My Rotary Club has a wonderful program that teaches talented teenagers all about how to start a business. It’s a weekend “camp” where teams of teens come up with business ideas, develop business plans, and pitch their idea to “investors” who judge their work.
If you’ve ever seen “Shark Tank” on tv, it’s just like that. Except these are kids, the “investors” are volunteers like me, and no money actually changes hands.
I remember at last year’s event, one girl pitching her team’s idea and explaining to the investors all their expenses: “…then there’s the taxes, which (ugh) everyone knows you gotta pay!” It was delicious to think that our program had gotten young people to think about that aspect of government, besides equipping them to see entrepreneurialism as an attractive career choice.
I serve as legal advisor to the teams during their planning stage, telling them about the same kinds of things I advise my clients and readers. I needed to write up a brief explanation of “Everything a New Business Must Know about Patent and Trademarks” for a bunch of kids who were busy having fun and not likely to consult the documentation unless they had to. So I decided to kill two birds with one stone, and share what I wrote here as well.
Some of this will be simplified, but the basics should be here, including realistic budget numbers (that should not be treated as quotes).
The two biggest mistakes you can make are:
If you make the first mistake, you can lose important rights, or end up getting sued. If you make the second mistake, you can end up bankrupting your business by spending precious money on lawyers instead of creating and marketing your product.
Ideally, you should get a little bit of good legal advice early to help you plan, and then spend only what’s needed to preserve your rights and to avoid lawsuits. A good lawyer will help you optimize the timing of your investment in legal services, and can become one of your key advisors that helps your business succeed (every lawyer hopes his small-business clients become big-business clients!)
Businesses use trademarks to protect the brand names of their products and services (Ford, McDonalds, iPhone, Facebook). Trademarks are also used to protect logos (the Apple computer symbol, the Nike “swoosh”). A trademark serves to tell the customers who’s making the product. That way, after your products have developed a good reputation, people will know from the trademark that they might want to buy your next new product (like knowing that a new device is an iPhone means it’s more desirable to you than a phone from a no-name company).
The most important rule for picking trademarks is not to pick “bad” or unsafe ones. That means not picking a trademark that violates someone else’s legal rights. If you make that mistake you’ll get sued, and your business might fail before it even starts. So you must have your lawyer search your trademark ideas before making a final choice.
A safe trademark is the minimum, but it isn’t necessarily a good trademark. A good trademark will be catchy, easy to remember, and probably make people smile when they first hear it. Ideally, it will suggest something about the good qualities of the product (like “Jaguar” suggests speed, sleekness, grace, and aggressiveness).
It’s tempting, but try to avoid picking a brand name that simply describes the product (like “Ultra-Sharp” for kitchen knives, when something like “Ninja” might suggest skill, sharpness, and traditional craftsmanship). Besides being boring, descriptive brands are hard to legally protect, so even if your kitchen knives were better than the rest, you wouldn’t be able to stop others from calling theirs “ultra- sharp” and your confused customers might end up buying from a competitor instead.
Even a made-up and meaningless word (like Google) or a random word having nothing to do with the product (like Guess or Amazon) is much better than a descriptive term. Don’t worry that your customers won’t instantly understand your product just from hearing the name; your marketing will help them understand the product: “iPod – 1000 songs in your pocket.” Don’t forget to look for internet domain names. A trademark you can protect with a “dot-com” is much better than one you can’t. If ninjaknives.com is unavailable, then your second choice of gonzoknives.com might be smarter. Avoid domain names that use hyphens, that add extra words like “the” or are overly long. And avoid the other suffixes like “.net” and “.biz”. If someone else owns the “dot-com” you really wanted, they’ll be getting all the web traffic your business needed to succeed.
Patents can prevent competitors from copying your new technology ideas. The best answer to a banker or investor who worries: “What’s to stop your established competitors from stealing your idea?” is the response: “We have a patent pending, and our lawyer says we have a good chance of getting a patent!”
More things are patentable that you might think. Can you guess which of the following are potentially patentable?
These are ALL (potentially) patentable, if they meet all the legal requirements. So don’t trust yourself or anyone else on your team to tell you that something isn’t patentable. If it’s new and valuable, get the advice of a patent lawyer.
If you have what you would normally think of as an “invention” (a new machine, device, or a high-tech concept including software and internet methods) then you’ll want to get a utility patent. This is the regular “patent” that most people think of, and it can be extremely valuable, possibly the most valuable asset of your business. If the idea came from an engineer, scientist, or some kind of technical “geek” then it’s likely you’ll be aiming for a utility patent.
If what makes your product special is the style or shape of it, even if it functions the same as existing products, then you might want a design patent. Design patents prevent competitors from making products look like yours, but they don’t stop them from working like yours (that’s what utility patents are for). A stylish new lamp, the distinctive shape of a hand-held device, or even a car body can be protected with design patents. Some products can be protected with both utility and design patents (like the stylish Apple products with all their new functional features).
A provisional application for patent isn’t really a patent, but it’s an important concept that can protect your rights and save your business lots of money early on. It’s a simple and cheap document that’s filed to establish you as the first inventor. It gives you a year to file a utility patent application, which means you might be able to make some money in the meantime to pay for that process, and maybe even get a better picture of whether the product is worth patenting. You’ll certainly know more about where your business is going when the time comes to invest the big legal bucks.
A provisional application also means you’ll have your rights (temporarily) secured so it’s safer to share your idea with others (like investors and suppliers). Smart investors will be glad you filed a provisional application before talking to anyone, because they don’t want to lend to a business that might already have had its idea stolen.
Always ask your patent attorney whether your product might be patentable. Even experts in business are surprised about what can be patented!
You’re probably much smarter about your own business than your lawyer is, but your lawyer has worked with many businesses, and can help you down the path to success. The most important thing is to get the key advice early on, and learn when you’ll be needing to invest in the bigger legal projects. Nothing can sink a business faster than neglecting important legal rights.
I’m proud to help these talented kids, and am even more proud to serve so many fine companies in our industry. Let me know if you have any questions about this, and enjoy the rest of your summer!