5 Steps to Protect Your Intellectual Property When Starting a Business

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Natalya Belonozhko, Horenstein Law Group PLLC

August 21, 2020

When starting a business, it is important to consider the works, designs, logos, or inventions that may qualify for patent, copyright or trademark protection (also known as “intellectual property”) that will be created and used in the business. This is especially important when starting a technology or manufacturing company. Steps taken early on to establish intellectual property rights have long term effects on a company’s ability to capitalize on the intellectual property and avoid infringement claims. Below are 5 steps that all business owners should take to protect their intellectual property.

  1. Obtain Nondisclosure, Nonsolicitation and Noncompetition Agreements

Companies should take necessary steps in protecting their trade secrets and other confidential information. In addition to implementing security measures, companies should obtain nondisclosure, nonsolicitation, and if applicable, noncompetition agreements compliant with state laws, from its employees.

            Nonsolicitation and Nondisclosure Agreements

Individuals leaving an employer to form or join a newly formed company often assume that they can reach out to their prior employer’s business contacts and customers in growing their new business. Employers often have their employees sign nonsolicitation agreements and soliciting an employer’s business contacts after leaving employment is prohibited under this type of agreement. Standard confidentiality agreements prohibit former employees from disclosing information not generally known to the public and from soliciting an employer’s customers and employees. Customer lists, business contacts and other contact information that has independent economic value from not being disclosed to the public and which the employer takes steps to protect can also qualify as “trade secrets” under Washington Trade Secret Act and cannot be disclosed or used by former employees.

Noncompetition Agreements

As with many states, Washington law requires that noncompetition agreements be reasonable in scope and duration. Employees and independent contractors also have to meet salary and payment thresholds in order for non-competes to be enforceable. Washington’s new noncompetition law that went into effect January 1, 2020  puts new limitations on the scope of noncompetition agreements.  Under the new law, an employer who attempts to enforce a noncompetition agreement that violates Washington’s new law may be liable  to the employee for  damages and also may  be responsible for the former employee’s attorneys’ fees.

  1. Register and Monitor Trademarks and Copyrights

US trademark law bases ownership rights on a “first to use” basis. A company with established priority in use can challenge companies using a similar trademark (or brand) in the company’s geographic market area that is likely to cause confusion to customers as to the source of the trademark. Early trademark registration with the United States Patent and Trademark Office (USPTO) or similar state registrations establish a priority in the rights to use a trade name or trademark and may entitle the registrant to broader geographic and monetary protections.

Copyright provides the exclusive right to the author of a literary, artistic, or musical material, or software code to print, publish, perform or copy the copyrighted works. Graphics, computer code and other copyrightable works should be protected by registration with the US Copyright Office.

  1. Obtain Invention Assignments and Independent Contractor Agreements

Assignment of Inventions

Founders of a company often create intellectual property that will be used by the newly formed company.  Sometimes, an employer will have a new employee sign a document that gives the employer the right to any intellectual property the employee creates during his or her employment. If intellectual property was created during the course of an individual’s employment and the intellectual property will be used in the new business, it is important to understand whether or not  the intellectual property falls under an invention assigned to the employer under an assignment of inventions agreement. If the intellectual property falls under an assignment, the use of the intellectual property in the new business will subject the individual and the new employer company to a claim by the prior employer.

Newly formed companies should obtain an Assignment of Invention Agreement from founders and its employees, especially from engineers, scientists and research and development personnel. Patentable inventions include products developed by individuals (and not otherwise existing in nature), process of methods, designs, machines, technical solutions, and chemical mixtures. Patent protection provides the inventor or owner of the patent an exclusive right to use or license the patent for a period of 20 years from the filing date.

Assignment of inventions mitigate the risk that founders and key employees take inventions and intellectual property developed during the course of employment with them when they leave to a competitor. Without an Assignment of Invention Agreement, a company has only an implied license to use the intellectual property and inventions created by its founder and employees.

                Independent Contractor Agreements

US Copyright law provides that the author of any copyrightable works such as software code, is the owner of the work, regardless of who pays or hires the author. An exception, however, exists when there is an agreement that the work completed is “work made for hire”. For this reason, companies should obtain written independent contractor agreements from all contractors, with general assignment provisions as well as a provision that all work completed under the agreement is “work made for hire” and therefore ownership to all copyrightable works vests in the company.

  1. Obtain Agreements Regarding Rights to Use Others’ Intellectual Property

If a company is using names, patents, trademarks, source code or software that belongs to a third party, an agreement such as a license agreement should be in place for such use in order to prevent infringement claims.

  1. Review Nondisclosure Agreements, Noncompetition, Nonsolicitation and Assignment of Invention Agreements with Employers

When individuals leave their employer to start their own company (whether or not competing with the prior employer), it is important to have your attorney review any nondisclosure, non-solicitation, noncompetition agreements and agreements involving the use of intellectual property  signed during the course of employment to ensure that the individuals do not violate the terms of these agreements when starting their own company.

This article is intended as a summary only. For additional details on how to protect your company’s intellectual property, please contact Natalya Belonozhko at natalya@horensteinlawgroup.com, Cindy Horenstein at cindy@horensteinlawgroup.com or Steve Horenstein at steve@horensteinlawgroup.com.

Please note that merely sending e-mail to one of our lawyers or our client services department does not create an attorney-client relationship. Such relationship will exist only once it is confirmed in writing between Horenstein Law Group PLLC and you or your company. Please do not send information you deem to be confidential unless or until we establish a formal attorney-client relationship.

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