November 13, 2017

Starting Your Start Up Right

Do you have an idea for a new product or service? Can others benefit from your ideas?

Identifying an unfilled niche or an innovative process is a great beginning. Before you can put your idea into practice, you need to protect yourself and your intellectual property …

“I really just want to do this myself. Do I need to set up a corporation?”

First, you should protect yourself by establishing a corporate entity. This is a step that should be taken very early in the process.  If you engage in initial activities toward your startup, but have not yet established a corporate entity, you subject yourself and your family to personal liability. So do not wait until “later” to set up a company – disputes can arise suddenly and ventures can go awry quickly. Your personal wealth and assets will be protected if your first order of business is to establish a corporate entity. With the right legal assistance, forming a corporation is neither difficult nor expensive. You should consult with a legal professional to determine the correct type of business under which your startup should operate. Next, you will want to determine if your idea is protectable.  Many people are surprised to discover that a mere “idea” is not protectable.  However, expressions of ideas can often be protected as trademarks, patents, copyrights or trade secrets …

“I have the perfect name for my new business and some great ideas. How do I protect them?”

Trademarks.

In many instances, the key to success for a startup is as simple as a catchy name, distinctive logo or clever slogan.  If your business or your products/services will have a name, you will want to protect each such name with a registered trademark. Determining the registrability of your proposed name, design or slogan should be done immediately upon the mark being chosen. In the United States, an applicant can file for trademark protection before the mark is actually used, as long as the applicant has a bona fide intent to use the mark in commerce. You do not want to spend significant resources creating  websites, signage, business cards and other marketing, only to find that your chosen name must be changed because it infringes on another user’s registered trademark, or is otherwise unavailable.* In some cases, you could be liable for damages if you use a mark that infringes on another’s pre-existing trademark. Even if a name is not taken by a direct competitor, the name may not be registrable if it is …

  • Confusingly similar to another registered mark in the same or a related field
  • Is “merely descriptive” of the goods or services provided
  • The mark is not being used “in commerce.”

An initial analysis regarding registrability of a proposed mark is relatively affordable, and is a very worthy investment to avoid much larger issues down the road.

*What about internet content and social media?

When it comes down to it, virtually all of the words, images, music, and video on the web is subject to copyright laws. While it is important to protect your own ideas, it is at least as important to be sure you are not infringing on the rights of others. Be careful not to use text, designs, logos, photographs, contracts, or any other materials that you or your employees did not personally create for the company, unless you do so with the express written consent of the owner.

Patents.

Is your idea a new invention? If your invention is truly a novel way of doing something or offers a new technical solution to a problem, you may be able to obtain a patent on the invention.

Copyrights.

If you have created an original work of authorship, your work may be protected as a copyright. This includes books, artwork, music and designs. Importantly, it also includes software code. So if your idea is expressed as software code (including code for a mobile phone application), you will be able to protect your work under the Copyright Act.  Original works have some protection as soon as they are published, but additional rights are conferred upon those that register their copyrighted works with the U.S. Copyright Office. You should consult with a legal professional to determine if your original work is protected as a copyright, and whether registration with the Copyright Office is right for you.

Trade Secrets.

If the value of your idea would be diminished if the idea became known to the public, the information may be protectable as a trade secret. Both state and federal statutes protect trade secrets. In order for your idea to qualify as a trade secret, you must take steps to protect the information from being disclosed.

Even if your idea does not fall within one of the above categories, you can protect your ideas through contracts. You should consider asking your employees, consultants and contractors to sign an agreement not to compete and an agreement not to disclose your ideas or use them for their own purposes.

“I know the people I want to work with and they know me. Do I need to have contracts with them?”

Once you have set up your corporate entity and protected your intellectual property, it is in your best interests to protect your company and prevent disputes with customers, suppliers, employees, investors and partners.  Even if your collaborators are long-term friends or business relationships, the rights, duties and expectations of each actor should be established in writing at the beginning of the venture. It is better to establish the parameters of the relationship in the beginning than find yourself in a dispute later.

You will want to consider written agreements for the following relationships:

  • A strong operating agreement will establish the rights and duties of officers, shareholders, members, partners and investors.
  • If your company will have employees, you will want to establish a solid employee manual, with clearly-established rights and duties.
  • You will want to develop strong written agreements with sales people and distributors, including commission rights, termination rights and limitations of liability.
  • You will want to provide to your customers a contract, disclaimer and/or terms of use regarding the goods or services you are providing.  This should include warranties (or a limitation on warranties), disclaimers, directions, and a limitation of your liability.
  • If your company will be providing online services, you will want to establish written Terms of Use, including provisions required by law to protect consumers and their personal information.  It is best if users specifically agree in writing to your terms before using your service.
  • If you will be purchasing specialized component parts from a supplier, you will want contracts to establish your supplier’s warranties and indemnification in case the parts are non-conforming.