmmaker. He’s the artist of the family.  He isn’t necessarily Steven Spielberg yet, but he writes and directs independent films and submits them to festivals. He also manages a local movie theater, as his "day job.” He has to make some money to support his real passion, a necessary component that he has never questioned. He continues to operate in a way that always assumes he will do what he loves and then whatever it takes to keep being a self-sustaining productive adult. 

My other brother, Mike, is an assistant superintendent at a well-known private golf club. He has spent his entire life (since age 12) working on and around a golf course. He is a scratch golfer, and loves to work to make golf courses beautiful. He has never considered anything else.  Getting the degree was a necessary evil to get to do what he loves but, like Greg, he never really considered another path.

I think drive and commitment are necessary elements to a successful entrepreneur. That, and plenty of good mentors, and examples to keep you going. My family apparently did some things right. Whether that was watching Sesame Street or not, we all ended up with that internal drive necessary to be productive entrepreneurial adults. 

Or it could be the reason I eat cookies without taking a breath…one of the two.