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Securing Legal Protection For The Innovations of Start-Up & Small Companies

August 2003

Start-up and small companies rely heavily on innovations in their products, services, proprietary technologies, processes, and/or business practices for growth and outside funding. If these innovations are not legally protected, such a company may lose its competitive advantage or potential market position, fail to maximize the company's value, lose opportunities for generating revenue through licensing, and inadvertently dedicate its research and development efforts to the public. On the other hand, a company that secures intellectual property rights in its innovations may establish or increase market position, generate revenue, enhance its attractiveness to investors, create licensing opportunities, and settle legal disputes more effectively. For example, on May 27, 2003, a jury returned a verdict in favor of MercExchange LLC for $35 million against eBay, Inc. for infringing MercExchange's patented online sales system technology. In addition to the jury award, commentators have stated that this jury verdict will enable MercExchange to collect royalties from licensees now that MercExchange has demonstrated it can defend its patents in court. In another case, RIM, a company that makes BlackBerry, the popular hand-held wireless email device, was ordered to pay $23 million to NTP, Inc. for infringing NTP's patent. Accordingly, protecting innovations should be a keen concern and priority of start-up and small companies.

The two primary ways to protect innovations are through patents and trade secrets. Patent protection gives a company the legal right to exclude others (for up to twenty years) from making, using, selling, offering to sell, and importing the company's innovation. In exchange for this limited monopoly, the company discloses to the public how to make and use its innovation. However, certain actions or inactions by a company can prevent it from receiving patent protection. For example, in the U.S, if a company offers to sell a product embodying its innovation or publicly discloses its innovation (e.g., at a trade show), but fails to apply for a patent within a year of the offer for sale or disclosure, the company cannot thereafter patent the innovation. In some foreign countries, an innovation cannot be patented if the company fails to apply for a patent before a public disclosure of the innovation.

Trade secret protection, in contrast to patent protection, gives a company that takes reasonable steps to keep its innovation secret the legal right to prevent (potentially for an indefinite period of time) others who have unlawfully obtained the company's innovation from exploiting it. However, if a company chooses to protect its innovation as a trade secret, the company runs the risk that others will obtain its innovation through lawful means (e.g., independent discovery or reverse engineering); in which case, the company will be legally powerless to prevent others from using it.

Securing legal protection for innovations should begin earlier rather than later. Selecting an appropriate strategy to protect a company's innovations can be tricky, and companies should consult with a patent attorney to avoid the numerous pitfalls to protecting innovations and enhancing company value.

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Sutherland Asbill & Brennan LLP is an international law firm helping the Fortune 100, industry leaders, sector innovators and business entrepreneurs solve their biggest challenges and reach their business goals. Dedicated to unfaltering excellence in client service, we are known for our business savvy and industry intelligence, providing creative and custom solutions for each of our clients. Industry and business experience makes the difference for our clients.

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