Monday, July 29, 2013

How to Build an Intellectual Property Portfolio When Starting Your New Business

imageThis article was written by John Rau, SCORE Orange County Business Mentor

Once you decide to establish a business, a primary consideration is the type of business entity to form. Tax and liability issues, director and ownership concerns, as well as state and federal obligations pertaining to the type of entity should be considered when making your determination. Various business structures for you to consider include: Corporation, Limited Liability Company, Limited Partnership, General Partnership, Limited Liability Partnership and Sole Proprietorship. Before you establish a business, you should consult with a private attorney or tax advisor for advice about what type of business entity will meet your business needs, and what your legal obligations will be.

Once you have decided on your business entity, the development of your intellectual property portfolio starts with your business name as it will identify who you are in the marketplace. In selecting your business name you need to be careful that you don’t infringe on someone else’s use of the same name. The consequences could be significant and lead to lawsuits as well as the payment of royalties and/or fines if you are not careful. The concern here is not so much that some other business in the city or county where you plan to establish your office already is using the same name, but whether or not there is some legal restriction on the use of the name such as protected under trademark or copyright laws. Of course, you should always check your local telephone book and use the Internet to see if the same, or very similar, name is being used by someone else. What you don’t want to do is to create any customer confusion as to who you are and what your business does.

When checking name availability at the state level, in California names are checked by the Secretary of State only against names of like entities registered with the California Secretary of State. Names are not checked against trademark or service mark registrations or against fictitious business names; however, the Secretary of State’s office maintains registration and all updates of California state trademarks and service marks, and this information is available to the public upon request. A corporation or limited liability company name may be adopted if the name is not the same as or too similar to an existing name on the records of the Secretary of State or if the name is not misleading to the public. A limited partnership name may be adopted if the name is distinguishable on the records of the Secretary of State.

At the Sole Proprietorship level, an individual can own and operate a business and has total control, receives all profits and is responsible for taxes and liabilities of the business. If a sole proprietorship is formed with a name other than the individual’s name, a Fictitious Business Name Statement must be filed with the county where the principal place of business is located. No formation documents such as required for other types of business entities are required to be filed with the Secretary of State. Other state filings may be required depending on the type of business.

Once you have your business name, you will need to focus on building other elements of your company’s intellectual property portfolio. The term “intellectual property” generally “includes the ideas, inventions, or processes that come from one’s mind or intellect” and “it extends the rights given a written work, or a physical device, and grants a person or company the rights to an idea or concept” (Source: No doubt, in developing your new business you will develop products, ideas and processes that are perhaps unique to your business with the result being that these may give you a competitive advantage. You will, therefore, want to protect these elements of intellectual property as they will give “value” to your business.

There are generally four types of protection for intellectual property, namely:

· Patents

o Patents protect inventions and improvements to existing inventions. There are two types of patents: (1) a design patent which protects the ornamental design of a product, and (2) a utility patent which protects any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvements thereof. Patent applications are filed with the U.S. Patent and Trademark Office. A design patent lasts for 14 years and a utility patent lasts for 20 years. No one can manufacture and/or sell any of your patented items during these time periods without your approval.

· Copyrights

o A copyright protects artistic expression such as literary, dramatic, artistic and musical works. Your work is under copyright protection the moment it is created and fixed in a tangible form of expression. The moment you write it, paint it, or put it on the Internet, your work is copyright protected; however, you should officially register it in order to have legal protection. The U.S. Copyright Office in the Library of Congress officially registers copyrights which last for the life of the author plus 70 years. A copyrighted work may not be copied, reproduced, distributed or publicly displayed without the consent of the author or copyright owner.

· Trademarks

o A trademark (TM) is any word, name, symbol, or device, or any combination thereof, used by a person to identify and distinguish the goods of that person, including a unique product, from those manufactured or sold by others, and to indicate the source of the goods, even if that source is unknown. Trademarks provide the trademark owner with exclusive rights to their brand names or “marks” in the marketplace. Trademarks can be renewed forever as long as they are being used in business.

· Service Marks

o A service mark (SM) is similar to a trademark in the sense that a service mark is any word, name, symbol, or device, or any combination thereof, used by a person to identify and distinguish the services of that person, including a unique service, from the services of others, and to indicate the source of the services, even if that source is unknown.

If a trademark or service mark is registered at the federal level, then it does not have to be registered at the state level; however it is recommended that the mark be registered at the state level as well to have a record of the mark. As mentioned above, the California Secretary of State Office maintains registration and all updates of California trademarks and service marks. As you develop your “company identifiers” such as trademarks and service marks it would be prudent to check at the state and federal levels to make sure you are not infringing on someone else’s marks.

You should think of patents, copyrights, trademarks and service marks as key “components” of your company’s valuation. Patents are considered as assets and potentially marketable should you desire to sell them or license them to other companies. Copyrights, trademarks and service marks are also potentially marketable, perhaps along with your company name, when you formulate and implement your eventual exit strategy. When intellectual property is included in your business plan, it will be generally easier to attract financing and additional investors if necessary.