Articles Posted in Build Product Phase

Chosen Group Light Bulbs Success Light BulbFor many businesses, intellectual property rights are their most important and valuable assets. Intellectual property refers to the legal right to use creative works, from a company name and logo to a new invention. The owner or holder of most types of legally protected intellectual property has the exclusive right to use the material in their business, or for any other purpose. This includes the right to license its use to other people or businesses, or to keep it for their own use.

Trade Secrets

Businesses often rely on information that has value primarily because of its confidentiality, also known as “trade secrets.” They might include client lists, internal business procedures, and business plans or strategies. Since their value depends on remaining confidential, businesses are not required to register them with a government office like a trademark, copyright, or patent. Instead, trade secret laws give businesses tools to prevent disclosure by employees and other insiders.

In order for information to qualify for trade secret protection under state law, it must meet three criteria: (1) it must “[d]erive[] independent economic value, actual or potential,” from being secret; (2) it must “not be[] readily ascertainable” by others who stand to benefit from it; and (3) it must be “the subject of [reasonable] efforts…to maintain its secrecy.” N.J. Rev. Stat. § 56:15-2. Individuals who misappropriate trade secrets may be liable to the business for damages. Theft of trade secrets may also be subject to federal criminal jurisdiction, under a law enacted last year. Pub. L. 114-153, 130 Stat. 376 (May. 11, 2016).
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Idea Innovation Bulb Energy Light Power LightbulbStarting a new business requires extensive planning, with regard to both the product or service that the business will offer and the structure and operations of the business itself. Protecting the new business’ assets is critically important, and this applies not only to its physical assets but its intellectual property as well. The brand names, logos, designs, business plans, and other creative works used by a business are all examples of intellectual property. State and federal laws provide multiple ways to protect a business’ intellectual property rights, but business owners must first understand the different types of intellectual property and the laws that protect them.

Defining “Property”

It might be easiest to define intellectual property in relation to other types of property:

Real property includes land and attached structures, such as houses and office buildings.
Personal property refers to movable property, such as a pencil, coffee mug, computer, car, or refrigerator.
Intangible property may include financial instruments like securities, although cash is often considered personal property.
Intellectual property, while also intangible, generally refers to the results of the creative process, such as designs, photographs, written works, and computer code.

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cube-game-cube-instantaneous-speed-568192Government contracts are a major source of revenue for many businesses, both large and small. In order to prevent corruption, and to avoid the appearance of corruption, Congress, state legislatures, and city councils have enacted laws addressing the overlap of government contracts and political contributions, often known as “pay-to-play” (PTP) laws. Businesses and business owners who rely on government contracts for some or all of their revenue must be careful to avoid even unintentional violations of these laws. A recent decision by the New Jersey Appellate Division, in which a single political contribution cost a business eligibility for government contracts, illustrates this concern. Della Pello Paving, Inc. v. N.J. Dept. of Treasury, et al, Nos. A-3774-15T3, A-3784-15T3, slip op. (N.J. App., Feb. 9, 2017).

Business activities covered by government contracts range from advertising campaigns in local markets to massive engineering operations. The associated fees can go from a few thousand to hundreds of millions of dollars. Any type of contract, and the processes of bidding and procurement, are covered by PTP and other anti-corruption laws. New Jersey’s PTP law was enacted in 2005 as an amendment to the Campaign Contributions and Expenditure Reporting Act. It seeks to address the “widespread cynicism” among the public caused by “[t]he growing infusion of funds donated by business entities into the political process at all levels of government.” N.J. Rev. Stat. § 19:44A-20.13.

The New Jersey PTP law bars anyone from eligibility for a contract worth more than $17,500 if they made political contributions in a state election within the previous eighteen months. It also bars eligibility for contracts of that size during the current or upcoming term of a governor or lieutenant governor for anyone who contributed to that person’s campaign or their party. Id. at § 19:44A-20.14. Business entities may avoid adverse consequences under this law by requesting “a full reimbursement” of any political contribution that would make them ineligible for a contract, provided they do so within thirty days of making the contribution. Id. at § 19:44A-20.20.
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baseballBusinesses that engage in new types of business activity, particularly those on the internet, often face scrutiny from regulators. The New Jersey Legislature is considering at least two bills that would regulate daily fantasy sports (DFS). “Fantasy sports” refer to games in which participants create imaginary sports teams based on real players and earn points based on those players’ actual performance. DFS games typically take place on a more accelerated basis online and involve cash awards to whomever has the most points. Multiple state regulators have concluded that this violates laws prohibiting sports betting and online gambling. The two New Jersey bills are under consideration at a time when the state is also challenging the constitutionality of a federal law that bans sports betting.

Two federal statutes could apply to DFS. The Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006, 31 U.S.C. § 5361 et seq., essentially prohibits many forms of online gambling by prohibiting online gambling companies from accepting transfers of money from anyone they know to be making a “bet or wager” via the internet. 31 U.S.C. § 5362(10). The law had a devastating impact on some online gambling companies. It also led to a complaint against the United States by Antigua and Barbuda before the World Trade Organization (WTO), which built on a previous complaint regarding online gambling laws. DFS companies have argued that they are not subject to this statute because DFS is a “game of skill” rather than a “game of chance.”

The Professional and Amateur Sports Protection Act (PASPA) of 1992, 28 U.S.C. § 3701 et seq., created a rather uneven national standard for the legality of sports betting. It generally prohibits sports betting but exempts states that established sports lotteries during a specified time period. At the time of the law’s passage, this included Delaware, Montana, Nevada, and Oregon.

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Open APISA jury recently issued a significant verdict in a legal fight between two major technology companies, although it might not resolve some questions brought up by the litigation. The two companies are fighting over protocols used in a wide range of software applications, known as application programming interfaces (APIs). The plaintiff sued for copyright infringement, alleging that the defendant unlawfully appropriated its APIs for use in its mobile device operating system. Oracle America, Inc. v. Google, Inc., No. 3:10-cv-03561, complaint (N.D. Cal., Aug. 12, 2010). APIs are essential tools for countless digital technologies, so the outcome of this case ought to be of great interest to anyone who regularly uses the web. A federal judge ruled in 2012 that APIs are not subject to copyright infringement, but an appellate court reversed that ruling. On remand, a jury found that Google breached Oracle’s copyright, but the breach was excused under the Fair Use Doctrine.

Copyright law protects “original works of authorship fixed in any tangible medium of expression.” 17 U.S.C. § 102(a). This includes books and other written works, musical recordings, video or film recordings, and software code. It does not, however, include “any idea, procedure, process, system, [or] method of operation.” Id. at § 102(b). A copyright can be a very valuable asset for a business, and copyright owners must take affirmative steps to protect their copyright interests. The Fair Use Doctrine holds that unauthorized use of a copyrighted work is not infringement under certain circumstances, including “criticism, comment, news reporting, teaching…, scholarship, or research,” provided that the use is “transformative.” Id. at § 107; Campbell v. Acuff-Rose Music, 510 U.S. 569, 579 (1994).

The Oracle case presented the question of whether APIs are subject to copyright protection, or whether they are non-copyrightable procedures or processes. An API, simply stated, allows one software application to communicate or interface with another application, acting as a sort of translator between different pieces of software. APIs are essential parts of many common digital technologies, allowing mobile devices to run a wide range of applications and allowing websites to interface with social media services like Facebook and Twitter, to name just two examples.

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Coca ColaThe protection of trade secrets is a critical component of building a competitive business. Companies must safeguard proprietary information against misappropriation by employees and others, typically through nondisclosure agreements. State law provides remedies through the court system, both to enjoin potential disclosures of trade secrets and to obtain damages for theft or misappropriation. Most states have enacted the Uniform Trade Secrets Act (UTSA) in some form, but the enforcement of these laws across state lines can be difficult. In May 2016, the U.S. Congress passed the Defend Trade Secrets Act (DTSA) of 2016, Pub. L. 114-153 (May 11, 2016), which gives the federal court system jurisdiction over claims of trade secret theft that affect interstate and international commerce. This gives trade secrets federal legal protection that is comparable in many ways to copyrights, trademarks, and patents.

The precise definition of a “trade secret” may vary from one jurisdiction to another, but every definition has common features. The UTSA, drafted by the National Conference of Commissioner on Uniform State Laws, and approved by the American Bar Association in 1986, ascribes two key elements to a trade secret. First, it must have “independent economic value” that derives from the fact that it is not known to others who might derive economic benefit from it, nor is it something they could easily figure out on their own. Second, reasonable efforts must have been made to keep it secret. The “secret recipe” for Coca-Cola is perhaps the most famous example of a trade secret.

Unlike other forms of intellectual property, such as copyrights, trademarks, and patents, no government agency registers or directly regulates trade secrets. This makes sense, considering that the whole point of a trade secret is to keep it out of the public eye. It also means, however, that the owners of trade secrets have the sole responsibility to protect and enforce their rights, using a patchwork of state laws. All but three states have enacted the UTSA. See, e.g., N.J. Rev. Stat. § 56:15-1 et seq. New York is one of the three states that has not enacted it, relying instead on common law trade secret protections. A bill is currently pending that would add the UTSA to the New York General Business Law.

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Blue Diamond Gallery [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0/)]Trademark law enables businesses to protect brand names, logos, and other “marks” used to identify, or that are strongly associated with, their products and services. The owner of a registered trademark can use the courts to prevent another business or individual from using a name or logo that is the same as, or substantially similar to, the registered mark. Since a trademark registration confers such a great deal of authority, federal law allows objections to pending trademark registrations, as well as petitions to cancel existing registrations, on various grounds. The Trademark Trial and Appeal Board (TTAB) recently dismissed a cancellation petition alleging fraud during the registration process. Embarcadero Tech., Inc. v. Delphix Corp., Opposition No. 91197762, Cancellation No. 92055153, opinion (TTAB, Jan. 21, 2016).

The term “trademark” generally refers to “any word, name, symbol, or device” used by someone in commerce “to identify and distinguish his or her goods…from those manufactured or sold by others…” 15 U.S.C. § 1127. The term “service mark” has the same meaning applied to services, rather than goods, but the term “trademark” may often refer as a shorthand to both trademarks and service marks.

A person can oppose the registration of a mark by the U.S. Patent and Trademark Office (USPTO) on the ground that they “would be damaged by the registration of a mark.” 15 U.S.C. § 1063(a). This might include harm to the person’s own registered trademark, such as by causing confusion among consumers or by diminishing the value of the existing mark. These are known, respectively, as “dilution by blurring or dilution by tarnishment.” Id. After the USPTO has registered a mark, a person can petition for cancellation of the mark on the same grounds. 15 U.S.C. § 1064. In most cases, this must occur within five years of the registration date.

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geralt [Public domain, CC0 1.0 (https://creativecommons.org/publicdomain/zero/1.0/deed.en)], via PixabayStarting and operating a business requires many substantial investments. In addition to money and time, business owners invest the ideas and plans that they bring into their new venture and that they create once it is underway. The term “intellectual property” covers numerous rights and interests that a business must protect in order to succeed. Federal law protects many types of intellectual property, and state law offers additional protections. Business owners and entrepreneurs can make use of federal and state laws to protect their important business assets.

Defining “Property”

Before discussing intellectual property, it might be helpful to consider how we define “property” in a legal sense. In short, “property” is anything that someone—a person, business, or other organization—can own, but that is not very helpful.

Owning property implies a set of rights, such as the right to use or dispose of the property. Perhaps the most important aspect of ownership, and therefore of property, is the right to exclude others from using the property. In the case of a motion picture, an owner might have exclusive rights to display or distribute the film, to modify it, to create works derived from it, or to use it for any other commercial purpose.

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By Pictofigo (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia CommonsGreat business successes often begin with a single idea, or so we often hear from people who have succeeded in business. It is certainly true that an idea can mark the beginning of a process that, hopefully, results in “success” by whatever metric a business owner wants to measure it. That process has many steps, and it requires the assistance and involvement of many other people, businesses, and organizations. How does a business owner or entrepreneur embark on this path while keeping others from stealing their idea? Intellectual property laws are not much help for something that is still in the “idea” phase, but New Jersey’s trade secrets law may provide some protection. Caution is still a good strategy, however, and no business venture is free of this sort of risk.

The first question to address, of course, is what we mean by a “business idea.” In order to qualify for legal protection, a business idea cannot be too general or vague. New Jersey law states that a “trade secret” must be kept secret, must have “actual or potential” economic value, and must not be something that a competitor could easily figure out on their own. N.J. Rev. Stat. § 56:15-2. New Jersey law allows a person to obtain injunctions and recover damages, including actual damages and unjust enrichment, for misappropriation of trade secrets.

If an idea must be kept secret in order to have protection under the trade secrets law, how does anyone ever work with other people on their business ideas? This is the part that involves some inherent risks. A person may ask other people, prior to meeting to discuss the idea, to sign a non-disclosure agreement (NDA). This can be effective, since it is enforceable both under the trade secrets law and breach of contract law. Some larger companies, however, may refuse to sign NDAs, often on the grounds that they do not want to risk exposure to a legal claim if they reject the idea, but then later develop a similar idea entirely on their own.

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761822_61461701.jpgFor businesses with a unique product or service, keeping their ideas, designs, and plans secure is critical to their success. During business formation, a business owner must consult with numerous people, from designers and marketers to accountants and business attorneys. Once a business has begun developing its product, it needs employees and contractors. Non-disclosure agreements are often effective in the protection of trade secrets, but a business needs some form of recourse in the event of misappropriation of proprietary information. Most states, including New Jersey, have enacted the Uniform Trade Secret Act (UTSA), which enables holders of trade secrets to recover damages for breaches, and to restrain others from disclosing confidential information.

The term “trade secret” refers to information in any form that has actual or potential economic value, in part because it is not widely known or easily discoverable by others, and which would have economic value to someone who did discover it. The information must also be subject to reasonable efforts by its holder to keep it secret. N.J. Rev. Stat. § 56-15-2. This may include data, formulas, drawings, designs, business plans, techniques, processes, or prototypes. “Misappropriation” includes any means of obtaining secret information by a person who knows or should know that it is secret, or the unauthorized disclosure of such information to others. Id. It does not infringe on someone’s trade secret rights to discover the same information entirely independently, or to reverse-engineer information from a legitimately-obtained product. Unlike patents and other forms of intellectual property, no official procedure exists to register or declare something a trade secret.

The Restatement of Torts § 757 defined the tort of improper use of disclosure of a trade secret belonging to another. It provides that a person is liable for using or disclosing a trade secret if the person knows that it is a secret, regardless of how the person learned about it. Keeping trade secrets secure is critical to the viability and success of many businesses, and theft or disclosure of trade secrets results in substantial business losses.
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