Category Archives: Intellectual Property

What are Non-Fungible Tokens and are There Ways to Legally Protect Them?

Also known as NTFs or NFTies, non-fungible tokens represent a type of digital asset and its ownership is recorded on a blockchain, which is a digital ledger that was made popular by digital currencies like Bitcoin. 

However, if in the case of digital currencies, tokens had a similar value and could easily be swapped for any other (they are fungible products), NFTs are unique and not interchangeable (or “non-fungible”). In fact, the best comparison with the real, tangible world is an art gallery, where each piece is unique in both aspect and value. And, just like with art pieces, NFTs are sold in an auction. 

The main purpose of non-fungible tokens is to broaden the options of artists and online creators when it comes to receiving proper recognition and payment for their work. Right now, if there’s a suspicion of IP theft, you’d need the help and advice of specialists like Heer Law, who can properly represent your interests. However, in the near future, NFTs may provide a faster way to discover the creator or owner of an online creation without a shade of doubt. In short, NFTs are a way to stop the piracy of songs, texts, movies, and other similar digital creations that can easily be replicated indefinitely due to the immense popularity of the internet. 

The NFT acts as a digital certificate of authenticity and allows both the rightful owner and the creator of digital art to reap the benefits of their work. For instance, the original Nyan Cat gif (considered a piece of crypto art) was sold by its creator in an online auction for 300 ETH (nearly $600,000)! 

But this is not the only example of an NFT that comes to mind. For instance, the digital artist Beeple sold an NFT art collection for over $3.5 million (also in cryptocurrencies). And people are not just buying digital art and memes – they are also buying tweets (yes, posts made by someone with a Twitter account), and other forms of digital originality. Due to NFTs, collectors now have a whole new market to spend their money on! 

Still, since NFTs are rather new on the market, many fear this is only a digital bubble in the making. And, while the same worries existed with Bitcoin and other cryptocurrencies, it’s also true that this is a very volatile market that can go away overnight. So, are there any ways to protect NFTs?

Is There Legal Protection for Creators & Owners?

Most specialists are a bit skeptical when it comes to NFTs. First of all, even if the technology uses blockchain to record the seller and buyer (plus other rules) it does not mean the buyer has complete ownership of the original. Therefore, in the case of the Nyan Cat, owning the original gif doesn’t mean you can prevent anyone else from using it in their online posts or even altering its original design. In addition, a transaction does not guarantee you are buying the art piece from its creator since it is difficult to establish such a thing. 

Therefore, from an intellectual property perspective, an NFT is more like a receipt that proves you bought a version of something. Nothing less, nothing more. As a result, it is difficult to enforce in the real world, using the current laws. Still, this hasn’t stopped people from spending their money on NFTs. Some even seem to believe the practice will seep into the real world and that we will be able to turn real estate properties into such assets. 

Wrap Up

The only conclusion that can be drawn right now is that NFTs are quite popular at the moment. Therefore, international patent protection laws and regulations may have to change in order to accommodate a new type of authenticity certificate. But until this happens, the world of digital creations is in a bubble of its own. Only time will tell if buyers were right to spend their cryptocurrencies on gifs and tweets.

Guide to International Patent Protection

International patent protection has been gaining popularity over the years. Now more than ever, intangible assets such as patents have never been more important. As businesses continue to expand their market reach, patent protection has been one of the most important assets that jump-start their success abroad.

It is worth noting, however, that the journey of obtaining patents abroad can be costly. There is also no such thing as an international patent that you can use or enforce in other countries. But, there are several ways to obtain international patent protection.

Direct Filing

The direct route of obtaining an international patent is recommended for applicants with a tight budget. It is best for those who are interested in obtaining patents for only a limited number of countries.

The direct or Paris route allows applicants to file their initial application in their home country. Afterward, they have a 12-month period wherein they can file a patent application abroad. The countries where they filed the application would be the one to determine whether they are eligible for patent protection.

For instance, a US applicant wants to obtain a patent in his only two niche countries. Using the direct route, he would have to file a patent application to the United States Patent and Trademark Office (USPTO) first. Upon application, he then only has a 12-month period to file the application for the two countries where he wants to market his invention.

Patent Cooperation Treaty

The Patent Cooperation Treaty (PCT) facilitates the applicant’s international patent application. It streamlines the initial filing process by buying the applicants enough time (up to 30 months) to file for a national phase entry. National phase entry is when an applicant files an application to the country where they want to obtain the patent.

Note that the PCT does not examine an application fully and it does not necessarily grant patents to applicants. Rather, it is one of the routes to take when obtaining patents abroad. In essence, PCT grants an applicant enough time to further develop the patent and examine countries where it would be most suitable to obtain patent protection.

Since there is no such thing as an international patent, the PCT made it possible for an applicant to file one international application in one language and one location. This route is best suited for applicants who are interested in obtaining patents for numerous countries.

To further illustrate, let us take a US pharmaceutical company as an example. The company wants to obtain a patent in 12 countries. They already filed a patent application with the USPTO, but they are still not certain whether obtaining a patent for these 12 countries would be enough or, even, worth the cost. With the PCT route, they have enough time (30 months) to further observe the market behavior of a country, as well as further, develop the invention they want to patent. When they finally decide that they want to obtain protection in these countries, they can  then easily proceed with the national phase entry and file applications for each country. 

The World Intellectual Property Organization summed up the process of obtaining patent protection abroad in the illustration below.

Cost and benefits of obtaining a patent abroad

Having discussed the two different routes, applicants still need to take several factors into consideration before starting their international patent application journey.

1.    Cost

As mentioned above, obtaining a patent abroad can be costly. Since the patent process is associated with several fees (e.g filing fees, translation costs, attorneys fee, maintenance fees, and so on), applicants need to carefully assess their budget and resources.

2.    Enforceability

When obtaining protection abroad, applicants must evaluate whether the country’s patent system is reliable.

3.    Eligibility

Different countries have different patent laws. For instance, software or living organisms are not patentable in other countries as compared to the United States. It is important to have a basic understanding of the patent laws of different countries before filing an international patent protection.

4.    Longevity

Is the invention worth the patent protection? Or will it just be overshadowed by another product in the next 3-4 years? It is crucial to also conduct a market study and weigh its benefits before proceeding to file an application.

5.    Competition

If an invention is most likely the target of infringers, then it might be a good indicator to obtain protection for that specific country.

Overall, it is worth noting that the information set above is merely an overview of the international patent application process. It is still highly advisable to consult and ask for assistance from a qualified patent attorney. They would be able to provide a more strategic approach as well as give more details about the patent application process. With the help of a patent attorney, it would be much easier to navigate through the market of different countries.

5 Ways China Can Improve its Trademark Laws

The meteoric rise in the number of trademark applications in China over the last five years is a testament to the power and importance of China as a market for brand owners. In 2012, there were approximately 1.5 million applications filed in China, and by 2016 that number rose to 3.6 million. In 2017 applicants filed 5.7 million new applications[i]. That number dwarfs the 590,000 new applications filed in fiscal year 2017 at the U.S. Patent and Trademark Office, the second busiest trademark office[ii].

Brand owners recognize that in order to do business globally, they need to devise a strategy in China, whether they will offer products or services directly there or not. Part of the reality of this brand protection strategy is a defensive attempt to prevent fraudulent filings by third parties in order to avoid either paying the applicant to get the brand “returned” to the rightful owner or paying steep legal fees for seemingly never-ending legal battles that may not go in their favor[iii]. China is a “first-to-file” country, meaning that rights in a mark are established through registration, not use. The filing date preserves the applicant’s rights in the mark, whether legitimate or not. U.S. business owners wanting to do business in China often find themselves facing a whole host of frustrations not only due to issues such as fraudulent registrations, but also because of other legal restrictions that impose undue burdens on evidence production and bringing claims in court.

Has Chinese trademark law and policy kept pace with China’s ever-increasing importance in the global marketplace for businesses wanting to protect their brands? After new trademark legislation was introduced in 2013, China announced earlier this year that it is considering further sweeping changes to its IP administrative structure and legal processes, including the creation of a single IP agency (the State Market Supervision Administration)[iv]. As part of this process, China has solicited public opinion on potential revisions to Chinese trademark law. Below are five recommendations for modifications to the current legal regime that would benefit U.S. business owners seeking to do business in or with China.

  1. Hire more trademark examiners

While not a change in the law per se, hiring more trademark examiners will help overcome some of the legal pitfalls that come with having too few examiners to keep up with the ever-increasing number of applications. The current wait from time of application to registration can run as long as 12 to 18 months even if no refusal issues, meaning that even though an owner can preserve a filing date, the status of registration and the rights that go with it are in limbo for a long period of time. Without a registration, a trademark owner cannot fight counterfeiters, particularly on sites such as Alibaba, TaoBao, and TMall, cannot record their trademark with China Customs, and will have a much harder time trying to file any type of unfair competition action in courts in China.

What’s more, each examiner gets about ten minutes to examine each application, which includes a determination of conflicts with prior registrations or prior-filed applications, examination of the application formalities, determination of distinctiveness, and examination of the proper identification of goods and services. With so little time to give to each application, the quality of examination is bound to suffer, resulting in frustrated applicants and a large number of registrations on the Register that may not belong there. With extra clutter on the register, trademark examiners are likely to cite these irrelevant registrations against future applicants, blocking their registrations.

  1. Institute a declaration of use requirement after three years

Some first-to-file jurisdictions, such as the Philippines, require the registrant to prove use of the mark in commerce in connection with the goods or services of the registration after three years in order to maintain the registration. This gives applicants the incentive to file applications for marks they actually intend to use, since there is extra cost involved in either submitting the declaration of use or refiling a new application before the third year is up. A lot of the “chaff” on a registry could be removed by instituting this requirement, allowing legitimate brand owners to have more options.

This type of requirement is not without potential downsides, however. Fraudulent filers can easily fake use specimens or declarations, as some have done in the U.S. to try to get around the strict use requirements for registration[v]. It also makes defensive filings more difficult and costly. And, it could add a burden to the trademark examiners who are already overburdened. Nevertheless, in combination with the third recommendation below, adding the declaration of use requirement could help combat fraud by making non-legitimate filing less profitable and more difficult.

  1. Formalize sanctions for lawyers, agents, and other individuals who knowingly file fraudulent applications

There are few if any consequences for fraudulent filers and for the lawyers and trademark agents who knowingly assist them. Monitoring repeat fraudulent filers and formalization of a black list would make it more difficult for trademark squatters to profit from registering multiple famous or well-known trademarks[vi]. Monetary sanctions or other legal consequences along the lines of censure or disbarment from practice before the trademark office for lawyers and agents who knowingly help squatters file the fraudulent applications would also help reduce these types of filings. While it’s certainly possible that clients aren’t always forthcoming with accurate disclosures to their counsel, it’s fairly obvious when someone other than Apple files an application to register the mark iPhone or iPad[vii] that something is not above board.

  1. Make evidentiary procedures more transparent and less onerous for foreign parties

Any foreign lawyer who has ever tried to work with clients to collect evidence to support a client’s opposition or any other administrative or judicial proceeding in China has had moments of significant frustration. Foreign witness declarations are not generally accepted in China Trademark Office (CTMO) proceedings, or are given little to no weight, even if signed and properly notarized. The CTMO does not have any formal guidelines for how to present evidence generated outside of China, and it is unclear as to how it may be treated in a proceeding[viii]. The Trademark Review and Adjudication Board (TRAB) has formalized guidelines to accept documents generated outside of China but requires such documents to be both notarized and legalized[ix]. The legalization process is both time consuming and costly if there are more than a few documents.

In addition, in a proceeding before the CTMO, such as a non-use cancellation proceeding (which is often necessary to try to cancel marks that have been on the Register longer than three years, do not appear to be in use, and are blocking a client’s application), the party bringing the action does not have the opportunity to examine the registrant’s evidence submitted to the CTMO until after the decision has been rendered[x]. The complainant must file a request to review the evidence with the TRAB, and then try to challenge the evidence. The process again becomes more time consuming and costly, which acts as a disincentive to any foreign trademark owner with legitimate claims.

Providing policy guidelines to the CTMO for how evidence should be treated will take some of the guesswork out of the process for foreign parties that need to present evidence from outside of China to support their case. Also, giving the complainant a chance to challenge potentially fraudulent or weak evidence in an ex parte proceeding before the decision is final will allow the CTMO to take that argument into consideration, and perhaps make decisions that will further help to prevent fraudulent or inactive registrations from cluttering up the Register.

  1. Streamline judicial and administrative, and make bad faith a sole ground for invalidation

It is common in opposition proceedings against fraudulent applications or non-use cancellation actions against inactive registrations for the defending party to not respond. In the U.S., the Trademark Trial and Appeal Board may issue a default judgment against the defending party, which can be appealed. However, in CTMO proceedings, the prosecuting party must continue with the case and present arguments and evidence through final determination, notwithstanding the lack of any response from the other side. Allowing for the issuance of default judgments would not only save time and money for the prosecuting party, but also save CTMO resources that are needed elsewhere.

Perhaps the most helpful change that would benefit foreign filers dealing with trademark squatters is allowing invalidation and opposition proceedings to be brought on the sole grounds of fraud or bad faith filing. In the current version of the China trademark law, there is no provision for bad faith as a ground for opposition or invalidation, although it may be considered in conjunction with other claims and as part of the supporting evidence presented[xi].

It is heartening that China is actively examining and proactively modifying its laws, procedures, and policies to reflect the issues and realities faced by both domestic and international brand owners and is addressing the exponentially increasing influx of trademark applications. The evolution of its intellectual property legal framework to match the demands of both domestic and international filers will only help to strengthen its position in the global marketplace.

[iii] New Balance learned a hard lesson about not filing an application for the Chinese character equivalent of its mark before using it: See
[vi] Currently, under the 2013 law, the CTMO may put agencies on a blacklist and issue monetary penalties, but do not have to enforce these restrictions. Kossof, Paul, “The New Chinese Trademark Law” The Trademark Reporter Vol. 104 No. 4, July-August 2014.
[viii] Various discussions with local counsel in Beijing, China, 2018.
[ix] Id.
[x] Id.
[xi] Ferrante, Michele, “Strategies to Avoid Risks Related to Trademark Squatting in China” The Trademark Reporter Vol. 107 No. 3, May-June 2017.

What to Ask Your Attorney About Legal Expenses and Intellectual Property

1. What is the legal team’s background in working with other clients in a similar industry, company size, or stage as a small business owner?

Different industries have different needs. If representing a food-catering business, you will need to know about various local and city permits needed to obtain. If presenting e-commerce businesses, you need to be familiar with internet sale taxes cross state lines. A large company is most likely to require more extensive business, investment, and employment contracts than a startup due to transaction size and risk exposure.

2. What is a realistic budget for legal expenses?

A quarterly, if not an annual, legal budget so small business owners know what amount to set aside.

3. What are realistic timelines for my company’s objectives?

Timeline of legal projects to undertake, their priorities, and how long it takes to accomplish them.

4. What kind of proprietary assets does the company have? Has the company adequately protected its intellectual property?

This is key to understanding fees for budgeting purposes.

5. What is the legal team’s background in working with other clients in a similar industry, company size, or stage as a small business owner?

Different industries have different needs. If representing a food-catering business, you will need to know about various local and city permits needed to obtain. If presenting e-commerce businesses, you need to be familiar with internet sale taxes cross state lines. A large company is most likely to require more extensive business, investment, and employment contracts than a startup due to transaction size and risk exposure.

6. What is the best way a small business owner can protect personal wealth and assets from business risks?

Incorporate the business, treat the business as a separate entity with separate bank accounts, and document important decisions made during the course of the business (such as raising capital, taking on loans, entering into major business contracts) with your business partner. Typically, such documents are known as directors’ resolutions or minutes.

7. What specifically are small business owners most confused about when you first meet with them?

The type of entity to form – LLCs, C corps., S corps., and which state to incorporate.

8. How can quality legal services help a small business grow?

Quality legal services will help a small business grow in two ways. Internally, quality legal services can build a foundation upon which the small business can grow and expand quickly, such as streamlining the process of raising capital, recruitment, awarding of incentive compensation, and creating templates for business contracts. Externally, quality legal services can help small businesses immensely in contract negotiations with Fortune 500 companies, as some of those contracts can be very convoluted. An experienced attorney’s job will be to assist the client in getting favorable terms, protect the client from taking on responsibilities that outweigh the benefits the client will be receiving, while at the same time maintaining a good relationship with the Fortune 500 company with hopes of such Fortune 500 company to further engage the client.

9. How can quality legal services help small businesses save money?

Quality legal services will advise small businesses what’s a necessary legal expense, what is optional. For example, I have a startup client who would like to file 10 trademark applications to cover their products. As their lawyer and knowing they are a startup, my job is to see if there is a way to file fewer applications that will cover just as wide of a scope, or at least to cover the important products.

10. How can small businesses maximize the value of their legal team’s services?

Provide your legal team with adequate context surrounding a legal matter. For example, when asking your legal team to review a contract, it will be helpful to provide your legal team with a bit of history regarding the relationship between the parties, how important the project is to the small business, so the legal team knows how aggressive it should be. Also, it really helps the legal team if the client is very organized and asks focused questions!

11. Should business partners have the same amount of equity in a company? Why or why not?

As long as the equity split does not contribute to a deadlock situation, this should be fine. For example, if only two business partners, a 50/50 split will not be a good idea. However, if there are three business partners, it’s OK to have 33 1/3 split each, as a deadlock situation is not possible.

12. What are the top three things a small business owner should be aware of when purchasing an existing business?

Accurately determine the value, review the business’s tax returns to determine profitability, and if there is any outstanding tax liability, determine why the business is for sale.

This Article was originally posted on UpCounsel

Protecting Intellectual Property: An Easy Guide for Startups

What Is Intellectual Property?

Intellectual property (IP) is a general term for the rights recognized by U.S. law for creations of the mind, including:

  • Patents – rights granted to inventors for novel and useful inventions.
  • Trademarks – rights granted to businesses relating to the branding of their goods and services (company, product and service names).
  • Copyrights – rights granted to authors for tangible expressions of ideas (art, literature, music, software code, architectural plans).
  • Trade secrets – rights granted to businesses relating to their unique and valuable intangible assets (business processes, client and customer lists, procedures, practices, formulae, research notes, market data).

Types of Patents

There are three types of patents that every startup should be aware of:

Utility Patents – According to the USPTO, utility patents are for inventions, “… of a new and useful process, machine, manufacture, or composition of matter, or a new and useful improvement thereof.” Utility patents are for the protection of how an invention is used and works.

Business Method Patents – Business methods are also protectable under U.S. patent law. A business method patent is actually a form of utility patent that protects new methods of doing business, such as those used, for example, in banking, tax compliance, and e-commerce, to name a few.

Design Patents – Design patents, as described by the USPTO, are “Issued for a new, original, and ornamental design embodied in or applied to an article of manufacture.” A design patent, “permits its owner to exclude others from making, using, or selling the design.” A design patent may provide protection for IP when a utility patent is unavailable.

All three types of patents should be considered by a startup as part of its IP protection strategy.

Why Is Intellectual Property Important to a Startup?

If your startup or early-stage business has IP rights, you can:

  • Put the world on notice that you own those rights by registering them with the U.S. Copyright Office or the U.S. Patent and Trademark Office (USPTO), and by using the proper notice symbols on tangible materials that contain your IP (©, ® and Patent Pending).
  • Prevent unauthorized third parties (infringers) from unfairly competing with you by reproducing your copyrighted works, using confusingly similar trademarks on their products, making/selling products similar to your patented products, or stealing your trade secrets.
  • Use your IP rights to generate revenue by (1) directly selling copyrighted, branded, patented, or other proprietary products and services, or (2) licensing your copyrights, trademarks, patents and trade secrets to others in exchange for royalties.
  • Build joint ventures and alliances with other companies to develop and sell new products and services by combining your IP rights with intellectual property owned by your strategic partners.

Important Steps for Startups to Take for IP Protection

1. Engage an IP lawyer

IP rights function like government-sanctioned monopolies, and that exclusivity can potentially make them very valuable. For that reason, intellectual property law is complicated and imposes various requirements on IP owners to claim, protect and preserve their IP rights (and to prevent IP assets from falling into the public domain — i.e., available for anyone to use without the owner’s permission). Your startup will need a reputable lawyer who specializes in IP law to help you devise an effective strategy for managing and protecting your IP, and to avoid the common mistakes business people make that can have serious legal and financial implications.

Because many IP rights depend upon confidentiality (for example, inventions that have been publicized prior to filing a patent application cannot be patented — see the discussion of “EPD” below), a lawyer is the ideal advisor for a startup since lawyers are ethically and legally required to keep all of your communications confidential. A non-lawyer IP consultant does not have strict confidentiality obligations unless you have a contract imposing such obligations.

2. Identify Your IP

Make a comprehensive list of every business idea, invention, new product or service concept (or any improvement or advance to an existing product/service), potential product name, slogan, logo, business process, market or customer niche, or other proprietary idea that you think your startup owns and is unique and potentially valuable. Your lawyer can help you figure out whether these ideas, concepts, inventions, names and business processes qualify as potential patents, copyrights, trademarks or trade secrets.

3. Make sure you own the IP

Before you can determine whether your IP is protectable (including, for example, by registering it in the U.S. or abroad) you’ll need to confirm that your company actually owns the IP (and can continue to own it if things happen in the future):

  • Do your former employers own the IP? If you and your co-founders created the IP for your startup while you were employed by other companies, check your old employment agreements to make sure that your prior employers do not have grounds for a potential claim. If you developed your new business’ ideas during work hours, or while using the prior employer’s resources, you could be at risk.
  • What happens if you and your co-founders break up? The startup should continue to own the IP even if one or more founders walk out the door. You don’t want a former founder setting up an identical competing business. Ask your IP lawyer to draft a simple Intellectual Property Assignment agreement that ensures the company owns the IP even if the relationship turns sour.
  • Have you given away rights in the DIY contracts you drafted? If your startup signed up customers or suppliers before hiring a lawyer (likely to save money), you need to have your lawyer review those agreements. Ask your lawyer to read through all of your existing contracts to make sure that you haven’t agreed to terms that grant more IP rights to your customers and suppliers than absolutely necessary.

4. Research Your IP

Once you have a list of your startup’s significant IP, you need to confirm the extent to which that IP is unique and original (and therefore legally protectable).

Search the patent records on the USPTO’s website to see if your invention (or something very similar) has already been patented. Then do a “prior art” search on the internet to find out if a non-patented version of your invention already exists. If your invention or an essential part of it is already in the patent records or out in the world, you will not be able to patent it.

Similarly, you’ll want to search the trademark database on the USPTO’s website and the internet in general to see if your startup’s potential business and product names are available. If similar names are already in use in the marketplace on similar products (or if similar names have been applied for or registered with the USPTO for similar products), those trademarks may not be available.

5. Avoid Enabling Public Disclosure (EPD)

As mentioned above, confidentiality is crucial for patentable inventions. Once an invention has been “publicly disclosed” by the inventor, she only has a year to file a patent application with the USPTO. The legal concept of enabling public disclosure (which helps determine what level of disclosure starts the clock running) means you’ve publicized enough information about your product to permit someone else in your industry to copy it. Trade shows, demonstrations to potential investors, press releases and articles in trade publications can be particularly risky for triggering EPD if you’re not planning to file quickly thereafter.

Your IP lawyer can help you avoid EPD as you develop and test your product.

6. Pick Your IP Battles

Money is in short supply for most startups, so you’ll want to map out with your IP lawyer what patents, registrations and other IP-related expenditures need to be prioritized over others. For example, you may decide that you will initially seek patent protection only for the company’s primary product, and protect other inventions as trade secrets using confidentiality agreements. Similarly, you may decide to initially register only the company’s main brand name as a trademark. Additional patents and registrations can often be deferred until more funds become available.

7. Protect Your IP from Investors

If are pitching your startup to potential investors in an effort to raise money, you will need to disclose at least some of your proprietary information to them. To avoid any loss of your IP rights, be sure to:

  • Keep careful records of exactly who has been given access to your private placement memo, business plan or slide presentations, and ask the potential investors to (1) confirm in writing, through non-disclosure agreements (NDAs), that they will not copy or share such materials with others, and (2) return or destroy all paper and electronic copies of the materials if they decide not to invest.
  • Distribute paper or electronic copies of your investor materials only to a limited number of pre-screened potential investors and their advisors. The fewer copies in circulation, the better.

8. Protect IP From Employees and Contractors

To prevent employees and consultants who work for your company from stealing your valuable IP assets and disclosing them to competitors (or starting their own businesses to compete with you), you’ll need them to sign NDAs to keep company information confidential, that is, not disclose company information to third parties. The agreements should also include an acknowledgment that all rights to the inventions or copyrightable material created by them while working for your company are automatically transferred to, and owned by, your company. (Your lawyer can draft an employee/consultant agreement template for you.)

9. Protect Your IP Globally

Many startups fail to recognize the importance of protecting their IP rights outside of the U.S. While applying for a patent in the U.S. is the right place to start, startups need to consider an international patent strategy if they believe their inventions will eventually be sold in other countries. As part of that strategy, startups should consider filing an international patent application (with the USPTO, if a U.S. resident) under the provisions of the Patent Cooperation Treaty (PCT.) A patent application via the PCT provides protection in over 100 countries for up to 18 months to allow for patent filings in those countries where protection is sought.

10. Consider a Provisional Patent Application

provisional patent application is a document filed with the USPTO that establishes an early filing date for the subsequent filing for a non-provisional utility patent. It also allows for the applicant use the term “Patent Pending” in documents describing its invention.

Filing for the non-provisional patent must be done within 12 months of the provisional patent application. A provisional patent application requires inclusion of a specification, but is filed without a formal patent claim, oath or declaration, or information disclosure statement.

11. Consider Track One Prioritized Examination

The USPTO’s Prioritized Patent Examination Program (Track One) allows patent filers to expedite the examination and patent issuance process to less than 12 months. Track One prioritization comes at a substantial cost ($4,000 for large entities, $2,000 for small entities, and $1,000 for micro-entities). However, obtaining a patent earlier can provide a startup with several advantages, including a quicker resulting increase in company valuation, and the ability to obtain foreign patents in a shorter period of time.

This Article was originally posted on UpCounsel

Avoiding Shoot, Ready, Aim: Cease and Desist Letters and the Streisand Effect

The urban legend says, “If you don’t protect your trademark rights, you’ll lose them.” Like most urban legends, there is a kernel of truth lurking at the base, although the proposition is not literally and universally true.

If mark owners do not enforce their rights against third-party uses of the same or similar marks or names for goods or services, the mark owner’s rights to object to such uses and similar ones can be diminished if not extinguished. This is true particularly when the goods or services are the same as or closely related to those of the mark owner, and when the activities of the parties overlap in geographic area or other market segmentation.

But if mark owners seek to enforce their rights when either the marks or the goods and services are so significantly different that no confusion is likely, they face different risks with a similar result. These include publicizing the third-party use, being unsuccessful in attacking the use, encouraging additional uses and potentially having their rights diminished if not extinguished.

Often mark owners send a cease and desist letter to third parties who use the same or similar marks or names for goods or services. When a cease and desist letter is sent, the typical response is a return letter stating that there can be no reasonable probability of confusion (probability here equating to likelihood, rather than a possibility of confusion) because of the nature and extent of third party use of similar marks on the same and related goods and services, thus demonstrating that the relevant public is not likely to be confused by use of the accused party’s mark. The impact of this response depends on the number and nature of the third party uses that the accused party can find.

However, if mark owners seek to enforce their rights for a mark that is subject to challenge based on a registration that is subject to challenge, they likewis risks the diminishment if not the extinction of their rights. Such extinction of rights can occur based on several different arguments: that the asserted mark is generic for the goods (such as “footlong” for 12” sandwiches); that the mark is deceptive or merely descriptive and has not acquired distinctiveness; that the mark is the configuration of the goods and that the configuration is functional; or that the claim of use was defective and the evidence of use insufficient to support the claim to registration.

Given these scenarios, it looks like mark owners could be damned if they do try to enforce their rights and damned if they don’t. So, what are mark owners to do? That decision should be made by assessing the answers to the following questions and considerations, which fall into two general categories: diligence and identification of options.


It’s essential to research all the relevant information by answering these questions. Who has priority? What is the nature and extent of use of each mark? Has there been any confusion? Granted the conditions of purchase trade channels and strength of the senior mark, is there a real likelihood of confusion that is commercially meaningful or a hypothetical “if-then” concern? Is the accused company one that might be a business partner or customer? How vulnerable is the senior mark (or registration) to attack? What counterclaims might be brought against the client? Does the accused party have superior rights in another jurisdiction of interest? How important is the matter to the client? Is the business at issue profitable, justifying the expense of potential litigation? Will the mark be in use into the foreseeable future, will it be phased out in a matter of months, or is it otherwise at the end of its lifecycle?

Identification of options

Sending a cease and desist demand letter or filing a complaint are common remedies used to protect a mark. But there are other approaches worthy of consideration that may be more effective. These include the following: taking no action; communicating with the third-party user by having a business person to business person conversation by telephone or otherwise; or having an initial expression of concern made by in-house counsel to in-house counsel with an invitation to discuss how those concerns might be addressed. On the other extreme, if the conduct is egregious and appears to be deliberate, there is no requirement for a cease and desist letter to be sent. The first communication to the adverse party may be the service of the complaint, with or without a demand for interlocutory injunctive relief.

If, after consideration of all the options, the decision is made to send a cease and desist letter, the next step is to determine what the demand is going to be, how much support will be provided for the demand and what the tone of the demand will be.

In making these determinations it is important to remember that how the message is conveyed will impact the response, which may include a resort by the recipient to social media. This is where the Streisand effect (that is, the capacity of an attempt to shut down a communication to generate even wider distribution of the communication) may come into play. Having a demand letter to cease and desist made public on social or other media by an accused entity seeking to generate public sympathy and support against a “bully” may generate more notoriety for the mark owner’s conduct than the accused party’s mark or product ever would have received, if the dispute had not become public. What this suggests is, first, that the demand be written as if it will be read by the client’s customers, as well as the general public, and second, that if the misuse is likely to be short-lived and little noticed, a different kind of letter may be called for. In the latter instance, the letter will have a less formal and less strident tone, as it is intended to educate and persuade. It’s also important to realize that search engine optimization can address any number of issues without recourse to legal demands.

Generally, the objective should be: first, to provide a factual and legal basis for the claim, especially if the recipient is an individual or small enterprise that may not have done a comprehensive search or may not have any real understanding of trademark law; and second, to demand what is feasible and what the client is entitled to. Overblown demands and demands that cannot reasonably be met are more likely to generate resistance than to secure compliance.

Lee v. Tam and the Registrability of Disparaging Marks

Can a band register their name, “The Slants,” as a mark? Is that name disparaging to Asian-Americans and so barred from registration under the Lanham Act, 15 USC 1052(a)? Can the football team that plays in Washington maintain its registrations for its “Redskins” marks?

During the oral argument at the U.S. Supreme Court on January 18, 2017, the “Redskins” marks were not directly in issue, but there is no doubt that what the Court decides in Lee v. Tam will decide the validity of the “Redskins” registrations, as well as the registrability of “The Slants”.

The oral argument addressed all the key points that have been debated since the Trademark Office first addressed the merits of the “Redskins” and “Slants” cases.

On the one point of most concern to the trademark bar – the overuse of marks potentially considered to be disparaging, the Justices seemed clear that the denial of registration would not preclude enforcement of rights in registered (and potentially unregistered) disparaging marks.

The central question before the Court is whether denying registration implicates the First Amendment if the denial does not burden, restrict or prohibit the use of the subject marks, although the denial precludes reliance on the benefits of registration, which are substantive as well as procedural, and include incontestability barring certain defenses, recordation with Customs to stop infringing imports, statutory damages against counterfeits.

What is notable are the number and variety of the amicus briefs filed. In support of Tam, amicus briefs were filed by: law professors and lecturers such as Floyd Abrams (Yale and Columbia), Eric Freedman (Hofstra), Nadine Strossen (New York Law), and William Van Alstyne (William and Mary); Pacific Legal Foundation; American Center for Law and Justice; Chamber of Commerce. There were amicus briefs filed on behalf of neither party by the American Bar Association and Public Knowledge, and on behalf of a number of members of Congress. And amicus briefs filed on behalf of the petitioner included: the Hispanic National Bar Association, National Asian Pacific American Bar Association, National LGBT Bar Association, National Native American Bar Association and a number of law professors.

The oral argument provided no clear answer as to what the ruling will be. Numerous analogies to copyright law were drawn by Justices Kennedy, Alito and Ginsburg. Numerous questions were posed about the purpose and function of trademarks by Justices Roberts, Stewart and Breyer. The most torturous component of the argument revolved around the distinction that might be drawn between the commercial and the expressive components of a trademark, with John Connell on behalf of Tam submitting that the trademark serves both functions, with the non-commercial component of his client’s mark communicating Asian pride.  Tam himself has been quoted as saying: “We’re fighting for more than a band name; we’re fighting for the right of self-determination for all minorities.”

It is interesting that in such a submission, neither “The Slants” nor the “Redskins” cases offer competent survey evidence to address whether or not the population alleged to be disparaged by the mark in question finds the mark in fact to be disparaging. Justice Stewart noted that the director of the USPTO was relying on internet commentary to support the finding of disparagement. The question is whether such important determinations should be based on such flimsy evidence. And this same concern applies equally to the prohibition on registration of scandalous and immoral marks, a separate provision of 15 USC 1052(a), which was remarked on more than once by Justice Ginsburg. The USPTO has taken the position that if there is a dictionary that identifies the term as “vulgar” (a word that does not appear in the statute), that term is precluded from registration. If the bar to registration of disparaging marks falls, there can be little doubt that the bar to registration of “immoral” marks also falls.

And then the question must also be raised that if disparagement is not a bar to registration, can it be a basis for precluding the use of a mark, such as when a mark is alleged to cause a likelihood of dilution by tarnishment?  How the Lee v. Tam matter is decided, and the breadth of the language employed, will clearly have an impact on more than the question of registration of “The Slants” and ‘Redskins” marks. It should also resolve the uncertainty over the impact of a finding of incapability of registration on the ability to enforce trademark rights under the provision protecting unregistered marks and names from infringement, 15 USC 1125(a).

R-E-L-A-X: We Can Still Patent Software, But Don’t Expect A Clear Test Anytime Soon

More than two thirds of all patents challenged under 35 U.S.C. §101 have been invalidated since Alice Corp v. CLS Bank was decided in 2014.[1] Is this recent trend signaling the beginning of the end of the software patent? Should software even be patentable? Will a clear test help? While both the majority and dissenting opinion in Intellectual Ventures I LLC v. Symantec Corp. agree that software is patentable, in a bizarre twist, the concurring opinion has declared that software patents are finished. Clearly some judges on the Federal Circuit have run out of patience with the multitude of software patents that were drafted prior to the Mayo/Alice cases being decided. Nonetheless, don’t expect a clear test for patent eligibility under §101 anytime soon. This article reviews the majority and dissenting opinions in Intellectual Ventures, contrasts the concurring opinion, and explains why we believe a clear test for patenting software is not needed and in fact, would set back the patent system for years.

Intellectual Ventures I LLC v. Symantec Corp.

Intellectual Ventures sued Symantec for infringement of three patents. Ultimately, all three were found to be directed toward different abstract ideas:

1) Receiving mail and discarding it based on the characteristics of the mail

2) Screening messages

3) Virus scanning

The Federal Circuit went through both steps in the Alice framework and ruled that all three patents were invalid under §101 (affirming the District Court on two and overruling the Court on the remaining patent).

The Federal Circuit made two things clear. First, the inventive concept required to transform an abstract idea into a patent eligible concept must be in the claims. This concept was spelled out by the majority directly addressing the dissenting opinion. The dissent had argued that one claim in one patent was patentable because that claim improved the functioning of the computer and addressed problems specific to the internet. However, the majority stated that, while it was true the patent disclosed an improvement in the functioning of a computer, the improvements at issue were absent from the claims. Therefore, the Federal Circuit held the claim invalid.

Second, the majority makes clear that software is still patent eligible. The majority restated precedent noting that to be patent eligible, software must improve the functioning of the computer or solve problems specific to the technological environment. The majority even gave an example of how the virus screening claim at issue might have been patent eligible.[2] The fact that the majority stated what they are looking for when determining software patent eligibility and provided a concrete example of how such a claim might have been patentable, makes clear that software is still patent eligible.

Judge Mayer’s Concurring Opinion

Initially, Intellectual Ventures I LLC v. Symantec Corp. seemed like another run-of-the-mill software patent case. Company A sues Company B for infringement of software patents.  Company B argues that the asserted patents are invalid under §101. The Federal Circuit agrees and the software patents are ruled invalid. Case over, right? Not so fast. Judge Mayer, in a concurring opinion, has decided he’s had enough of software patents in general. His frustration likely built up after more than two years of purging the system of software patents that never should have been issued. Since Alice in 2014, software patents have been invalidated at the Federal Circuit level under §101 at an alarming rate of roughly 95 percent.[3]

Judge Mayer’s central point, on its face, is difficult to dispute. If an idea (software) is not patentable and only embodiments of the idea are patentable, and the generic computer the software is running on is not patentable, then all ideas running on the generic computer should not be patentable. However, guidance from the Courts, like the majority opinion, has said software must improve the functioning of the computer or solve problems specific to the technological environment in order to be patent eligible. It’s undisputable that patents directed at conventional ideas cannot be patented by simply tying those claims to a generic computer. What we believe Judge Mayer is missing is that not all software patents are generic ideas on generic computers. In reality, a lot of software patents are behind the improvements of the electronic devices we use today. Software has a place in patent law; unfortunately, it has taken patent law several years to catch up and find that place.

Judge Mayer’s reasoning has two main points:

1) Software patents “run afoul” of the First Amendment

2) Software patents on a generic computer are not eligible for patent protection

Judge Mayer’s first point regards preemption, a main concern in the post-Alice world. However, instead of worrying about how a patent claim might preempt a field of invention, Judge Mayer expresses concern about preempting the First Amendment by “exacting heavy taxes on widely-used conduits for online expression.”[4] This concern, while somewhat valid, is actually resolved by the Alice framework, which specifically addresses the potential for preemption. If, for example, an idea preempts “widely-used conduits for online expression,” it would be ineligible for patent protection under §101. Thus, Judge Mayer’s slippery slope argument involving preemption is not a valid reason to make software ineligible for patent protection.

Judge Mayer’s second point, the more sweeping concept of preventing patents from being issued on software, is broken into four sub-points:

1) The scope of software patents outweighs their technical disclosure

2) Software patents provide incentives at the wrong time

3) There are too many software patents

4) Software patents lack the definiteness required by patent law

The first sub-point also regards preemption. As noted above, preemption is accounted for under the current Alice framework. However, one sticking point for Judge Mayer is that most software patents do not include the software code behind the invention. The reason for the lack of code in the patent, however, is that the code itself is not patentable. What is patentable is what the code does. Software code itself can be protected using copyright law and has no place in patent law.

The second sub-point, that software patents provide incentives at the wrong time, exists for virtually any invention, not just software. While Judge Mayer correctly points out that a lot of software patents are filed at the “idea stage,” before the invention is finished, the same is true for most inventions. This problem has only gotten worse because of the new First to File rule under the America Invents Act. It’s true that “those who scamper to the PTO early…reap hefty financial dividends.”[5] But, this reward is not a result of software patents; it is a result of the new filing provision of the America Invents Act. Right or wrong, first-to-file is here to stay and all inventors are incentivized to file patent applications as early as possible.

The third sub-point, that there are too many software patents, should have no bearing on whether software is patent-eligible. Clearly, most of the things we use today are operational because of software. In fact, it is very likely that you are reading this article using an electronic device that is operational because of software. It’s no surprise that the most popular area of innovation has a lot of patents. Software’s patent eligibility doesn’t hinge on the popularity of the technology it relates to.

The fourth sub-point, that software patents lack the definiteness required by patent law, is also related to preemption. Judge Mayer states that software is “akin to…literature or a piece of music, undeniably important, but too unbound” to be patent eligible.[6] But Judge Mayer misses the point – software patents don’t patent software, they patent what software does. If software simply does something that can be accomplished without it, the Alice framework will render that ineligible for patenting, thereby preventing the preemption Judge Mayer is concerned about.

A thorough review of Judge Mayer’s analysis, combined with the fact that it was a concurring opinion, shows that the software patent is not dead. The current Alice framework directly addresses most of Judge Mayer’s concerns. Looking at the underlying reasons for Judge Mayer’s arguments suggests he is simply frustrated with the large number of bad software patents he sees on a regular basis.

There Is No Cookie-Cutter Solution

We should not spend much time waiting for a clearer standard on patenting software from the Supreme Court. Many recent cases seeking such guidance have been denied certiorari.[7] This is likely because the patent system has already learned first-hand the consequences of bright line rules. In its 2008 search to find a predictable test, the Federal Circuit declared the Machine or Transformation test as the standard for patent eligibility under §101.[8] While the Machine or Transformation test seemed to be in line with Supreme Court precedent, it had tremendous unintended consequences. The Machine or Transformation test led to numerous patents awarded merely because a conventional abstract idea was performed on conventional computer hardware. Today, many similar patents are regularly invalidated because implementing an abstract idea on a generic computer is not patent eligible. While many suggest that the sheer number of patents being invalidated is a sign of bad things to come, or worse, that software and its effects are not patent eligible, the fact that these patents are being invalidated is actually a good sign. The heightened number of invalidated patents is an indication that a lot of ineligible patents were issued under a system that hand-cuffed both patent examiners and the courts. The patent system is purging itself of patents that slipped through the system under the Machine or Transformation test.

The Supreme Court has long “warn[ed] …. against” interpreting Section 101 “in ways that make patent eligibility depend simply on the draftsman’s art.”[9] Trying to give a definition to the term “abstract idea” or a clear test on patent eligibility under §101 would do just that. Given the Alice framework, it’s clear that software patents will continue to be granted based on how well a patent prosecutor can define the invention so that it is not simply an “abstract idea.” A clear test with bright line rules and definitions would handcuff patent examiners and the courts for years, and once again set back the patent system.

For the purposes of §101, the want of predictability is outweighed by the need of flexibility. Patent law exists to promote the progress of science and useful arts. Scientific progress is unpredictable. An overly rigid legal system will only “impede innovation more than it would tend to promote it.”[10] Moreover, “Section 101’s vital role…is to insure that patent protection promotes, rather than impedes, scientific progress and technological innovation.”[11] The current application of the patent eligibility standard is working; no clear test is needed.


In trying to address new technology, the Federal Circuit used an inflexible rule to interpret Section 101. Since then, the Supreme Court has made determinations under Section 101 more flexible, which has led to large-scale purging of many patents that should never have been issued. The Supreme Court would not have gone through Bilski, Mayo and Alice, if software were ineligible for patent protection. Instead, the Supreme Court appears to be trying to mold a flexible set of rules that can keep pace with innovation. Another inflexible rule would simply set the patent system back again. The software patent is alive and well. It is merely being held to the same standard as all other areas of technology.


[1] Two Years After Alice: A Survey of The Impact of a ‘Minor Case’ (Part 1), Bilski Blog, June 16, 2016, available at:
[2] Intellectual Ventures I LLC, v. Symantec Corp, 2015-1769, at 24-25 (Fed. Cir. 2016).
[3] Two Years After Alice: A Survey Of The Impact Of A ‘Minor Case’ (Part 1), Bilski Blog, June 16, 2016, available at:
[4] Intellectual Ventures I LLC, v. Symantec Corp, 2015-1770 at 3 (Fed. Cir. 2016) (Mayer, C. J., concurring).
[5] Id. at 10.
[6] Id. at 12.
[7] Ultramercial, LLC et al. v. Wild Tangent, Inc. 772 F. 3d 709 (Fed. Cir. 2014) (cert. denied).
[8] In re Bilski, No. 2007-1130 (Fed. Cir. Oct. 30, 2008).
[9] Alice Corp. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).
[10] Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012).
[11] I/P Engine, Inc. v. AOL Inc., 2013-1307, at*9 (Mayer, C. J., concurring) (“A robust application of section 101 ensures that the nation’s patent laws remain tethered to their constitutional moorings.”)

Counseling Early Stage Companies: Advance Preparation for the Exit

Representing early stage, high-growth companies often involves supporting a team of entrepreneurs to take a business from an idea, through commercial launch and market penetration, to a successful exit, often through an acquisition by a strategic or financial purchaser.  The speed and intensity of the client’s activity can be tremendous.  Under the pressure of achieving critical product development or revenue milestones – often driven by the client company’s investors – management will sometimes forego certain basic contracting, human resources and capitalisation  management measures.   Unfortunately, these short cuts will surface during the exit transaction, where the acquirer’s due diligence on the target company will spot these shortcomings in order to identify potential risks as well as opportunities to revalue the target company’s assets and business and reduce the purchase price.  The attorney representing the early stage company can streamline the exit transaction and minimise adverse due diligence discoveries by helping the client institute the following four relatively simple disciplines at the company’s outset (or at least at the outset of the counsel’s engagement), well in advance of any merger and acquisition considerations.

  1. Protect and Preserve Company Intellectual Property. For many early stage companies, intellectual property assets can represent the core of the company’s value at exit.  Those assets, of course, are generated by employees and contractors working on behalf of the company.  In the course of the company’s history, employees and independent contractors come and go.  However, sophisticated acquirers will often probe the target company’s files for potential intellectual property “leaks” or gaps – situations where employee or contractor inventions or developments may not clearly belong to the target company.The simple but often neglected solution to this due diligence red flag is drafting and religiously using a standard employment agreement or independent contractor/consultancy agreement with all new employees and service providers. These standard agreements should contain the following basic covenants:I. Confidentiality: Provisions prohibiting an employee or independent contractor from disclosing or otherwise using the company’s confidential information both during the relationship and for multiple years beyond the term of the agreement.ii. Invention Assignment: Provisions indicating that all “inventions, original works of authorship, trade secrets, concepts, ideas, discoveries, developments, improvements, combinations, methods, designs, trademarks, trade names, software, data, mask works, and know-how, whether or not patentable or registrable under copyright, trademark or similar laws” developed during the term of employment or contractor service belong to the company.  This covenant should similarly include an acknowledgement that all copyrightable material is a “work made for hire.”  Note that company counsel should confirm the impact of the applicable state laws on these covenants. For example, the “work made for hire” clause should be excluded from independent contractor/consultancy agreements governed by California law, as California law dictates that individuals subject to this type of covenant in a services agreement may be deemed employees under the California Labour Code .  Avoid the temptation to limit company ownership of employee or contractor developments to only those generated “on company time” or “using company resources.”  This limitation will only act to invite ownership ambiguity – an unnecessary impediment in the acquisition due diligence process.iii. Pre-existing Intellectual Property Disclosure and Licenses: Provisions obligating employees or contractors utilising pre-existing intellectual property in their work for the company to (i) clearly identify the pre-existing IP and (ii) grant the company a perpetual, transferrable license to use, in the course of its business, any relevant pre-existing IP included in works created by the employee or contractor for the company.
  2. Facilitate Shareholder Decisions. The decision to exit the business will naturally require the approval of both the Board of Directors and the shareholders of the company.  Minority shareholders who are no longer associated with the business, or who have a different perspective on the company’s direction and objectives, can seek appraisal rights, demand certain concessions, or take other steps to block or disrupt the transaction.  While reverse merger structures can be used to minimise the disruption caused by dissenting minority shareholders, these structures increase both transaction costs and the potential liability to the target company.The pre-emptive solution here is a basic shareholder agreement, prepared and negotiated when the early stage company’s shareholder base is relative small and cohesive. The shareholder agreement should include the following elements:i. Dragalong Rights. Terms requiring minority shareholders to support and vote with the majority on fundamental company decisions, including a vote to sell the company and/or waive of appraisal rights.ii. Buy/Sell Arrangements. Structures that ensure that the equity interests of disaffiliating shareholders are (or can be) repurchased by the company or the remaining shareholders;iii. Joinder Provisions. Requirements that all new shareholders (including those acquiring their equity interests through the conversion of debt) become signatories to the shareholder agreement.
  3. Simplify Contract Assignment. A major factor in the acquired business’ valuation is the status of its contractual relationships with customers, vendors, strategic partners and other third parties, and how easily an acquirer can continue to take advantage of those contracts following the acquisition. Contracts that include non-assignability clauses – provisions requiring counterparty’s consent prior to assignment – can greatly obstruct this transition, particularly if the transaction is structured as an asset sale (vs. a stock sale or merger). At best, these clauses can delay a closing while the target company pursues the counterparty’s consent, who may see an opportunity to extract a contractual concession from a vulnerable target.  At worst, the target company’s inability to obtain a counterparty’s consent may result in the termination or rejection of the contract by the acquirer, which can reduce the target company’s valuation.Since non-assignability clauses are often a standard part of the “boilerplate” sections of many agreements, and since solving the anti-assignment clause problem once the contract has been signed is difficult, if not impossible, company counsel should help the client implement the following prophylactic measures at the outset of the negotiations:i. Removal: Generally, the absence of a non-assignability clause in a contract allows both parties to assign the contract freely.ii. Change of Control Carve-Out: An exception that eliminates the need for the counterparty’s consent when the contract is assigned to a successor organization in the event of a merger, spin-off, or other reorganization, or any sale to any entity which buys all or substantially all of the assigning party’s assets, equity interests or business can eliminate the issue in an exit transaction.iii. Reasonableness Standard. As a fallback, incorporate a requirement that the counterparty’s consent to a contract assignment may not be “unreasonably withheld.” While this does not eliminate the need to secure the counterparty’s consent, it will impose a baseline legal standard which may facilitate the assignment negotiation.
  4. Maintain Good Corporate Capitalisation Hygiene. While cases of mystery shareholders appearing at the closing of an acquisition transaction are rare, confusion over the accuracy of the capital structure of the target company, as well as the identification of non-compliance with securities laws, can materially disrupt an exit transaction.  Common causes of capitalisation problems most often relate to (i) failing to either register or file a registration exemption with the Securities and Exchange Commission and/or state authorities in connection with the sale of private securities issued by the target company to early investors, which are usually friends and family, (ii) issues involving the company’s equity incentive plan, including unsigned documents, unclear vesting schedules, and uncertain stock repurchase provisions and exercise; and (iii) overlapping and conflicting convertible securities, including securities with conflicting conversion terms or circular conversion formulas. Many buyers will avoid assuming any risks associated with an ambiguous capital structure or improperly issued shares, preferring instead to let the target company identify and resolve discrepancies before closing.As with the other sets of issues described in this article, the preventive solutions are straightforward and, in most cases, inexpensive:i. Comply With Applicable Federal and State Securities Laws in Securities Offerings: Most states and the SEC have numerous exemptions allowing early stage companies to issue securities without the need for a formal registration.  The exemption process, however, often requires the issuing company to file a registration exemption with the appropriate securities regulator. Failing to file a registration exemption may not require the company to register its shares, but it may prevent the company from utilising a “safehabour ” in future transactions, including an exit transaction with another private company.  Filing the necessary registration exemption forms will not only help ensure securities law compliance; it will also provide assurance to a potential acquirer that these registration exemptions will remain in effect in future transactions.ii. Invest in a Commercial Cap Table Management Software. There are a number of quality, low cost software solutions on the market that can help track and automate company cap tables and “date-stamp” capital structure changes, in order to allow for a simple analysis of capitalisation changes and confirmation of issuances.iii. Automate the Effect of Certain Equity Incentive Plan Triggers. For example, if a company’s restricted stock plan provides for the buyback of unvested shares if the employee terminates, the company’s repurchase of those unvested shares should occur automatically.  Relying on the affirmative action of the company (and potentially the memory, or filing system, of the company’s executives) can result in inconsistent equity incentive plan operation and unintended equity ownership.

    iv. Create Pro Forma Models to Reflect the Terms of Convertible Securities. Going through the exercise of translating the terms of convertible securities – particularly where different securities are issued at different times to multiple parties – will help pressure test the conversion terms and validate that they function as intended.

The foregoing measures, designed to minimise exit disruption, are neither difficult nor time-consuming.  In fact, the most difficult task is often convincing the client company to expend the time, effort and resources to implement these disciplines, even years in advance of a potential exit.  As noted above, it is ultimately time and energy well spent.

Is Your Company a Trademark Bully?

Depending on one’s perspective, a “trademark bully” is either simply a vigorous enforcer of its valid trademark rights who is unduly criticized for such enforcement or an overreaching behemoth trying to unfairly expand its trademark rights well beyond the reasonable boundaries of its protection. For this second category, think “Goliath” challenging the unprotected “Davids” in the market.

The “behemoth” is the most common image and was called to mind squarely when the U.S. Patent & Trademark Office solicited comments in 2010 about harassing trademark litigation tactics, and defined a trademark bully as “a trademark owner that uses its trademark rights to harass and intimidate another business beyond what the law might be reasonably interpreted to allow.” 1 No additional legislation resulted from that study, but the phrase “trademark bully” stays with us.

This article addresses ways in which trademark owners can vigorously protect their rights, determine which infringements are worth pursuing, learn how to avoid being the subject of social media shaming and consider how the playing field may change if the accused infringer obtains pro bono counsel or has insurance coverage to defend the claim. The goal of any enforcement plan is to protect the owner’s full rights at the lowest possible cost, while avoiding any negative publicity that may result from an overreaching program, which could damage the owner’s reputation or goodwill associated with its name and mark.

Vigorous Enforcement of Trademark Rights

In general, if an owner fails to enforce its exclusive rights to use a particular name or mark in connection with specific goods or services, the value of the owner’s mark and its ability to enforce it against others may diminish over time.

In cases of owner inattention, junior users or potential infringers may begin to use the mark or something very similar in jurisdictions where the owner’s goods or services are not yet sold or offered, and are not yet known by the local purchasing public, and thereby develop a loyal following that recognizes the potential infringer’s use of the mark over the owner’s.  This infringement can be very damaging to the owner’s reputation, sales and business development, as well as the bottom line. If customers seek the relevant goods and services from the potential infringer instead of from the owner, then the owner’s mark loses its value as an indication that the goods are – or should have been – sourced by the owner when the owner enters that market.

If an owner takes action early, it is likely to be more successful in stopping use by the potential infringer. The longer the owner waits, however, the more difficult it will become to reassert the owner’s senior position in the market. Similarly, the longer the two marks coexist in the same marketplace for similar goods and services – and particularly where there is no evidence of actual confusion by consumers – the weaker and more narrow the owner’s rights in the mark may be. If more infringers using the same or similar marks for the same or related goods or services enter commerce without challenge, then the field becomes “crowded” and everyone’s rights in their similar marks become very narrow, to the point where only exact matches or very close approximations would be considered infringing.

In addition, if the owner knew about the potential infringers and declined to take any action for one reason or another, the owner may have difficulty obtaining relief – such as an injunction against continued infringement. The owner also may later be found to have waived its rights to pursue the potential infringer for such infringement, or to have acquiesced to their use, or to have unreasonably delayed enforcing its rights (i.e., laches), thus making it inequitable to require the potential infringer to stop using the mark where it has become established.

As a result, trademark owners should consider implementing a watch system – which can have varying degrees of complexity – that searches the marketplace, the internet and relevant industry materials for potentially infringing use. The more effective programs will search regularly for potentially competing marks in a variety of relevant places and use search parameters designed to identify close matches, rather than limiting a search to a very narrow, exact match.

Once potentially infringing watch results are identified, the trademark owner should analyze them carefully to determine whether contact with the potential infringer is warranted and/or necessary to preserve the owner’s rights.

Determining Which Infringements are Worth Pursuing

Owners should establish early in the trademark rights’ pendency a set of protocols that will help the owner determine when to challenge apparently unauthorized uses by third parties. Some factors to consider when establishing such a program are:

  1. What are the owner’s core names and marks? At a bare minimum, these names and marks should be protected the most vigorously against potential infringement. Owners might forgo zealous enforcement efforts for marks that are anticipated to have a short life – such as for products or product lines or advertising campaigns that will have a limited run or short duration in commerce.
  1. How closely related must the goods or services of an unauthorized user be to the owner’s goods or services? The answer to this question may depend on the number and nature of third party uses of similar marks already in place.
  1. How did the owner learn about the unauthorized use? From a complaint by a customer about poor customer service or quality referring to the unauthorized user’s goods or services, thus demonstrating “actual confusion” and potential damage to the owner’s reputation and goodwill?
  1. What is the owner’s end-game in the enforcement program? To litigate all potential infringements to their final conclusion? To get the unauthorized user to recognize the owner’s senior rights and obtain a license producing a revenue stream where the goods may be related but are not competitive?

With respect to each of these factors, it is critical that owners evaluate the potential likelihood of confusing customers and potential customers about the source of the goods or services distributed under the mark, the potential misunderstanding about the owner’s endorsement of, sponsorship of or affiliation with the potential infringer, and the potential for damage to the goodwill and other value of the owner’s mark if the potential infringer’s quality is not as good as the owner’s.

Avoiding Social Media “Shaming” and other Public Relations Missteps

Whenever an owner drafts a cease and desist letter to a potential infringer, care should be taken not to unnecessarily inflame the recipient or invite re-publishing that letter on the internet for purposes of ridicule and shaming. This phenomenon is common today using social media outlets.  Inflammatory language and threats of imminent lawsuits with draconian remedies are likely to increase the risk of such re-distribution, causing public relations discomfort that may take some time to correct.

Instead, owners may be better served by identifying genuine concerns they have with the potential infringer’s use and asking for corrective action in the form of discrete, reasonable requests that are feasible for the potential infringer to complete. These requests can be forceful and rigorous, but they should be constructed with a view toward maximizing the possibility of compliance and resolution. Cease and desist letters are not a required prerequisite to filing a federal lawsuit, but they can be valuable tools to negotiate an acceptable settlement before incurring significant legal costs. If the potential infringer declines to respond, follow up letters can be more strident, but it is rarely prudent to start off that way unless the owner is immune to bad publicity.

If the Owner’s actions become the subject of social media hype, consider carefully before jumping in and disputing each individual claim. Attention span on the internet is relatively short. After the initial frenzy about a hot topic, the audience typically moves on to the next. If the subject of the frenzy answers by continuing to argue that its actions were reasonable and defensible, the debate will only serve to keep the issue “front and center” in the minds of the purchasing public, which may damage the owner’s goodwill and reputation more than the initial infringement – commonly known as the “Streisand Effect.”2

Change in Dynamics if the Potential Infringer Uses Pro Bono Counsel or Has Insurance Coverage

A frequently held (but not always correct) assumption is that an owner who is a “trademark bully” must have deep pockets and able to continue litigation without consideration of increasing costs. Similarly, victims of so-called bullies are generally assumed to be smaller entities, without significant resources. Thus, the theory proceeds, these trademark-bully-owners seek to extort settlements from these smaller entities in a way that expands the owner’s trademark rights unfairly.

If a potential infringer accused of trademark infringement by an owner is represented by pro bono counsel or has insurance coverage, however, the possibility of an extortive settlement may decline. When the potential infringer is not paying its legal fees for defense out of its own pockets, it may be less inclined to accept an unreasonable settlement demand just to reduce its steadily climbing legal costs.

As an owner, consider carefully the actual economic position of the potential infringer, to the extent that such information is available in the early stages of the dispute. Be aware of the public’s assumptions about the potential infringer and its role in the community, and manage public relations needs from the inception of the dispute. Do not wait for an emergency to arise before addressing public relations issues. The more the potential infringer can be cast as a “victim of a bully” the more likely the owner’s goodwill and business reputation could be harmed by bad press, including social media.


Enforcement programs are essential to any owner’s ability to manage the business’s names and marks, maintaining its exclusive right to use these names and marks in connection with specific goods and services as long as feasible. While overly aggressive and unreasonable programs may legitimately be called “bullying,” owners must take seriously their obligations to monitor and enforce the use of their marks in commerce to avoid losing or de-valuing their rights.


1 See Request for Comments:  Trademark Litigation Tactics, n.1 in

2 See What is the Streisand Effect?, The Economist Explains (blog), April 15, 2013,, which explains, “Named after the American singer and actress Barbra Streisand, the Streisand Effect describes how efforts to suppress a juicy piece of online information can backfire and end up making things worse for the would-be censor.”