Intellectual

Property Basics
for Internet-Based
Startup Companies

Written by Matt Francis, Watson Rounds

common telephone
call I receive from
potential clients relates
to intellectual property
protection for an Internet-based
startup company. Typically, the caller
states that he or she has come up with
a great idea and name for a company,
and has commenced development of a
website by hiring third parties such as
web designers and graphic artists. The
caller then asks what he or she needs to
do to protect themselves, their idea, the
name of the company and their website.
This is what I generally tell them:
Incorporate. Since this article deals
with intellectual property issues, I will
not delve into the pros and cons of
forming a corporation over an LLC.
That decision should generally be left
to corporate counsel and the clients
accountant. With that said, either entity
provides a corporate shield which can
protect the clients personal assets.
Part of incorporating includes
choosing a name for the company.
In many instances, the name of the
corporation will also serve as the name
of the online business. This raises
trademark and service mark issues,
which are discussed next.
Conduct a trademark search, file a
trademark application, and register
domain names. A trademark is a word,
phrase, logo, symbol or design, or a
combination thereof, that identies and
distinguishes the source of goods of one
party from goods of another. A service
mark identies and distinguishes the
source of services.
Before incorporating, it is important
4 | Business Law 2009

to determine whether the name

the client has chosen for his or her
business has been previously used for
the same goods or services. Trademark
and service mark rights are derived
from use. As such, an individual who
has commenced using a mark rst is
generally the owner of the mark. This is
true even if that person does not have a
trademark or service mark registration.
And, even without a registration, that
person may enforce their common
law rights through federal and state
unfair competition laws.
Even if the client performs a Google
search or a search on the United States
Patent and Trademark Ofce website
(www.uspto.gov) to determine if there
has been prior use of a mark, the prior
use may not be discovered. In numerous
instances, clients have come to visit me
after they have started operating their
business under a certain mark, and have
subsequently received a cease and desist
letter from a prior trademark user/
owner. In many cases, the clients are
forced to change their name, and invest
substantial money to re-brand. This
can be avoided in many instances if a
proper trademark search is completed
through companies such as Thompson
Compumark. We also recommend the
drafting of an opinion letter.
If the search report is clear, the
client may then use that name for
incorporating their company. We also
recommend that a client le a federal
trademark application, as well as
register domain name extensions for
the mark since a domain name can also
function as a trademark. Important

extensions are .com, .net, and .biz.

File a patent application. A patent
grants one the right to exclude others
from making, using, offering for sale,
or selling an invention. In order for
an invention to be patentable, the
invention must be new, useful, and nonobvious. We recommend that a client
meet with our patent prosecutors to
determine whether or not their idea
or invention is patentable, or if it
infringes on another partys patent
rights.
Even if the clients idea is not
patentable, the client can potentially
protect the idea as a trade secret via
Nevadas Uniform Trade Secrets
Act and through non-disclosure
and condentiality agreements.
Additionally, the client may be able to
protect their websites source code and
content through via copyright law.
File a copyright application.
Copyright law protects original works
of authorship including literary,
dramatic, musical, and artistic works,
such as poetry, novels, movies, songs,
computer software, and architecture.
As opposed to patent law, copyright law
protects the expression of ideas rather
than the ideas themselves.
Compared to ling a patent
application, the cost of ling a
copyright application is much less
expensive and easier to accomplish.
Again, a client can copyright their
website and source code via a copyright
application, in addition to other original
works of authorship. While a copyright
registration is not a prerequisite to
obtaining copyright rights in a work,

 the independent contractor will

be. As such, independent contractor
agreements including work for hire
and assignment clauses should be
prepared and executed to protect the
clients ownership rights in the given
work.
Additionally, clients like to pitch
their idea to third parties. In order to
protect their trade secret rights, and
other intellectual property rights, the
client should have such third parties
execute a non-disclosure agreement
prior to disclosure.
The foregoing represents some of
the common issues raised by potential
Internet startup clients, and is in no
way meant as an exhaustive discussion
of these issues or as legal advice.

Clients have come to visit after they started

operating their business under a certain
mark and received a cease and desist letter
from a prior trademark user/owner.
In many cases, the clients are forced to
change their name, and invest substantial
money to re-brand.
it is a jurisdictional prerequisite to
ling a copyright infringement action
in the Ninth Circuit, where Nevada is
located. Also, if copyright infringement
occurs prior to registering a copyright,
a client
will most likely not be able to
recover attorneys fees or statutory
damages. As such, we strongly
recommend that a copyright
application be led as early as possible.
Have independent contractors
and third parties sign agreements.

As discussed previously, potential

Internet startup clients hire third
parties to assist with the creation of
their websites. Most of the time, these
individuals are not employees, but
instead independent contractors. As
it pertains to copyright law, absent an
agreement to the contrary, the person
who actually creates the work is the
owner of the work. As such, even if the
client pays the independent contractor
to perform work, the client might
not be the owner of the work itself

Matt Francis is a partner with Watson

Rounds who practices primarily in the
areas of intellectual property and corporate
litigation. Contact him at 324-4100.

them

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bill. At the Courthouse, quality beats quantity every time. Watson Rounds skilled trial
attorneys bring relentless passion to your case and do things right the rst time. It is our
combination of experience and effort that yields our success in intellectual property, tort
and business litigation.
When you need lawyers for your business, hire the lawyers whose billable hours really
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