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Brief Considerations of the Business Side of Intellectual Property

Posted by Isabel Fox | Feb 28, 2022 | 0 Comments

At some point in time, after you've conceived of your invention, you should consider the business aspects that go hand-in-hand with that accomplishment. While it is true that some individuals seek patent protection just so they can hang the framed patent on their wall, by and large, most individuals and businesses seek patents for a different reason - because they hope to monetize their intellectual property (IP).    

The First Rule: Don't Disclose Your Idea

Prior to obtaining a patent for your invention, you have one or more trade secrets but nothing more. However, those trade secrets still have value. In particular, any information that won't be included in a patent application, or that wouldn't otherwise become public knowledge if no patent should ever be issued for your invention, has value to other parties. This means the information has value that you can potentially market. Examples of such information include particular manufacturing methods, processes, or materials used to manufacture your invention. Nevertheless, that information only remains a trade secret as long as it is held in confidence.

Consequently, we urge you to refrain from discussing your invention and any related trade secrets (such as specific manufacturing steps or materials used that may not have been included or will not be included in a patent application) with any person other than your patent attorney without having the other party first sign a Non-Disclosure Agreement, commonly called an NDA. “Any person” means family, friends, neighbors, potential investors, potential business partners, potential patentee licensees, or potential purchasers of your patent – literally anyone. Failing to obtain properly executed NDAs puts you at risk of losing trade secret status for that information, meaning the information will be free for anyone else to use as they deem fit. A proper NDA will bind the other party to the agreement and prevent them from legally disclosing to a third party any information given to them; with some exceptions, such as prior knowledge of the invention before execution of the NDA.

But make no mistake here. The old adage that "loose lips sink ships" applies. If information is freely disclosed without an NDA, that information may reach a potential competitor who may begin designing around your invention and even beat you to the market in certain cases, destroying any hopes you may have of achieving financial success or patent protection.

NDAs are critical. Further details regarding NDAs can be provided to you in your discussions with a Gallium Law attorney.

What Will Your Level of Involvement Be?

Starting and running a business isn't for everyone. Doing so takes a solid business plan, capital, and dedication to the "cause" to begin. There are alternatives, however, for the inventors who have no interest in running a business. These alternatives include an outright assignment of your patent rights to some other person or business in return for cash, stock in the purchasing business, or some other financial benefit.

Another alternative is to license your patent rights. Again, this could be for cash, stock, or some other form of consideration. Licensing agreements can be complex, and should be handled by an experienced attorney. Often they will involve an upfront cash payment with royalties on sales made by the purchasing entity. They should also include auditing provisions. A licensee will often try to include certain warranties in the license agreement, which should generally be avoided. The attorneys at Gallium Law can aid you in drafting and negotiating these agreements.

Inventors who want to pursue establishing and running a business will first need to decide the business structure they will use. While other business structures exist, inventors typically choose to form either a limited liability company (LLC) or a Chapter S corporation (often used by families prior to the advent of the LLC business entity). Each of these business entities has advantages and disadvantages, varying tax treatment and legal responsibilities, and varying reporting requirements. Consultation with a reputable business attorney in conjunction with your Gallium Law IP attorney is advisable before deciding which business structure to establish. While most states follow similar legal standards, it is best to consult with an attorney in the state where the business entity will be established.

Generally speaking, in most states, the formation and oversight of business organizations is a function of the state's Secretary of State Office. As such, information can be obtained through those offices regarding what steps need to be taken to form a particular type of business. Additionally, those offices may be able to provide information or assistance in obtaining any other business operation license or permit from either federal, state, or local authorities that are needed for your business to operate. Depending upon your business and goals, you may choose to organize the business in one state but manufacture in another for any number of reasons including, for example, tax laws or regulatory matters. Consequently, you will need to research and comply with the laws of the various states where you are organized, manufacture, or sell product.

Assignments, Licenses, and Employees

Typically, inventors will assign their patent rights to any business entity they form. In addition, investors will, almost without exception, insist upon such assignment. Under certain circumstances, such as when the inventor is self-financing the business, patent rights may be licensed rather than assigned to the business.

Once your business is up and running, the issue of employee inventions will often arise. The rights of an employee inventor vis-à-vis the employer vary from state to state and whether an employment contract addressing such issues exists. Resolution of who owns what rights can be highly fact and law dependent, so firm rules applicable in all situations are somewhat difficult to formulate. Nevertheless, generally, an employer whose employee conceives of an invention related to the employer's business will obtain at a minimum a “shop right” license that will allow the employer to use the invention in the business. Such rights may be extended to a non-exclusive license to manufacture and sell the invention. At times, such as a situation where it might be expected the employee would invent or where the employee was hired to solve particular problems, the employer may be entitled to an outright assignment of the invention. Where an employment contract exists with clauses requiring assignments of inventions, such clauses will typically be enforced (though there are exceptions, such as where an employee invents something totally unrelated to his or her duties). The IP professionals at Gallium Law can help you formulate appropriate contract language regarding assignments, as well as create and file assignments for your business.

Don't Forget About Other Forms of Intellectual Property

The discussion so far has focused on patents. But branding is also critical to the success of any business. Steps should be taken to protect trademarks and trade dress. In addition, copyright registrations should be obtained for any copyrightable material produced by your business, for example, user manuals, infographics, blog articles posted on your website or sent to an email list, etc. Information regarding these other forms of intellectual property can be found in other blog articles posted here.

How We Can Help

It is never too early to begin consideration of the business aspects of your invention. The professionals at Gallium Law are ready to help you address those aspects and to aid you in the successful capitalization of your invention. Please feel free to contact us at any time to schedule a meeting to discuss your invention and business future.

*The information provided in this article is not legal advice and should not be relied on as such. The content of this article is for informational purposes only and is meant as a starting point in your search for answers to your legal questions.

About the Author

Isabel Fox

Isabel Fox is a registered patent agent and has been with Gallium Law since 2018. Her practice largely revolves around utility and design patent prosecution; including conducting patent landscape searches, drafting patent applications, and responding to Office Actions issued by the USPTO...


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