Interesting post on Jason Calcanis’ blog this week (also picked up by Ben Kuo and SocalTECH) with further thoughts on Angel groups charging startup companies to pitch. All of his posts on the topic are not only good reading, but accurately describe what goes on within some Angel groups (e.g., These pay-for-play scams remind me of the “modeling agencies” that charge people for representation, acting lessons and to have their headshots done.). Although I’ve written on this topic and share Jason’s ire,  I’m not yet at the point of ‘jihad’ (crusade maybe) or calling out particular Angel groups. Other than what Jason and I have already mentioned, the only other advice I can give is beware of for-profit angel groups based on a franchise model–as those are typically the ones that charge companies. If they don’t make money the old fashioned way and exclusively through investment returns, then they aren’t worth talking to.

As I was writing another installment on what the Pasadena Angels look for in company pitches, I came across a good post from Steve Blank about sufficiently understanding your customer and target markets and decided to use that instead. Steve’s observations are pretty representative of what we regularly see when companies pitch.

Lastly, Jeff Sheldon, a longtime member of the Pasadena Angels and well respected IP attorney and litigator put together a good reference on Patenting Inventions.

Have a great weekend. Patenting Inventions

Patents, trade secrets, know-how, copyrights, and trademarks can be crucial to your business. Managing this intellectual property can make the difference between fortune and failure. This brochure presents ten recommendations for protecting what belongs to you. In the spirit of David Letterman, here’s my Top 10 List.

#1

Obtain written assignments of all inventions and copyrights from employees and third-party vendors including consultants, advertising agencies, and photographers, and have these assignments reviewed by your attorney.

#2

When adopting anything new, such as technology, a trademark, or software, contact your attorney about conducting a right-to-use study to avoid infringement.

#3

Assume that any disclosure to a third party, including a customer, a vendor, a consultant, or a competitor, will not remain confidential. Confidentiality agreements offer some degree of protection, but they are not guarantees against improper disclosure.

#4

Discussing an idea in the presence of others, such as actual/prospective customers, vendors, or consultants, can result in a claim of co-ownership of your idea. Avoid this situation by listening to the challenge presented, and then by conducting your problem-solving in private.

#5

When negotiating an agreement, avoid terms that may limit your ability to compete. Terms that require careful scrutiny include:

- An agreement stating that ownership of an invention does not belong to you
- A software or website development agreement that does not explicitly provide for your ownership of the software
- Prohibitions against reverse engineering by you
- Confidentiality clauses
- Unreasonable restrictions on the use of deliverables
- Continuing obligations to use the vendor, e.g., for software modifications or hosting
- Limitations on the other party’s indemnification obligations, e.g., no indemnification for infringement of patents, copyrights, or trade secrets

#6

Protect your inventions by documenting all improvements and promptly disclosing potentially patentable inventions to your patent attorney. Do not offer to sell the improvements and do not publicly disclose them until your attorney has considered the feasibility of patent and trade secret protection.

#7

Protect your copyrights by using a proper notice on all copyrightable works, including software, advertisements, brochures, and artwork. Check with your attorney to determine if the copyrights should be registered.

#8

Before adopting a trademark or service mark, have a search conducted to make certain that the mark, and the corresponding domain name, are available. If the mark is available, register the mark and use it properly. Do not allow third parties to use your mark without a written license agreement.

#9

If you have a claim against another party, proceed promptly. If you delay, you could lose your rights.

#10

Contact your attorney promptly if you receive a cease and desist letter. Your attorney may lessen the possibility of a lawsuit being filed against you, and failure to consult with your attorney may expose you to increased damages for willful infringement. If actually sued, contact your attorney promptly. Failure to timely respond to a lawsuit can have serious, and costly, ramifications.

Intellectual property litigation can be the death knell of a startup.  Not only is the litigation costly, it distracts the company founders from operating and growing the business, and  it makes it a lot it harder (if not impossible) to raise capital.  If the litigation turns out really badly, an injunction can be issued that shuts down the business and there can be a substantial damages.

It’s impossible to completely protect a new business against an intellectual property lawsuit.  However certain steps can be taken, including:

1. Have trademark clearance searches conducted on all trademarks adopted, the name of the business, and the domain name used.

2. Have a right to use study conducted for any new products and methods.

3. Confirm ownership of all intellectual property of the business.

Even if these steps are taken, litigation can still result.  The diagram below can be helpful and gives you a rough overview of what happens if litigation occurs in a Federal Court. Hopefully this graphic also provides good incentive for avoiding it. I also have a good summary that compares patents, trademarks, copyrights and trade secrets, Send me an email at info@pasadenaangels.com if you’d like a copy.

As promised in my last post, here’s a brief checklist and some rules of thumb to determine if a patent is right for your business. Before you go through the time and expense of filing a patent application, go through the following checklist and honestly answer the questions.

Question 1:  Is the invention (product or process) different in any way from information that has been available to the public for more than a year (e.g., described in a printed publication, offered for sale, used to produce a product)?

Significance:  “The public” means anyone who does not have a confidential relationship with you.  The information can be in any form, for example a product, a written publication (including for example, a U.S. or foreign patent, a scientific or trade journal, or a trade brochure), a publication on the Internet, or a display at a trade show.  A sale, or offer for sale, of the new product, or of a product of the new process is also “information”.

Question 2:  Does the invention provide us a competitive advantage?

Can it do something not done before?

Can it do it cheaper?

Can it do it better?

Significance:  If the answer is no, it’s not worth filing since a competitor can practice an equally good option.

Question 3:  How large is the potential market?

Significance:  If the market is less than $50,000 per year, then it is possible no one will compete.

Question 4:  How long will the market exist?

Significance:  If the market will not exist two years from now, patent protection may not make sense since it generally takes at least two years to get a patent.

Question 5:  How likely is it that there will be competitors in the market?

Significance:  If there will be no competitors, there is no reason to file.

Question  6:  Can I contractually prevent all customers from doing it themselves or purchasing from a competitor?

Significance:  If the answer is yes, there may be no reason to file.

Question 7:  Is this an invention that can be licensed to third parties?

Significance:  If the answer is yes, then most likely file since royalty rates are generally higher for a patented invention.

Question 8:  Can I protect this as a trade secret?

Would it take considerable effort to reverse engineer the invention?
Will disclosure to the customers be unnecessary for them to use the invention?
Will disclosure to the government be necessary (which may destroy trade secret protection)?
Does anyone already know the invention such as consultants or university researchers (which may destroy trade secret protection)?
Can I protect the invention from ex-associates and partners and ex-spouses?

Significance:  If the answer is yes, trade secret protection may be the way to go.  An option is to file a patent application, and reserve the trade secret vs. patent decision for later.

Question  9:  Will filing a patent application and satisfying the “best mode” requirement require disclosure of valuable trade secrets

Significance:  A “yes” answer may mean no filing.

Question  10:  Can I protect this with a copyright or trademark or trade dress rights?

Significance:  If the answer is yes, there may be a cheaper and easier way to obtain protection than through a patent.  Consult an attorney regarding these options.

Question  11:   Is this invention unobvious compared to what came before it?

How different is the invention from the prior art?
How long have people been trying to solve the problem?
How much effort and time did it take to solve the problem?

Significance:  To actually receive a patent, it is necessary that the invention be unobvious.  However, I recommend that a patent application be filed for any commercial product that is “different”, even if “obviousness” is problematic.  The “patent pending” notation generally slows down competitors enough to more than justify the cost of a patent application.

Question  12:  Has anyone who does not have to assign his or her rights to me contributed to the invention?

Significance:  If third parties will have the right to practice the patented invention, it may not be worth filing.

Question 13:  Can I obtain an enforceable patent? Can I detect if someone is infringing?

Significance:  If the patent is not enforceable, there may be no reason to file.  For example, if the invention is a new process for making a product, but the product is indistinguishable from products made by the old process, it may not be possible to detect infringement.

There are multiple types of applications for patent protection that are available.  Two of the more common are Utility (Provisional and Regular) and Design.  The difference between design patents and utility patents is that design patents only protect the non-functional appearance of a product, while utility patents cover how your invention works.  For some products both patent types may be available.  The main advantage of design patents is they are relatively inexpensive to obtain.  The main disadvantage of design patents is the scope of protection is generally narrow – they only cover the appearance of the product shown in the drawings, and not the product’s function.

If a utility patent is appropriate for your invention, then you need to decide whether to file a regular application or a provisional application. Because of their lower initial cost, provisional patents can be more attractive to start ups. Some of the more significant pros and cons of filing a provisional patent include:

ADVANTAGES OF A PROVISIONAL APPLICATION

1. Slightly Lower Initial Cost. The initial cost of preparing and filing a provisional patent application generally is lower than that of preparing and filing an actual patent application. This is because of the lower PTO filing fees and the more limited requirements of a provisional application.

2.  Delay of Examination Costs. Since a provisional application is not examined by the PTO, examination costs are delayed during the pendency of the provisional application.

3.  Shift of Patent Term. The end of the patent term can be shifted one year into the future, an important advantage for inventions, such as drugs, whose commercial value may be at the end of the patent term.

DISADVANTAGES OF A PROVISIONAL APPLICATION

1.  Delay in Issuance of a Patent. A provisional application cannot result in a patent— an actual application will eventually have to be filed.  Accordingly, the initial filing of a provisional application, instead of the immediate filing of a regular application, necessarily delays the issuance of any resulting patent.

2.  Higher Total Cost. The overall cost of initially filing a provisional application and then following up with the filing of an actual application will necessarily be more than the immediate filing of a regular application.

3.  Accelerated Foreign Filing Costs. Filing a provisional patent application starts the one-year period within which foreign patent protection must be applied for.

In next week’s post I’ll provide an entrepreneur’s checklist for determining if a patent application is required (or appropriate for your product or invention.