The small business owner may have intellectual property that is vital to the success of the enterprise. This introductory note explains two methods by which an entrepreneurial business can take steps to protect itself against the loss of assets of great importance to the continuing viability of that business.
I. General concept: The small business may protect the intellectual property that is essential to its prosperity by two means, namely, (a) patents and (b) trade secrets. These two methods are generally mutually exclusive — the business can only use one method or the other to protect a particular aspect of its intellectual property. This is true because the essence of trade secret protection is that the intellectual property be kept secret, while the idea behind patenting is that the granting authority (the U.S. or other national government) provides the inventor with a limited monopoly on the production, use and sale of the patented item in exchange for full disclosure of how the invention works. Full disclosure is required so that when the patent expires, the public will have the opportunity to exploit the technology to the general benefit of society.
II. Patents: Patents protect the physical embodiment of ideas.
1. Patents are granted by the U.S. Patent & Trademark Office (PTO) for inventions that are:
2. The patent owner has the right to exclude others from making, using, selling or offering to sell the patented invention; a patent does not grant the right to make, use, sell or offer to sell the patented invention.
3. The claims of a patent define the limits of a patent owner’s right to exclude (like a property deed).
4. A patent owner may license others to make, use and/or sell the patented invention.
5. In the U.S., only a sole inventor or joint inventors of an invention may apply for a patent. Corporations may not be patent applicants.
6. When to apply for a patent? When the inventor conceives of the invention, or actually makes the invention.
Before publicly disclosing, using, selling or offering to sell the invention, because all non-U.S. patent rights can be lost by any such disclosure, use, sale or offering to sell;
If the inventor publicly discloses, uses, sells or offers to sell the invention, the inventor has a one year grace period in the U.S. to apply for the patent (but any foreign rights may be lost).
7. There are three kinds of patents in the U.S.:
Utility patents, (protected 20 years from the date of filing) which cover processes, machines, items of manufacture or compositions of matter or any new or useful improvement of any of these;
Examples are: medical devices, pharmaceuticals, waste treatment processes, business methods, software/internet related inventions.
Design patents, (protected 14 years from the date of issue) which cover original and ornamental (i.e., non-functional) designs for an article of manufacture;
Examples include: sunglasses, computer icons, bottles, fabric design.
Plant patents, (protected 20 years from the date of filing) which cover novel varieties of sexually reproduced plants.
8. Things which are not patentable:
Laws of nature,
Natural phenomena, and
9. Infringement: generally occurs when anyone “without authority makes, uses, offers to sell, or sells any patented invention” within the U.S., or imports into the U.S. any patented invention during the term of the patent.
III. Trade Secrets:
1. May consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives an opportunity to obtain an advantage over competitors who do not know or use it; may be a formula for a chemical compound, a process of manufacturing, a pattern for a machine or other device, a customer list or other know-how; it must be treated as confidential.
2. Factors which a business owner should consider in determining whether information owned and used by his/her business is a trade secret include:
The extent to which the information is known outside the owner’s business;
The extent to which it is known by those involved in the owner’s business;
Measures taken to guard the secrecy of the information;
The value of the information to the owner or to his/her competitors; and
The ease or difficulty with which the information could be properly acquired or duplicated by others.
3. Duration of trade secrets:
As long as the owner successfully prevents them from becoming widely known.
IV. Initial steps in protecting business assets:
1. Create an intangible assets/intellectual property team or committee.
2. Implement controls and procedures for protecting the assets from disclosure.
3. Establish a protocol for deciding whether to patent the asset or treat it as a trade secret.