1. The Top Ten Intellectual Property Mistakes of
Small to Mid­Size Technology Companies
© 2006­2009 Dana H. Shultz – Readers may reproduce and distribute copies of this article in its entirety.
Small and mid­size technology companies have their hands full. Everywhere one looks, there are a dozen
challenges and a hundred things to do.
Intellectual property (IP) rarely escapes their attention. But even more rarely is IP treated as carefully as it should
be. Here – not necessarily in order of importance – are the top ten IP mistakes that I have seen among small and
mid­size technology companies:
1 Failing to use employee invention
agreements 3 Using another company’s license
agreement
Generally, but subject to certain exceptions, Trying to minimize legal expenses, a CEO
companies do not own patentable inventions copied provisions from another company’s
that employees develop on the job unless there enterprise software license into his company’s
is an agreement by which the employee agreement for wireless­application software –
assigns the invention to the company. even though the enterprise terms made no
sense in the wireless industry.
An invention assignment agreement can help
the company by requiring that employees: The results: Customer confusion, protracted
negotiations, intense frustration and delayed
· Document inventions, assign all rights to the
revenue recognition. The company would
company, and assist the company in
have been better off paying for the right
perfecting those rights.
agreement in the first place.
· Maintain company and third­party
information in confidence.
· Not disclose former employers’ confidential 4 Thinking that patents are the only IP
that matters
information to the company. Patents are great: They let you stop others
California employers need to consider, from making, using, selling, offering to sell or
however, Labor Code Section 2870(a), which importing your invention. But other types of
precludes assignment of certain inventions IP can be great, too. Among these are:
developed on the employee’s own time · Copyrights, which protect against
without using the company’s equipment, unauthorized copying of creative works.
supplies, facilities or trade secrets. · Trade secrets, which provide a competitive
2 Assuming that the company owns
contractors’ work product
advantage by virtue of their confidentiality.
· Trademarks and service marks, which
identify the sources of goods and services.
In an effort to control costs, some companies
minimize the number of employees and
engage independent contractors for product
development and other tasks.
5 Filing for a provisional patent before
the scope of the invention is clear
Many companies like provisional patents
However, unless it has a properly­drafted because they are inexpensive and allow the
agreement in place with the contractor, the company to hold a filing date – and delay
company likely will find that it has even fewer paying for a non­provisional patent – while
rights to the contractor’s work product than it raising funds and confirming that the
has in the employee situation described above! invention is commercially viable.
A prudent company will make sure that each However, the provisional filing date is
contractor’s agreement gives the company all valuable only to the extent that claims in the
rights to work product; requires the contractor issued patent are supported by disclosure in
to help perfect those rights; specifies the provisional patent. If you file for the
confidentiality obligations; and requires that provisional before the scope of your invention
the contractor indemnify the company against is clear, you may find that the provisional was
third­party IP infringement claims. a waste of time and money.

2. 6 Treating the federal government like
non­governmental infringers
gives users the right to modify and redistribute
source code – has skyrocketed. As a result,
many software developers are trying to figure
While a fundamental tenet of patent and
out how to incorporate open source software
copyright law is that a patent or copyright
into their business models.
owner can enjoin infringement by other
parties, there is a major loophole when the Because open source software often is
other party is the United States. provided at no charge, some developers think
that they can do with it whatever they want –
Under its eminent domain power, the U.S. can
perhaps not recognizing that by incorporating
take private property for public use – but, as
open source into a company’s product, under
required by the Fifth Amendment to the U.S.
the applicable license they may have made the
Constitution, only if just compensation is paid.
company’s product open source, too!
So if the government wants to use an
invention that would infringe your patent, you Accordingly, any company that is developing
cannot obtain an injunction to stop that use. software needs to keep tight controls on
Instead, you need to file a claim for payment whether, when and how open source is used.
with the appropriate government department.
If you cannot reach a suitable agreement with
that department, your only recourse will be to
9 Giving the “family jewels” to an
overseas supplier
bring suit in the Court of Federal Claims in Many technology companies use outsourced,
Washington, D.C. and in some cases “offshored,” services as a
way to save money – but these companies
7 Neglecting to identify and protect trade
secrets
need to know about the risks of putting IP in
the hands of overseas suppliers.
One of the best examples of a trade secret is
For example, China is notorious for not
the formula for Coca Cola. By revealing that
respecting IP rights. And while India’s IP laws
formula to only a small number of people and
are well within the mainstream, a lawsuit to
requiring that they keep that formula in
enforce those rights might last five or ten
confidence, the company has maintained a
years before any remedy is available.
legally­enforceable competitive advantage
since 1886. As a result, the most prudent approach is to
send overseas only IP that your company can
All companies need to:
afford to have stolen. If you need an outsource
· Identify company information that supplier to create or use your “family jewels,”
constitutes trade secrets. choose a domestic supplier.
· Ensure that the information is recorded, filed
away and secured against unauthorized
access.
10 Registering the wrong entity as the
owner of IP
· Enter into appropriate confidentiality More than once, I have seen companies file
agreements with all employees and third their own trademark or copyright registrations
parties who will have access to those trade and make a mistake in identifying the owner.
secrets. If you are a sole proprietor, use your name
rather than a fictitious business name. If you
8 Believing that “open source” means
“no restrictions” have established a separate legal entity, use its
correct name. If you are not sure about that
During the past several years, commercial name, ask your lawyer or go to the appropriate
acceptance of open source software – which Secretary of State website.
Any company that can avoid these traps will go a long way toward establishing a solid IP foundation for future
business success.
Dana Shultz (www.danashultz.com) provides high­touch legal services to high­tech companies and publishes
the High­touch Legal Services Blog (danashultz.com/blog). He can be reached at 510­547­0545 or
dana@danashultz.com.
The information in this article is not intended as legal advice. If you need legal advice on a matter, please
contact an attorney directly.