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Intellectual Property
Leverage It, Protect It Or Lose It

Eric Fingerhut's Rules 
Of Branding, Trademarks & urls
  1. Reserving a domain name does not amount to a legal right to use it. Use it or lose it, and just using it in your email addresses isn't enough.
  2. The more arbitrary the mark, the broader the scope of protection. When it comes to trademarks, Apple is great for a computer company, but a rotten name for an apple.
  3. Conduct a trademark search. It's better to spend a few dollars now than a basketful later. It also pays to learn what the competition is doing.
  4. Seek federal registration. Pardon our legalese, but it's prima facie evidence of validity and ownership and has deterrent value.
  5. International trademark protection is very important. Think global. Act global. Sue local.
  6. Watch the representations, warranties and indemnities. Do not give worldwide representations of ownership and indemnities for liability for infringement. OK?
  7. Cybersquatting is stupid and potentially expensive. The big corporations won, and new anti-cybersquatting legislation prevents bad faith domain registrations that are identical to, similar to or dilutive of distinctive or famous marks. That includes personal names.
  8. Domain registrants are bound by ICANN Uniform Dispute Resolution Policy. Yes, Virginia, there is mandatory arbitration for dispute resolution.
  9. Be watchful of unauthorized framing and deep linking. Sites want their advertising revenue and they'll fight for it. Don't try an end run, and watch out for people doing it to you.
  10. Pick and choose your battles. Raising a fuss risks adverse publicity and credibility to infringer, and sometimes to the infringee.

(Washington, DC -- January 18, 2000) What did Amazon.com gain by suing BarnesAndNoble.com? What did eToys lose by suing etoy? Why can't you vroom like a Harley-Davidson motorcycle? The answers are object lessons in the importance of protecting and leveraging intellectual property (IP) assets, and more than 300 Internet entrepreneurs learned that at this morning's Coffee & DoughNets meeting hosted by netpreneur.org.

IP protection is serious business, especially in the Internet world where who you know and what you know are sometimes all you have. This morning's session featured a panel of legal experts led by moderator Andrew Sherman of Katten Muchen & Zavis, who covered the in's and out's of trademarks, patents and other rights issues from a purely practical, business perspective.

Starting with trademarks and brands, Eric Fingerhut of Shaw Pittman explained their importance for marketing and customer relations. He covered the legal particulars, including their relationship to elements like urls, and made it clear that a brand is worth protecting because it is, "the sum of a company's marketing position and performance. It really is an emotional relationship between the customer and a manufacturer." That's why Harley-Davidson's vroom sound is trademarked, and so is the color pink in the world of building insulation. Both have developed unique mind share in their markets, and that mind share is protected by the owners.

Patents, which permit you to exclude others from making, using, or selling your inventions, are another form of intellectual property, one that has been changed and expanded by the Internet. Marc Kaufman of Sixbey Friedman Leedom & Ferguson explained how the federal government long rejected the idea of patenting a business model, but has relented in the face of the revolutionary change from the online world. Amazon.com, which has a patent on its "1-Click" ordering process, used that to their advantage by suing BarnesAndNoble.com which created a similar process. Will they win? That's still undecided, but Amazon did get an injunction which hamstrung a major competitor just before the holiday buying season.

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Strong IP assets can help your marketing, and your funding search as well. "Venture capitalists love patents," said Kaufman. "Having a patent for significant subject matter, or even a patent pending application, can raise the confidence level of potential investors and facilitate obtaining capital. Every business plan should include a coherent strategy for protecting intellectual property including patent protection." Christopher Capuano, Senior VP and General Counsel of Internet solutions developer Proxicom, agreed, "When we were going public in 1999, one of the things the investment bankers focused on was our IP leverage. I was a little surprised at how much they hammered us on it, and how they turned around and valued it. They understood that we were able to protect and retain rights to a lot of what we did and could use that as leverage going forward. That really added to the bottom line in the value of the company."

The Internet is also changing another aspect IP management. As a global medium, it forces netpreneurs to think internationally much sooner than traditional companies may have to. Yes, it can be a complicated maze to navigate, but, according to Capuano, it's well worth the comparatively small sums of money it takes to make sure that your trademarks are recognized in countries you will do business in. Trademarks are territorial. Just because you own one in the US doesn't mean it holds anywhere else, and it's complicated by the structure of international domain names. Take Amazon.gr (.gr is the country-specific domain extension for Greece). Amazon.com, according to Fingerhut, would have had little recourse against Amazon.gr, which claimed to be "the biggest bookstore in Greece" and even copied Amazon.com's look and feel, except for one thing. For some reason, Amazon.gr incorporated itself in Delaware, making it a US company subject to US laws.

And that points out some of the most important lessons for netpreneurs in this still developing world of Internet lawóplan ahead, get good advice, think things through and expect the unexpected. For example, patents are held by the individual inventors unless assigned to a company. Do your employment agreements cover that? If not, you could find an ugly surprise just when you're ready for financing or about to go public. Are your NDAs so complicated that nobody will sign them? If you're forming a joint venture, who will own the IP? Should you buy the .net and .org versions of your url? Yes, says Fingerhut. but what about the country-specific versions or derogatory variations? Maybe; you have to make a business decision which balances the cost against your long-term growth goals.

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A veteran company like Proxicom, where Capuano made straightening out the firm's IP assets a first priority, has seen firms get blindsidedóeven savvy corporations like the large, multinational which Proxicom partnered with for a joint venture in Spain. The multinational used its internal marketing group to come up with the name for the venture (Proxicom, as minority partner, was given no input into the process). A name was chosen, Kristina Internet Business Solutions, but the marketers failed to check all of the url permutations. Unfortunately, Kristina.com was already a flourishing pornography site and the domain name had to be purchased away by the Spanish company.

Throughout the presentations and subsequent Q&A, panelists offered pointers, advice and clarification for protecting and leveraging IP, yet one message came through over and over againóbe vigilant and protect your rights. You can lose them, whether from poor planning, non-use or failure to defend them.

You have to know when to pick your fights, however. When eToys got complaints from customers who inadvertently went to etoy, a site run by artists and sometimes included off-color content, it sued the site for trademark infringement. The protests which followed, including online "sit-ins" and boycotts by the old-guard and artistic communities, caused so much bad press that eToys is dropping the suit. Interestingly, although, etoy preceded eToys on the Net, eToys had already won an injunction against the artists, in part because eToys had been more aggressively using and marketing the name. Remember, at the end of the day, these are business decisions even more than they are legal ones.

Copyright 2000, Morino Institute. All rights reserved.

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