Wells Fargo Was Ordered To Pay USAA $200 Million But They Might Only Be The First Of Many
This fall, a jury ordered Wells Fargo to pay USAA $200 million for infringing on patents relating to mobile image capture technology. Judging by even more recent "Wells Fargo must pay a fine" news, their patent issues may be the least of their concerns, but it will not likely be the end of the story here.
In one sense, this is a very typical patent case. A company owns IP, and another company is infringing it. The owner wants compensation.
What makes this case unique is how ubiquitous the technology involved is. And that means the case has enormous financial and business ramifications for any companies currently using it.
Revolutionizing Mobile Bank Deposits
Mobile image capture technology was developed a while ago and was the leading edge in terms of where the developers of that technology thought commercial aspects of it could go. And they were right. It was basic image recognition technology that was able to take a picture of something, in this case, a check, and translate that into data to electronically deposit that check.
Today, virtually every smartphone banking app uses this technology. You never have to go to a bank. It's brilliant. Each of my kids uses it, so it must be cool.
This technology quickly went from obscurity to an absolute necessity for a bank to even compete for customers. But the rush to get on board with this technology may have caused others to bypass even nominal due diligence. No one seemed to investigate to see whether the technology was patented, and if what they were doing with it, was proper. It is a common phenomenon with a lot of upstart, fast-growing technology companies.
Collaboration, Trade Secrets and Lawsuits
Another interesting aspect of this case is that USAA had collaboratively developed that technology with another company called Mitek over twenty years ago. During the course of that relationship, USAA alleged trade secret misappropriation against Mitek and Mitek originally counter sued USAA based on the use of the Mitek technology. While that caused its own back and forth in the courts, the parties eventually settled, and USAA ended up with the patent rights.
Related: Pitfalls to Avoid When Collaborating on Intellectual Property
As soon as USAA established ownership, they began to litigate. After all, they are a banking company, and that technology is crucial to that industry.
The Risk for Banks and Banking Companies
Fast forward a few years, and this presents a considerable risk for patent damages because, one, every bank is using it. Every single bank. That risk is exacerbated because damages are usually calculated on a transactional basis for this type of technology. Every time someone uses it, it's another act that counts toward a damages calculation.
There are millions of these transactions every day. Even if the value of using that technology is only pennies per transaction, it adds up. $200 million was a jury verdict awarded to USAA. That's one bank. So how many banks are there in this country or around the world using this technology? The implications are enormous.
The good news for these banks is that USAA doesn’t seem to be trying to corner the market and be the only bank that can use this functionality. Instead, they want other companies to license it from them. Behind the scenes, they've been engaged in what they describe as reasonable licensing negotiations with other banks so that they can get some royalties from the use of the technology while not outright prohibiting others from utilizing it.
USAA did send cease-and-desist letters to Wells Fargo and other banks offering to license the technology, but when those were ignored, they decided to sue Wells Fargo. This is likely because it is a big bank with many damages attached due to the volume of the transactions they do.
Litigation is expensive, and often these cases are settled before they ever get to court. But Wells Fargo didn't back down, and USAA took it to a jury trial. And that jury awarded USAA $200 million. It's difficult to know for sure why Wells Fargo chose to fight. They may have believed in good faith that they had not infringed on USAA's patents. Since it is one of the bigger banks, unwinding the technology would have been complicated.
On the other hand, a non-infringement finding would have changed the landscape for everyone. And in that case, if all the other banks used the same technology that Wells Fargo uses, there's a good argument to say that no one else would be infringing either.
Instead, it blew up for everybody. It would be interesting to see if there was any behind the scenes collaboration between Wells Fargo and other big banks that received cease and desists, to come up with a joint defense. It would have benefitted everybody if that technology was found invalid, or it was found not to cover the products they were using.
Related: Software Patents: "That's Where All the Action Is"
The Case for Negotiation
There is strong evidence to show that USAA was not in it to truly exclude others, although that's one of the rights they have with an issued patent.
If you've got a patent that legitimately covers such critical core technology to an industry, there's probably a result valuable to you that doesn't also offend everybody. So you might be able to request a nominal, reasonable royalty. This might have been the test case for everyone involved, including USAA.
They may have decided they needed to prove the patent was valid and was infringed upon.
I believe we can now expect everybody else to fall in line and avoid litigating this again. They are all using the same product. It might also be possible to design around it, and this is something some users may be attempting. But this may even drag out for a while with the other potential infringers, and that is a risky move given the size of the settlement against Wells Fargo.
If my client were bank number two on USAA's list, I'd mitigate the risk and encourage them to negotiate.
Leaving the result to a jury isn’t always worth the financial or business risk, as Wells Fargo discovered.
Trademarking College Athletes: Making Money While Bowling in College
A historic rule change by the National College Athletic Association (NCAA) will create a brand-new playing field for student-athletes by giving them control over the profits they generate.
Sound crazy? Or is it brilliant? It's probably a little of both. And as the father of a college athlete, I’m more than a little intrigued. I’m also concerned that it will encourage our students to focus less on their education, despite the underlying unfairness that the rule change is addressing in the current system.
In September 2019, California passed a law that effectively allows student-athletes to profit from endorsements and the use of their likeness. Over two dozen states are considering similar legislation, including most recently Colorado. This impending patchwork of regulations has put pressure on the NCAA to reconsider its prohibition on student-athletes profiting from their fame and notoriety.
Although they have not yet announced concrete changes, the NCAA has signaled that it is beginning the process and will likely allow its student-athletes to own their IP and profit from it at some point in the near future.
Part of the reasoning behind the prior prohibition on allowing athletes to profit from their fame was to emphasize the student part of the student-athlete. The no-profit rule was designed to avoid the athlete entering into the professional realm while they are still pursuing a degree. The intent was that everything should be done so as to favor their education and athletics should provide an opportunity for that education, not an alternative to that education.
In the past, profits from a student athlete's likeness belonged to their school. For Division 1 athletes in high profile sports such as football and basketball, that translates to a lot of money and a full ride to the college for every athlete on that team. In fact there are only six sports where all the scholarships are full ride. These so-called head-count sports are football, men and women's basketball, and women's gymnastics, volleyball, and tennis. This change is an acknowledgement that these schools are profiting tremendously from these athletes. And even though high profile student-athletes receive scholarships, they don't come anywhere near what schools are making off of their athlete's fame.
But compare that to all of the other less prominent sports like track and field, where the number of scholarships available are much less and often divided among the many members of the team. For instance, women’s Division 1 track and field programs are allowed to offer 18 scholarships per year. The men’s side only gets 12.6. Divide that by 4-5 years of athletes at the school at any given time and somewhere around 40-50 athletes on the squad (cross country is combined with the track and field athletes) and that works out to around 0.1 tuition scholarships per athlete if everyone on the team is given something. The math gets worse for other sports. Bowling and Fencing only get 5 scholarships. Even in these sports though, the superstars are usually given much more of the pie so most of the athletes are given nothing in terms of an athletic scholarship, yet still need to commit 20-25 hours a week (if not more) to training, travel and competition. Now the whole, “athletics is an opportunity for an education” doesn’t make as much sense. And the prospect of making a few extra bucks for all of that work, well that sounds pretty good . . .
College Athletic Scholarship Limits
Cereal Boxes and Scholarships
For athletes in high profile sports, this means they can engage in talent contracts with advertisers to appear on cereal boxes and video games and in magazine articles and social media. They can also accept endorsements and make money off of their own fame, just like any other athlete or celebrity might be able to do. For some of the more well-known student-athletes in high profile sports like football and basketball, this could potentially mean millions of dollars. And athletes who might otherwise be “one and done” with their college career, may just stay in school longer.
Related: What Tom Brady, LeBron James & Ohio State University Can Teach You About Advanced Trademark Laws
The new rules could impact athletes in less high-profile sports as well. My daughter is a Division One runner. She receives little in the way of an athletic scholarship, but she's still subject to all NCAA rules. She puts in that same amount of time for the benefit of the team and the team uses her likeness on its own social media accounts and recruiting collateral. It would be great if she could have an Instagram account on the side that chronicles her running and her experiences as an athlete, while creating some revenue as well. The current rules prohibit all of that.
There are ingenious ways to monetize social media presence now that could help athletes like my daughter pay for their education. It doesn't have to be about an endorsement from Nike or Gatorade.
Keeping the Focus on Education
The NCAA rules were put in place originally to ensure that student-athletes focused on school, and there is an argument that allowing students to profit will reduce the focus on getting an education.
This conversation is not necessarily about millions of dollars a year. It could be a few thousand dollars a year for clicks on Instagram or Snapchat. Students could become Instagram influencers just because of what they're doing in a minor sport. That could help pay for college, especially in sports where there's not a full-ride scholarship for every athlete.
Related: Hashtags, Memes, and Emojis: The Landscape of #IP on Social Media
In the major sports like football and basketball, everyone is on a scholarship. Many other athletes in sports like running and swimming and fencing, however, get nothing. This rule change has significant potential to get these athletes through college debt free (or at least debt reduced) and get a better education, rather than it becoming a job and an alternative to school.
This is because the NCAA does a great job of keeping the focus on the student and not just the athlete. You can’t play if you’re not keeping up academically. There are tutors and organizations available to help ensure student success. Most athletes from lower tier sports are not going professional, so they have more of an incentive to stay in school. These rule changes could help these students with extra income but also help promote their sports.
A Bit of Madness Before the Genius
There are likely to be disputes, and as with any other IP owner new to the game, student-athletes will likely make mistakes. It may commercialize college sports more than they are now. And there are likely to be agents and other professionals involved in the process. Maybe even an IP attorney. Hopefully my daughter knows where to find a good one . . .
The new NCAA rules are not in place yet. However, the NCAA has essentially declared that they intend to let athletes do this across the three different levels of divisions in NCAA sports. It remains to be seen what they might put in place and how it is rolled out.
There will probably be a little chaos while rules are tested and everything gets figured out. In the end though, this could be a great move that will help less prominent athletes pay for their schooling and provide an incentive to keep high profile athletes in school.
A New Plaintiff on the Patent Front: The U.S. Government vs. Gilead
President Trump has a reputation for unorthodox approaches. His administration's foray into patent enforcement is no exception.
In November, the Trump Administration launched a lawsuit against pharmaceutical giant Gilead for violating the government's patent that covers the composition behind Truvada, an HIV "miracle" drug that has proved over 96% successful in preventing the onset of AIDs.
There is nothing unusual about the case in the legal sense. The patent complaint generally offers up the same issues that any patent infringement case would. It was filed in a federal district court. All the stakes are the same.
It is a straightforward patent case except for one thing: the U.S. Government almost never asserts their patents.
Of course, that was before. This is now.
Unusual Behavior
The Department of Health and Human Services, like many government departments, is heavily involved in research and development. All of these organizations employ inventors, engineers, and scientists who invent things. They normally file patent applications for these inventions, and as a result, the government owns numerous patents. The same applies to other governmental bodies as well. Universities, for example, have the same types of rights.
Private companies use these government patents all the time, generally with a licensing fee. The unusual part about the Gilead case is that the negotiations for licensing this technology went sour. The government took the step, a very significant step, of enforcing their I.P. rights through a patent litigation lawsuit.
Any party who owns a patent has the discretion as to whether and when to file a lawsuit if someone is infringing upon their patents. None of this is out of the ordinary. What is unusual is that the government has decided to sue a private company. This isn't illegal, nor does it violate some unwritten code. The government just usually prefers not to assert its patents.
A Perfect Storm
The Trump administration has been vocal about its focus on prescription drug issues and prices, and they've also decided to focus on the HIV epidemic as well. This case came along and it was like the perfect storm.
Related: The Politics of Intellectual Property
Gilead had initially marketed Truvada as a treatment for HIV infection. Still, government-sponsored research soon revealed that the drug was extremely effective at thwarting the onset of AIDs in HIV-infected patients. Gilead sold the drug as an AIDs prevention drug but refused to pay a licensing fee for using the government's prior patented technology.
The government then took Gilead to court for patent infringement.
The Aftermath
The fallout from the lawsuit could be far-reaching. For Gilead, millions in lost revenue is at stake. The company recently announced it had created a new, improved version of Truvada. Truvada is reaching the end of its protection cycle and will soon face generic competition.
The latest version of the drug could result in nearly twenty more years of protected status for the company and greatly enhance their profits. However, the government is claiming that the new drug also infringes on its patent.
For people living with HIV, it could be a matter of life or death. The drug costs patients $20,000 per year or $50-$60 per day. This cost causes some patients to reduce their dosage and increase their risk and simply puts Truvada out of reach for many. If the government wins its suit, the drug could become far less costly and far more accessible to the vulnerable community in need of it most.
It is unlikely that the government is looking for a cash payout from the lawsuit. Another $20,000 in royalties means nothing to a budget the size of the U.S. government. Instead, they may be hoping to force Gilead to reduce the prices of Truvada and the newer spinoff version of the drug.
There's a massive amount of public pressure now on Gilead to do the right thing. And the lawsuit is generating a lot more attention than might typically be generated by a case like this.
And that is where it gets even more interesting from a socio-political perspective. The communities most affected by the AIDs crisis and who will most benefit if the government wins its fight against Gilead, are, let’s face it, unlikely also to be Trump supporters. His administration isn't getting much credit for this fight.
In addition to the impact on HIV sufferers and Gilead, this lawsuit could have a huge impact on the entire pharmaceutical industry. There's a new sheriff in town. Pharmaceutical companies may not have as much leverage in patent negotiations as they are used to having. There may also be concern that the government is going to make a habit of this type of lawsuit. Anytime a ground-breaking therapy comes out, it could require companies to do more diligence regarding the rights held by the government. Or it might require a rethinking of the existing philosophy that we don’t need to worry when the government owns the patent, because it won't sue us.
That's all changed.
Related: If Insulin is Patented, How Did Colorado Cap the Price?
With the government acting more like a private company would, concerns won't be limited to the pharmaceutical industry. Government research and development is all over the place. So, it could literally be any other industry. Other industry giants are probably looking at this case and considering how wary of the U.S. government patents they should be now.
The U.S. Government just became a powerful new player on the IP front.
AI and the Next Frontier in Healthcare and Patent Law
In 2018, Medtronic put the world’s first automatic closed-loop insulin pump and continuous glucose monitoring system on the market. For people living with Type I diabetes, like me, it was game-changing. It’s the closest thing to an artificial pancreas that I’ve ever seen. My average blood sugar levels came down 20% in 4 months after I started using it. Like I said, game-changing.
Controlling diabetes is a lot of work. With the lows just as dangerous as the highs, diabetics must continuously monitor their blood glucose levels and regularly adjust their insulin levels. For most, these adjustments must be made several times a day and it can be a constant battle and distraction. In addition to monitoring glucose levels, people with diabetes must also monitor carbohydrate intake and exercise, which both impact glucose levels. When you have diabetes, you are never able to forget about it.
Medtronic’s AI-driven insulin pump performs in many ways just like a fully functioning pancreas. It monitors and assesses glucose levels every five minutes and intuitively adjusts the amount of insulin it delivers twenty-four hours a day. It learns from your glucose trends and insulin delivery and makes adjustments to its delivery program along the way. In short, it saves me from the burdens of constant monitoring and manual adjustments.
It’s not just about diabetes. Artificial Intelligence (AI) is revolutionizing all aspects of health care. It fuels the wearable monitors that can alert us about everything from abnormal heart rates and respiration, to excessive UV exposure. The frontier for AI’s contribution to medicine is continually being pushed outward as new research and new patents are revealed.
Patent Protection
With new technology and new players continually entering the market, patent protection for AI driven medical technologies is even more critical than ever. Trade secret and copyright law can help protect programming code but patent protection will offer the broader protection that medical technology companies need.
RELATED: What Lawyers and Clients Need to Know About the Use of Artificial Intelligence
Diagnostics
Much of the recent application of AI technologies has focused on its use in diagnostics. There are good reasons for this. It’s a lucrative field for AI companies and a costly one for healthcare practitioners in terms of potential errors and malpractice.
The history of AI in diagnostics goes back to the 1950s when doctors first started using rudimentary computer systems to assist them in diagnosis. Today’s diagnostic AI, however, looks very different. Chatbots are leveraging complex algorithms, speech recognition, and learning from thousands of cases to help doctors choose the right medications and to help patients assess their symptoms.
AI is helping to diagnose cancer, determine the size of tumors and assess the prognosis for patients. This saves time, a critical element in cancer treatment. For example, UT Southwestern researchers recently announced the development of software that leverages AI to recognize cancer cells from digital pathology images. With millions of cells in a single tissue sample, pathologists were previously limited to looking only at parts of a sample. The algorithms in this software promise to improve both speed and accuracy.
This same speed and accuracy are also leveraged in laboratory analyses of fluids and tissues. Rare diseases can now be diagnosed worldwide through the use of facial recognition and big data using AI.
Treatment
Ensuring quicker and more accurate diagnoses is just one part of AI’s application in healthcare. It is also impacting patient treatment.
Drug trials are time-consuming and costly. However, speed is essential in the highly competitive drug industry, just as it is for patients waiting for cures or relief from symptoms. AI can save time by streamlining the planning of clinical trials and through the quick processing of massive amounts of data. But AI isn’t just reducing time and saving money for pharmaceutical companies. AI is also improving clinical trials by providing researchers with analysis of potential participants and remote monitoring of participants’ adherence. With its ability to analyze tens of millions of genetic compounds in a single day, AI is leading breakthroughs in the treatment of major diseases, including Parkinson’s, Multiple Sclerosis and Ebola.
Within hospitals, AI is driving innovations in triage, ensuring patients get timely treatment. Google’s DeepMind Health and IBM’s Watson are both engaged in improving patient’s experiences and outcomes. In hospital settings, these and other AI platforms help assess patients, track wait times and even determine the quickest ambulance routes. Hospitals are also partnering with companies such as GE to use AI to maximize operational flow and allow staff to see far more patients in much less time.
Surgery
Innovations in AI and robotics are also proving to be surgical game-changers. In 1985, surgeons employed a robot to awkwardly insert a biopsy needle into a patient. Thirty-five years later, surgeons conducted the first ever robotic eye surgery. In February of this year, Medtronic announced the first spinal surgery on a U.S. patient was performed using a combination of AI driven robotics and navigation developed by the company and a partner. In fact, last year alone, over 5,000 robots were employed in well over one million surgeries.
Da Vinci was the first surgical robot to be approved by the FDA. Its combination of cameras, surgical tools, analytics and robotic arms continues to be used for a variety of operations in hospitals throughout the U.S. Robots are used today in nearly every type of surgery, from orthopedics to heart surgery.
Because it is often more precise, robotic surgery is also minimally invasive, resulting in less scarring and faster recoveries for patients. This precision also, for example, allows surgeons to target cancerous cells rather than regions of the body directly.
AI is being used to stabilize physician’s hands and reduce tremors and to create virtual reality surgical theatres in which surgeons can test out procedures before they see the actual patient. It’s also driving microsurgeries and therapies. The Heartlander, for instance, is a miniature robot that enters the body through a tiny incision and can deliver treatment right on the surface of the heart.
But the real power of robotic surgery lies in outcomes. Robotic surgeries are far less invasive, produce less scarring and studies are demonstrating that they can drastically reduce hospital stays.
And for both patients and their doctors this new frontier is looking very promising.
Is Your Startup Making These Mistakes With Your IP?
When new companies are moving forward with a product at a rapid pace, some of the last things on their minds are details like patents, inventorship, and other intellectual property matters. Most times, however, these oversights can have dire legal consequences. Other times, they can lead some to take some crazy measures to cover up their missteps or protect their pocketbooks. Check out this story from my early days as a patent litigator.
In the very first patent infringement case that I worked on right out of law school, I represented the defendant in a case where the plaintiff’s CEO was caught falsifying his engineering notebooks in order to prevail in an inventorship and prior art dispute that was raised as a defense during the case.
During discovery, we had the CEO’s original handwritten notebooks ink-date tested by forensic scientists to prove that they were doctored and he actually did not have exclusive rights to the technology. Turns out the ink used to create the notebook entries at issue was not manufactured until more than 10 years after he claimed he made the entries at issue (think old school meta data). . .The case only got crazier from there.
After losing a multi-day evidentiary hearing to determine the admissibility of the notebooks, the judge in the civil case determined that the CEO (and others) had committed fraud on the Court and referred the issue to the U.S. Attorney for criminal prosecution. While attempting to flee the country, the CEO was arrested, his passport revoked, and he was thrown in jail while awaiting trial on the fraud charges. He lost and was sentenced to an extended jail term.
But wait, it gets better. In a move straight out of a Hollywood drama, the CEO tried to hire a hitman while incarcerated to kill the judge in the underlying case. Unfortunately for the CEO — and fortunately for the judge — the prison contact he approached for the hit turned out to be a confidential informant to the FBI. Doh! As far as I can tell he is still serving his initial 17-year prison sentence.
I know it is an extreme story, but it is a cautionary tale about the importance of protecting your IP from the get-go and paying attention to those often overlooked but legally impactful aspects of inventorship and ownership. Startup founders and entrepreneurs are often worried about the here and now. Being able to adapt and change with zero money is part of the startup philosophy. Meanwhile, intellectual property protection is more of a forward-looking, long-term vision.
What are some of the issues that arise due to this disconnect? More importantly, how can you avoid making IP protection mistakes in your own startup? I’ll break down four common mistakes startups make with their intellectual property and how you can avoid them.
1. Missing Unextendable Deadlines
Say you’re in startup mode. You go through an accelerator, you tell the whole world about your great idea, you have a product and customers…but you haven’t filed a patent application. Nine months have passed. Soon, you won’t even have the chance to protect your IP, due to hard and fast deadlines that are embedded in the patent statutes. Once those deadlines pass, you can’t buy, lie, or muscle your way out of that situation and you seriously risk dedicating your invention to the public domain. No one — including you — will ever be able to patent it.
For some startups, intellectual property protection doesn’t even come up until it’s a legal issue or an investor asks the inevitable question about whether you have already filed those applications. As some startups discover too late, there are very black-and-white deadlines within IP law that require you to protect your innovations by a certain date. If you fail to do so, you can’t ever get that chance back.
Not sticking to deadlines for protecting your IP is one of the biggest mistakes that startup companies make.
2. Inventorship: Not Crediting the Right People
In accelerator-style programs, lots of people with very philanthropic motivations come together to help young companies thrive. It is a hyper-collaborative environment. These mentors might casually mention an idea or a suggestion for tweaking your product over a cup of coffee and next thing you know, the startup founders run with an idea that was conceived by someone else.
A version of this happened in another patent infringement litigation that I worked on some years back. During the development of our client’s technology, there were collaborative efforts between the company that owned the patent and an inventor who was part of another company. Originally, the company who filed the patent application acknowledged that the separate inventor contributed to the technology. They reached out to him to file the correct paperwork, but he hesitated, saying that he felt the idea wasn’t patentable and that he alone was the only inventor on the technology. While there are rules to specifically deal with this type of recalcitrant inventor situation, the company instead moved forward and filed the patent application on their own without attributing inventorship to this individual.
Years after the patent issued, it was asserted against a number of companies in that industry including that same “other company.” The case was won based on the fact that the attorneys writing the patent application at the time had encouraged the company to not properly deal with the inventor and his statements about collaboration and inventorship.
Inventorship is a legal definition and it’s very important to get it correct. So, if you file a patent application and the invention has contributions from others that are not listed as inventors on the patent, the patent can be held invalid and you can expose yourself as a company to ownership issues. Deal with these problems up front and it tends to be a matter of simple paperwork. Monkey with the rules for personal gain or to keep the cap table simple, you may lose your IP.
Related: Pitfalls to Avoid When Collaborating on Intellectual Property
The proper inventors always need to be named, even if a collaborator or contributor isn’t part of the company — and yes, even if it’s just a mentor who mentioned an innovative idea over a cup of coffee.
Now, I know what you’re thinking — does this mean that I can’t have coffee with someone to brainstorm? Do I need to credit everyone who provides even the slightest bit of input?
No, that doesn’t mean that at all. Ninety percent of these mentoring environments aren’t providing specific advice that could have legal implications later. Most of your discussions aren’t going to be about core technology or code functionality; they’re more likely to be about marketing or customers.
You only need to involve an outside individual like a mentor in your patent filing if they conceived of a critical idea associated with your invention and those concepts made it into the claims of your patent application.
3. Looking for an Easy, Cheap Option
IP protection can also be a turn-off to some entrepreneurs or inventors because it is initially perceived as both expensive and time-consuming. Some startup founders tend to shy away from IP protection due to the cost or try to find a way to get IP protection for free. Some look for volunteers to provide IP services.
Thankfully, there are new, more streamlined and inexpensive ways to get IP protection, particularly in the early phases of a company where all you may need is a simple provisional patent application and a single trademark application to cover the basics. You will likely still need to invest some of your own time but don’t be steered away just by the perceived financial costs.
Related: What Lawyers and Clients Need to Know About the Use of Artificial Intelligence
Inventors are often embedded in the day-to-day aspects of launching their company and getting it off the ground at a rapid pace. IP protection doesn’t interest them. Their attention, though, is crucial to ensure their IP is protected.
4. Not Filing a Trademark Registration
If you have a name for your company or key product, file a trademark application. There’s really no excuse not to. It’s cheap, it’s straightforward, and it only takes a moment of your time and you get a lot of benefits by having an early filing date for your brand.
Related: Did You Get Punk’d By a Trademark Spammer or Patent Troll?
Your Future Growth Is in Your IP
Being a startup is exciting and busy, but you need to keep your future in mind. Your IP is part of that. During the next phase of your company, when you're looking for money or talking to investors, they're going to want to know that this stuff was already taken care of.
Make no mistake — 100% of the time you're going to get those questions from people wanting to put money in your company: “Have you filed patent applications? Have you filed trademark applications? Have you protected your IP?” If you can't answer yes, you're going to be scrambling to get it done. That's not a good situation for anybody.
Don’t fall victim to one of these potential mistakes. It might take you a little extra time, cost, or inconvenience to do the right thing. But when you have your IP protected properly from the beginning, your IP protection work should take a back burner for a while. You can breathe easier and sleep a little better, knowing you’re protected as you head into the next phase of your company.
Tips to Protect Your IP as a Small Business or Startup
If you’re a small business and you hear the words “you need an attorney”, you likely envision buckets of money flying out the window. However, protecting your intellectual property as a small business, startup, or pre-funded company doesn’t have to be difficult or insanely costly.
To make IP protection within reach as a small business, it comes down to a few smart tips. First, of course, is taking a proactive approach to protecting your innovations. Then, there are DIY measures that can save you money in filing patents and trademarks. Also crucial is finding the right IP attorneys that are proficient with and employ cost-saving systems (such as AI — more on that below) and pass those savings along to you.
Take a Proactive Approach
To minimize costs and time needed both now and down the road, you need to be proactive. Patents protect your ideas, not a finished product, so you may need to start working on your IP protection even before your company is formed. Beyond that, a lot of what you can do on an IP front can be done in advance. For example, a lot of companies don’t realize that they can file a trademark application before they are actually using the mark. That is something that can be done really quickly, right off the bat, and most times for a fixed cost.
Being proactive rather than reactive keeps things running smoothly, and it makes IP protection less expensive. This foresightedness makes it easier for attorneys to control costs and give fixed prices that are of higher value to a client.
If you were to instead come to your IP attorney and say, “I’ve been using this brand name for 10 months and we realized someone else just filed for the same mark,” guess what? That’s an emergency. In the patent world your IP becomes part of the public domain if not filed within a year of you starting to use it. So, in that same scenario you've only got a couple of months left before your IP is dedicated to the public. That’s a bigger emergency.
Naturally, that’s going to cost more. Your attorney has to drop what they’re doing, reformulate their plan and engage in more panicky back-and-forth with you.
When you take a proactive approach to protecting your IP, you take that frantic scenario out of the equation. You’re not putting out fires. You’re not reacting to potential bar dates coming up.
Being proactive not only saves time and money. It also prepares you for investors.
We commonly hear from clients that we talked to months before who come to us out of the blue and say that they’re in the middle of their Series A and their investors are asking if they’ve filed patent applications yet.
Investors will always ask this. When investors and banks come at you, they want collateral. They want something to take a security interest in if they’re going to lend you money. In a smaller, early-stage company, especially those in the tech field where you don't really have any hard assets, the easiest thing to use is intellectual property for that collateral.
You need to have patent and trademark applications filed with the trademark and patent office in order for someone to invest in your company. Every bank is going to require something like that. Every single one. You need to have that in place.
Basic IP DIY
Your attorney should empower you to do some of the basic IP legwork work yourself — tasks that will save you money if you do it ahead of meeting with an attorney. For example, if you’re preparing to file a patent, you can spend time doing your own prior art search. This can potentially save you thousands of dollars and even help you improve your innovation.
The same applies to determining whether you have the freedom to use your chosen company name. It sounds strange coming from a lawyer, but a simple Google search gives a good high-level first impression of whether a name is available for use as a trademark.
Related: 5 Common Issues with DIY Trademarking
Finding the Right IP Attorney
Ask about a firm’s package fee structures to see what they can do for you. Some firms will give you a package deal, for maybe one provisional application plus one trademark application. Lumping different projects together, even though they are distinct legal inquiries, can save time and money. If an attorney is willing to sit down one time and get all the information needed for your separate projects, that saves everyone time and results in lower fees.
You want to find a firm that’s not just lowering costs and doing fixed fees, but also a firm that is taking advantage of modern, smart systems like the AI that Neugeboren O’Dowd uses (which I wrote about earlier). This allows your IP attorney to focus on the work product output instead. Look for a firm that’s using these types of systems and approaches to pass cost savings on to you. If you’re able to find one, you can get some key pieces of IP protection on file and in place for a fair, reasonable cost, and pretty quickly.
What If I’m Already in Hot Water?
Let’s say you, as a small company or startup, didn’t take a proactive approach to protecting your IP. Now you’re faced with a potential legal case tied to your IP. What can you do then? Are you sunk?
The worst-case scenario in this instance would be if you’re a small company and you receive a cease and desist letter from a larger company or a patent troll, someone who is just asserting IP that they don't actually practice. Then come the difficult decisions.
Related: Are You Being Punk’d By a Trademark Spammer or Patent Troll?
The one thing you can do as a small company is an infringement analysis to make sure that what the plaintiff in that case is asserting is actually accurate. It takes little effort, especially if you discover that the assertion is inaccurate. Even though that might not make the risk of a litigation or lawsuit go away completely, at least you've looked into the claim and you have an answer for any type of investor or other party that is doing diligence to investigate your company.
Or, if you do look at the claims and they may have some validity, then your patent attorney can help you tweak your product so you don’t include the key elements of another patent in that product. You basically “design around” another patent.
However, just note that taking proactive measures like those discussed above is much cheaper than having to do a design around, but a design around can also be much cheaper than a litigation.
Ready to Get Started?
Protecting your IP as a small business or startup isn’t as hard as you may think it is. You can make sure your IP is safely protected with minimal fees and time when you’re proactive, you know what you can DIY, and when you have the right IP attorneys on your side.
Protecting IP in the Food & Beverage Industry
So, you have an amazingly tasty, totally revolutionary, ready-to-package food or beverage product. Clever ingredients, GMO free, great reception from the neighbors. By all measures, you have a successful product in the works — but in this space, the reality is that someone else has likely put together your same ingredients in much the same way before. That’s part of what makes protecting intellectual property in the food and beverage industry so tricky.
You might be surprised to learn that you might not really need a patent in the food and beverage industry. In fact, depending on the type of product you are pursuing, patent protection may not even be viable. A simple trademark and accompanying brand protection strategy may be all that’s required to keep your IP protected.
However, while your product (i.e. the recipe) itself might not be patentable, you might have some other innovations at your company that are. Here are some unique aspects about trademarks and patents that often find themselves in the food and beverage industry.
The Product Itself Is Not Likely Patentable
When we look at patentable subject matter, there’s typically no “technology” in a traditional food or beverage product that falls within the statutory realm of what’s available to patent. The closest you might get would be some type of recipe or a formulation — what the patent system calls a “composition of matter.”
FDA regulations often require you to reveal basic information about your product such as all the product ingredients. Anyone can see what’s in your product, just not the specific ratios or the process of putting it together. You might not know how to make a soda that tastes exactly like Coca-Cola, but look on the side of a can of Coke and you can see the vast majority of what’s in it.
You can certainly patent what are called “compositions of matter”, such as a recipe that’s two parts dates, one part cherries and three parts corn syrup. However, these compositions are typically not patented. They would be super-easy to copy while avoiding patent infringement. Someone could just tweak a new product in a very slight way, while still copying you but without infringing on the patent. At least in the food and beverage industry, the protection you’re getting from a patent is usually not worth the effort and cost.
Protect the Package Design or the Manufacturing Process Instead
Sometimes, companies patent the way they manufacture a food or beverage product. If you’re dealing with ingredients that have caused complications on traditional food manufacturing lines, or are just difficult to work with, you could patent a clever way of processing it.
For example, one of our local clients, Good Day Chocolate, makes uniquely formulated chocolate products. If you like chocolate and want an extra kick in your fix, check them out here. The confectionary industry is always dealing with problems associated with processing chocolate, which has to be in a liquid form during processing and requires some special equipment and know-how. You can imagine how the hot, melted chocolate glops up the mechanics of a system. For these types of manufacturers a big part of their intellectual property is the process of knowing how to deal with the melted chocolate within processing machinery.
You might also be able to focus on the product packaging. Occasionally, we’ll see IP concerning unique product packaging, whether it’s unique due to design or its utility. Perhaps the packaging provides increased spoilage resistance. Maybe it’s more environmentally friendly. An example of this would be self-stable milk products with unique packaging that preserves its freshness and shelf life.
Focus Your Efforts on Branding and Marketing
The food and beverage industry doesn’t rely so much on true innovation as it does on deep marketing. Food and drinks have always been that way. A company gets a recipe together, it tastes good and then it’s time to focus on branding — packaging, colors, stylization, and name. Marketing, rather than innovation, is the best way to distinguish a brand in a saturated industry.
From there, a company’s success is mainly about distribution and breadth of its consumer base. It’s about getting on online platforms and strategic retailers. I always say, if you can get your product on the end cap at Whole Foods or Walmart, you’re pretty much set. Alternately, you can try to get sponsorship or a famous celebrity endorsement. If Kim Kardashian says, "Wow, I love this drink!" and puts it on her Instagram, that exposure is worth millions of dollars.
Trademarks and Trade Secrets May Be Better
The famous formula for Coca-Cola has never been patented, and yet no one knows exactly how it’s made.
The formulation of Coca-Cola has been kept secret for many, many years and, in cases like this where you can maintain the secret, a trade secret has a perpetual life — something you don’t enjoy if you patent the same information. If someone at Coca-Cola had patented the recipe, that patent would have expired many years ago and the recipe would be in the public domain. Instead, the company has managed to keep the formulation secret all this time and its protection lasts forever.
Related: Worried About Product Copycats? 5 Tips to Get Ahead of the Fast Followers
The downside of this? If the secret gets out, it’s game over; there’s no unringing that bell.
You Need to Secure the Domain Name First
As your lawyer does an availability search for a product name to trademark, you need to secure your domain name. It’s simple and cheap. If you wait until after you begin using your name publicly, it’s much easier for cyber squatters to go ahead and grab domains you might want, making it difficult for you to wrestle them away.
Don’t waste time on a product name before you’ve done that availability diligence with your attorney. It’s simple to do, doesn’t take a ton of time and can prevent impediments down the road. Securing domain names is one of those “you don’t need a lawyer to do that” jobs. If it looks appealing pay the $10/year and secure the rights to that top level domain.
Your Distribution Network Is Everything
Focus on a business strategy that addresses distribution control. Whether your product is $2 or $10 per unit, the nature of food and beverage items is that they are low-dollar, high-volume products. You have to sell a lot of units to be successful and if you don’t maintain control of your distribution, you can end up competing against yourself on retailers like Amazon. (I wrote more about the problems with reselling on Amazon in my article “Read This Before You Become an Amazon Reseller”.)
Protecting Your Food or Beverage Business
When it comes to protecting your business in the food and beverage industry, there’s no one-size-fits-all approach, but you certainly don’t have to go the traditional business route of applying for a patent. There are plenty of surprising ways you can ensure your business is both protected and successful for the long-haul.
My Brush With Big-Law Burnout
My path to founding Neugeboren O’Dowd required some personal trauma. And while my story in “Big Law” is my own, and might have some unique situational idiosyncrasies, the underlying plot is not out of the ordinary.
Attorneys have a very high rate of mental health, physical health, and substance abuse issues that stem from the demanding pressures of the industry. Increased national focus on mental health problems in the legal profession has brought some of the more traumatic stories to light, but the general theme persists.
My Story: Big Law, Big Problems
First, I don’t think Big Law firms are evil or inherently bad. My last firm was neither of these when I was there and isn’t now. My time there was filled with amazing and supportive mentors, unique opportunities, and an environment that was clearly designed to help me succeed. No one there was a jerk. I can’t think of anyone I wouldn’t want to work with again and that firm still supports me in my career today through friendships, referrals, and advice.
I was an engineer by training and then went to law school at night while I was still working. After my graduation from law school, I followed a fairly typical Big Law career path. I began working for a large IP-focused firm in California and then moved to an even larger general practice firm in Colorado. I had just turned 30, my family was growing, and I had a great job in a busy practice.
The law firm I was at had a typical Big Law environment — namely, high productivity requirements. I worked for great people and on a great team, and I was getting excellent experience and pay; honestly, I don’t think I would have ever been able to start my own practice without having that background.
But, it was a lot of work. It came to the point that I was burning the wick at both ends.
A turning point started with something small: a tiny cut on my elbow. Probably just banged it somewhere. But somewhere along the way, that little cut turned into a big problem.
I was in Phoenix at the time visiting family and it was literally 120 degrees in the shade, but one night I was shivering while under a heavy blanket. Something wasn’t right. I looked down at my elbow and it was swollen from shoulder to wrist like a balloon about to burst. A trip to the ER in Phoenix got me triaged enough to travel back to Colorado where I could get more focused treatment if needed.
But I had a trial approaching and there was work to do, including a deposition scheduled for the next day.
On Monday morning, things hadn’t improved. Before the deposition, I went to urgent care where they gave me IV antibiotics. They left the port in my arm while I went to the deposition so I could return to urgent care for more treatment.
When I returned later, the doctor’s expression let me know that something wasn’t right and my own body told me the same thing. Forty-five minutes later, I was in surgery to clean out the wound. I was on the verge of sepsis.
Following the operation, I was in the hospital for a week as the doctors worked to get the infection under control. But I had that trial approaching, so people were bringing me work while I sat in the hospital. I did deposition designations in my hospital bed, green highlighter streaks tailing off the page as I constantly drifted off.
Eventually, the infection was under control, but I was on an IV antibiotic drip four times a day for a month. I brought my IV bags to work with me, screwed a hook in the wall to hang them, and kept going. When one of the managing partners of the firm saw the situation, she was clearly horrified.
When I was back to a normal state of mind, I needed to ask opposing counsel for an extension so I could redo those deposition designations. Clearly not my best work. (If I didn’t say it to him then, I’ll say it now: Thanks, Paul.)
This was the beginning of the end. I finally realized that I was completely burnt out.
As much as I loved my job and the people that I worked with, my body was deteriorating, weak from all the work. I needed a different job.
A great in-house role gave me a more normal routine as well as some unique experience, but was cut short when the company was “merged” with another and our entire legal team was let go. Efforts to find another in-house role never panned out and I started my own firm.
But, it needed to be different.
How Neugeboren O’Dowd Is Different
Although I wouldn’t change my experience, I certainly set out to model my own firm based on the goal of keeping a lot of margin in life — whether that’s to do fun things, engage in community activities, or just to keep sane in the work environment.
That’s fairly easy to do that when it is just you in a basement office, but as our practice grew and we added more lawyers, we needed to be more deliberate about it.
#1: Time Is Valuable
Most Big Law firms require between 1,800 and 2,000 hours of billable time per year. If you take no time off, that requires 160 billable hours per month leaving 6–7 hours a month of non-billable time in order to keep a 40-hour workweek. To maintain that type of productivity level while also taking vacations, holidays, personal time, etc., most lawyers work 60 to 70 hours per week.
Our target is 100 billable hours per month with an attorney option to set higher benchmarks, which the firm rewards. This gives our professionals a lot of flexibility and leeway. Absent some emergency or someone’s preference to be a night owl, weekend and after-hours work is really not a thing.
And, our focus is on productivity, not necessarily on hours, so everyone’s efficiency is rewarded. Our employee manual states, “Busyness is not a virtue.”
#2: Work More or Less; It’s Your Choice
Neugeboren O’Dowd attorneys’ annual salaries are certainly lower than salaries offered at large law firms — we can’t compete on that metric. But, when you look at the production requirements, our effective “pay per hour of time billed” is actually higher than most firms. And, if an attorney wants to increase their workload to make more money, they have the ability to do so.
Everyone in the firm has families and they’ve been able to work more or less around events in their lives, whether they’re having a baby, saving up for a house, attending to a medical need, or whatever they need to do, without stressing out over it. The margin is already built in.
#3: Incentives All Around
Every lawyer has an incentive to develop their own practice. While there is plenty of room to make a career off of other’s work, all attorneys are eligible for a compensation/origination credit for developing and managing their own work. If you bring clients in, either new or clients from your prior firm, you receive extra compensation for the work associated with that client. Partners, associates, and counsel all enjoy this benefit.
Full-Time Doesn’t Have to Mean All the Time
We’re a small firm, and while we can’t offer some things in terms of prestige, fancy office space or Big Law starting salaries, we do give our attorneys a better work-life balance, the incentive to build their own practice, and the flexibility that real life requires.
We (partners included) sacrifice a wide variety of benefits (our own pay included) to make this work, but we also have that same margin in our lives.
A full-time schedule doesn’t have to mean all your time. It can mean a lot less, without giving up an attractive wage and meaningful work. If this interests you, reach out. We are growing and always looking for new professionals to join our team.