Business Articles
	PROTECTING INTANGIBLE BUSINESS ASSETS: Protect your name, customer information and other intangibles before it's too late. by Mary Hanson

Business owners need to take steps to protect "intangible" business assets like their business name, customer lists, and computer software. For some businesses, the value of these assets is greater than the tangible assets like inventory and equipment.

Often the value of such intangible assets is not recognized until something happens that points out their importance. A former employee may begin to use customer information to compete with the business. A vendor may start to use your drawings or knowledge of your technology to compete with you or do work for your competition. You might have an opportunity to sell your business, but discover that your valuable computer programs legally are owned by the programmer who wrote them.

The time to take steps and protect these assets is as early as possible. Early on, there are usually easy steps that assure your ownership and establish your protection of intangible assets. Later, the only means of gaining control over "your" asset may be negotiating to purchase what you thought you owned! In some cases, you can no longer gain control of your plans or ideas or information and significant value is lost.

The first step is recognizing the value of a name, or of data, information, or programs. The next step is understanding the type of protection that is available. The key step is implementing the means of protection.

The following are descriptions of the protection available for different intangible business assets:

Customer List or Customer Information

This is probably the most common problem area involving a business's intangible assets. The protection available for customer lists and other customer information is "trade secret protection." There is no filing or registration required with any state or federal agencies. But the business owner must treat the information as confidential to establish that the assets are "trade secrets." In California a state statute defines the broad range of information that can be protected, and requires that it be kept secret.

The business owner or manager needs to take protective steps early on, before information gets out.

There are no particular steps required, but they must be reasonable under the circumstances, and may include limiting access to the information, using passwords, locking up written materials or diskettes, and stamping documents with a legend identifying the material as "confidential." Having a nondisclosure agreement signed by any individual or company given access to the confidential information clarifies that the information was known to be confidential. If a former employee uses your customer information, their strongest position will be that it was not confidential and it was never identified to the employee as confidential. The nondisclosure agreement addresses this concern.

In the event your information gets used or disclosed wrongfully, by a former employee, vendor, or other party, you may need to take legal action against them. By taking the right steps to clarify your trade secret protection, it should be much easier to take such steps.

This broad, flexible, and inexpensive "trade secret" protection should be used by business owners to protect business material which is not entitled to other types of legal protection, such as patent, trademark, or copyright.

Product Name

A product name can be protected as a trademark. Even without any type of filing or registration, a business can claim trademark rights to a product name in the geographic area where the product is sold. A "™" by the name is used to put others on notice that a trademark is claimed.

If you will have sales in more than one state and other qualifications are met, federal trademark registration may be available and may be very important for future protection of your product name. Federal registration will give you the legal presumption of superior rights to the trademark name in all 50 states, even in geographic areas where you have not marketed the product. Since most products could develop a national or international market, it is advisable to federally register product names.

Typically federal registration costs several hundred dollars. If the application is rejected by the trademark office or challenged by another business using the same product name, the cost can be much greater.

If you are planning to spend money to promote a product name, it makes sense to spend some money early on to make sure you can have the name throughout the U.S. You don't want to wait to take such steps and then find that a company in another part of the country using the same name will prevent you from registering your trademark, or make your trademark registration very expensive. You certainly don't ever want to be required to change your product name, either because another company forces you to, or because you need a "better" name that you can federally register.

Whether or not you plan to federally register your trademark, it is advisable to have a product name that would make a strong trademark. The strongest trademarks are those which contain a unique element, such as Xerox, Exxon, and Kodak.

Computer Programs

In the United States, ownership of a computer program is determined by federal copyright law. The law provides that the "author" of the program automatically owns the program copyright from the time it is written.

If you have a valuable business program written for you, I recommend that the business obtain full ownership whenever possible. You will need a written agreement, and should obtain advice from an attorney experienced with copyright law.

If ownership is not possible (for example, as often happens, the business owners wait too long and then cannot obtain ownership) it is critical to get very broad rights through a written license. That license needs to allow the business owners to transfer the program, sublicense it, and modify it, in order to use it in all the business opportunities that might arise. Without full ownership, the only uses the business may make of the program are those allowed through a license.

If the business owns the copyright, federal registration should be considered. If there is concern about the risk of infringement by others (using the program or parts of it without your consent) you will want to federally register the copyright. In order to pursue infringers, the copyright must be federally registered before filing a lawsuit against the infringers. Federal registration gives you other rights that are very beneficial if you ever need to pursue infringers. Federal registration is easy and requires only a simple application form, a fee of $20.00, and a submission of a portion of the actual program code.

Although copyright law no longer requires a copyright notice on programs, it is still important to place a proper copyright notice on all published works to put users on notice that you claim a copyright. It is not necessary for the copyright to be federally registered in order for you to claim a copyright and place the copyright notice on the program.

The notice should be placed on manuals, on any diskette or other medium storing the program, and on the first screen when the program is started.

Ideas

The only protection available for an idea is trade secret protection. But it can be especially difficult to protect an idea for a number of reasons. One is that it can be hard to show that an idea came from you, rather than being someone else's idea (compared to a formula or customer list, which can be clearly associated with the business it came from). In addition, once your "idea" is out in the public as a product of some sort, you can no longer claim that it is a trade secret. Once a product is out in the public, a competitor can reverse engineer it, taking advantage of the great idea.

In order to profit from a great idea before it is copied by others, a common approach for large companies is to hit the market with a huge advertising campaign and grab as much of the market as possible before the copiers get into the market. Small businesses are disadvantaged by the lack of funds for that type of marketing campaign.

Manuals

Any written material is subject to the law on copyrights, just as computer programs are. If you or your employees wrote the manual, you own it and the copyright on it. Whether or not you federally register it, you definitely should put your copyright notice on it.

Inventions

Inventions can be patented, if they meet a number of requirements. The benefit of patent protection can be very strong, if key elements of your invention are patentable. A patent gives you superior rights to everyone, including someone else who independently invented the same thing. If their product infringes on your prior patent, they can be prevented from using their invention and sued for infringement of your patent.

Although it may take a long time to obtain the patent, the invention can be marked "patent pending," and this typically discourages competitors from copying. Without the patent application, competitors may reverse engineer or copy the invention.

In order for a patent to be issued, the aspects for which the patent is sought must be novel and "non-obvious." The state of the art must be reviewed to determine whether these requirements are met by your invention. You may be able to get a patent, but only on minor aspects of your invention. Patent protection may be "available" but not meaningful.

Consult with a patent attorney early on to determine whether your invention can be patented and whether the protection available would be meaningful. Get this information before the invention has been disclosed to others, and if patent protection is unavailable or is not desirable, make sure secrecy is maintained until the product is placed on the market.

Conclusion

By taking steps to preserve and protect intangible assets at the earliest possible time, business owners establish the strongest basis for future utilization of valuable business assets, and also set themselves up to prevent others from unfairly using what the business has developed.

Copyright 1999 Mary Hanson. All rights reserved.

Mary Hanson, MBA, Attorney at Law (310) 543-1355 Torrance (Los Angeles County), California USA