Guest Post: Gray Reed intellectual property attorney David Lisch provides this two part series on Basics of Intellectual Property Law for Start-Ups. Part one focuses on trademarks and entity formation
Trademarks
At one point or another, all companies will be faced with the decision if,
and how much, to invest in intellectual property protection. Let’s start
with trademarks.
A trademark is a word, phrase, symbol, and/or design that identifies and
distinguishes the source of the goods of one party from those of
others. A “service” mark distinguishes the source of a service,
rather than a good, but the two are typically simply referred to as a
“trademark” or “mark”.
There are two typical methods of filing a trademark: 1) when the mark is in
use, filing a “use-based” or “Section 1(a)” application; and 2) when the mark
is not in use yet (e.g., prior to forming the company or selling finished
product), filing an “intent-to-use” or “Section 1(b)” application. For the latter,
an “extension of time” must be filed every 6 months (for up to a cumulative
time of 3 years) until the trademark is in use, otherwise the application will
expire and a new application must be filed. The policy behind this is to avoid
people “squatting” on a trademark for extended periods of time. Once the
trademark is in use, a “statement of use” is filed with a specimen (example)
showing the mark as used in connection with the described goods or services.
One should file a trademark prior to, or near the conception of a business.
A trademark is relatively inexpensive, typically costing $225 in USPTO fees
plus some time for an attorney to do brief search for potentially conflicting
marks, search for which “classes” the mark should be filed in, and actually
filing the mark. It is advantageous for a business to file a trademark early in
the business cycle to assure (to the extent possible) that their mark is not
conflicting with another’s mark. If such a conflict does occur, it is
substantially cheaper to change the company name and perform rebranding early
on. Moreover, if there are no conflicting marks, the company assures others
will be precluded from filing “confusingly similar” marks.
While possible to file a pro-se trademark
application, it is highly recommended to hire an attorney due to inflexibility
of the rules regarding trademarks. For example, importantly, in general, the
trademark should be filed under the entity name, not an individual’s name. This
is because, while an individual may be the sole owner, CEO, President, etc. of
a company, it is the company which has an intent-to-use, or is currently using
the trademark. Should the later occur, where the mark is filed in the name of
an individual, the trademark may later be deemed void. 37 C.F.R. § 2.71(d);
TMEP §§ 803.06, 1201.02(b) (“An application is void if it was filed in the name
of a party who did not own, or was not entitled to use, the applied-for mark on
the application filing date.”). Moreover, unfortunately, such an error cannot
be cured by amendment or assignment. TMEP §§ 803.06, 1201.02(b). There are also
rules limiting recourse and future actions after filing the above-mentioned
statement of use and specimen which an attorney will be integrally familiar
with.
In sum, it is highly advantageous to register for a trademark soon after
formation of an entity or early in the business cycle to assure both
availability and protection of the business name, logo, slogan or services.
P.S. We would be remiss by not mentioning that there are some common law
and/or state law remedies available without filing a federal trademark, however
those will be saved for another discussion.
Form an Entity First
As discussed above, but worth reiterating, it is advisable to form an
entity prior to filing any intellectual property. With trademarks, the mark
should be filed with the entity as the owner due to the law essentially
prohibiting assignment or correction of an intent-to-use application. If filed
incorrectly, the application may be deemed void, and all money and efforts are
lost and a new trademark must be filed which can only claim a newer filing
date, thus allowing a greater possibility of other preceding marks being
conflicted.
A patent (further discussed in the next segment of this series) is slightly
different in that the initial owner of the patent are the (joint) inventor(s).
While a proper employment agreement will require the employee to assign rights
to the company, such is not always the case, especially with startups who are
likely focused on tackling other initial challenges when just opening shop.
Even if this isn’t the case, assuming the inventors are still cordial and
willing, the patent application (or granted patent) can be assigned to an
entity at any point in time. It is advantageous to have this assignment
executed earlier rather than later to assure the inventors are still on
good-terms with each other and the company and will easily comply.
Lastly, having all intellectual property held by the entity enables a
cleaner presentation to current and potential investors. The entity, or anyone
representative thereof, can state there are no hurdles to owning the IP, and
the IP can be easily transferred in a merger or acquisition of the entity.
In the next segment, David will provide the basics of patent law and its
importance for a start-up.
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