Eminem, Meet the Supreme Court of the United States

Eminem, Meet the Supreme Court of the United States

Eminem Sues Spotify!  At least that’s what one might take away from headlines regarding a copyright case that could find its way to the Supreme Court next year.  But the reality of this latest in a string of copyright infringement suits against Spotify, is that the artist Eminem isn’t even involved. His publisher, and partial composer of the #1 hit single, “Lose Yourself,” is filing the lawsuit independently from Eminem.  This is just a first indication of the complexity of copyright law in the digital arts, and tells an interesting story for those looking to protect IP in the digital arts 

Related: What Tom Brady, LeBron James & Ohio State University Can Teach You About Advanced Trademark Laws

Setting the Stage

To set the stage for this face-off between musical powerhouses, let’s look at the two primary licenses that artists, publishers, and streaming services deal with. 

Production companies, those recording and producing a song, sell a “master license” to streaming services. There may be many master licenses that a streaming service has to choose between, since each different recording of a song over the years requires a different master license to be streamed.  If Spotify streams the original studio recording of Maroon 5’s Memories, one master license is required, while a second is required if a live performance version at Red Rocks is streamed.  If Spotify streams a cover band version of this song, a third master license would be needed for that instance.

Despite the number of master licenses, they are typically owned by a large production company like Sony, Universal, or Warner Brothers, and are therefore straightforward to track and pay for, so there’s generally not a lot of litigation surrounding these. 

A second type of license that streaming services must obtain for every song that is streamed, is a “Mechanical License,” and these are more complicated, harder to track, and the reason that Spotify could find itself before the Supremes. Mechanical licenses arose during the age of player pianos, when artists first had to start seeking payment for a machine rather than a human performing their songs.  Additionally, mechanical licenses must be sought from a song’s composer and must include anyone who created music and/or lyrics. Quite a few different people can be involved in the composition of a song and sometimes those people don’t even include the artists themselves. For instance, Eminem’s Lose Yourself has three composers including Eminem.  Understandably, the number of entities that may own a Mechanical license tends to be far greater than the number of Master rights owners, and the Mechanical rights owners tend to be smaller entities.  This makes tracking down owners of Mechanical licenses much harder.   

If you’re a streaming service with 20 million songs, many of which are different artist’s renditions of the same original song, and many of those artists are smaller names with maybe a handful of songs, it becomes very challenging to figure out who you might pay for the mechanical licenses. You may even have to calculate a split in a license between the various composers involved. 

Because of this potential confusion, most of the litigation surrounding streaming services over the past decade has dealt with mechanical licenses, not master licenses. 

How Did We Get Here?

Over the years, Spotify has been sued many times for copyright infringement because they’ve allegedly failed to pay on mechanical licenses. In almost every case, they’ve settled — for hundreds of millions of dollars at times. It’s been one of their biggest challenges, and until last year threatened their IPO. Since there was never a case that made it past settlement, we don’t have conclusive proof that Spotify fails to pay composers on mechanical licenses.  However, given the number and size of the settlements, the facts that emerged in those cases, as well as the technical challenges of paying mechanical licenses, there’s a good chance that they have been failing to pay some, if not many, mechanical licenses.

One of these lawsuits occurred several years ago, with the National Music Publishers Association (NMPA). The complaint of the lawsuit stated that, stretching back to 2011, Spotify had racked up between $60 million and $120 million in unpaid songwriter royalties. Spotify settled the case before trial. But, as a result of that settlement, several very large publishers became major equity holders in Spotify, who along with the NMPA, drafted the Music Modernization Act (MMA), which passed in 2018 and essentially made it impossible to sue Spotify. 

Related: Someone Knocked Off My Product... Now What?

Which brings us to the lawsuit between Eight Mile Style and Spotify. Eight Mile Style was not part of the drafting of the Music Modernization Act, which allows Spotify to avoid being sued for copyright infringement if it takes certain steps relative to songs that it cannot match to a mechanical license holder (e.g., set aside a stipulated licensing fee in the event that the license holder can later be found). Meanwhile, Eight Mile Style is trying to claim that the MMA is unconstitutional and should be tossed out, while also saying that Spotify failed to follow the MMA’s guidelines when it came to Eminem’s songs.   

If Eight Mile Style Wins the Lawsuit: Part 1

Regarding the first part of the allegation and the MMA’s constitutional standing, the question is, was there a due process violation in Congress basically taking away the right of composers and publishers to sue for infringement damages? 

If the MMA is dissolved, then composers will once again be looking at the ability to recover statutory damages of up to $150,000 per infringed song, plus attorney fees. 

If Eight Mile Style Wins the Lawsuit: Part 2

The other side of the lawsuit is the determination of whether or not Spotify jumped through the required hoops to avoid a copyright lawsuit under the MMA. 

The MMA, in general, creates a big database where publishers can put their songs, making it easier for Spotify and other streaming services to notify the owner of a song that they streamed that song and intend to pay royalties. At its core, the MMA aims to solve a very real problem. There are tens of millions of songs out there with different composers, songwriters and versions. Finding the composers of each version can be really difficult. The MMA’s database sought to simplify the issue. 

Spotify farms out the license matching work to a third party, but the biggest player in this third-party matching industry does not have a high success rate for making matches.  Despite being one of the largest-used companies, court records show that it is only matching about 15% of the songs in the Spotify catalogue! 

When the matching company can’t perform the match, then the MMA grants Spotify a “compulsory license” from the unknown composer. Spotify then sets aside the stipulated fee for this license. Unfortunately, this means that the composer only receives the stipulated fee--a constant across all artists and songs, regardless of the song’s popularity.  In other words, when the match finally occurs, the artist has no chance to negotiate for the royalty that a high-value song may be worth. And if Spotify is unable to make a match, it automatically gets to pay this stipulated, likely lower royalty rate, than if it had made the match and had to enter negotiations with the composer. So, there is a clear benefit to streaming services failing to match high-value songs.

Eight Mile Style is alleging that the third-party company did not correctly match Eminem’s songs to Eight Mile Style on behalf of Spotify, instead indicating that many of Eminem’s songs could not be matched, and thereby enabling Spotify to take a compulsory, and relatively inexpensive license, for those songs.  Eight Mile Style argues that this failure to match one of the most well-known songs in decades is intentional. But is that the case? Are they really incompetent? Or is there a technical issue? Does the entire system need a fix?

The Top Take Away For Those in the Music Industry

We’ll have to wait to see what happens with this case, but if the MMA is struck down, be prepared to go back to the old way of doing things. If it’s not, don’t just assume that the MMA is working for your benefit. As Eight Mile Style has shown, even wildly popular songs aren’t getting matched and royalties are going unpaid. You really have to watch your back and make sure that Spotify and other streaming services are following the rules. 

Are You Overlooking the Importance of a Design Patent?

Are You Overlooking the Importance of a Design Patent?

When we think of patents, many people think first of utility patents — the kind that protect the function of an invention. But there’s another type of patent that recently made news headlines that could be crucial to protecting your intellectual property.

In Automotive Body Parts Association (ABPA) v. Ford Global Technologies, Ford was trying to block the ABPA from making replacement parts for Ford’s F-150 hoods and headlights, both of which are protected by design patents. The ABPA was trying to limit the reach of the patents, arguing that they were largely functional in nature — something that, if proven, can preclude design patent enforcement. The Federal Circuit court ruled in Ford’s favor.

For replacement parts manufacturers and consumers alike, it wasn’t the best news. Everyone knows that you can purchase replacement parts cheaper from a third-party manufacturer than you can from the car’s manufacturer. 

But for Ford and other manufacturers of products with a large market of replacement parts (e.g., inkjet printers, construction equipment, etc.), this win greatly increases the potency of a design patent portfolio used to corner the market on replacement parts. While car owners may cringe at the inevitable increase in auto repair costs, this is a totally legal and very effective strategy for the manufacturers.  

Many of our own clients have products where replacements parts do exist and there is significant revenue to be made from those replacement parts. These clients are turning to design patents to gain a larger share of the marketplace. Read on to find out if a design patent is right for your IP.

Utility vs. Design Patents 

Utility patents protect the function of a product, such as the interaction of gears within a clock, whereas a design patent primarily protects the aesthetics, such as the shape of the hands on the clock. 

Design patents are not intended to offer protection of functional aspects of a product. But there are many situations where aesthetics and functionality overlap, and thus situations where design patents can legally cover functional aspects of a design (where the design is not primarily functional). 

The law comes down to a question of whether or not the design is primarily functional. As long as there’s a significant overlap between aesthetics and functionality, there’s a reasonable chance that the design patent will stand up in court. 

Examples of Design and Utility Patents In Use

Design patents are very often used to protect consumer goods, when aesthetics play a big role. Look at the beverage industry. The shape of your bottle can make a big impact on who buys your product versus the bottle that’s sitting next to it. In that case, the shape of the bottle has little functional advantage over its neighbors, but the aesthetics can make or break a brand. That would be a perfect instance where a design patent would be utilized. 

Going back to the auto manufacturing example, a manufacturer would likely use a utility patent to protect aspects of a vehicle that are functional, such as a more efficient engine or a new lane-departure sensor. The same manufacturer might use design patents, though, to protect the shape of a car’s windows, wheel designs or the shape of the fenders. 

Interestingly, all of these shapes can also have functional benefits such as increased visibility for the driver, reduced weight in the wheels, and increase laminar flow for the fenders. In the case of electric cars, the shape of the vehicle might serve both aesthetic and functional purposes. The shape of an electric car plays a big role in increasing laminar flow and reducing drag, thereby improving gas mileage. So, you could have utility and design patents covering the shape of a vehicle. 

Limitations of Design Patents in Action 

  • Utility patents take longer and cost more to acquire. They do, though, make it more difficult for competitors to “design around” your product.
  • Design patents are faster and cheaper to acquire, but also easier to design around.

Related: What Overseas Lawyers Need to Know About Filing U.S. Trademark Applications

Depending on your industry, a design patent might not even be a question. For some of Neugeboren O’Dowd’s clients, like those in software for example, the focus is primarily on utility patents. In software, there’s often little to protect with a design patent anyway. 

For some software clients, though, the user interface is very important. Look at the aesthetics of the iTunes interface, the Netflix home screen, or the smart display of an LG or Samsung TV. Some of those have highly visible and desirable aesthetic interfaces, which could be protected with a design patent. 

The tricky thing is, unlike with utility patents, it doesn’t take that much of a design change to get around a design patent. In some cases, a competitor could change minute details to mimic the look of your product or interface. They would then benefit off the goodwill and brand recognition of your user interface. 

Design Patents Abroad 

In the consumer product space, design patents have a much greater role. This is especially true as you deal with products that have a lot of knock-offs coming out of low-cost manufacturing locales like China. 

Related: Update on China’s Amended Trademark Law

A design patent can be a really effective means of stopping those types of infringers. In many cases, the infringers are creating near-perfect duplicates. They aren’t even trying to design around your product. They’re knocking off hundreds of different products. If they run into an infringement issue with one, they’ll just toss that product and focus on the others.  So, design patents can be very effective against this type of copycat. 

In comparison, international utility patent families can often cost upwards of $50,000 to over $100,000. An international design patent can be a much more affordable way for a business to protect their product. 

Do You Need a Design Patent?

When it comes to protecting your IP, a design patent could be useful, especially if you’re selling a consumer product, on a limited budget, or worried about IP protection on an international scale. Design patents can be a highly effective addition to your portfolio if you stand to lose revenue from third-party knockoffs, rely on replacement parts revenue, or if your product relies heavily on aesthetics rather than function.

Pitfalls to Avoid When Collaborating on Intellectual Property

In many cases, IP collaborations take place out of necessity. Oftentimes, various firms work together to overcome hurdles of building prototypes and getting a project into production. However, the law surrounding IP collaborations can be a bit sticky. 

When you have multiple inventors, regardless of which company they’re from, and how much or little each contributed, each has an undivided and equal right in the patent. This means that any of those inventors can give a license for the product to another party without asking the other inventors to sign off on that activity or provide them any of the license proceeds. Two inventors can even independently license the same patent to two competing companies. Conversely, you can’t bring a lawsuit into the picture to enforce the patent unless you have all of the inventors on board.

As you can guess, this can lead to some very tricky business situations. Here are things to keep in mind when you collaborate on IP ventures.

The Ideal Collaborative IP Scenario

Anyone who leaves patents in the hands of inventors is making a really big mistake from the get-go. Companies should, as soon as possible, ensure that patents are assigned to the company itself. Not multiple companies, just one. You want to avoid a co-ownership situation. 

Related: Protecting Your Intellectual Property: Operating, Employment, and Founders’ Agreements

Even the most amiable partners can disagree, and this is especially tricky when co-ownership of patents is involved. Enabling one partner to control the IP is the simplest way to avoid enforcement and licensing issues. 

Assigning the patent to one company will take a lot of negotiation up front. But, it’s much better to deal with ownership up front than in the heat of a partnership conflict, when no one will be able to agree as to who contributed what and how much those contributions were worth. 

Avoiding the Pitfalls of an IP Collaboration 

Collaborations for the sake of R&D aren’t inherently problematic. Co-ownership is, though. Here are a few ways to approach your collaboration to avoid co-ownership headaches.

Related: Selling Your Company? The Exit Strategy That Doesn’t Involve Giving Up Your IP Rights

Get it in writing

Before any meetings or collaborative efforts, agree in writing which company will end up with the IP that results from the collaboration. 

Record your communication 

Whether you can agree in writing or not, make sure you record all your communication. This includes emails and verbal exchanges in meetings. Get any documents or drawings signed, dated, and notarized. This will make it much easier to go back to those records later to have evidence of everything that was said. Think of all these records as evidence that may have to be presented in a court of law — they may very well end up in that role. 

File your IP ahead of discussions

In some cases, two parties may come to the table with the same invention or idea in mind. However, the first person who vocalizes that idea in a meeting may thereafter claim that they were the first to conceive of the invention, since the other party won’t have any evidence to the contrary. 

You can protect yourself from these types of situations by filing a provisional patent covering every possible invention that you might bring to a meeting. Any IP that you plan on discussing with your collaborator, file for it, even if it’s as late as the day before the meeting is scheduled. Provisionals are quick and dirty, and can be filed last minute and at low cost if need be. You don’t want the other party to be able to lay claim to your invention.

This applies to trade secrets as well. If the other party discloses an idea similar to one of your trade secrets, there is nothing preventing them from filing for a patent on it the next day. To fend off this risk, file a provisional on any trade secrets that may arise during the meeting, and then abandon the provisional if the other party doesn’t mention a similar concept. Recall, provisionals never publish unless you convert them. If the other side does disclose a similar idea, then at least you can convert the provisional and preclude the other side from patenting what is effectively your trade secret (and obtain valuable IP at the same time).   

Engage Your Attorney 

Engage your corporate or IP attorney as early in a corporate collaboration as possible. If you haven’t already, do it now. The sooner you get them involved, the lower the chances that you’ll find yourself in court with your own R&D partner burning resources litigating over IP ownership. 

DIY Prior Art Search? Yeah, You Can Do That.

Want to save some money and some frustration with a lawyer? Do some of your patent legwork up front with a DIY prior art search.

What is Prior Art?

Prior art is any article, publication, product, issued patent, or patent publication that’s publicly accessible before the filing date of your patent application (or up to one year before, with some caveats).

In terms of patent determination, prior art could very well be something out there that exactly mimics what your invention is trying to do. But even where there is not an exact match out there, you can still get a patent rejection. A patent examiner may find something that’s close enough to your product that they do not feel there’s enough of an inventive leap between what’s come before and what you’re trying to patent.

In these cases, an examiner will put together what’s known as an “obviousness rejection.” These obviousness rejections usually include an examiner picking two different pieces of prior art that are close enough to your invention that, when combined, disclose all aspects of your invention.

Why is a Prior Art Search Important?

To avoid these rejections, and make the most of your time with an attorney, it’s important that you do some prior art searching, ideally before you hire a lawyer.

Don’t think that “no one’s ever done this” or “no one else in the market is doing this.” There’s a very good chance that someone has done something very similar to what you’re trying to do and, if you’re only looking at the marketplace of products, you may be missing someone who’s currently out of business, or never got started, but who already tried to do exactly what you’re doing (or something very similar).

With a prior art search, you can look for all the hidden ideas that may result in a patent rejection, including the failed ideas, those that never made it to market and those that didn’t last long on the market. With a stronger understanding of the prior art in hand, you can more effectively convey the uniqueness of your idea to your patent attorney — for instance, why your invention will make a feasible or profitable product where others have failed in similar attempts to solve the same problem.

Tools to Use for a DIY Prior Art Search

The first thing you should start with is Google. Just see what kinds of products, articles, and academic papers are out there that might impact your invention or business. Dig deep. Look for the mom-and-pop shops and the tiny businesses.

Then, move on to patent searching. Google Patents is one of the easiest to use interfaces I’ve found and it’s even more useful than the patent office’s own interface. Google is constantly adding upgrades to the system and making it more and more efficient. Additionally, Google Patents is free to use, as is the U.S. Patent Office’s search tool. After performing searches using keywords, and especially a variety of synonyms of keywords, copy the abstract of a close prior art hit and paste this into the search field.

In general, your DIY prior art search should take five to 10 hours, and will save you thousands of dollars.

Tips for Your DIY Prior Art Search

The right mindset

Already be in the mindset that you’re going to find something. If you assume you’re not going to find your invention already out in the world, then chances are, your DIY prior art search will fail.

Even if you do find something, it doesn’t mean you can’t go to market. It just means you need to identify the reasons why your product will succeed and the existing attempt(s) failed. Doing a prior art search can actually help you identify important marketing distinctions in your own product or help you brainstorm improvements to your own idea. This makes your resulting patent more valuable, as you’re forced to ensure your product stands apart in a significant way.

If you start with this mindset, you have a much better chance of entering the right search terms and putting in the correct amount of effort when it comes to your prior art search. You really don’t want to talk to a patent attorney without some close prior art in hand.

The right words

Keep in mind that, even within a given industry, engineers describe inventions in vastly different ways. Attorneys, in many instances, come up with their own terminology within a patent. Use a thesaurus in your DIY prior art search to find instances of your invention being described in unique ways.

What to Do When You Find Similar Prior Art

Maybe your general concept has already been achieved and patented, but that doesn’t mean that the details to making it a winning product have been patented yet. That’s a distinction to think about. Again, just because you’ve found something during your prior art search, doesn’t mean you have to give up on your idea — you just have to make it better.

Once you’ve done some patent searching (whether or not you’ve found something) and you’re looking for your next steps, it’s time to talk to a patent attorney. If you come to an attorney having done your due diligence with the prior art search, you’ll have easily saved thousands of dollars of attorney fees, and more effectively described the heart of your invention.

Questions about protecting your intellectual property? Schedule a consult.

Can You Patent Faulty IP? Theranos Did, and It Made Them Rich.

The Theranos scandal made headlines last year. It gained a spot in nearly every respected publication, from podcasts to its own documentary. If you’ve somehow missed all the hoopla, here are the basics.

Elizabeth Holmes, a Stanford dropout, founded healthcare company Theranos in an effort to revolutionize blood testing. Theranos, based in tech-forward Silicon Valley, received high-profile investors and huge valuations from the beginning. In 2014, Holmes was named “the next Steve Jobs” and the youngest self-made female billionaire in the world. Theranos was valued at $9 billion.

Just the next year, though, Theranos began to come under fire from the medical community. In October, The Wall Street Journal published a report quoting ex-employees showing the company’s deception and overall ineptness. Retail deals folded. The FDA found the company used some uncleared medical devices. The CMS said Theranos labs were a threat to patient health and safety. More articles were published accusing Theranos of rigged tests.

Then, in 2018, the U.S. Securities and Exchange Commission charged Holmes with fraud and conspiracy. They said she and others made inaccurate claims about their technology in order to raise funds. This eventually spelled the end for the company.

From an IP standpoint, where did Holmes and Theranos go wrong?

Faulty IP is Approved By the Patent Office Far Too Frequently

One of the questions lawyers are asking when looking at the Theranos story is, was the IP valid? Or was there fraud on the IP and the patent office?

It’s a difficult question to answer and a bit of an inherent problem in the U.S. patent system. There is a legal requirement to both have a useful patent that has utility, and a patent that is enabled such that those of skill in the art can practice the invention if they read the patent. However, these legal requirements are rarely enforced.

This is partially due to examiners simply being too busy to properly examine each patent. Examiners have, on average, 10–20 hours to address an office action. This is not enough time to both address prior art and dig into the science of the technology detailed in a patent, to figure out if the technology will or will not work.

Even if the examiner did have time to do this, it would be very difficult to do so with the paperwork they’re given. In many instances, invention test results are necessary and then the examiner would need to examine those test results — a practice that’s far beyond the current capabilities of the patent office.

This is, at least in part, where Theranos fell short. They had a great, new idea, but it had not been verified to discover whether or not the technology would actually work.

Due Diligence Falls to the Investor

Since the Patent Office does not have the resources or ability to vet utility, investors have to be careful not to assume that patents provide a quick way to assess engineering viability.

Many companies suffer from the same problem Theranos had — inventors often file for and receive patents on prototypes before practical feasibility and manufacturability have been sussed out. Yet, many of these innovators have funding.

Since all founders are also required to be adept promoters of their technologies, investors have to do more than just assume that the existence of patents means they are buying into a viable product. Thoroughly reviewing patents is necessary to know what you’re dealing with and what kind of company you’re investing in.

Unfortunately, most investors do not invest in this part of due diligence, instead allocating their resources to the corporate side of an investment or M&A transaction.

And until this glossing over of IP during due diligence ends, Theranos-like companies will continue to pop up.

The Wizard of Oz Effect: Don’t Show Investors the Wizard Behind the Curtain

Theranos has been awarded more than 200 patents — a vast number that caused many to assume that the company was an innovation powerhouse. Anyone coming up with this many new innovations, investors assumed, had to be legitimate. Investors took the existence of these patents as proof of the technology’s credibility, rather than digging into the company’s actual technological success.

Of course, some of Theranos’ patents probably are legitimate, especially the ones Elizabeth Holmes wrote in the company’s early days. If Holmes had had more time to implement these early ideas, and wasn’t beholden to the five-to-ten year-exit timeline of most Silicon Valley funding sources, perhaps Theranos could have been a success and changed the world.

But in Silicon Valley, investors are expecting to see progress and exits in a short period of time. If your technology doesn’t advance as quickly as you hope, you can fail, or possibly, concoct false results to appease your investors.

Holmes chose the latter. And in this case, Holmes as a founder was a very good salesperson and cover-up artist.

Investors, who often look at a founder’s skills and demeanor over their actual technology, were looking at what they believed to be a uniquely gifted founder, allowing her to keep the ruse going for longer than less-talented visionaries could have.

Don’t Go Down the Theranos Path: Staying Legal While Attracting Investors

Attorneys have a responsibility to ensure that clients are engaging in ethical activities when submitting items to the patent office, and also when investors are looking at a potential technology to invest in. In the case of Theranos, it’s possible that the attorneys didn’t step up and perform this duty.

It’s extremely easy for inventors and clients to cross a thin line into illegality and fraud, and many don’t get caught. However, attorneys should have enough pride in their profession to step back and be willing to take a smaller paycheck in order to guide their clients along the straight and narrow.


Protecting Your Intellectual Property: Operating, Employment, and Founders’ Agreements

As soon as you bring other people into your business, you’re putting your intellectual property (IP) at risk. Whether that person is a co-founder or employee, no matter how good your relationship is with them, they pose a threat to your company’s IP.

The best way to ensure protection on all sides? Draw up an operating, employment, and/or founders’ agreement as soon as you bring another person into the mix.

Protecting IP Among Founders

The Thing About Founders’ Agreements…

Founders’ agreements are . . . uncomfortable. It’s like asking your spouse for a prenup. It’s the acknowledgment that something between founders might go wrong, that your relationship might not work out in the end.

How could you possibly have such a negative thought toward this person, your partner? Do you not trust them?

So much in business can change over the years. Regardless of your confidence in the relationship and trust of your business partner now, founders’ agreements are crucial from the start.

Say you have a business partner who comes up with an idea years down the road that drastically changes the direction of your company. Not everyone might agree with this partner’s vision or the value of that contribution.

Or, perhaps you have an instance where one business partner is putting in more effort and time into the company than the other. They may feel they deserve more in return.

Feelings change. Relationships change. Two founders can reach a point where they’re at odds. Having guidelines from the beginning is essential for dealing with these difficult situations.

Get It on Paper

Once you and your co-founders are in agreement that some sort of documentation is necessary to protect each party, there’s a lot to consider. Points that might come up include…

  • Intellectual property rights
  • Distribution of equity
  • Long-term company goals
  • Roles and responsibilities
  • Termination

Start by discussing these issues amongst yourselves, and once you are on the same page, it’s time to set up a meeting with your corporate attorney. The longer you wait to get operating and employment agreements in place, the harder it will be to come to a satisfactory agreement for all.

Protecting IP Among Your Employees

Who Does This IP Belong To?

Beyond agreements with your co-founders, it’s crucial to include IP clauses in your employment agreements with new hires

Within your operating and employment agreements, intellectual property can cover not only patents and trademarks, but also marketing materials, packaging, web presence, and business plans. Requiring confidentiality for all of this intellectual property and the requirement to assign all IP to the company ensures that all assets belong to the company and not to employees/founders that come and go (sometimes taking with them a piece of the IP that they can later leverage or hold ransom, if that IP has not been assigned).

If a member of your team has not assigned their intellectual property to the company, especially patents, and they walk out the door or are let go, key aspects of the company can be held hostage by this former employee’s continued rights in the IP. That former team member can ask however much money they want in exchange for assignment of the IP to the company.

Needless to say, requirements to assign IP in employment and founders’ agreements are anything but trivial.

Maintain Good Relationships

Employment agreements often ask for employees to give up quite a lot by agreeing to hand over any future intellectual development. Typically, blanket agreements ask each employee to relinquish all rights to future contributions, no matter how big or small. So, if an employee comes up with a remarkable discovery or invention after signing such an agreement, there’s no guarantee that they will be compensated for this contribution.

It’s important, then, to reward your team for those contributions. Often, an increased bonus is a great starting point, but sometimes a reward program in addition to year-end bonuses can create more effective incentives since an inventor does not have to wait until New Year’s to reap the rewards of their innovations.

Additionally, reward programs can include public acknowledgment (e.g., patent plaques, or box seats for the most innovative groups), since different employees respond to different incentives. A reward program can be as simple as movie tickets or a free dinner for smaller contributions, all the way up to thousands of dollars for a filed or issued patent.

Some companies do more, some companies do less, but even a small sign of appreciation goes a long, long way.

Within our practice, our most innovative and prolific clients are the ones with incentive programs in place.

Protecting Your IP Beyond Your Own Four Walls

In addition to protecting your intellectual property among your internal team, you need to consider extending protections outside your own walls.

Protect Brainstorming Sessions

While it might not be immediately obvious, protecting brainstorming meetings — particularly with individuals who do not fall under your employment, operating, and founders’ agreements such as joint development staff from another company — can be vital to your organization’s success.

For example, you might go into a brainstorming meeting with a partner company with solutions in hand. The other company’s staff may add some ideas during the brainstorming session and all of a sudden there is a disagreement as to who contributed what.

Without a provisional patent filing prior to the meeting, it can be very difficult to prove what ideas your team brought to the meeting.

Another protection? Record your meetings (with the other side’s permission). Most importantly, though, file for patent protection on any ideas that you take into the meeting.

Provisional patents can be filed in as short as 24–48 hours and for as little as a few thousand dollars. Then, put something in writing with the other party that explicitly states how intellectual property from the meeting is handled. Finally, any ideas that your team develops at the meeting should be provisionally protected within days of the meeting.

Will My NDA Protect Me?

In the instance above, a non-disclosure agreement (NDA) will also help dissuade the other side from publicly disclosing the information discussed in your brainstorming session or trying to patent it themselves. However, even an NDA is only as valuable as your ability/willingness to enforce it in court. Therefore, a combination of all of the above tactics is the best way to create a diverse defense against stolen ideas.

Know what kind of IP protection you need based on your company’s current status and the entities you’re working with (co-founders, employees, or colleagues) ahead of meeting with your attorney.

This preparation will not only save you time but legal fees as well, and you can get back to doing what you do best — creating innovative products and business solutions, knowing that your IP is well-guarded from all angles.

Design Arounds Could Be a Lifesaver for Your Next Product and Patent

Last summer, I was working on IP due diligence for a private equity group making a $50 million bid for an innovative and established company (whose product I actually saw recently on “This Old House”). The target company had spent hundreds of thousands of dollars over the past decade building a robust and broad patent portfolio.

Despite all that effort to protect their own products, we discovered a competitor’s patent that appeared to pose a risk to the target’s most lucrative product. What’s more, the competitor not only had really broad protection, but was a major player in the industry with deep pockets.

What was really saddening was that the target company’s CEO had long known about the risky patent. Despite having spent loads of money to protect his own products, he had decided, without input from his attorney, that this existing patent did not pose a threat. And because of this, he didn’t even disclose it during the due diligence.

When we discovered the patent on our own and came to a different conclusion regarding the risks than the CEO had, it largely sunk the deal.

It is a scenario that is fairly common in the intellectual property world: You have developed a new product or process and are prepared to seek a patent. There is just one problem — there’s a similar product or process already in the marketplace.

What now? Find a design around. This approach means that being second to market doesn’t have to mean scrapping your product.

What Is a Design Around?

A design around means developing your product with existing patents in mind and adding consumer value with new innovation.

The starting point for this process is a patent search. Although our clients are often experts in their industries, they may not have sufficient insight into the patent landscape of that industry. Many patents do not relate to a product that made it to market, but still may be held by a competitor. Some basic patent searching will begin to shed light on a design-around path.

It’s a task that your designers, developers, or product managers can undertake without formal training in patent search. Google has a very strong natural language searching interface and algorithms. I advise all clients to work this searching into their product development timeline.

The Danger of Skipping a Design Around Analysis

One of the most common things we see is a company choosing to proceed to market without doing their due diligence. It happens all the time.

In a lot of cases, it stems from the false assumption that no one else is pursuing the same innovations, but they often end up walking into a minefield because patents often protect ideas that have not been transformed into real products. So, doing internal patent searching or asking patent counsel to do some brief searching needs to be a part of your product development timeline.

And while internal searching is very helpful, that may not be enough for the most important products in your lineup. Patent counsel should always be looped into the effort.

I often find existing patents in a matter of minutes that clients weren’t able to find during hours of searching. Or, the client sees little risk in the claims of a patent that they find, but the legal analysis shows far more risk. In other cases, the client shies away from a product that could have been pursued with a stronger design around analysis from counsel.

Cost Analysis: Pay Now or Pay (Much More) Later

The cost of performing a more formal search and brainstorming design arounds with counsel is certainly a lot of money for any company that’s trying to bootstrap.

But, if you forego this and grow rapidly in your industry, there’s a good chance that you’ll run afoul of someone’s patent. There are just too many companies out there, too many people coming up with new ideas, to imagine that your innovation doesn’t have some similarities to an existing patent.

Don’t Be an Armchair Patent Attorney

I like to compare the armchair patent attorney to the DIY work I have done around my house.

I’ve done a lot of electrical and a little bit of plumbing. I learned how to do most of it by watching YouTube videos. What you find after you do enough work on your own home is that you can do those tasks when everything lines up with the way that YouTube portrayed the challenges.

But when you run into one of those situations where something comes up that didn’t match what you saw on YouTube, you’re clueless. And that’s when you burn down your house.
Similarly, in patent law, people reading things on the internet can get maybe 40% of the way to the finish line on their own. Most of the time, though, things come up that those resources do not prepare you to handle.

I’ve worked in this field for 10 years and I know all of the strategies to avoid making those mistakes. No one reading Wikipedia is going to be prepared for the unknown. More likely than not, they’re going to make mistakes and it is going to tank their patent and their company.

Questions about protecting your intellectual property? Schedule a consult.

Keeping Competitors Away From Your Game-changing Product

By Steve Gruber

Here’s the scenario: Your company is about to launch an innovative product or high-tech process. Then you find out through your marketing or sales group that another company has come out with a product that is nearly identical to yours, or even an exact copy.

Unfortunately for innovative companies, copycatting is ubiquitous. Polymer-based products are notoriously easy to replicate at low cost, and some foreign entities will even get their hands on the mold used to fabricate a company’s product to make identical copies.

It can be very insidious.

Clients see a competing product with similar functionality to their own and immediately believe it’s a copy, even if the competitor developed the functionality independently. At that point, they don’t care how the attorneys deal with the situation — the attorneys are expected to find a way to shut down the knockoff.

Yet, without preemptive legal efforts, this situation can be tricky to handle, especially after U.S. patent laws drastically changed in 2013.

Why Prevention is Important: The 2013 Patent Law That Changed the Game

The America Invents Act, which took effect in 2013, switched the U.S. from a “first-to-invent” patenting system to a “first-to-file” system, which is the system that most of the rest of the world uses.

We had been on a system where regardless of who filed a patent first, you could go back after the fact and prove to the patent office that you were actually the first to invent (e.g., by providing a lab notebook with dated figures showing the invention), even if you were the second to file.

Back then, record keeping was critical. You often saw the U.S. Patent and Trademark Office (USPTO) and legal battles over the first-to-invent question, so keeping notebooks and other documentation of inventions was very important.

These days, the patent office generally awards the winner’s trophy to whoever filed first. Examiners pay little attention to a notebook showing that you invented something first; because you didn’t file it with the office first, you lose.

Complicating matters is that as soon as someone has sold a product, that becomes a bar date to your patent filings. If you don’t have anything on file when the competitor releases their product, your own filing will be barred by the competitor’s sale — even if it seems to copy your earlier invention.

Competitor-proofing Your Products: Your Patenting Options

A lot of people look at patent protection and see big dollar signs. But without professional advice early on, even if you do a lot of the patent work yourself, you could end up spending just as much money to fix patent problems retroactively. Worse, you could see your company undervalued by millions or tens of millions of dollars for a small savings in legal fees.

First, get advice

With the first-to-file system and the on-sale bar, if you don’t get the proper applications on file before your product release, you risk being permanently barred from international protection and may face challenges in the U.S. that can’t be fixed in the future.

That’s why it is really important to get legal advice early on. What to file for and when can be more valuable guidance than the drafting of the application in some cases, and doesn’t take a lot of your attorney’s time to analyze. At least getting that advice allows you to then figure out what kind of patent, and what timeline for protection, is in your budget.

Consider provisional filings

Our firm pushes provisional filings often and quickly after an invention has arisen. It not only helps to keep costs down but also allows you a better chance of protecting inventions that change over time or may not have seemed important early in a product’s development cycle.

Provisional filings have few formal requirements and aren’t ever examined, so disclosure is straightforward and inexpensive. After filing, you have a 12-month period within which to decide whether the invention is sufficiently valuable, or even whether the product the invention was destined for will ever see the light of day.

For inventions that don’t have much value, you can abandon those provisionals and the USPTO will never publish those applications.

For the rest, you can then determine which inventions/products to sink the majority of IP resources into and which ones to allocate smaller amounts to. Either way, that 12-month window often sees huge changes in the invention, the product, or both. The ability to change your disclosure and strategy up to 12 months after the original idea was created can make a big difference.

This provisional-first strategy also prevents you from having to select winners too early in the process, potentially sinking IP resources into losers while inadvertently foregoing protection on ideas that later turned into winners.

Visual and functional patents

Design patents provide another low-cost way to preempt copying. While utility patents protect functional aspects of a design, design patents protect visual or aesthetic aspects.

For instance, a car company may have utility patents on aspects of an engine that is able to produce more horsepower with fewer cylinders or tires that are able to stay inflated after getting punctured. They will also have design patents on the shape of the car.

Copycats may knock off the visual in some cases and the functional in others, but have a harder time when both the visual and functional aspects of a product are protected. So, ideally, you want some combination of functional utility patents and visual design patents.

Design patents are also far easier to draft and push through the Patent Office, so they provide a fast and inexpensive way to broaden protection for new products.

The continued importance of lab notebooks

Even though notebooks and other evidence of invention are no longer helpful in the race to file a patent, they still can be valuable ammo when a copycat beats you to market.

Let’s say you’re in discussions with another company about co-developing a product. Things break down, the deal sours, and two months later, that same company releases a product remarkably similar to the product that you were discussing behind closed doors.

While this public release may bar you from pursuing your own patent protection, you may have a good footing to claw back some losses based on trade secret misappropriation and invalidation of any patents that the competitor tries to file.

These types of legal claims often turn on your ability to prove that the product/invention was actually your invention and was stolen by a competitor via a former employee or discussions that occurred under a non-disclosure agreement.

That’s where the notebooks come into play. By showing evidence of your conception date and disclosure details to the competitor, you can prove to the court or USPTO that your team developed the concept first and that you disclosed the idea to the competitor, thereby enhancing a misappropriation or patent invalidation claim.

Use PR to your advantage

PR can do a lot to protect your intellectual property — even if you don’t have any issued patents, even if you haven’t put a lot of money into it, even if you just have a strategy of provisionally filing for your key product lines.

If somebody gets to market before you do, you at least have something in your quiver for the PR department to go out and say, “They may have been first to market, but we’re the real innovators because our product is patent pending.”

Consumers and other businesses typically don’t see the distinction between a provisional filing, a non-provisional filing, and an issued filing, let alone between designs and utility protection. Nor do they have the time or ability to determine what the claims of your patent say. So, merely being able to spread the word that you have a provisional patent or design patent on file is usually a great deterrent and a great PR weapon against potential copycats.

Given the various strategies to preempt copycats and subtle deadlines relative to each, it is really important to get legal counsel’s advice early on. I try to inform innovators and creators whenever I can of the importance of considering these issues early in the product cycle. The costs of waiting can be many multiples of the small legal investment needed to address them up front.

Questions about protecting your intellectual property? Schedule a consult.