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Tag: Trade secrets

A Legal Guide for Colorado Startups: Protecting Your Intellectual Property, Trademarks and More

Last year in Colorado, a whopping 175,000 people filed paperwork with the state to start a new business, up 11.5% from 2021. Clearly, entrepreneurship in our state is alive and well. As an attorney deeply engaged in mentoring and supporting Colorado’s startup and venture communities, I work with many entrepreneurs building their businesses from the ground up. Typically, those in the startup stage don’t have a lot of money and resources at their disposal. And when you’re laser-focused on growing your business, legal matters can seem like one of the least important parts of their journey. But you shouldn’t forget about protecting intellectual property for startups.

Many entrepreneurs don’t understand that poor legal decisions made at the start can end up making or breaking their business’s success in the long run. By not protecting intellectual property for startups — the things that really make their business stand out in the consumer’s mind — they risk losing the rights to their brand ideas, investor dollars or even the future sale of their business. 

So what do new business owners need to know? Well, often, they get intellectual property, trademarks, copyrights, trade secrets and patents confused. So here’s a breakdown of what you need to know about each and how to protect your intellectual property rights for startups.

READ: What Are the Safest Industries to Start Your First Business in 2023?

What is intellectual property (IP)?

Intellectual property is an asset of a business created using the expertise, ingenuity and creativity of the people within it. It comes in different forms — mainly in works that can be trademarked, copyrighted, patented or protected as trade secrets — and can be essential to a business’s success and longevity. While this article focuses on trademarks, it’s worth differentiating the major categories of IP as background.  

What is a trademark?

A trademark identifies your brand and the goods or services you sell and may include your company names, slogans, brand names, designs and any number of different pieces of your business. For example, people may recognize the trademarked names and designs of Coca-Cola and Starbucks (they’re everywhere), but they may not realize that even the Coca-Cola red and Starbucks green colors are trademarked by those companies!

READ: What to Do If Someone Uses Your Trademark 

What is a copyright?

Copyright protects creative works, such as writings, art, audio and video recordings and other non-branded creative elements. For example, Coke or Starbucks might copyright their web content, pictures, videos or jingle song lyrics. 

What is a patent?

Patents protect physical objects and products that have design functionality. For example, Coke has patented the iconic curves of its bottles. 

READ: Demystifying the Patent Process: Resources to Support Innovation

What are trade secrets? 

Trade secrets are commercially valuable information known to only a limited group of individuals within the company. The information is proprietary and helps differentiate a company’s goods and services from those of others, just like a good trademark or copyrighted work does. For example, one of the most famous trade secrets of all time is the secret recipe for KFC’s spice blend — it’s unique to the company, not widely known, and has significant value to the business. 

READ: How to Protect Trade Secrets When Noncompete Agreements Are Not an Option

How do I know if I need to register a trademark?

Your unique designs, slogans and names can help differentiate your business from the business across the globe or down the street, and they can be a fundamental pillar of your success (think what would happen if Coke changed its name or Apple changed the name of its iPhones). So, begin by assessing whether it would be very problematic if someone else started using the same company name, slogan, brand name, design name or any other element of your business. If so, you need to protect those essential elements with a trademark.

The four main risks associated with not registering a trademark are:

  1. Other parties could use identical or similar marks and create confusion in the public’s mind, potentially diminishing your sales and the value of your business. In the worst-case scenario, it could even result in losing rights and priorities in your marks.
  2. You could have to rebrand, resulting in a huge loss of brand equity and significant cost in developing an alternative.
  3. You could be forced to litigate a trademark infringement case for unknowingly infringing on someone else’s identical or similar brand name, image, design or logo. You would also have a less persuasive case in enforcing your own mark.
  4. Without registering the key identifiers of your business, your company can be much less attractive to investors or potential buyers.

How can I register a trademark?

Short of undertaking the federal registration process — which is by far the most protective — there are some easy ways to begin protecting your marks on your own, such as registering a trademark directly with the state of Colorado or simply using the ™ symbol next to your marks. However, these options generally do not provide broad protection. Therefore, as your company establishes value, you’ll want to speak with an experienced trademark lawyer to identify more ironclad ways to protect your business across the U.S. 

Do I need a state and federal trademark?

Registering with the state of Colorado is very inexpensive and straightforward, and if you operate one car wash in Denver, that may be all you need. However, if your business has any kind of online sales component, multiple locations or the potential to expand out of state, there is a lot of protective value in filing for a federal trademark registration. Because federal trademark applications are quite lengthy and complex and involve many legal requirements, utilizing an attorney is highly advisable and usually means you’ll have a significantly better chance of securing your trademark rights. 

How long does it take to obtain my trademark?

Federal trademarks are issued by the United States Patent and Trademark Office, which receives over a million trademark applications annually. In fact, the USPTO received a record-high number of trademark application submissions in 2022. Unfortunately, the USPTO is also experiencing a staff shortage, and their review process is extensive. Applications will not receive approval without a complete examination of the application for various issues and without allowing third parties to dispute the registration. As such, the entire process, from application development to completed review, currently takes more than a year. 

How much does it cost to obtain a federal trademark? 

Contrary to popular belief, hiring a trademark attorney to help formulate your application is relatively cost-effective. Of course, the total cost will depend upon the attorney. My clients often spend around $2,500 all in (i.e., including filing fees with the trademark office), which is a significant bang for their buck and allows them to avoid unexpected legal costs.

Everyone wants to protect their brand, and protecting intellectual property for startups is one of the most important ways to protect your brand and company, especially given the scale of the risks. 

 

Andrew Comer HeadshotAndrew Comer is a partner at Fortis Law Partners where he leads the firm’s trademark practice, advising companies on registrations and brand protection. Comer also advises companies on mergers and acquisitions, commercial transactions, and other corporate matters affecting their formation, financing, and operation. 

How to Protect Trade Secrets When Noncompete Agreements Are Not an Option

Colorado has always been one of the most restrictive states when it comes to enforcing noncompete agreements. However, Colorado’s restrictions have always included an exception for noncompete agreements that are tailored to protect a business’s trade secrets. That said, the Federal Trade Commission (FTC) recently proposed a rule that would ban most noncompete agreements, including those designed to protect trade secrets. While the FTC’s proposed rule is not yet the law of the land, businesses must take steps to protect their trade secrets now so that they are safe after the FTC publishes its final rule. 

READ: Changes To Non-Compete Rules Also Mean Paying More Attention To Your Trade Secrets

What does your business need to do?

  1. Identify your trade secrets
  2. Protect the secrecy of your trade secrets
  3. Enforce your trade secret protections

Identify your trade secrets

People usually think of technological innovations, like the code in the latest smartphone, when they think of a trade secret. However, other trade secrets can include information on the business’s financial health, customer list, pricing margins, market research and business plans, to name a few. Additionally, a business’s methods, techniques, processes and procedures are also trade secrets. For example, a bakery’s unique recipe for chocolate chip cookies can be a trade secret. 

In other words, a trade secret can be almost anything if it has independent value. Generally, independent value exists when the secret provides a competitive advantage in the marketplace. For example, maintaining the secrecy of a business’s client list and pricing margins would provide that business with a competitive advantage because if that information became known, a competitor could simply call the business’s clients and undercut them on price.

Protect the secrecy of your trade secrets

Once the business has identified its trade secrets, it must be proactive in taking reasonable steps to protect its secrecy. Protection efforts will vary depending on the type of trade secret being protected and how the information is stored.

For example, a trade secret that is stored electronically needs to be saved on a secure computer system that is monitored and has restricted access. This means that in addition to having password protections (two-step authentication is recommended), the system needs to limit the access of the files containing the trade secrets to only those employees who have a need to know. This could mean that only the sales staff is able to view client lists and pricing margins, while support staff are excluded from that specific file. It is also important that these sensitive documents be marked appropriately so that an employee with access to the document knows they are handling a trade secret.

READ: How to Minimize Cybersecurity Risks and Balance Customer Friction for your Online Business

However, it is not enough to have reasonable security protocols in place. The business also needs to protect itself from its own employees. The reality is that if a trade secret is misappropriated, the theft will likely be traced back to an employee. Thus, it is critical for the business to require employees with access to the trade secrets to sign nondisclosure agreements and periodically train them on their responsibilities to protect those trade secrets. Additionally, when an employee with access to trade secrets leaves a business, the business needs to have audit protocols requiring the former employee to return all such materials and acknowledge in writing that they have done so.

Occasionally, businesses need to make limited disclosures of their trade secrets to third-party vendors. In these situations, the business and the vendor should enter into a confidentiality agreement that is tailored to the disclosure and the vendor’s duty to protect the secrecy of the information.

Enforce your trade secret protections

Enforcement of a business’s trade secret protections is equally important to identifying and protecting the secrecy of the information. Your business’s trade secrets are protected by the Defend Trade Secrets Act and Colorado’s Uniform Trade Secrets Act, which enable businesses to seek injunctive relief to stop stolen trade secrets from being used in the marketplace as well as obtain damages for the business loss caused by their theft. However, if a business knows a trade secret has been taken and wrongfully disclosed, it risks waiving its trade secret protections by not seeking to enforce them.

It is critical that you contact an attorney knowledgeable in trade secret protections as soon as you learn that a trade secret has been misappropriated. It is also wise to work with a knowledgeable attorney when identifying your business’ trade secrets and creating processes to protect their secrecy, because adequately caring for your trade secrets dramatically impacts the enforceability of your trade secret protections.

 

Rudd MichaelexMichael J. Rudd, an Attorney with Fox Rothschild LLP, handles a broad range of labor and employment litigation matters. He focuses his practice on business protection litigation including trade secret theft disputes, shareholder rights litigation, and enforcement of protective agreements including non-compete clauses, non-solicitation clauses and non-disclosure agreements. He can be reached at [email protected].

What Is Trade Secret Misappropriation: Is Your Business at Risk?

KFC’s secret blend of 11 herbs and spices, Burger King’s secret sauce, and Google’s algorithm are all examples of trade secrets. They are things that competitors do not know and, accordingly, provide a competitive advantage.

While it’s easy to name these famous examples, not all trade secrets are so high-profile. Most businesses have trade secrets they take steps to protect, such as the client lists they have built up, sometimes over years and years, and on which they depend on to stay profitable.

So, what happens when these trade secrets are misappropriated? And how can business leaders tell if a business is at risk?

READ — Changes To Non-Compete Rules Also Mean Paying More Attention To Your Trade Secrets

The Law on Trade Secret Misappropriation

Trade secrets generally gain their protection by being “secret” because of how a business manages the information, often through contracts and policies. When violating these contracts and policies leads to litigation, the dispute is usually a state court matter.

However, trade secret misappropriation can sometimes become an issue that is more appropriately resolved in federal courts. This commonly happens when multiple states are involved, like when a business engages in interstate commerce. In this case, 18 U.S.C. § 1839(5) can apply.

Of course, the law is particular and uses specific words that have been extensively discussed in many court cases. Generally, trade secret misappropriation happens when someone improperly acquires a trade secret, improperly discloses or uses it without permission. Misappropriation can occur even if the trade secret was obtained through a mistake or accident, as long as the person who acquired the information knew or should have known that it was not intended to be disclosed by the business.

READ — How to Safeguard Your Business Trade Secrets

Businesses at Risk of Trade Secret Misappropriation

Some businesses are more at risk of trade secret misappropriation than others. Startups are especially susceptible because of their quick growth rate. Often, a startup is created with just a few employees. Because of this, it’s run with fewer formal policies than an established business.

However, by the time formal policies are introduced, one of these employees may have taken action to misappropriate valuable trade secrets.

Reducing the Risk of Trade Secret Misappropriation

There are many ways to reduce a business’s risk of trade secret misappropriation, including developing policies that protect valuable secrets. For example, access can be limited to specific business leaders and protected by passwords. In addition, the secrets can be stored only on secure servers instead of in less secure places, such as laptop computers that can be lost, stolen, or hacked.

Employees and contractors, too, can be required to sign non-compete or non-solicitation agreements that deter them from trade secret misappropriation. If employees or contractors violate these agreements, resolution can sometimes be obtained more cost-effectively by resolving the breach of contract through alternative dispute resolution methods.

The best way to protect a business from trade secret misappropriation is to take these steps and protect the information before it ever leaks. Again, an experienced attorney can guide the company through this process, offering valuable counsel.

For more information about trade secret misappropriation in Colorado, contact Hackstaff Snow Atkinson & Griess, LLC, at 303-534-4317 or visit our website.

 

Aaron Atkinson, Doug Griess, and John Snow of Hackstaff Snow Atkinson & Griess, LLC, are top Denver business attorneys and litigators with expertise spanning various industries. Specializing in business law, litigation, intellectual property, tax law, and dispute resolution, the firm offers an in-depth understanding and knowledge of general real estate and litigation rules and regulations and are a trusted resource for business owners throughout Colorado.