Business Contracts

Business Contracts

Simply put, contracts are oral or written agreements between two or more parties. And they are enormously useful in insuring protection and ownership of intellectual property rights. Contracts can be verbal, but it is very difficult to prove that such agreements contained the appropriate terms. It is much better for the parties to discuss the terms, then negotiate and reduce those terms to a writing which can be signed by both parties. Contracts that are clear, fair and enforceable are more likely to produce beneficial economic results and prevent expensive litigation.

Here are some examples of useful contracts that require careful drafting.

Confidentiality Agreements

Confidentiality agreements (often called “nondisclosure agreements) are very important to the owners of intellectual property rights because they can be drafted to prevent other parties (whether they be manufacturers, consultants, or other inventors) from making, using, disclosing or copying the protected work without the owners permission. But they are also important to the receivers of the protected information (the manufacturers or consultant etc.) because they define what they are prevented from doing of sharing. Manufacturers must be careful, for example, that they don’t sign confidentiality agreements which prevent them from manufacturing or developing similar works that they have developed or acquired independently from the other party to the agreement. So, it goes both ways. All parties need to make sure that the contracts they sign protect their respective interests.

Confidentiality agreements have special meaning for inventors because they affect filing rights. They must protect the novelty of the function and appearance of an invention so that it is not disclosed before a patent application (for example) is filed. Disclose without such protection could substantially affect the ability of the inventor to obtain such rights.

Contracts Relating to Ownership, Sale or Licensing

Contracts are also used extensively to govern the relationships between an author and an employer. For example, whether a work is considered a “work for hire” and therefore owned by the employer rather than the author employee depends on the terms of the contractual relationship between author and employer. Contracts are also used to govern the relationships between owners and manufacturers. For example, responsibility for paying patent prosecution or maintenance fees often depends on the terms of a written contract. Contracts are also used to govern the sale or licensing of the protected work. The terms of these contracts can be intricate and involve many hours of analysis and negotiation. Thus, it is important that the parties adequately understand the legal implications of the terms and that the terms adequately reflect the desires of the parties.

Again, litigation arises, most often, from misunderstanding and poorly drafted contracts. Attorney assistance can be instrumental in making the terms clear, fair, and enforceable.

Copyright

Copyright

Copyright protects creative expression fixed in a tangible form. The copyright owner may be, for example, a writer, graphic artist, musician, designer or architect who “authored” the copyrightable work which could include text, photos, layout, drawings, artwork, buildings, and sometimes products.

Copyright is limited in that it can never protect an idea; it can only protect the particular manner of expression of an idea. This is the primary distinguishing factor from patent rights. So, if one designs a product with original visual features, copyright would protect those original visual features, but could not be used to prevent others from designing a similar product having different visual features. Copyright can protect the expression, but not the idea. In other words, another author can say or do the same thing, just in a different way.

Copyright can protect a product from being copied if the aesthetic features are "separable" from the utilitarian features of the product. This can be difficult to prove for most useful products. So, copyright is better suited to protecting art work or product designs that are more artist than utilitarian (such as jewelry, fabric designs, and toys.) But certain aspects of utilitarian items having a particular design aesthetic (such as a hammer with a uniquely painted handle) can obtain copyright protection for the handle design.

Obtaining Copyright

A copyright to your design automatically comes into being the moment the expression is created and fixed in a tangible form.

It is useful to register a claim of copyright with the U.S. Library of Congress because registration provides the author (or owner) with additional rights, such as the right to sue an infringer in court. It also creates important presumptions that are helpful in court. One may register a claim by filling out a form and sending it in with a specimen (or photographs) of the work and a filing fee.

The copyright belongs initially belongs to the author who created the work, unless the work is deemed a "work for hire" in which case the copyright belongs to the hiring party. A "work for hire" can be a work prepared by an employee within the scope of his or her employment or a "specially commissioned" work if it falls into a class of nine categories and there is a written contract saying that it is a "work for hire". But, absent an agreement to the contrary, the author owns the copyright.

Length of Protection

A copyright registration normally lasts for the life of the author plus 70 years. It is not renewable.

Advantages and Disadvantages to Copyright Protection

Copyright protection is quick, inexpensive and can last a long time. An author isn’t required to register the work, but there are many real advantages of registration and there are no immutable deadlines for registration. U.S. courts are accustomed to copyright principles and copyright litigation. And copyright can be very effective in preventing others from “passing off” the original author’s work as their own.

International copyrights are also available and doesn’t require a copyright notice. And copyright law now protects three-dimensional architectural works (i.e., the buildings themselves), instead of only the two-dimensional blueprints previously protected.

Though it is not required, it is very beneficial for an author to place proper copyright notice on a protected work. This means including the © with year and name of the owner of the copyright.

Copyright owners are entitled to statutory (i.e. fixed by statute) damage awards from an infringer or the infringers profits plus other damages sustained by the copyright owner. The copyright owner can also prevent further sales of the product by the infringer.

Copyright infringement can be difficult to prove in court in some instances because it it sometime difficult to obtain proof that the infringer actually copied the work. Usually, there is no proof of direct copying and the copyright owner must show that the infringer had access to the copyrighted work and that the alleged infringing work is substantially similar. There is no copyright infringement if the alleged infringer can prove independent creation of the allegedly infringing work.

Cost

An author obtains copyright protection automatically upon creation and fixing the work in a tangible medium. In other words, it’s free. But registration of a copyright requires preparation of an application and a fee. There are substantial benefits associated with registration and copyright owners are actually required to register a claim of copyright before filing a lawsuit for infringement.

Copyright registration fees are fairly minimal. Filing fees are listed by the Copyright Office on its web page. Preparation of an application by an attorney doesn’t take much time. But, should the Copyright Office refuse to register the copyright, there would be additional fees associated with having an attorney prepare a rebuttal and obtain the copyright (assuming there are reasonable grounds for doing so).

Trademark/Trade Dress

Trademark/Trade Dress
 

Trademark law was developed to protect the public against deception and confusion regarding the origin, or source, of a particular product. It is a kind of “source indicator” and can be very valuable in the marketplace. Trademarks can be words (e.g., a name), symbols (e.g., a logo) and/or, in certain instances, a distinctive design or packaging (called a “trade dress”). Service marks are trademarks for services.

Ways to Obtain Protection

In the U.S., there are two ways to obtain trademark protection: (1) by use of the mark in connection with the product or service in commerce; or (2) by filing an "intent-to-use" or "use based" trademark application with the U.S.P.T.O. Some trademarks are not as distinctive as others, and therefore require a period of actual use in commerce before the courts will recognize any exclusive right to use them. Other trademarks are very distinctive and trademark rights attach immediately upon their adoption and use. Trade dress of a product design is treated like a non-distinctive trademark and one can obtain protection for trade dress once the public has come to associate the features of the design with a particular source of the product. When this happens, it is said that the trademark/ trade dress has acquired "secondary meaning."

One does not have to register a mark with the U.S.P.T.O., but registration provides additional benefits. A registered mark is presumed to have been used throughout the entire U.S., and constitutes "constructive notice" to latecomers who might adopt a confusingly similar mark. A registered mark is recognized as having the necessary secondary meaning.

Length of Protection

Trademark/trade dress protection lasts as long as the mark/design continues to be in actual use in commerce. In the case of some famous designs, it can last even beyond the time the design is being sold.

A registered make is good for 10 years, and may be renewed for successive 10 year periods again as long as the mark is still being used. Trademark protection can last forever as long as the it continues to be renewed and remains in use.

The test for infringement is that the owner of the trademark/trade dress must prove that the infringing mark/design is likely to create confusion in the marketplace as to the source or origin of the product.

Clearance

One difficulty in registering a mark is the time and effort it takes to "clear" it (i.e. make sure no one else is using it, or a confusingly similar mark, for the same class of goods/services) because there are so many trademarks already in use, and because there is no single, central data base for searching trademarks. But it is advisable to clear a new trademark before adopting it, because changing the name of a product/service two years after your first use can be very expensive.

Cost

There are various costs associated with obtaining trademark, service mark, or trade dress protection. To register a mark with the U.S.P.T.O., the applicant must file and application, pay fees, and respond to any examiner objections (if they arise).

U.S.P.T.O fees vary depending on whether or not the applicant qualifies for “small entity” status. The U.S.P.T.O. fees are listed on their website.

Attorneys fees depend on the type of mark, the prior art, and whether or the examiner raises objections that require a written response. Applications and responses are generally done on an hourly basis, but fixed fees or “not to exceed” fees are also available depending on the client’s needs and the particular project.

It may be necessary to promote the product to the point where it achieves secondary meaning prior to filing and this can make registration costly. Usually, expensive consumer surveys are required to prove secondary meaning in a court room setting.

Patents

Utility and Design Patents

There are two types of patents available in the United States - design patents and utility patents. Generally, utility patents protect the functional and structural features of a product without regard to how it looks while design patents protect the ornamental appearance of a product without regard to how it functions.

Utility patents often have multiple claims of varying breadth which define the invention. They can be very valuable because they protect the structure and function of the product described in the claims as well as equivalent embodiments of the same invention. Design patents have only one claim, and the protection is defined by the drawings in your design patent application making the patent drawings extremely important. It is possible to get a utility patent and a design patent on the same product.

A patent gives the owner the right to exclude others from importing, making, using, offering for sale and selling the claimed invention. While patents can be enormously valuable, they can also be very expensive. Whether or not it is worth the time and expense in obtaining a patent depends on many factors. It is important for all potential applicants to carefully consider their goals in light of the known prior art and likely costs before filing any application.

Filing Deadlines

Applications for United States patents must be filed within one year of: 1) The first offer for sale of a product embodying the design; 2) The first illustration of the design in a printed publication; or 3) The first public use of a product embodying the design. This one year grace period also applies to design registration in the European Community (called a Community Design). In many other foreign countries, there is no grace period (for utility or design patents) and applicants must file for protection before any of the events noted above in order to preserve your rights. The Paris Convention treaty allows applicants to file a design patent/registration in a foreign country within six months of filing a design patent application in the United States to have the same effect as if you filed in the foreign country on the day you filed in the U.S. In the case of a utility patent, you have one year from the date of your U.S. filing in which to file in a foreign country. Thus, it is important to give attention to the design (and utility) patent possibilities very early on in the product development process.

Potential applicants usually investigate the utility patent possibilities first, and as the ultimate form of the invention becomes apparent, investigate design patent possibilities. This is a logical progression since the design patent drawings must accurately reflect the final product to be marketed. Also, utility patent applications generally take more time to prepare than a design patent application and time is required to adequately investigate, by means of a patent search, the prior art. It often makes sense to conduct a prior art search to determine likelihood of obtaining patent protection prior to spending time and money of applying for a utility patent. It may not be cost effective to perform a prior art search if you are only interested in design patent protection since most original designs are unique enough to be patentable, and the cost of a design patent application is roughly the same as a prior art search.

The Application Process

Once drafted, formal patent applications are filed in the United States Patent & Trademark Office (USPTO). Applications are generally lengthy and very detailed because they must accurately describe and illustrate the invention and the manner and process of making and using the invention to enable any person skilled in the field of the invention to make and use it. Each application must have claims, which accurately set forth the English-language definition of what the inventor regards as the invention.

Once filed, the patent application is assigned to a patent examiner who is a specialist in the particular field of the invention. The examiner will then conduct a search of the "prior art" (all previous patents and publications) and will issue a formal response to the application either accepting or rejecting the claims. Initial rejections are most common and to be expected.

Thereafter, the inventor’s attorney and examiner go through a series of negotiations concerning the scope of allowable claims. The attorney studies the examiners formal response (called an “Office Action”) including cited prior art and determines a strategy for preparing and filing a Response to the examiner, which may include an amendment to the claims. Several exchanges of Office actions and Responses can occur between an applicant and the patent examiner before the claims are finally allowed, or the application is abandoned.

If the attorney is successful in obtaining a patent, it will be issued by the examiner and will be good for 20 years from the day it was first filed. The applicant is, however, required to file maintenance fees every four years to keep the patent in force.

An invention is “Patent Pending" as of the day the application is initially filed. But applicants will have no legal rights to stop an infringer until the patent issues. Normally, it can take anywhere from 18 months to 3 years from the date of filing for patents to issue because of a severe backlog at the USPTO. All applications are examined in turn, in the order of filing. It is possible, under special circumstances, to expedite the prosecution of your application to speed up patent issuance.

Continued Innovation and Protection

Patents cannot be renewed, but additional improvement patents may be filed during the life of the original patent. As long as the improvement itself is patentable (i.e., novel and non-obvious), these additional patents may be issued with subsequent issue dates to protect the improvement on the invention. This method of filing improvement patents can be used to build a wall of protection around a product line and to minimize the effect of the expiration of the original patent.

Downsides to Utility Patents

Unfortunately, utility patents are often expensive to get, expensive to maintain, and expensive to enforce. The application and negotiation process can be long and frustrating. If there is considerable prior art, it may be very difficult to convince an examiner that the invention is, in fact, novel or not obvious. And by the time a patent issues, the innovation may no longer be relevant in the marketplace.

Sometimes relevant prior art can be discovered after the date of filing and can undermine the validity of an issued patent. As patent applications are preserved in secrecy, there may be 2-3 years worth of prior relevant applications in the application pipeline. Once issued, they can become relevant "prior art" against any later discovered innovation.

Even after a patent issues, it can be subject to attack by infringers who are willing to file lawsuits to attempt to invalidate the patent. Also, despite everyone's best efforts, the scope of protection provided by your patent claims is not always clear, and can be subject to great debate. In recent years, courts have been more reluctant to extend the scope of a utility patent claim to embodiments not actually disclosed in the application.

Costs

There are various costs associated with patents including filing costs, attorney fees, and maintenance fees.

USPTO Fees: The USPTO charges various fees for the filing, prosecution and maintenance of patents. These fees are list on the USPTO website and are not listed here because they often change. The fees depend, in part, on whether the applicant qualifies for “small entity” status. After issuance, maintenance fees must be paid after 3-1/2 years, after 7-1/2 years, and after 11-1/2 years. Here is a link to the USPTO fees page: (http://www.uspto.gov/web/offices/ac/qs/ope/fee2007february01.htm)

Attorneys Fees: Fees charged for preparation of the application, and fees charged for responding to examiner Office Actions depend, in large part, on the difficulty of the subject matter and the prior art. For this reason, patent attorneys generally work on a hourly basis. But it is also possible to obtain a fixed fee or “not to exceed” fee depending on the needs of the client.

Provisional Applications

The USPTO allows an applicant to file a provisional application (utility patents only) as a place-holder. Provisional applications are not read by the USPTO. The applicant has one year from the date of filing to file a non-provisional application covering the same material. While it is not required that an applicant include claims in a provisional application, it is very important that the provisional application accurately disclose the invention and, for this reason, it is a good idea to have an attorney conduct or assist in the drafting and filing process.